Chapter 5

The complex firm

It is now time to redeem the promise I made in Chapter 7 of Section 2 of this part 6.2.7 and talk about the firm which has employees as part of it.

First of all, a few words about employees and employers in general, whether they are employees in a firm, or someone like a housekeeper or gardener a private person may hire.

An employee is a person who puts his service under the authority of someone else.

An employer is a person who hires another person to work under his authority.

Now that we have discussed authority, it will be a little easier to see what employees are doing. Let us take hiring a housekeeper as an example. The difference between hiring a housekeeper and engaging the services of a housekeeping firm (even if the firm consists of only one person) is that what you contract for in the case of the firm is the results, not the method that is going to be used. You may, of course, object to the way the person is doing the job; but in that case, you stop using her service and try a different firm. That is, as long as she gets the job done to your satisfaction, the fact that she vacuums first and then dusts is none of your business, even if you like people who dust first and then vacuum. If she takes a lunch break from one to two o'clock, this is not something you have any say about, as long as the finished job is as you wanted it, and the fee is what you agreed on.

On the other hand, if you hire a housekeeper and you want her to dust first and then vacuum, then she is to do it that way; and if you want her to use a dust rag instead of a feather duster, she uses a dust rag, whether she thinks feather dusters are more efficient or not. What breaks from work she is to take, and when, are part of the employment agreement, over which you have control. And so on.

That, of course, is what is meant by being under authority. An employee is willing to take orders from his employer, just as a person who joins a society is willing to take orders from the authority in society. Of course, a private person's hiring an employee does not make the employer-employee pair a society, since there is no common goal that both are cooperating for; the relationship itself is essentially economic, even though the employee agrees to be under the employer's authority as far as what is to be done is concerned.

Note that not all employees are "workers," but people who perform any kind of service under authority. "Workers" primarily refers to employees engaged in some kind of production or physical service, though in an extended sense (such as "office workers") it also refers to those employees who are not involved in management, but simply perform the tasks assigned to them by management. But management consists of employees, because they too are under orders from the people above them; and even the president of a corporation is under the authority of the board of trustees and the stockholders.

The first conclusion that should be drawn about employers and employees is this:

Conclusion 31: The employer's authority over the employee extends only to what is related to the service he has hired the employee for.

The employer does not have a right, then, to dictate to the employee things connected with the employee's personal life, such as the way he dresses or how he wears his hair, unless this is somehow related to what he is doing. There can be a dress code in a firm, for instance, insofar as the employees are recognizable as members of the firm by outsiders, and the way they dress reflects on the firm itself (as it does, in fact). But once an employee is hired by a person, he cannot be told to change the way he dresses or shave off a beard he has grown just because the employer doesn't like it.

Some years ago, the Cincinnati Reds had a policy that their players would not wear beards. In most other teams at the time, players were wearing beards and doing just fine playing baseball, thank you; and fans didn't seem to find watching a bearded player on television any more disgusting than observing him spitting tobacco juice. There were no grounds for saying that wearing a beard had any effect on either performance on the field or fan attendance and adulation of the players; and so the restriction against beards exceeded the authority of management.

One who hires an employee does not own that employee. A human being is not something which can be purchased; that is slavery, not service. When you hire an employee, you are hiring a human being to perform a service for you in the way in which you want the service performed; you are not hiring a automaton which has no will or life of its own even while it is serving you.

The time the employer has control over irrelevant aspects of the employee's life is at the time of hiring. There is nothing wrong with hiring a less qualified employee over a more qualified one because you "like the cut of his jib," as they used to say. After all, he is going to be working for you and taking orders from you; and it is better to have someone working for you that you like than someone who can do the job but who is disagreeable to you.

This right to hire whomever you please, however, does not allow you to violate anyone's right by your hiring practices. No person, of course, has a right to work for any other given person; nor does a person even have a right to work at the type of job that he finds most fulfilling. But as I said in Chapter 5 of Section 2 of this Part 6.2.5 in discussing refusing services to others, if the person in question is a member of a group which as a whole is the victim of a conspiracy to deprive them of certain kinds of work, then you become part of the conspiracy if you don't hire him, supposing him to be qualified to do the job--and this is morally wrong, until the job market opens up enough so that this kind of person is not in effect being excluded from this kind of employment.

