BOOK IV. foreman or superintendent who has still to obey as well as to command, but who is rising and sees his children likely to rise further, is in some ways more to be envied than the small master. His success is less conspicuous, but his work is often higher and more important for the world, while his character is more gentle and refined and not less strong. His children are well-trained; and if they get wealth, they are likely to make a fairly good use of it. An able business man § 12. When a man of great ability is once at the head of an independent business, whatever be the route by which he has got there, he will with moderate good fortune, soon be the capital able to show such evidence of his power of turning capital to command good account as to enable him to borrow in one way or another speedily increases at his is at some tage when working with bor almost any amount that he may need. Making good profits he adds to his own capital, and this extra capital of his own is a material security for further borrowings; while the fact that he has made it himself tends to make lenders less careful to insist on a full security for their loans. Of course fortune tells for much in business: a very able man may find things though he going against him; the fact that he is losing money may disadvan- diminish his power of borrowing. If he is working partly on borrowed capital, it may even make those who have lent it refuse to renew their loans, and may thus cause him to succumb to what would have been but a passing misfortune, if he had been using no capital but his own': and in fighting his way upwards he may have a chequered life full of great anxieties, and even misfortunes. But he can show his ability in misfortune as well as in success: human nature is sanguine; and it is notorious that men are abundantly willing to lend to those who have passed through commercial disaster without loss to their business reputation. Thus, in spite of vicissitudes, the able business man generally finds that in the long rowed capital. 1 The danger of not being able to renew his borrowings just at the time when he wants them most, puts him at a disadvantage relatively to those who use only their own capital, much greater than is represented by the mere interest on his borrowings: and, when we come to that part of the doctrine of Distribution which deals with Earnings of Management, we shall find that, for this among other reasons, profits are something more than interest in addition to Net Earnings of Management, i.e. those earnings which are properly to be ascribed to the abilities of business men. ADJUSTMENT OF CAPITAL TO BUSINESS ABILITY. 369 run the capital at his command grows in proportion to his BOOK IV. ability. CH. XII. has not small loses his found capital ness ability the more Meanwhile, as we have seen, he, who with small ability is A man who in command of a large capital, speedily loses it: he may per- great busihaps be one who could and would have managed a business with credit, and left it stronger than he had it: but if he has not the genius for dealing with great pro- rapidly the larger his blems, the larger it is the more speedily will he break it up. business is. For as a rule a large business can be kept going only by transactions which, after allowing for ordinary risks, leave but a very small percentage of gain. A small profit on a large turn-over quickly made, will yield a rich income to able men: and in those businesses which are of such a nature as to give scope to very large capitals, competition generally cuts the rate of profits on the turn-over very fine. A village trader may make five per cent. less profits on his turn-over than his abler rival, and yet be able to hold his head above water. But in those large manufacturing and trading businesses in which there is a quick return and a straightforward routine, the whole profits on the turn-over are often so very small that a person who falls behind his rivals by even a small percentage loses a large sum at every turn-over; while in those large businesses which are difficult and do not rely on routine, and which afford high profits on the turn-over to really able management, there are no profits at all to be got by anyone who attempts the task with only ordinary ability. forces tend to the These two sets of forces, the one increasing the capital These two at the command of able men, and the other destroying the to adjust capital that is in the hands of weaker men, bring about the the capital result that there is a far more close correspondence between ability required to the ability of business men and the size of the businesses use it well. which they own than at first sight would appear probable. And when to this fact we add all the many routes, which we have already discussed, by which a man of great natural business ability can work his way up high in some private rm or public company, we may conclude that wherever there s work on a large scale to be done in such a country as England, the ability and the capital required for it are pretty ure to be speedily forthcoming. BOOK IV. Business ability in command of capital has a fairly Further, just as industrial skill and ability are getting every day to depend more and more on the broad faculties of judgment, promptness, resource, carefulness and steadfastness of purpose-faculties which are not specialized to any one trade, but which are more or less useful in all-so it is with regard to business ability. In