CHAPTER IX.

SUPPLY OF BUSINESS POWER.

§ I. LET us next inquire what are the causes which determine the supply of business power of different kinds; and how the rate of Earnings of Management in a trade affects the supply of business power in it.

The successful barrister or physician may obtain earnings equal to those of three hundred unskilled labourers; but on the whole the most highly paid work is that of business manageinent. It is only within the last few generations that this work has taken its present shape: it is only quite recently, and only in a few countries, that much intellect of the highest order has been required for, and given to, the task of conducting manufacturing and commercial enterprises.

In old times there was little variation in the character of the things that were made, or in the manner of making them. Inventions came slowly; in some trades new processes were scarce discovered once in a century; and after they had been once discovered, a generation or more might elapse before they came into general use. The business man of former times required industry, sound judgment, and the power of dealing with men ; but he could very often get on without much faculty for originating new schemes. But now the manufacturer or merchant who controls a large capital cannot be sure even of holding his own unless he is quick to take advantage of new inventions, and has some power of striking out new lines for himself. The difficulty of this work of pioneering is increasing in many ways. For fashion and taste change more rapidly than they used to do; and these changes affect the great masses of the population, and not only the upper classes as in the olden times. And again every change in the manner of carrying on any trade alters the character of the things that it

wants to buy from other trades, and each trade buys from and sells to many more trades now than formerly. A manufacturer has to watch the progress of the trades to which he sells, as well as of his own.

Again, those nations which had no manufactures were con→ tent till lately to buy any of the ordinary English goods that would at all serve their purpose. But now the English manufacturer meets the competition of Americans and others, who make a special study of the needs of each backward country. To hold his own, he must vary the machines and implements and other things which he offers to other countries so as to suit various climates and various soils; he must meet the special requirements of races of different temperaments and habits, and in different phases of civilization. This requires wide knowledge and a constant activity of intellect.

Much of the work of business is then so difficult, and requires so much special training and such a rare combination of natural qualities, that the Earnings of Management got by it may be very high, without there being many men who can do the work and get these high earnings.

§ 2. We have already seen that the faculties required by the skilled workman,—his Personal capital—may be classed as Specialised and Non-specialised. The skill and knowledge which are of little use save in the trade in which they have been acquired are Specialised capital; the general ability and resource, the energy and strength of character, the honesty and steadiness, which can be easily transferred from one trade to another, are Non-specialised capital. And we have seen that the progress of invention tends to diminish the importance of mere manual skill, and of the knowledge of the rules of thumb that have been handed down from earlier generations, and that therefore in many, though not in all trades, the importance of the workman's Specialised qualities has diminished relatively to his Non-specialised.

The same change is going on with greater rapidity in the case of the employer. The employer who was "master of his men" in this sense that, if any of them were doing their work badly, he could shew them how to do it better, is becoming rare in many trades; and much work that used to be done by the head of a business is now done by foremen, overlookers, and sub-contractors. This change is to be regretted; it tends to impair the thoroughness of work, and it causes estrangement between the employer and the employed by lessening his personal influence over them. But evil as the change is in some respects, it has the advantage of leaving the whole time and energy of the head of the business free for what has become, in this modern phase of the division of labour, his chief work.

Bagehot compares him to the military commander of modern times who, instead of mixing in the fray himself, sits at the far end of a telegraph-wire with his head over some papers, and directs and organizes from a distance. It is his work to study changes in the markets in which he buys, and in those in which he sells; to be on the alert for new wants and new inventions, and to devise new modes of getting over new difficulties. And most of the qualities that are required for this work are Non-specialised. They depend partly on early training, partly on the education of business; but if educated in one trade they can be transferred to another.

