Part 11

There is a more worthy way of dealing with the question of supply and demand to the advantage of business. It often happens that, because of lack of public education or because of undeveloped or abnormal community conditions, demand for a given product has not yet been stimulated. The business specialist who has a really worthy article to market should be able to diagnose the situation, see what the hindering conditions are, and take steps toward that adjustment of things which will give rise to a normal demand. He need not be powerless in the face of the fact that people do not desire his product. Neither can he blame the public for rot needing it. He must make the public need it, make it see its need, and then supply it.

In all the history of American business, probably no better example of this sort of thing could be found than the action once taken by James J. Hill at one stage in the development of the Great Northern railway system through the Pacific Northwest. Mr. Hill, by the way, was a notable example of real commercial genius. Having a positive mind, he could plan, adapt, and build. The railway system which he developed stands as an enduring monument to his wonderful ability.

After the first lines of the Great Northern had been built and had been in operation for a while, Mr. Hill discovered that they were carrying very little livestock. There seemed no demand for that particular form of railway service. Looking into the question, he found a very definite reason for the fact. The farmers of the Northwest had never taken up stock-raising.

No one was to blame. The situation simply constituted a condition to be met. There was no reason why the farmers of the Northwest should not turn their attention to livestock. The country was good for grazing, and the range was almost limitless. The only difficulty was the fact that livestock had never been introduced into that section.

Mr. Hill began applying his remedy by doing the farmers a kindness. He bought several thousands of blooded cattle and hogs, and gave them to the farmers owning land along the right of way. There were two results. The first was that the Northwest rapidly developed into a leading stock-raising country, enriching the section and indirectly benefiting the railroad in many ways. The second was that within a few years the Great Northern was breaking the record among the railroads for the carrying of livestock. Finding no demand for the services of his road, Mr. Hill had created one.

This example serves to show up the true business man in his real character as a commercial engineer. His function is a larger one than the slavish routine of mere buying and selling. It is rather that of helping to build that larger and better commercial world in which all business will be at its best because all people are at their best.

Other engineers plan great mechanical projects. He plans and executes great commercial projects. The results of his work are no less magic than the results of theirs. The ability of the civil engineer is tested by his power to remove the impediments and bridge the chasms that lie in his way. The ability of the commercial engineer is tested in the same way. He must penetrate the hills of prejudice and bridge the chasms of unconcern.

There are some enterprises which may at times succeed by force of chance or circumstance. The only sustained and creditable success, however, must come from intelligent promotion. One has little ground for satisfaction over a mere random success. It is real achievement that brings enduring satisfaction.

It takes somewhat more than merely mental power, however, to plan and execute great commercial enterprises. The promoter must not only have a good mind, but it must also be of the affirmative type. Only the constructive thinker makes the great general, the great leader, or the great engineer.

There is as much of a place for originality in business as in any other field one could enter. It is sometimes avoided on the ground that it is prosaic and humdrum. It is not so for the person who senses its opportunity and enjoys the process of working out its larger possibilities. It offers a practically unlimited opportunity for the building of one’s powers into the fabric of an altogether necessary social institution.

Considered from this point of view, business is infinitely more than mere exploitation. Many have conceived the idea that it is nothing more because a great many selfish and misguided men have never really tried to make anything more of it. Fundamentally, however, business is a form of public service.

The market place was one of the earliest developments in our social scheme. Theoretically it is a means for the exchange of values to the mutual advantage of the parties to a transaction. The assumption of any person who enters a legitimate line of trade is that he has an article needed by the public. It follows that the degree of his public service is commensurate with the wideness of the sale of his product.

In taking steps, then, to create a legitimate demand for whatever he has to sell, one does not need to hesitate on the ground that it reduces his work to the level of mere exploitation. If he is in business as a public servant, then the larger the service he can render the better it is, both for him and for his patrons. The service of his patrons and his own success are commensurate because they are mutually dependent upon one another. Good business spells more than profit for the business man. It is also a help to the public, and a means of progress in the world.