fact business ability consists more of these general and non-specialized faculties than do industrial skill and ability in the lower grades: and the higher the grade of business ability the more various are its applications. Since then business ability in command of capital moves with great ease horizontally from a trade which is overcrowded to one which offers good openings for it: and since it moves with great ease vertically, the abler men rising to the higher posts in their own trade, we see, even at this country as early stage of our inquiry, some good reasons for believing England. that in modern England the supply of business ability in defined supply price in such a command of capital accommodates itself, as a general rule, to the demand for it; and thus has a fairly defined supply price. Finally, we may regard this supply price of business ability in command of capital as composed of three elements. The first is the supply price of capital; the second is the supply price of business ability and energy; and the third is the supply price of that organization by which the appropriate business ability and the requisite capital are brought together. We have called the price of the first of these three elements "Interest;" we may call the price of of Manage the second taken by itself "NET Earnings of Management," and that of the second and third taken together "GROSS Earnings of Management." Net and ment. CHAPTER XIII. CONCLUSION. THE LAW OF INCREASING IN RELATION TO THAT OF DIMINISHING RETURN. CH. XIII. tion in later this Book § 1. AT the beginning of this Book we saw how the BOOK IV. extra Return of raw produce which Nature affords to an increased application of capital and labour, other things being The relaequal, tends in the long run to diminish. In the remainder which the of the Book and especially in the last four chapters we have chapters of looked at the other side of the shield, and seen how man's stand to the power of productive work increases with the volume of the earlier. work that he does. Considering first the causes that determine the Supply of Labour, we saw how every increase in the physical, mental and moral vigour of a people makes them more likely, other things being equal, to rear to adult age a large number of vigorous children. Turning next to the Growth of Wealth we observed how every increase of wealth tends in many ways to make a greater increase more easy than before. And lastly we saw how every increase of wealth and every increase in the numbers and intelligence of the people increased the facilities for a highly developed Industrial Organization, which in its turn adds much to the collective efficiency of capital and labour. of the later of this Looking more closely at the economies arising from an Asummary increase in the scale of production of any kind of goods, we chapters found that they fell into two classes-those dependent on the Book. general development of the industry and those dependent on the resources of the individual houses of business engaged in it and the efficiency of their management; that is, into external and internal economies. We saw how these latter economies are liable to constant BOOK IV. fluctuations so far as any particular house is concerned. An CH. XIII. able man, assisted perhaps by some strokes of good fortune, Summary. gets a firm footing in the trade, he works hard and lives sparely, his own capital grows fast, and the credit that enables him to borrow more capital grows still faster; he collects around him subordinates of more than ordinary zeal and ability; as his business increases they rise with him, they trust him and he trusts them, each of them devotes himself with energy to just that work for which he is specially fitted, so that no high ability is wasted on easy work, and no difficult work is entrusted to unskilful hands. Corresponding to this steadily increasing economy of skill, the growth of his business brings with it similar economies of specialized machines and plants of all kinds; every improved process is quickly adopted and made the basis of further improvements; success brings credit and credit brings success; credit and success help to retain old customers and to bring new ones; the increase of his trade gives him great advantages in buying; his goods advertise one another, and thus diminish his difficulty in finding a vent for them. The increase in the scale of his business increases rapidly the advantages which he has over his competitors, and lowers the price at which he can afford to sell. This process may go on as long as his energy and enterprise, his inventive and organizing power retain their full strength and freshness, and so long as the risks which are inseparable from business do not cause him exceptional losses; and if it could endure for a hundred years, he and one or two others like him would divide between them the whole of that branch of industry in which he is engaged. The large scale of their production would put great economies within their reach; and provided they competed to their utmost with one another, the public would derive the chief benefit of these economies, and the price of the commodity would fall very low. But here we may read a lesson from the young trees of the forest as they struggle upwards through the benumbing shade of their older rivals. Many succumb on the way, and a few only survive; those few become stronger with every year, they get a larger share of light and air with every increase of |