And for this reason, affirmative action is morally justifiable, and can even be forced by government if invidious discrimination prevents qualified members of a group from being employed in jobs that they are in fact capable of performing. Note that affirmative action does not in fact deprive those not hired of their rights, because they can get comparable jobs elsewhere. It is discrimination against those in the majority group, but unless it deprives them of finding comparable employment, it is not immoral. But mandated affirmative action must cease as soon as there is in fact reasonable opportunity (it doesn't have to be "equal") to find employment in that field; otherwise, less well qualified people (even if they are technically "qualified" would have to be hired over those more qualified, for no reason of justice.(1)

I might point out a different kind of "quota" that could be used to find out if affirmative action can be mandated: it would be the number of qualified people in general looking for work in that field as opposed to the number of qualified people in the group in question looking for work in the field. It is simply silly to say that Black philosophy professors must tend toward reflecting the percentage of Blacks in the population, if only a hundredth as many Blacks as Whites have degrees in philosophy or any desire to teach philosophy. If four-fifths of the Whites who want jobs as philosophy professors can find jobs, then around four-fifths of the Blacks who want to teach philosophy should be able to find jobs also, even if this means that for every Black hired, there are ninety Whites.

You might object, "But the fact that for every Black looking to teach philosophy there are a hundred Whites itself shows discrimination: that Blacks are kept out of graduate schools." My answer to this is that you can't say this a priori, and you can find out whether it's true by looking at how many Blacks as opposed to Whites major in philosophy at the undergraduate level or how many apply to graduate schools in philosophy. If the number of applicants is still one to a hundred, then either (a) the exclusion occurred at a still earlier level (but where would that be in this case?), and the problem of invidious discrimination is to be addressed there, not later; or (b) Blacks just aren't as interested in pursuing philosophy as a career as Whites are. There's no reason they would have to be. Blacks, after all, do have cultural differences from Whites, and there is no reason why they would have to be pressured into becoming what they call "Oreos": Black skin but a White person underneath.

But to return to the point, since work is a necessity for most employees, this can be said:

Conclusion 32: Once a person hires an employee, he has a certain commitment to him, and cannot fire him frivolously. This commitment grows stronger the longer the employee works for the employer, and hence the more serious must be the reasons for firing him.

The reason for this is that the longer the person works for a given employer, the more accustomed he becomes to doing things the employer's way, and the less adaptable he becomes to doing things another way. Hence, the longer he works for one employer the less desirable he is as an employee somewhere else, which means that if he is fired, he is going to find it harder to find another job. But this in turn means that he is more likely to be dehumanized if fired the longer he works for the same employer.

Since this is so, and since the employer is hiring a human being to work for him, it means that, if the employer is not satisfied with the way he is doing things, the time to get rid of him is early on, not after he has been working for years. Furthermore, the longer the employee works, the more useful he could be expected to be to the employer, who no longer has to spell out in detail everything he wants him to do. But the real point is that to let someone go "because we found somebody else more qualified" is often to create a human tragedy for the sake of the pursuit of your own goals, and is as morally wrong as what doctors do when they charge exorbitant prices for their services. In both cases, the fact that "everyone does it" simply means that people in positions of power don't realize that exercises of raw economic power over other human beings are tantamount to the exercise of power by threat of maiming. In fact, however, it is morally wrong to advance yourself toward your goals by doing something that brings harm on other people.

That is, of course, a restriction on the employer. But in exchange for it, he has a service performed in the way in which he wants it performed. It is a small price to pay for this, it seems to me, to recognize the humanity of the person you hired to work for you; and if he's not perfection, but you've put up with him this long, why are you telling him to go fend for himself now? Of course, there are reasons for firing a person; what I am saying is that the longer he works for you, the more serious the reasons have to be.

Now then, once the employee is hired, of course, he is under orders; and that means the following:

Conclusion 33: The employer has the right to impose sanctions on the employee for not following orders. Like all sanctions, these must be the minimum necessary to ensure obedience "practically all" of the time.

Very often, the expression of the employer's displeasure is enough. But there are things like demotions and docking of pay which can also be used as threats; and of course, the ultimate threat is firing.

Since the employee is an employee, generally speaking, because he doesn't have the mental or emotional capability to be a successful entrepreneur, then employment is a necessity for him; and it can be a question even of staying employed or dying of starvation. In any case, losing his job is extremely hard on an employee, and so the threat of firing can be a very severe sanction indeed.

