The Theory of Business Enterprise

Chapter 8: Business Principles in Law and Politics

Thorstein Veblen

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Popular welfare is bound up with the conduct of business; because industry is managed for business ends, and also because there prevails throughout modern communities a settled habit of rating the means of livelihood and the amenities of life in pecuniary terms. But apart from their effect in controlling the terms of livelihood from day to day, these principles are also in great measure decisive in the larger affairs of life, both for the individual in his civil relations and for the community at large in its political concerns. Modern (civilized) institutions rest, in great part, on business principles. This is the meaning, as applied to the modern situation, of the current phrases about the Economic Interpretation of History, or the Materialistic Theory of History. 

Because of this settled habit of seeing all the conjunctures of life from the business point of view, in terms of profit and loss, the management of the affairs of the community at large falls by common consent into the hands of business men 

(269) and is guided by business considerations. Hence modern politics is business politics, even apart from the sinister application of the phrase to what is invidiously called corrupt politics. This is true both of foreign and domestic policy. Legislation, police surveillance, the administration of justice, the military and diplomatic service, all are chiefly concerned with business relations, pecuniary interests, and they have little more than an incidental bearing on other human interests. All this apparatus is also charged with the protection of life and personal liberty, but its work in this bearing has much of a pecuniary color.

Legislation and legal decisions are based on the dogma of Natural Liberty. This is peculiarly true as regards the English-speaking peoples, the foundation of whose jurisprudence is the common law, and it holds true in an especial degree of America. In other European communities the sway of natural rights preconceptions is not so unmitigated, but even with them there is a visibly growing predilection for the natural-rights standpoint in all matters touching business relations. The dogma of natural liberty is peculiarly conducive to an expeditious business traffic and peculiarly consonant with the habits of thought which necessarily prevail in any business community. 

The current body of natural-rights preconcep-

(270) -tions antedates the modern business situation. The scheme of natural rights grew up and found secure lodgement in the common sense of the community, as well as with its lawgivers and courts, under the discipline of the small industry and petty trade ("domestic industry") whose development culminated in the eighteenth century.[1]

In industrial matters the efficient and autonomous factor in the days of the small industry was the individual workman, his personal force, dexterity, and diligence; similarly in the petty trade of the precapitalistic English situation the decisive factor was the discretion and sagacity of the small merchant and petty employer, who stood in the direct personal relations with their customers and their employees. In so far as trade and industry was not restrained by conventional regulations, statutory or customary, both trade and industry was in effect an open field of free competition, in which man met man on a somewhat equable footing. While the competitors were not on a footing of material equality, the industrial system was sufficiently loose-jointed, of a sufficiently diffuse growth, to make competition effective in the absence of mandatory restrictions. The like will hold of the business organization associated with the small industry. Both trade and industry were matters of personal efficiency

(271)  rather than comprehensively organized processes of an impersonal character.[2]

Natural rights, as they found their way into the conceptions of law and equity, were in effect the assumed equal rights of men so situated on a plane of at least constructive equality that the individuals concerned would be left in a position of effectively free choice if conventional restrictions were done away. The organization was not, mechanically, a close-knit one, in the sense that the concatenation of industrial processes or of business transactions was not rigorous either in point of time relations or of the quantity and character of the output or the work. Neither were the place, pace, circumstances, means, or hours of work closely determined for the workman or his employer by mechanical circumstances of the industrial process or of the market. The standardization of life under the old regime was of a conventional character, not of a mechanical kind such as is visible in the more recent development. And this conventional standardization was gradually losing force. 

The movement of opinion on natural-rights ground converged to an insistence on the system of natural liberty, so called. But this insistence on natural liberty did not contemplate the abrogation of all conventional prescription. "The simple and obvious system of natural liberty" meant

(272) freedom from restraint on any other prescriptive ground than that afforded by the rights of ownership. In its economic bearing the system of natural liberty meant a system of free pecuniary contract. "Liberty does not mean license;" which in economic terms would be transcribed. "The natural freedom of the individual must not traverse the prescriptive rights of property." Property rights being included among natural rights, they had the indefeasibility which attaches to natural rights. Natural liberty prescribes freedom to buy and sell, limited only by the equal freedom of others to buy and sell; with the obvious corollary that there must be no interference with others' buying and selling, except by means of buying and selling. 

This principle of natural (pecuniary) liberty has found its most unmitigated acceptance in America, and has here taken the firmest hold on the legal mind. Nowhere else has the sacredness of pecuniary obligations so permeated the common sense of the community, and nowhere does pecuniary obligation come so near being the only form of obligation that has the unqualified sanction of current common sense. Here, as nowhere else, do obligations and claims of the most diverse kinds, domestic, social, and civil, tend to take the pecuniary form and admit of being fully discharged on a monetary valuation. To a greater extent than else-

(273) -where public esteem is awarded to artists, actors, preachers, writers, scientists, officials, in some rough proportion to the sums paid for their work. 