There need be no fear, either, that most of the possibilities of business have been exhausted. The real world of commercial opportunity has hardly more than been entered. Our own country is still largely undeveloped in the use of many helpful products. There are backward communities to be informed and cultivated. Whoever undertakes this process is a positive factor in the making of civilization, for the need of these communities is the greater need concerned. It would be a blessing to them to have a demand for the tools of more efficient life and work created among them.

Then there are all the vast spaces of the world as yet largely untouched by these more advanced methods of civilization. There are more people waiting to be taught the use of means to comfort and efficiency than there are to manufacture and deliver the products to these prospective purchasers. Business men should support every sort of civilizing influence as a means of creating a demand in far countries for what they have to sell.

Should Prices Be Standardized? (1919)

Thus far in the economic history of America the scale of prices has been as temporary and uncertain as the indications of the mercury in a thermometer. Prices have gone up and down for all kinds of reasons, and indeed they have often seemed to do so without any apparent reason. An increasing number of people feel that this is not as it should be. It is not easy to formulate an unfailing remedy, of course. Neither is it possible to say whether price fixing would prove a success or a failure. It does look reasonably sure, however, that prices should be stabilized in some just and proper manner.

There are always those who are ready to tell us that it is not necessary to attempt to do anything about the price situation. They say that the scale of prices will automatically take care of itself according to the operation of the law of supply and demand. This sort of a situation might do very well if only it existed in some other world than that of fancy. There probably was a time in the earlier periods of the history of the market place when the law of supply and demand governed all prices. That time, however, seems to have passed.

Tradesmen have learned methods by which they can so successfully juggle the situation as to supply and demand as to entirely reverse the action of the time-honored law so often invoked in defense of the profiteer. The cold storage method of preserving eggs, for instance, has been used to make them cost most during that season of the year when they are most plentiful, and to be cheapest during that portion of the year when the greatest number of hens are on a vacation.

As a matter of fact, the law of supply and demand is not the rightful governor of prices. It does not take into account the one thing which should be the deciding factor in the cost of an article, namely the cost of production. It requires as much labor and as great an investment to produce a bushel of cheap wheat as it does to produce the same amount of wheat at a good figure. The cost of a bushel of wheat should always be the cost of production plus a fair rate of profit to the producer. The producer would then be sure of his profit, and the consumer would know how to estimate his expense.

A fluctuating price scale does not make for certainty in financial transactions and stability in commercial organization. Except in the most general way, no one is able to say today what things will cost or bring tomorrow. In considerable part, this condition has been brought about by the deals of speculators who make their living by the rise and fall of the markets and often by forcing prices up and down by arbitrary methods.

In other words, an uncertain system of prices not only makes it possible for a group of men to gamble upon them, but it does much to reduce all dealing to a process of gambling. Even if all other conditions are favorable. The producer does not know whether he is to gain or lose. Neither does the consumer know whether he is to be able to obtain things at a fair price.

Such a condition is unsatisfactory to both. For each advantage or disadvantage are alike possible, and they usually alternate. The advantage of one, moreover, must generally be brought about by the disadvantage of the other. Such is not a necessary state of affairs. One does not need to lose either in his buying or selling. Neither should his gain be abnormal. The establishment of prices upon a fair and permanent basis could make it possible for a transaction to be always to the mutual advantage of the seller and the purchaser. In other words, it would lift the markets above the gambling level.

There is another way in which an uncertain system of prices works a great injustice in the economic system. They offer no real incentive to industry, ability, and preparation. We have done and heard a great deal of preaching to the point that these things pay because the man who prepares best and works hardest will be best rewarded.

As things are now, the worst trouble with this claim is its falseness. A man may work ever so hard in almost any process of production and have his reward shrunken out of all proportion to his toil by some sudden slump in prices for which he was in no way responsible. On the other hand, he may neglect ever so important a task and at the last moment be favored with a rise in prices which will turn things to his profit.