Because the employee is under the authority of the employer, then what we said in the preceding section in Chapters 5 and 6 6.3.5 6.3.6 about responsibility with respect to the authority and the one under authority applies:

The employer is the one responsible for what is done and the way it is done, and the employee, insofar as he is following orders (supposing them not to be morally wrong) is not responsible for what is done or how it is done. Employees become responsible for what they do if they (a) obey orders to do something morally wrong, or (b) disobey orders (whether they were immoral commands or not). They are also responsible for what is done if they have information relevant to their orders and they do not tell the employer so that he can take it into account.

Employees, of course, must disobey any orders to do what is morally wrong, even if they will be fired for disobeying. In general, they must disobey orders that are unjust (that violate their rights or that exceed the employer's authority), except when, using the Double Effect, the effect of disobedience (such as demotion or firing) would be worse than the injustice they are suffering by obeying. This is all a straightforward application of what was said in the preceding section.

If an employee is going to disobey an unjust order, by the way, he has an obligation to inform the employer that he is not going to obey and why; if he simply doesn't carry out the order without letting anyone know of this, then he is being unjust to the employer, who (a) may not be aware of the injustice of what he is commanding, and (b) has a right to expect that his employees will do what he tells them. It obviously contradicts the employer as a person who gives you orders if he tells you to do something and then has no idea whether you will do it or not.

Employers may request favors of employees over and above what they were hired for; but it must be very clear that these are favors and that gratitude (and possibly more tangible rewards) follow, not that refusal is going to mean suffering the penalties of disfavor. This is a very delicate area, however, since for the employee work is a necessity, and so he might very well be using the Double Effect and doing something that he would much rather not be doing in order not to lose his job or incur the covert wrath of his boss by refusing. It is very easy for employers, who have enormous power over their employees, to think that employees are eager to do things for them and that they like them and all that sort of thing; and therefore to exploit this superficial readiness as if it were based on affection rather than apprehension of losing the job.

Conclusion 34: Employers should ask favors of their employees only extremely rarely, and then only in circumstances where it is perfectly obvious that a refusal will not make them suffer in any way.

A word on expert employees. If an employer hires an expert to work for him, he has less control over how the employee does his job than if he hires just a worker. The reason, of course, is that the employee knows more about what he is doing than the employer and he is hired precisely for this reason. Hence, it contradicts what the employer hired him for in the first place if the employer is going to meddle in things he knows less about than the person he hired.

It is also unjust for the employer to meddle, because the expert employee is the one who will be held responsible for a botched job rather than the non-expert employer; and this puts the employee in an equivocal position. Theoretically, he would not be responsible for the mess if he were told to do it; but in practice, since he is the expert, he is responsible for it. Hence, he must be left to do his job as his expertise dictates, more or less as if he were an entrepreneur, where results rather than method are what the buyer has control over. The employer, however, still has control over details of the job that do not fall under the expertise of the employee, such as hours of work, place of work and working conditions, and so on.

But since the employee is a human being, it follows that

Conclusion 35: Working conditions and the general atmosphere of the work must be such as to be consistent with human dignity, as far as the nature of the work allows this.

The employee is not simply earning money by his work; he is spending some of his life working under the authority of the employer. But he is a self-determining human being, not a slave, and while he is working he is not owned, but serving the employer; and hence he must be treated as a human being who is freely offering his services to the employer. The employer, that is, cannot expect servility simply because he is paying someone to work for him.

There are some jobs, such as garbage collecting or mining, in which working conditions are never going to be pleasant, or even free of danger. These jobs, because of the unpleasantness connected with them, should be compensated more highly than jobs which in themselves are rewarding and humanly fulfilling. No one, of course, may be ordered to perform a dangerous task against his better judgment; it must be very clear to him that he is freely choosing to do it, and is not going to suffer if he refuses. Hence, if he is to work among toxic chemicals, he must be informed of the danger, so that he can make up his mind whether he wants to take the risk.

Obviously, government can set minimum standards relating to hazardous working conditions and in general for humane working conditions. But these must be minimum standards, and must leave employers and employees free to work things out for themselves based on the actual situation. The object is not to save employees from all dangers or unpleasantness, but to prevent the dehumanization consequent upon an employee's having to choose to work at a job that is dangerous or unpleasant because otherwise he starves. As I said earlier, once government gets into the regulating business, it will, if it is not very careful, overregulate, forcing all sorts of unnecessary "good" acts upon employers and employees alike, and in some cases, making things worse by its ham-handed attempt to make everything perfect. In general, regulations should only be imposed after there have been significant cases of dehumanization. People in general have good will; and it is invidious to assume that, since employers can exploit employees, they will do it unless Big Brother is breathing down their backs.