American civil rights have taken an extreme form, with relatively great stress on the inviolability of pecuniary relations, due to the peculiar circumstances under which the American community has grown up. The pioneers, especially in that North-Atlantic seaboard community that has been chiefly effective in shaping American traditions, brought with them a somewhat high-wrought variant of the English preconception in favor of individual discretion, and this tradition they put in practice under circumstances peculiarly favorable to a bold development. They brought little of the remnants of that prescriptive code that once bound the handicraft system, and the conditions of life in the colonies did not foster a new growth of conventional regulations circumscribing private initiative. America is the native habitat of the self-made man, and the self-made man is a pecuniary organism.[3] 

Presently, when occasion arose, the metaphysics of natural liberty, pecuniary and other, was embodied in set form in constitutional enactments. It is therefore involved in a more authentic form and with more incisive force in the legal structure of this community than in that of any other. 

(274) Freedom of contract is the fundamental tenet of the legal creed, so to speak, inviolable and inalienable; and within the province of law and equity no one has competence to penetrate behind this first premise or to question the merits of the natural rights metaphysics on which it rests. The only principle (attested habit of thought) which may contest its primacy in civil matters is a vague "general welfare" clause; and even this can effectively contest its claims only under exceptional circumstances. Under the application of any general welfare clause the presumption is and always must be that the principle of free contract be left intact so far as the circumstances of the case permit. The citizen may not be deprived of life, liberty, or property without due process of law, and the due process proceeds on the premise that property rights are inviolable. In its bearing upon the economic relations between individuals this comes to mean, in effect, not only that one individual or group of individuals may not legally bring any other than pecuniary pressure to bear upon another individual or group, but also that pecuniary pressure cannot be barred. 

Now, through gradual change of the economic situation, this conventional principle of unmitigated and inalienable freedom of contract began to grow obsolete from about the time when it was fairly installed; obsolescent, of course, not in point 

(275) of law, but in point of fact. Since about the time when this new conventional standardization of the scheme of economic life in terms of free contract reached its mature development, in the eighteenth century,[4] a new standardizing force, that of the machine process, has invaded the field.[5] The standardization and the constraint of the system of machine industry differs from what went before it in that it has had no conventional recognition, no metaphysical authentication. It has not become a legal fact. Therefore it neither need nor can be taken account of by the legal mind. It is a new fact which fits into the framework neither of the ancient system of prescriptive usage nor of the later system of free personal initiative. It does not exist de jure, but only de facto. Belonging neither to the defunct system nor to the current legal system, since it neither institutes nor traverses a 

(276) "natural right," it is, as within the cognizance of the law, non-existent. It is, perhaps, actual, with a gross, material actuality; but it is not real, with a legal, metaphysically competent reality. Such coercion as it may exert, or as may be exercised through its means, therefore, is, in point of legal reality, no coercion. 

Where physical impossibility to fulfil the terms of a contract arises out of the concatenation of industrial processes, this physical impossibility may be pleaded as invalidating the terms of the contract. But the pecuniary pressure of price or subsistence which the sequence and interdependence of industrial processes may bring to bear has no standing as such in law or equity; it can reach the cognizance of the law only indirectly, through gross defection of one of the contracting parties, in those cases where the pressure is severe enough to result in insolvency, sickness, or death. The material necessities of a group of workmen or consumers, enforced by the specialization and concatenation of industrial processes, is, therefore, not competent to set aside, or indeed to qualify, the natural freedom of the owners of these processes to let work go on or not, as the outlook for profits may decide. Profits is a business proposition, livelihood is not.[6]


Under the current de facto standardization of economic life enforced by the machine industry, it may frequently happen that an individual or a group, e.g., of workmen, has not a de facto power of free contract. A given workman's livelihood can perhaps, practically, be found only on acceptance of one specific contract offered, perhaps not at all. But the coercion which in this way bears upon his choice through the standardization of industrial procedure is neither assault and battery nor breach of contract, and it is, therefore, not repugnant to the principles of natural liberty. Through controlling the processes of industry in which alone, practically, given workmen can find their livelihood, the owners of these processes may bring pecuniary pressure to bear upon the choice of the workmen; but since the rights of property which enforce such pressure are not repugnant to the principles of natural liberty, neither is such pecuniary pressure repugnant to the law, the case is therefore outside the scope of the law. The converse case, where the workmen take similar advantage of their employers to bring them to terms, is similarly outside the scope of the common law, - supposing, of course, that there has in neither case been a surrender of individual liberty, a breach of contract, theft, a resort to violence, or threats of violence. So long as there is no overt attempt on life, liberty of the 

(278) person, or the liberty to buy and sell, the law cannot intervene, unless it be in a precautionary way to prevent prospective violation of personal or property rights. 

