behind in the desire and the attempt to substitute its own imaginings! Although, then, this law is already sufficiently accredited by experience, I attach particular value to explaining its cause, and, after what has been said as to the nature of production, this should not be very difficult.

In the last resort all our productive efforts amount to shiftings and combinations of matter. We must know how to bring together the right forms of matter at the right moment, in order that from those associated forces the desired result, the product wanted, may follow. But, as we saw, the natural forms of matter are often so infinitely large, often so infinitely fine, that human hands are too weak or too coarse to control them. We are as powerless to overcome the cohesion of the wall of rock when we want building stone as we are, from carbon, nitrogen, hydrogen, oxygen, phosphor, potash, etc., to put together a single grain of wheat. But there are other powers which can easily do what is denied to us, and these are the powers of nature. There are natural powers which far exceed the possibilities of human power in greatness, and there are other natural powers in the microscopic world which can make combinations that put our clumsy fingers to shame. If we can succeed in making those forces our allies in the work of production, the limits of human possibility will be infinitely extended. And this we have done.

The condition of our success is, that we are able to control the materials on which the power that helps us depends, more easily than the materials which are to be transformed into the desired good. Happily this condition can be very often complied with. Our weak yielding hand cannot overcome the cohesion of the rock, but the hard wedge of iron can; the wedge and the hammer to drive it we can happily master with little trouble. We cannot gather the atoms of phosphorus and potash out of the ground, and the atoms of carbon and oxygen out of the atmospheric air, and put them together in the shape of the corn of wheat; but the organic chemical powers of the seed can put this magical process in motion, while we on our part can very easily bury the seed in the place of its secret working, the bosom of the earth. Often, of course, we are not able

directly to master the form of matter on which the friendly power depends, but in the same way as we would like it to help us, do we help ourselves against it; we try to secure the alliance of a second natural power which brings the form of matter that bears the first power under our control. We wish to bring the well water into the house. Wooden rhones would force it to obey our will, and take the path we prescribe, but our hands have not the power to make the forest trees into rhones. We have not far to look, however, for an expedient. We ask the help of a second ally in the axe and the gouge; their assistance gives us the rhones; then the rhones bring us the water. And what in this illustration is done through the mediation of two or three members may be done with equal or greater result, through five, ten, or twenty members. Just as we control and guide the immediate matter of which the good is composed by one friendly power, and that power by a second, so can we control and guide the second by a third, the third by a fourth, this, again, by a fifth, and so on,-always going back to more remote causes of the final result-till in the series we come at last to one cause which we can control conveniently by our own natural powers. This is the true importance which attaches to our entering on roundabout ways of production, and this is the reason of the result associated with them; every roundabout way means the enlisting in our service of a power which is stronger or more cunning than the human hand; every extension of the roundabout way means an addition to the powers which enter into the service of man, and the shifting of some portion of the burden of production from the scarce and costly labour of human beings to the prodigal powers of nature.

And now we may put into words an idea which has long waited for expression, and must certainly have occurred to the reader; the kind of production which works in these wise circuitous methods is nothing else than what economists call Capitalist Production, as opposed to that production which goes directly at its object, as the Germans say, "mit der nackten Faust." And Capital is nothing but the complex of intermediate products which appear on the several stages of the roundabout journey.

READING VI.

THE PRECISE FUNCTION OF THE ENTREPRENEUR, AND THE TRUE NATURE OF

ENTREPRENEUR'S PROFIT.