It is true that a man who is not well acquainted with the technical details of the trade in which he is engaged, is at some disadvantage, however great be his general or Non-specialised business power. But, as Bagehot points out, the disadvantage need not be very great if he has a competent staff of subordinates who possess the requisite detailed knowledge. So that the head or managing mind of a business may lose less than those who work under him would by changing his trade. A minister of state may move from the Indian Office to the Foreign Office, or from the Poor Law Board to the Admiralty, without any great loss of efficiency. He obtains information on technical details from the permanent Secretaries and clerks under him. His judgment and sagacity are as useful in one office as in another, while much of the technical knowledge of his subordinates is of little value save in that office in which it has been acquired. It is true that "Little good for the most part comes of people who have been brought up on one side of the business world going quite to the other side, of farmers' sons going to cotton spinning, or of lacemakers' sons going into shipping. Each sort of trade has a tradition of its own, which is never written, probably could not be written, which can only be learnt in fragments, and which is best taken in early life, before the mind is shaped and the ideas fixed. But each trade in modern commerce is surrounded by subsidiary and kindred trades, which familiarise the imagination with it, and make its state known1." And when high profits are being made in that trade, business power comes into it from the surrounding trades.

§ 3. We have seen that the supply of skilled workers in any trade depends on the estimate that men form for themselves, and parents form for their children, of its Net Advantages on the one hand, and of the difficulties of preparing for and entering it on the other. We saw that if they made their calculations correctly, and if there were no natural or artificial barriers against entering a trade, the supply would be so adjusted to the

! In Fortnightly Review, vol. XIX.

demand that the Net Advantages of being in that trade would correspond to the trouble and expense of preparing for it. And we have now seen how the supply of business power in a trade is increased by a rise in the Earnings of Management that can be got in it. But the case of business power differs from that of skilled labour in several respects.

Firstly, the average Earnings of Management cannot be easily ascertained. It is comparatively easy to find out the wages of bricklayers or puddlers by striking an average between the wages that are earned by men of various degrees of efficiency, and allowing for the inconstancy of their employment. But the Earnings of Management which a man is getting, can only be found after making up a careful account of the net profits of his business, and deducting interest on his capital. The exact state of his affairs is often not known by himself; and it can seldom be guessed at all accurately even by those who are in the same trade with himself. It is not true even in a little village at the present day that every one knows all his neighbour's affairs. "The village innkeeper, publican or shopkeeper, who is making a small fortune does not invite competition by telling his neighbours of his profits, and the man who is not doing well does not alarm his creditors by exposing the state of his affairs1." But what we are now discussing are the causes that determine the supply of business power in each trade in the long run; and the average rate of profits in a trade cannot rise or fall much without general attention being attracted to the change before long. And though it is a more difficult task for a business man than for a skilled labourer to find out whether he could improve his prospects by changing his trade, yet the business man has great opportunities for discovering whatever can be found out about the present and future of other trades ; if he wishes to change his trade, he can, as we have seen, generally do so more easily than the skilled workman can; and he can choose any trade for his son.

Secondly, the supply of business power in a trade differs from the supply of skilled labour in being partly dependent on the supply of capital necessary to give it scope. But this difference again is less important than it appears. We cannot properly examine here the banking and other modern agencies by which capital is transferred from where it is not wanted to where it is wanted. For our present purpose it is sufficient to assume that "A very great many of the strongest heads in England spend their minds on little else than thinking whether other people will pay their debts. And the combined aggregate of these persons is a prepared machine ready to carry capital in

1 Cliffe Leslie in Fortnightly Review, vol. XXV.

any direction. The moment any set of traders want capital, the best of them, those whose promises are known to be good, get it in a minute, because it is lying ready in the hands of those who know, and who live by knowing, that they are fit to have it1." A man who has business power and a little capital can get more capital. If he turns this to good account his improved position will enable him to borrow still more; and thus before long he may wield a capital so large that his profits leave him a rich income after paying interest on what he has borrowed. Again, a man without capital may be taken into private partnership by others; or he may become the manager of a joint-stock company. "It is no longer true that a man becomes an employer because he is a capitalist. Men command capital because they have the qualifications to profitably employ labour. To these captains of industry (or organizers of industry) capital and labour alike resort for the opportunity to perform their several functions 2."

We may conclude then that though there are several differences between the case of business power and that of skilled labour, yet these differences do not prevent the supply of business power in a trade from being determined in all essential respects in the same way as the supply of skilled labour. We shall however see further on that the Earnings of Management of a man working with borrowed capital fall short of the income of a man of equal ability working with his own capital by more than the mere interest on it.

1 Bagehot, 1. c.

2 Walker on Wages, ch. XIV.