The "natural," conventional freedom of contract is sacred and inalienable. De facto freedom of choice is a matter about which the law and the courts are not competent to inquire. By force of the concatenation of industrial processes and the dependence of men's comfort or subsistence upon the orderly working of these processes, the exercise of the rights of ownership in the interests of business may traverse the de facto necessities of a group or class; it may even traverse the needs of the community at large, as, e.g., in the conceivable case of an advisedly instituted coal famine; but since these necessities, of comfort or of livelihood, cannot be formulated in terms of the natural freedom of contract, they can, in the nature of the case, give rise to no cognizable grievance and find no legal remedy. 

The discrepancy between law and fact in the matter of industrial freedom has had repeated illustration in the court decisions on disputes between bodies of workmen and their employers or owners. These decisions commonly fall out in favor of the employers or owners; that is to say, they go to uphold property rights and the rights of free contract. The courts have been somewhat 

(279) broadly taken to task by a certain class of observers for alleged partiality to the owners' side in this class of litigation. It has also been pointed out by faultfinders that the higher courts decide, on the whole, more uniformly in favor of the employer-owner than the lower ones, and especially more so than the juries in those cases where juries have found occasion to pass on the law of the case. The like is true as regards suits for damages arising out of injuries sustained by workmen, and so involving the question of the employer's liability. Even a casual scrutiny of the decisions, however, will show that in most cases the decision of the court, whether on the merits of the case or on the constitutionality of the legal provisions involved,[7] is well grounded on the metaphysical basis of natural liberty. That is to say in other words, the decisions will be found on the side of the maintenance of fundamental law and order, "law and order" having, of course, reference to the inalienable rights of ownership and contract. As should fairly be expected, the higher courts, who are presumably in more intimate touch with the principles of jurisprudence, being more arduously trained and more thoroughly grounded in the law at the same time that they have also presumably a larger endowment of legal acumen, - these higher

(280)  courts speak more unequivocally for the metaphysical principles and apply them with a surer and firmer touch. In the view of these higher adepts of the law, free contract is so inalienable a natural right of man that not even a statutory enactment will enable a workman to forego its exercise and its responsibility. By metaphysical necessity its exercise attaches to the individual so indefeasibly that it cannot constitutionally be delegated to collective action, whether legislative or corporate.[8] This extreme consequence of the principle of natural liberty has at times aroused indignation in the vulgar; but their grasp of legal principles is at fault. The more closely the logical sequence is followed up, the more convincingly does the legitimacy of such a decision stand out. 


In comparing the decisions of the higher courts with those of the lower they contrast most signally with the decisions rendered by juries in the lower tribunals. While this contrast has a significance in another connection, it casts no shadow on the legality of the decisions of the courts of higher instance. The juries, in great measure, speak for the strained sympathies of the vulgar, which are a matter somewhat apart from the foundations of law and order.[9] 


Popular sentiment, then, does not at all uniformly bear out these decisions of the courts in disputes between property rights and naked mankind, especially not in the more rigorous enforcement of the principle of free contract. This discrepancy serves to show that the vulgar, the laity, from whose numbers the juries are drawn, have not an adequate sense of the principles that lie at the root of the law; which may be due in part to their not realizing how essential a foundation of law, order, and common welfare these principles of natural liberty are. The visible disparity in the distribution of property may make those classes who have little property envious of the wealthy members, and so make them lose interest in the maintenance of the rights of property. But apart from this, the discipline of daily life, 

(283) from which the common-sense notions of the vulgar are in good part derived, is no longer in full accord with the natural-rights conceptions handed down from the eighteenth century. In other words, the conceptions of natural rights on which the common law rests embody a technically competent formulation of the deliverances of that body of common sense which was inculcated by the discipline of everyday life in the eighteenth century, before the advent of the current situation; whereas the discipline of everyday life under the current technological and business situation inculcates a body of common-sense views somewhat at variance with the received natural-rights notions. 

There is apparently something of a divergence between the received notions on this head and the deliverances of latter-day common sense. The divergence is neither well defined nor consistent. The latter-day attitude toward questions of the kind involved is vague, chiefly negative or critical, and apparently fluctuating; but after all there is a somewhat persistent divergence, which may even be said to have a systematic character, so far as it goes. It runs in the direction of a (partial and vacillating) disavowal or distrust of the metaphysics of free contract, and even of natural liberty generally. This uncertainty of allegiance to the received foundations of law and order prevails

(284)  in unequal degrees among the various classes of the community, being apparently largest and most outspoken among the workmen of the industrial towns, and being, on the whole, less noticeable among the propertied and professional classes and the rural population. The peculiar class distribution of this disintegration of received convictions, as well as its connection with modern industrial conditions, will be taken up again presently in another connection.