In the opinion of the editor, one of the least satisfactory features of current text books in Economics is the treatment of the entrepreneur, and particularly the characterization of his true economic function. The most common theories taught are (1) that this function is assembling the different productive factors, (2) managing industry, or (3) both of these combined. The sound doctrine, it seems to the writer, can be expressed only by this phrase,—“assuming the final responsibility of production." In substance, this doctrine was presented in Mangoldt's Lehre vom Unternehmergewinn, published in 1855; and a few years since it was warmly advocated by Mr. Hawley in several articles in the Quarterly Journal of Economics. Personally I am disposed to lay somewhat less stress than the writers named on the risk element. I consider "assuming the responsibility of production" to be somewhat broader than "assuming the risk of production." It suggests other disutilities besides the bearing of risk, though this one is doubtless the most important of all such disutilities. But, while I should be disposed to change Mangoldt's emphasis somewhat, his presentation of the matter seems to me on the whole very satisfactory.

*The essence of every industry consists in the offering

* Mangoldt-Die Lehre vom Unternehmergewinn (1855), pp. The translation is very liberal, but not, I think, unfaithful to the original.

34-47.

of sacrifices in comfort, goods, or utilities to the end of gaining satisfaction through a return aimed at which more than outweighs the deprivations suffered and the sacrifices undergone. The totality of operations and institutions assigned to such an end, we designate in general by the phrase "the business." The relation between the sacrifices to be undergone and the result to be gained, we call the return of the business. This return is a secure one, if both of its factors are of dimensions known in advance, while it is an insecure or risky one, if the one or the other of these cannot be determined in advance.

We distinguish autonomous industries and industries for exchange. In the case of the former, the utilizing of capital and labor obtained from outside is not excluded, but that which results from their consumption is destined for the use of the owner of the business himself. In the case of production for exchange, on the contrary, the product is destined for exchange. The producer and consumer are two separate personalities.

The output of the business can, in both cases, be a secure one or a more or less risky one. The attainment of the economic aim of the farmer is equally dependent on the weather and the season, whether he cultivates the ground merely for his own ends, or intends to bring his products to market; but the criterion for estimating his return is, in the two cases, a different one. In the first case, he measures his return according to its utility; in the second place, according to the exchange value of his products. In the former, bad harvests are always injurious, in the latter, on account of the disproportionate rising of the price, they are often an advantage.

In autonomous industries, the uncertainty of the return always affects the producer, who is, at the same time, the consumer. There is, therefore, no occasion given for distinguishing whether he takes this upon himself in the former capacity or in the latter. The only distinction which must be made is between secure, and insecure, enterprises. It is otherwise with industries conducted for exchange; here the uncertainty of the return can fall upon the consumer, but it can also fall upon the producer. In the former case, we

say the enterprise is "undertaken to order." Thus, the wage-earner undertakes to furnish labor in exchange for a determinate wage; and similarly the capitalist undertakes to furnish utilities of capital in exchange for a determinate interest. In the second case, we call the business "an undertaking for the market," or a speculative undertaking. An undertaking for the market, then, is an enterprise, the return of which is destined for exchange,-in which, therefore, the uncertainty with respect to the return falls upon the producer. By an entrepreneur we mean one who is the owner of such a business.

But, now, with this element, the concept "undertaking" is completely exhausted; and when Riedel describes an economic undertaking as the systematic assembling of different factors of production for an economic end, we cannot agree with him. It is doubtless true that in a stage of civilization which has attained to any considerable development, there are, generally speaking, very few goods to the production of which labor, capital, and natural forces do not all contribute; and so, of course, it will seldom or never happen that, in any given undertaking, there is no assembling of the different factors of production. Nevertheless, this is by no means necessary; and, if it is practically possible to produce a commodity through the application of mere labor forces, then the person who does this must pass for an entrepreneur, provided only that the value of his product is not determined in advance.* On the other hand, it is plain that even the wage laborer, who surely is not the entrepreneur, often assembles systematically different factors of production; in fact, this happens every time the laborer employs a tool. Thus, it is not in the assembling of different factors in production, but in their application at his own risk,* that the essence of an undertaking lies. Real life very seldom furnishes example of pure “undertaking to order"; that is, few examples of the complete exclusion, for the person conducting a business, of all uncertainty in respect to the remuneration for a service ren

*Editor's italics.