On the one hand, he always stands a chance of failing to receive what rightfully should be his, a situation which does not represent good business. On the other hand, he also stands a chance of receiving what he does not earn, a situation which does not represent good business either. It should be possible by means of having a stable price scale to make it practically sure that every person concerned in the process of production would receive his due. Naturally the highest reward would come to the man of greatest earning power. The result would be the placing of a premium upon industry and efficiency. Until we do so we shall have no oversupply of either.

Uncertainty of prices has one serious social tendency. It produces a certain spirit of unrest on the part of the consumer. It may be true that the average person overdraws some of his conclusions on this question. It may be, too, that he bases some of them upon insufficient reasons. At the same time, however, his attitude is a fact which must be met and reckoned with.

What the consumer thinks is no inconsiderable matter. He is not a small minority without power or influence. He is a vast majority, swaying the very life of the State as he will, for in one way or another we are all consumers. Moreover, the consumer has the last word in every argument. He holds the purse-strings, and when he is tired of talking, he can stop buying. It does not bode well when he conceives the feeling that undue difficulty attaches to trying to exist on the planet.

He is not unreasonable. On the contrary, he is quite reasonable. He wants the other party, as well as himself, to have all that is his due. He has no objections to meeting the real cost of an article. He has some notions, however, as to what that cost should be. If prices go up, he expects them to have some proper reason for doing so. He works for his living, and he expects others to do the same. When he cannot count on what a day may bring forth, he cannot plan his financial future, for he has no idea one season what it is going to cost him to live the next. He has a feeling that it is time to get prices adjusted as they should be in fairness to all concerned, and then keep them so.

One of the worst difficulties with our fluctuating system of prices is the fact that it does not make adequate provision for the economic life of the country. Our commercial system has the same function in the service of society that the blood has in maintaining the life of the body. Its work is to carry supplies promptly, effectively, and regularly to all the points where they are needed.

The body is not in good health when the blood overfeeds it part of the time and starves it the rest of the time. It is not proper, either, to have congestion at one point and anaemia at another. The function of circulation must go on with uninterrupted constancy.

The world needs a practically fixed amount of food, clothing, and supplies for the maintenance of its life and activity. It has also a practically fixed amount of wealth to keep them moving. Unsteady prices are always changing the value of a dollar and making the necessities of life easier or harder to get. The world cannot, therefore, supply its wants with the same ease and in the same abundance at any two successive times. The value of supplies and the value of money should both be constant. The world could then meet its needs at every point. No worker would lose his reward; commodities would be certain to yield their worth; and no one would be any the poorer for the change.

The Home Budget (1920)

After he had gained the pinnacle of his success, some one asked Andrew Carnegie to formulate the secret of wealth. His reply was as significant as it was laconic. He said: “Pay as you go, and keep books.”

Each part of this formula is important. They are very closely related, but the second is the more fundamental. However important it is to pay as one goes, his chances for doing so are rendered very uncertain if he fails to keep books.

There are different ways, however, of keeping books. Some keep books only as a means of knowing where they stand with their finances and current bills. This is good as far as it goes, but it is possible to make the process of keeping books yield a much greater service.

Others realize this, and keep books as a means of keeping in the right relation to their financial affairs. They make their bookkeeping system represent their plan of operation. It then serves to keep them from getting too near the edge of any financial precipice. If one is to get on, one of the first principles he must learn is the necessity of keeping within his income—and a little more. Books can be kept in such a way as to enable one to do it. This is keeping books according to the budget plan.

Some one is always certain to say that bookkeeping systems and budget plans are very well for people who have adequate incomes. It is said that the rich have something to keep books on, but that it is of little use for those who tread the ragged edges of want to undertake anything of the kind.