The state, that is to say, the government, was once an organization for the control of affairs in the interest of princely or dynastic ends. In internal affairs statecraft was occupied with questions of the dynastic succession, the endeavors and intrigues of the political magnates, fiscal administration directed to finding adequate support for the princely power, and the like. In external politics the objective end was dynastic prestige and security, military success, and the like. Such is still in part the end of political endeavor in those countries, as, e.g., Germany, Austria, or Italy, where the transition to a constitutional government has not been completed. But since the advent of constitutional government and parliamentary representation, business ends have taken the lead of dynastic ends in statecraft, very much in the same measure as the transition to constitutional

(285) methods has been effectually carried through. A constitutional government is a business government. It is particularly through the business expedient of parliamentary voting on the budget that any constitutional executive, e.g., is kept within constitutional bounds; and the budget is voted with a main view to its expediency for business ends. The expediency of business enterprise is not questioned, whereas the expediency of an increase of princely power and dignity, with the incidental costs, may be questioned.

Modern governmental policies, looking as they do to the furthering of business interests as their chief care, are of a "mercantile" complexion. They aim to foster trade, as did the mercantile policies of the sixteenth and seventeenth centuries, although since "trade" has come to include much else than foreign commerce, the modern policies look to business in the more comprehensive sense which the term now necessarily has. But these modern mercantile policies, with their tariffs, treaties, interstate commerce regulations, and maxims prohibiting all "restraint of trade," are after all not of the same nature as the mercantile policies of the old French and German statesmen, which they superficially resemble. The old "mercantile system," as it prevailed on the Continent of Europe, was conceived in the interest of the prince, the furthering of commercial advantage being a means to princely power

(286)  and dignity.[10]  The modern mercantilism under constitutional rule, on the other hand, looks to the prince or to the government as a means to the end of commercial gain. With the transition to constitutional rule and methods, the discretion and autonomy in the case has passed from the hands of the prince into those of the business men, and the interests of the business men have superseded those of the crown. 

Representative government means, chiefly, representation of business interests. The government commonly works in the interest of the business men with a fairly consistent singleness of purpose. And in its solicitude for the business men's interests it is borne out by current public sentiment, for there is a naive, unquestioning persuasion abroad among the body of the people to the effect that, in some occult way, the material interests of the populace coincide with the pecuniary interests of those business men who live within the scope of the same set of governmental contrivances. This persuasion is an article of popular metaphysics, in that it rests on an uncritically assumed solidarity of interests, rather than on an insight into the relation of busi-

(287) -ness enterprise to the material welfare of those classes who are not primarily business men. This persuasion is particularly secure among the more conservative portion of the community, the business men, superior and subordinate, together with the professional classes, as contrasted with those vulgar portions of the community who are tainted with socialistic or anarchistic notions. But since the conservative element comprises the citizens of substance and weight, and indeed the effective majority of law-abiding citizens, it follows that, with the sanction of the great body of the people, even including those who have no pecuniary interests to serve in the matter, constitutional government has, in the main, become a department of the business organization and is guided by the advice of the business men. The government has, of course, much else to do besides administering the general affairs of the business community; but in most of its work, even in what is not ostensibly directed to business ends, it is under the surveillance of the business interests. It seldom happens, if at all, that the government of a civilized nation will persist in a course of action detrimental or not ostensibly subservient to the interests of the more conspicuous body of the community's business men. The degree in which a government fails to adapt its policy to these business exigencies is the measure of its senility. 


The ground of sentiment on which rests the popular approval of a government for business ends may be summed up under two heads : patriotism and property. Both of these terms stand for institutional facts that have come down out of a past which differed substantially from the present situation. The substance of both is of the nature of unreasoning sentiment, in the sense that both are insisted on as a matter of course, as self-legitimating grounds of action which, it is felt, not only give expedient rules of conduct, but admit of no question as to their ulterior consequences or their value for the life-purposes of the community. The former of these fundamental institutional habits of thought (perhaps better, habits of mind) runs back to the discipline of early barbarism, through the feudal days of fealty to the earlier days of clan life and clannish animosity. It has therefore the deep-rooted strength given by an extremely protracted discipline of predation and servitude. Under modern conditions it is to be rated as essentially an institutional survival, so ingrained in the populace as to make any appeal to it secure of a response irrespective of the material merits of the contention in whose behalf the appeal is made.[11]


By force of this happy knack of clannish fancy the common man is enabled to feel that he has some sort of metaphysical share in the gains which accrue to the business men who are citizens of the same "commonwealth"; so that whatever policy furthers the commercial gains of those business men whose domicile is within the national boundaries is felt to be beneficial to all the rest of the population.[12]


