CHAPTER I THE CONCEPT OF CAPITAL AS THE FOUNDATION OF OWNERSHIP ORGANIZATION IN BUSINESS The Business Establishment Defined. When we seek to secure profits through some organized activity, we have a business undertaking or establishment. It may be defined as a complex of labor and capital brought together and directed by an entrepreneur for the purpose of profit. Labor, under this definition, includes all human effort, whether mental or physical, directed toward the prosecution of the enterprise. Capital includes all money and securities, natural resources and products, other than labor, that are used in the business. The head of the enterprise is called the entrepreneur by economists. He is the one who, besides risking his capital, or command over capital, in the venture assumes the final responsibility for its management and direction. However, under presentday conditions, business is in large part conducted by groups of individuals combined into an organization, such as a corporation, a partnership, a joint stock company or some other form. These organizations may therefore properly be considered entrepreneurial or ownership organizations. It is of such organizations that this work treats. The Private versus the Public Entrepreneur. - While the entrepreneur is ordinarily a private person or an association of persons, this is not always the case. A municipal, state or national government may become an entrepreneur by going into business. European governments have frequently done this, but in the United States there has been a marked antipathy toward this. Nevertheless, even in this county, many municipalities own and operate gas plants, electric plants, street railway systems and other enterprises. And during the recent war the national government went into shipbuilding and the manufacture of munitions on an extensive scale. But a distinction must be made between the government as an entrepreneur and as an operator. The act of the government in taking over the railways, the telegraphs and the telephones and other national equipment, and operating them did not make the government the real entrepreneur for it did not assume the full ownership responsibility. The Function and Classification of Business Establishments. In a broad sense, the function of the business establishment is the production of economic goods which may be used, directly or indirectly, to satisfy human wants. It is ordinarily conceived to include the production, or the purchase and sale of commodities or both, that is to say, manufacture and trade. The work of assembling, transporting, storing, grading, assumption of risk and financing is merely incidental to the chief function, but even these services are the bases for a vast number of business enterprises. Others, again, render different services, such as advertising, the collection and dissemination of statistical data, the communication of ideas. In fact it is almost impossible to enumerate the vast number of different kinds of business undertakings that are to be found in a modern industrial country. However, for the purpose of convenience they may readily be classified under a few suggestive heads. The following classification is one that is usually employed in government publications. 1. Agriculture, animal husbandry and fisheries, having to do with the growing, raising and direct appropria tion of vegetable and animal products for human consumption. 2. Mining and quarrying, or the original recovery of the useful mineral products from the earth. 3. Manufacturing, the process whereby the raw products of the first two groups are transformed into consumable products. 4. Construction, the work of creating in final form the more or less permanent equipment of a country such as, buildings, canals, railways, docks, bridges, industrial plants, etc. 5. Transportation and other public utilities, which include the operation of water, gas, and electric works, railroads, telephone and telegraph lines, etc. 6. Trade, comprising the purchase for sale of goods, wares and merchandise by retailers, wholesalers, commission men, brokers, factors, etc. 7. Personal service including the professions, amusements, domestic services, etc. 8. Finance, banking and insurance and similar undertakings that are of a fiduciary character. Social Custom, Business Enterprise and Economic Development. The form of the business unit, the method by which it conducts its operations, the privileges that it enjoys, as well as the limitations and restrictions placed upon it are deep rooted in the social and economic structure. Consequently any changes in social concepts and customs or in economic practices are bound, in the course of time, to bring about sympathetic changes in the business unit. Social and economic transitions ordinarily take place gradually; but at times, as the result of wars or other unanticipated catastrophes, they may be extremely rapid. Thus we find the hoary institutions of private property and inheritance, which are the foundation stones of modern busi ness organization, gradually losing their dignity as rights and assuming the plainer garb of privileges. For the "right" of inheritance is now limited by heavy inheritance taxes, while the "right" of private property is subject to eminent domain, and in some European countries it is being threatened with the imposition of so-called capital levies which would appropriate a large share of private wealth to defray the obligations of governments. Indeed, the complete abolition of these two institutions has been strongly urged by the Marxian Socialists, and the Bolsheviks and others. This simply illustrates a change in social concepts. It cannot be denied, that the complete abolition, either of one or of both of these institutions, would have a very marked and far-reaching effect upon the form of the business unit, in that it would take business completely out of the hands of the private entrepreneur. We have but to bear in mind the demands made upon the governments of the United States and of the United Kingdom for the nationalization of railways, coal mines, and other fundamental industries, to realize how close to our daily life such changes are. Social changes are inexorable in their execution; for they are backed by the force of general public opinion to which the individual must inevitably bow. But it is not social custom alone that determines the nature of the business unit. Many types of business forms are the direct outgrowth of economic development. The great industrial plants of today employing tens of thousands of workers and millions of dollars' worth of machinery and equipment in their manufacturing processes, are of relatively recent development. Their structure rests upon the foundations laid by the great mechanical inventions of the latter part of the eighteenth century that ushered in the industrial revolution. Prior to that time, manufacturing was done very largely by hand methods in the home of the |