Sometimes, government regulation forces employers into dangerous practices. There has been discussion over whether women can be excluded from jobs that involve danger to their fetuses if they become pregnant. The feminist objection that "this is the woman's decision" is not valid here, because another person is at least potentially involved, and a woman may be pregnant for a matter of weeks without knowing it (and this early time is usually very critical for the fetus). Employers, recognizing this, may say that they will not hire women for these jobs, because they (the employers) are responsible for what is done by the employees under their orders, and so they are in fact responsible for any harm which would come to a person because his mother either didn't care about her child and exposed him to lead poisoning or radiation in order to get the higher salary, or did not think she was pregnant. The deformed child then not only has a claim against his mother, but against his mother's employer; and since this is so, to force the employer to do something that he could avoid is to dehumanize him in the name of "equal opportunity." This shows what can happen when the regulating fever takes over government.

Now then, when an entrepreneur hires employees to work for him, several special things occur. The entrepreneur is not really, in a sense, hiring people to work for him, since as an entrepreneur he is offering the services of the firm to the public. Thus, he is hiring people to work for the firm rather than himself.

This makes a difference, because the firm as such has purposes that are independent of the choice of the entrepreneur, as we saw in Chapter 7 of Section 2 of this part 6.2.7. Since the firm is performing a service to the consumer, this is one of its purposes, whether or not the entrepreneur regards it as a purpose, or only sees it as a means to an end.

Similarly, when the entrepreneur hires people to work for the firm, they are cooperating for the purposes of the firm, not the purpose of the entrepreneur. For instance, if he wants to put out defective merchandise because he can make a bigger profit this way, this is inconsistent with the firm's coordinate purpose of providing a service to the consumer, and the employee would have to refuse to cooperate in what is going on.

Hence, we can say this:

Conclusion 36: As soon as an entrepreneur hires people to work for him, the firm becomes a society with three coordinate goals: (a) to provide a service to the consumer, (b) to provide profit for the entrepreneur, and (c) to provide the benefits of employment to the employees.

I said in Chapter 7 of Section 2 of this part 6.2.7 that the entrepreneur does not own his firm, because you can't own a service. It is even more true, as I also have said in several places, that you can't own the people who work for you. The fact that the entrepreneur created the business doesn't mean that he can do whatever he wants with it, because it necessarily involves him in relations with other people, and other people have rights. Hence, he is not the owner, but the one in authority in this new society which has been created; and this means he has a definite role and is engaged in cooperative activity for the sake of the service he is performing.

But why does the firm suddenly acquire as part of its common goal providing the benefits of employment to the employees? The reason is twofold. First, people achieve the ability to pursue their goals by serving others; and so those who don't have entrepreneurial skills need to work for someone else in order to be able to pursue their goals. This means that most people need jobs in firms in order to survive. Secondly, entrepreneurs obviously need employees; they wouldn't be hiring other people to help them perform their service if they could do it all by themselves.

Since, then, the entrepreneurs need to hire people to work for them, then they become of necessity that segment of the population which is providing employment opportunities for the segment of the population for which this is a necessity. Hence, the complex firm has employment as one of the things that makes it what it is; and so providing humane employment is one of its coordinate goals. To put it another way, the complex firm is performing two services: the obvious one to the consumer, and the less obvious one to the members themselves; and this second service splits into two: the service of providing work and profit for the entrepreneur, and the service of providing employment for the people in society who need it.

Since providing employment is one of the coordinate goals for the firm as such, it follows that

Conclusion 37: Entrepreneurs must not be solely concerned with maximizing profit when considering hiring employees and providing working conditions for them.

That is, it is quite reasonable for an entrepreneur who is making a profit that is greater than his standard of living to hire employees even beyond the point where the law of diminishing returns sets in. That is, if the amount that has to be paid dealing with this last employee (including not just wages but the cost of providing working conditions and the extra work connected with figuring out his taxes and so on) is greater than the revenue increase of the firm because he is now in it, then obviously hiring him is a net loss for the firm, financially speaking.