The second institutional support of business politics, viz. property, is similarly an outgrowth of the discipline of the past, and similarly, though perhaps in a less degree, out of touch with the discipline of the more recent cultural situation. In the form in which it prevails in the current popular animus, the principle of ownership comes down from the days of handicraft industry and petty trade, as pointed out above. As it is of less ancient and less unbroken descent, so it seems also to be a less secure cultural heritage than the sense of patriotic solidarity. It says that the ownership of property is the material foundation of human wellbeing, and that this natural right of ownership is sacred, after the manner in which individual life, and more especially national life, is sacred. The habits of life and thought inculcated by joint work under the manorial system and by joint rules under the handicraft system have apparently contributed much to the notion of a solidarity of economic interests, having given the notion such a degree of consistency as has enabled it to persist in the face of a visible discrepancy of interests in later, capitalistic times. Under this current, business regime, business gains are the basis of individual wealth, and the (pseudo) notion of joint acquisition has taken the place of the manorial notion of joint work. The institutional animus of ownership, as it took shape under the discipline of early modern

(291)  handicraft, awards the ownership of property to the workman who has produced it. By a dialectical conversion of the terms, this metaphysical dictum is made to fit the circumstances of later competitive business by construing acquisition of property to mean production of wealth; so that a business man is looked upon as the putative producer of whatever wealth he acquires. By force of this sophistication the acquisition of property by any person is held to be, not only expedient for the owner, but meritorious as an action serving the common good. Failure to bargain shrewdly or to accumulate more goods than one has produced by the work of one's own hands is looked upon with a feeling of annoyance, as a neglect, not only of opportunity, but of duty. The pecuniary conscience commonly does not, of course, go to quixotic lengths in a public spirited insistence on everybody's acquiring more than an aliquot part of the aggregate wealth on hand, but it is felt that he best serves the common good who, other things equal, diverts the larger share of the aggregate wealth to his own possession. His acquiring a defensible title to it makes him the putative producer of it. 

The natural-rights basis of ownership is by this paralogism preserved intact, and the common man is enabled to feel that the business men in the community add to the aggregate wealth at least as much as they acquire a title to; and the suc-

(292) -cessful business men are at least as well persuaded that such is their relation to the aggregate wealth and to the material well-being of the community at large. So that both the business men whose gains are sought to be enhanced by business politics and the populace by whose means the business gains are secured work together in good faith towards a well-advised business end, - the accumulation of wealth in the hands of those men who are skilled in pecuniary matters.[13]

The manner in which business interests work out in government policy may be shown by following up their bearing upon one phase of this policy. An extreme expression of business politics, and at the same time a characteristic trait of the higher levels of national life in Christendom, is the current policy of war and armaments. Modern business is competitive, emulative, and the direction of business enterprise is in the hands of men who are single-minded in their competitive conduct of 

(293) affairs. They neither are inclined, nor will business competition permit them, to neglect or overlook any expedient that may further their own advantage or hinder the advantage of their rivals. Under the modern situation, as it has taken shape since the industrial revolution,[14] business competition has become international, covering the range of what is called the world market. In this international competition the machinery and policy of the state are in a peculiar degree drawn into the service of the larger business interests; so that, both in commerce and industrial enterprise, the business men of one nation are pitted against those of another and swing the forces of the state, legislative, diplomatic, and military, against one another in the strategic game of pecuniary advantage. The business interests domiciled within the scope of a given government fall into a loose organization in the form of what might be called a tacit ring or syndicate, proceeding on a general understanding that they will stand together as against outside business interests. The nearest approach to an explicit plan and organization of such a business ring is the modern political party, with its platform, tacit and avowed. Parties differ in their detail aims, but those parties that have more than

(294)  a transient existence and superficial effect stand for different lines of business policy, agreeing all the while in so far that they all aim to further what they each claim to be the best, largest, most enduring business interests of the community. The ring[15] of business interests which secures the broadest approval from popular sentiment is, under constitutional methods, put in charge of the government establishment. This popular approval may be secured on the ground of a sound business platform or (in part) on some ground extraneous to business policy proper, such as a wave of national animosity, a popular candidate, a large grain crop, etc. But the only secure basis of an enduring party tenure of the government machinery is a business policy which falls in with the interests or the prejudices of the effective majority. 

In international competition the ultima ratio is, as ever, warlike force, whether the issue be between princes of the grace of God or princes of ownership. It is a favorite maxim of modern politics that trade follows the flag. This is the business man's valuation of national policy and of the ends of national life. So stated, the maxim probably inverts the sequence of facts, but it is none the less a fair expression of the close relation there is between business endeavor and the modern military 

(295) policies. Diplomacy, if it is to be effective for whatever end, must be backed by a show of force and of a readiness to use it. The definitive argument of those who speak for armaments (in England and America) is that the maintenance of business interests requires the backing of arms. On the Continent of Europe this argument commonly comes second, while patriotic fancy and animosity take the first place. 