This assumption is a grand mistake. Whatever benefits the budget system has are certainly common to all who care to adopt it. It is even more greatly needed by the home with an income below the normal level than by that with an income above the line of necessity. This is because its purpose is to enable one to make the most of the amount of money at command, whatever that sum may be. This service is not needed so much by those who have an abundance. It is calculated to help most those who must watch their corners and husband their resources. The budget system is a desirable plan in the home of wealth; it is a helpful thing in the home of moderate circumstances; but it is a necessity in the home where takes place an occasional battle with want.

The budget plan is a sort of blue print of what one proposes to do with the funds at his command. The builder can do his work properly only with suitable plans before him. The difference between the structure erected with a plan and that erected without one is great. The difference between the results of an income administered according to system and those of one spent at random is one of just about the same degree. To attempt any work without a well-formulated plan of procedure means several regrettable things. It means a waste of materials; it means poor co-ordination of effort; it means a haphazard and unsatisfactory result.

The budget plan is based on a system of appropriations. Such is the plan used by all successful business interests. The business is first analyzed and divided into departments. Then the amount of money needed for the work of each department is estimated. This amount, or as nearly this amount as the sum of money at command will permit, is then appropriated to the work of that department. It is left to keep its accounts up to the total placed at its disposal. It is, of course, held responsible for the use it makes of the funds given it. If at the end of the year it is found that the distribution was not equitable, the proportion can be changed.

The same plan can be adapted to home use, and it will do just as much for the guidance and welfare of the family treasury as for that of some great business corporation. The work may be done after about the same fashion. The needs of the family should be analyzed and divided into departments. The resources at command may then be estimated and apportioned to the various departments of expenditure in the same way. Expenses are then to be kept within the appropriation, and, if the division is found unfair to any interest, it can be changed.

If this is properly done, the benefits derived will be very great. If income is always consulted before outgo is determined, the effect of the system on the family resources will be found to be little less than magical. The funds in each department will so accumulate as to keep a surprising balance on hand all the time.

The reason for this certain growth in reserve funds is plain. One will not purchase a thing in a given department of expense until enough money has accumulated in that particular department to pay for it. Suppose, for instance, that one would like to buy a suit of clothes or an article of furniture. Ordinarily, he would get them if he could command the money to do so from the total at his disposal. Therefore, he would stand a chance of paying for it with money which really should have gone to something else. Moreover, the habit of buying anything he wants and can pay for keeps his funds down to the low water mark all the time.

When finances are cared for on the budget plan, the case is very different. Before one purchases a suit of clothes, an article of furniture, or anything else, he first looks at the page on which the finances of the department in question are recorded. If the money is on hand, he proceeds with the purchase. If the funds are insufficient, he waits until they have increased to a point where the purchase is possible.

This plan accomplishes two things. It keeps personal or family expenditures within the income from which they must be made. It also avoids the mistake of spending for one thing the funds which rightfully belong to something else. These, by the way, are two of the fundamental principles involved in the matter of getting from a dollar its full worth.

If the family income is fixed and regular, it can be divided arbitrarily among the different classes of things for which it is to be spent. So much may be appropriated to one class of things and so much to another. In this case the division is easy and simple.

However, in many homes the income is not regular as to either time or amount. In this case it can best be appropriated on a percentage basis. A certain percentage is set aside for each division of family expense. It is then credited to the account of the departments involved.

In making this division, a number of things have to be taken into account. Among them are the size of the income, the needs and tastes of the family, and the financial condition of the family when the plan is adopted. One home I know works on the following basis: Religion 10%, Indebtedness 10%, Savings 10%, Clothing 20%, Groceries and household supplies 30%, Home furnishings 10%, Miscellaneous Expenses 10%. Each home can choose its own plan. It can also change its plan at will.

It is well to get a loose-leaf book of suitable size and to have a page devoted to each division of expenses. The money is kept in one sum in the bank, but all receipts are credited and all expenditures charged under the proper headings. Then the bottom figure on each page represents the amount available for the particular department of expense represented there.