Armaments serve trade not only in the making of general terms of purchase and sale between the business men of civilized countries, but they are similarly useful in extending and maintaining business enterprise and privileges in the outlying regions of the earth. The advanced nations of Christendom are proselyters, and there are certain valuable perquisites that come to the business men of those proselyting nations who advance the frontiers of the pecuniary culture among the backward populations. There is commonly a handsome margin of profit in doing business with these, pecuniarily unregenerate, populations, particularly when the traffic is adequately backed with force. But, also commonly, these peoples do not enter willingly into lasting business relations with civilized mankind. It is therefore necessary, for the purposes of trade and culture, that they be firmly held up to such civilized rules of conduct as will make trade easy and lucrative. To this end armament is indispensable.


But in the portioning out of the trade perquisites that fall to the proselyters any business community is in danger of being overreached by alien civilizing powers. No recourse but force is finally available in disputes of this kind, in which the aim of the disputants is to take advantage of one another as far as they can. A warlike front is therefore necessary, and armaments and warlike demonstrations have come to be a part of the regular apparatus of business, so far as business is concerned with the world market. 

In so far as it is guided by the exigencies of trade, the objective end of warlike endeavor is the peace and security necessary to an orderly development of business. International business relations, it is well said, make for peace; in the sense, of course, that they enforce the pacification of recalcitrant barbarians and lead to contention between civilized nations for a revision of the peace terms. When a modern government goes to war for trade purposes, it does so with a view to reestablishing peace on terms more lucrative to its business men.[16]


The above inquiry into the nature and causes of the wars of nations has resulted in little else than a recital of commonplaces; the facts and their connection are matters of common notoriety, and probably no one would hazard a question of the sight and obvious inferences drawn in the course of the recital. The excuse for this discursive review of the motives and aims of a war policy is that it gives a basis for an outlook on the present and immediate future of business enterprise.[17]

The experience of Continental Europe in the matter of armaments during the last half-century, and of all the greater nations during the last two decades, argues that when warlike emulation between states of somewhat comparable force has once got under way it assumes a cumulative character; so that a scale of expenditure for armaments which would at the outset have seemed 

(298) absurdly impossible comes presently to be accepted as a matter of course. Hitherto the cumulative augmentation of war expenditures and of war animus shows no sign of slackening. One after another, the states that have offered some show of peaceable inclinations have been drawn into the international game of competitive armaments, as they have one after another become ambitious to push the enterprises of their business men in the international markets. An armament is serviceable only if it is relatively large; its absolute magnitude is a matter of no particular consequence for competitive politics. It is its comparative size that counts. Hence the greater the several armaments, the greater the political need of greater armaments, and the prompter the resentment of injuries and the livelier the felt need of offending and of taking offence. A progressively larger proportion of the nation's forces are withdrawn from industry and devoted to warlike ends. In this cumulative diversion of effort to warlike ends a point is presently reached beyond which the question of armament is no longer, What amount of warlike expenditure is needed to extend or maintain business traffic? but rather, What amount will the nation's resources bear? But the progression does not stop at that point; witness the case of Italy, France, and Germany, where the war drain has visibly impaired the industrial efficiency 

(299) of the several nations concerned, but where the burden still goes on growing, with no stopping-place in sight. England and, more particularly, America are not so near exhaustion, because they have larger resources to draw on as well as a culture and a population more efficient for industrial work. But there is no evident reason why these two should not likewise enter on a policy of emulative exhaustion, and so sacrifice their aggregate industrial and business interest to the furtherance of the "great game."

The question may suggest itself, Why should not the business community, who have a large discretion in international politics and whose aggregate gains are cut into by excessive war expenditures, call a halt when the critical point is reached? There is more than one reason for their failure to do so. War and preoccupation with warlike enterprise breed a warlike animus in the community, as well as a habit of arbitrary, autocratic rule on the part of those in authority and an unquestioning, enthusiastic subservience on the part of the subjects. National animosity and national pride demand more and more of military standing, at the same time that the growing official class needs increasing emoluments and a larger field of employment and display. The cultural effects of the discipline of warfare and 

(300) armament are much the same whether it is undertaken for drastic or for business ends; in either case it takes on a dynastic complexion and breeds the temperament, ideals, and institutional habits proper to a drastic system of politics. The farther it goes the more it comes to make use of business interests as a means rather than an end, as, e.g., in modern Germany, France, and Italy, and in the Continental states of the sixteenth and seventeenth centuries. The crown, court, bureaucracy, military establishment, and nobility, under whatever designations, gradually come to their own again in such a situation, and affairs again come to turn on questions of the maintenance and dignity of these superior elements of the population.[18]

The objective end of protracted warlike endeavor necessarily shifts from business advantage to dynastic ascendancy and courtly honor. Business interests fall to the position of fiscal ways and means, and business traffic becomes subservient to higher ends, with a fair chance of ultimate exhaustion or collapse through the bankruptcy of the state. Business enterprise is an individual matter, not a collective one. So long as the individual business man sees a proximate gain for himself in meeting the demands for war funds and materials to maintain the courtly and official establishments that go with military politics, it is not in the 

(301) nature of the business man to draw back. It is always his profits, not his livelihood, that is involved; the question which touches his profits is the relative gainfulness of alternative lines of investment open to him. So long as the pecuniary inducements held out by the state, in bidding for funds or supplies, overbalance the inducements offered by alternative lines of employment, the business men will supply these demands, regardless of what the ulterior substantial outcome of such a course may be in the end. Funds and business enterprise are now of so pronounced an international or cosmopolitan character that any business man may, even without fully appreciating the fact, lend his aid to the fisc of a hostile power as readily as to a friendly power or to the home government; whereby an equable and comprehensive exhaustion of the several communities involved in the concert of nations is greatly facilitated. Barring accidents and untoward cultural agencies from outside of politics, business, or religion, there is nothing in the logic of the modern situation that should stop the cumulative war expenditures short of industrial collapse and consequent national bankruptcy, such as terminated the carnival of war and politics that ran its course on the Continent in the sixteenth and seventeenth centuries.[19]


  1. Ashley, Economic History and Theory, bk. II, especially ch. III.
  2. See Chapter IV above.
  3. Cf. e.g., Ashley, "The Economic Atmosphere of America" in Surveys, Historical and Economic, pp. 405 et seq.
  4. This date is true for England. For America the discipline favorable to the growth of the natural-liberty dogma lasted nearly a century longer. In America the new, modern, technological and business era can scarcely be said to have set in in good vigor until the period of the Civil War. Hence, with a longer and later training, the preconceptions of natural liberty are fresher and more tenacious in America. For the Continental peoples the case is different again. With them the modern technological and business situation is of approximately the same date as in America, but their training up to the date of the transition to the modern situation was in a much less degree a training in individual initiative, free scattered industry, and petty trade. The Continental peoples for the most part made a somewhat abrupt transition after the middle of the nineteenth century from a stale and dilapidated system of guild and feudalistic prescriptions to the (for them) exotic system of modern technology and business principles.
  5. See Chapter II above and Chapter IX below.
  6. Under the system of handicraft and petty trade the converse was true. Livelihood was the fundamental norm of business regulations; profits had but a secondary standing, if any.
  7. E.g., as to employer's liability for accidents or unsanitary premises, the safeguarding of machinery, age limit of labourers or hour limit of working time, etc.
  8. E.g. where a workman's accepting employment on machinery which is not safeguarded as the law requires is construed as an exercise of the indefeasible right of free contract on his part, which thereby exempts the employer from liability for eventual accidents. In point of legal principle the reluctance to allow or recognize limited liability in joint stock companies, in the English practice prior to the Companies Acts, was of much the same nature as the current reluctance to allow an alienation or abridgment of a workman's individual responsibility for the terms of his employment and the consequences following from it. It was felt that a pecuniary liability was a personal matter, of which the person was not competent to divest himself under that system of mutual rights and duties in which the members of the community were bound together. Impersonal, collective, and limited liability won its way, as against the system of natural liberty, in this field by sheer force of business expediency. In a conflict of principles between the main proposition and one of its corollaries, the corollary won because the facts had outgrown the primary implication of the main proposition.
  9. The common law is of course a formulation of the deliverances of common sense on the points which it touches. But common law, as well as common sense, being a formulation of habits of thought, is necessarily an outgrowth of past rather than of present circumstances, - in this case the circumstances of the eighteenth century, whereas the sympathies of the vulgar, as they appear in jury decisions, are largely the outcome of those modern experiences that are at increasing variance with the foundations of the common law. It may be remarked by the way that, while the charge of partiality or corruption, often heard as against these higher tribunals, may in a few scattering instances be founded, that is after all not much to the point as regards practical consequences. The greater number of the courts, indeed virtually the entire judiciary, are no doubt above substantial suspicion in the premises. And after all, if they were not incorruptible, - if the common run of the tribunals were corruptly working in the interest of the employers or owners, - that need not seriously affect the outcome as regards the general tenor of the decisions handed down. If they are corrupt or biassed, they will decide in favor of the owners, who can afford to pay, and they will be under the necessity of finding plausible reasons in law for so doing. Such reason can be found only in the metaphysical natural rights basis of the law; and if it can be found by the help of such legal ratiocination, then it is a valid ground of decision, that being the peculiar merit of metaphysical grounds of decision. On the other hand, if the court is a "learned, upright judge," he will look for the grounds of decision in the same place and find them in the same shape. Necessarily so, since the point in dispute is almost invariably a question of the legal rights of property as against the material requirements of comfort or of livelihood; and the rights of property are the foundation of modern law and order, while the requirements of comfort or livelihood passed out of the scope of the law on the abrogation of the outworn system of mandatory prescriptions governing industrial and trade relations in early modern times. Since the disputes in question rarely if ever arise out of a breach of contract on the part of the employer-owner, the decision can ordinarily, in the nature of the case, not go against him, inasmuch as the foundation of economic law and order is the freedom and inviolability of pecuniary contracts. It should, in fact, be nearly a matter of indifference to the "popular" side of this class of litigation whether the courts are corrupt or not. The question has little else than a speculative interest. In the nature of the case the owner alone has, ordinarily, any standing in court. All of which argues that there are probably very few courts that are in any degree corrupt or biased, so far as touches litigation of this class. Efforts to corrupt them would be a work of supererogation, besides being immoral.
  10. This is not true in nearly the same degree for the mercantile policies of England, even in early modern times. In English policy, under the inchoate constitutional system of the mercantilist era, the ulterior (avowed) end is always the (business) advantage of the "commonwealth." The prince comes in rather as second than as first claimant on the solicitude of the mercantilist statesman.
  11. The line of descent of the preconception of patriotism or chauvinism, as it finds expression in this lively sense of pecuniary solidarity, may be outlined as follows: Under the clan (gentile or tribal) system out of which the West-European peoples passed into the regime of feudal Christendom, a given group stood together in a union of offence and defence, warlike and economic, on the basis of a putative blood relationship. When the manor or the (essentially servile) mark came to replace the clan group as the economic and civil unit, the bond of putative blood relationship persisted in a slightly modified form and force, the incidence of the sense of solidarity, the "consciousness of kind," then shifting to the new group unit, with allegiance centring on the feudal head of the group, instead of, as formerly, on the senior line of putative descent. When the state came forward in medieval and early modern times and took over the powers and prerogatives of the head of the manor or the feudal lord, it took over also the incidence of this sense of allegiance, and the sense of solidarity came to cover the larger group of the nation which had succeeded to the autonomy of the manor. Where the line of institutional descent runs through the industrial town, with guild, handicraft, and local government, the transient features of the growth are superficially different but in effect much the same. The discipline of warfare, which kept up the practice of joint action and had the appearance of joint enterprise, served to keep the sense of patriotic solidarity firm and vigorous and enabled it to cover other interests as well as the princely enterprise of warfare and state-making. Wherever unbroken peace prevailed for an appreciable period, so as to affect the growth of traditions, the sense of national solidarity showed symptoms of slackening. For purposes of economic solidarity the commonwealth is conceived after the manner of an overgrown manor. It figures as such, e.g., in English mercantilist writings of the sixteenth to the eighteenth century, as well as in the patriotic trade politics of the present.
  12. In passing it may be remarked that the fact of this sense of solidarity being an anachronism must not be taken as implying anything for or against the substantial merits of such a frame of mind.
  13. The two complementary sentiments-patriotism and pecuniary solidarity - are found in unequal measure among the several nations of Christendom. The disparity in this respect corresponds roughly with a disparity in past national experience. The Continental peoples, e.g., have, on the whole, a readier and fuller, more unequivocal, patriotic conviction, as they have also had a longer, more severe, and later discipline in the fealty that goes with a system of dynastic warfare and graded servitude; whereas the English-speaking peoples are animated with a more secure conviction that money value is the chief end of serious endeavor and that business solvency is the final attribute of manhood. But in either case the outcome is the primacy of business in the counsels of nations, and its empire is none the less secure for its resting more on one or the other of these two supports.
  14. For England the last half of the eighteenth century, for Continental Europe and America the last half of the nineteenth. In colonial commerce the date for both England and the Continent is much earlier.
  15. "Ring" is here used as a designation of this loose organization of business interests for the guidance of policy, without implying criticism of the ring or of its aims and methods.
  16. Armaments and large military and naval establishments have also a secondary attraction, of a more intimate kind, for enterprising business men, in that they afford opportunities for transactions of a peculiarly lucrative character. One of the parties (the government official) concerned in such transactions has less than the usual incentive to drive a close bargain. His own private gain and loss is not immediately involved, so that he is less given to petty huckstering and close surveillance of the execution of the contracts made. What adds force to this consideration is the fact that military and naval establishments habitually are what the vulgar would call corrupt. The pecuniary interest of the officials does not coincide with that of the establishment There is an appreciable "margin of error" which a sagacious business man may turn to account. The great business interests are the more inclined to look kindly on an extension of warlike enterprise and armaments, since the pecuniary advantages inure to them, while the pecuniary burden falls chiefly on the rest of the community. It is, to say the least, highly improbable that the business gains which accrue from a well-conducted foreign policy ever, in modern times, equal the cost at which they are secured; but that consideration scarcely enters, since the costs are not paid out of business gains, but out of the industry of the rest of the people. The people, however, are animated with an uncritical persuasion that they have some sort of a residuary share in these gains, and that this residuary share in some manner exceeds the whole of the gains secured.
  17. See Chapter X. above.
  18. Cf. Hobson, Imperialism, pt. I, ch. VII, pt. II, ch. I, and VII.
  19. On the relation of business to warlike expenditure in the sixteenth and seventeenth centuries, cf., Ehrenberg, Zeitalter der Fugger.

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