Nevertheless, this means that one more employee now has the opportunity to work and pursue his human goals through service to others, and providing this opportunity is a valuable public service.(2) It is perfectly legitimate for the entrepreneur to take this into account as one of the functions of his firm, and if his profit is sufficient to meet his standard of living with this extra employee, why shouldn't he hire him? It is only if you look on things solely in terms of money that hiring employees beyond the point of diminishing returns makes no sense. Business is not in business just to make as much money as possible for the entrepreneur; and entrepreneurs who are not interested in making more than a decent living are being perfectly rational if they plow extra profits back into the firm with the idea of making the service better and giving decent employment, wages, and working conditions to as many people as possible.

That is, the economics of capitalism is only the "dismal science" if you take a one-sided view of it. In practice, there are many, many entrepreneurs (especially entrepreneurs of small firms) who are not interested in becoming as rich as possible, but who just want to serve the public well; and it is time to stop trying to write "realistic" economics textbooks that assume that everyone is infinitely greedy, and that it is "idealistic nonsense" to say that firms can rationally do things that don't tend toward the greatest possible return upon investment.

With respect to employment, this service of providing employment for people in general falls upon firms and private individuals. Government is to be the employer only of last resort.

The reason for this is that, first of all, in order to provide employment, government must use taxes to pay the employees, and the taxes are taken from other citizens, who do not, of course, want the service. The second reason is that employment purely for the sake of giving jobs to the employees means that the employees are not really performing a service, but are beneficiaries of the salary, for which they have to do something not needed or wanted by anyone. There are, of course, tasks that the government must perform, which require employees to perform them; and there is no problem with its hiring people for this purpose. But government's providing jobs for the sake of keeping citizens employed is so close to being self-contradictory that it is to be used only when the Double Effect would demand it.

Government's role with respect to employment, then, is to make it clear to the private sector that firms have an obligation to provide employment to the citizens, and to avoid getting in the way of the private sector's providing employment by creating conditions unfavorable to employment. Our government, for instance, raised the capital gains tax a while back, because the largest number of people who were clamoring about the fact that the deficit had to be cut wanted to "soak the rich." But of course, higher taxes on capital gains discourages investment in things that produce capital gains like plant expansions, modernization, and so forth, which generate jobs. Having done this, the same people will then be pushing for government-generated jobs programs. It is this sort of government meddling that must be kept to an absolute minimum.

If we look now at the employee's role in this society which is the firm, we can say two things:

Conclusion 38: The employee in a complex firm is serving two people: the entrepreneur who has hired him, and in cooperation with the entrepreneur, the consumer whom the firm is serving.

That is, the employee's duty is not solely to the entrepreneur; but since he is a member of a society one of whose common goals is the service of the consumer, he is also serving the consumer. Hence, any orders that the entrepreneur gives that are positively detrimental to the consumer are unjust and must be disobeyed, or the employee also, as I said, becomes responsible for the harm done to the consumer.

But a single employee is often in a very poor position to protest bad business practices on the part of the firm that hired him; and so it is legitimate for him to band together with other employees to be able to exert counter-pressure on the entrepreneur to make sure that the firm acts consistently with all three of its goals.

Conclusion 39: Unions of employees are legitimate, and must not be hindered. But they are to be used not only to protect the employees from injustices to them, but to pressure employers to see to it that all the goals of the firm are advanced.

Historically, unions have been very useful in reversing the tendency of entrepreneurs to perpetrate injustices upon employees; but in recent years, it has looked increasingly as if unions have put so much pressure on the firm that its service to the consumer, and sometimes even a decent profit for the entrepreneur is lost sight of, and the firm is forced out of business by the unreasonable demands of the employees. Shoddy service because of the impossibility of imposing sanctions on employees and high prices because of demands for exorbitant wages have perhaps improved the workers' lot; but it is now being done at the expense of the consumer; and the firm is in business to serve the consumer, not to gouge him. Unions which have the good of the firm and not simply their own gain in view can perform a very beneficial service to the firm, the consumer, and the society in general; but since, having power, they can abuse it (and are, in some cases, blatantly abusing it, with as much abandon as the capitalists of the last century), then government must step in with legislation designed to curb abuses, but even more with education trying to get across what unions' proper task is--and for that matter, what firms' proper tasks are in society.

As to the entrepreneur in a complex firm, he is serving it in two senses: (a) by investing his money in it when he could be doing something to further his own goals with the money, and (b) by taking upon himself the authority of the firm, and thus becoming responsible not only for what he does but for what the employees do also.

I mentioned in Chapter 5 of Section 2 of this Part 6.2.5 that compensation was due for a service, not necessarily just for work. Any time a person foregoes his own goal-seeking and does something that benefits others rather than himself, he deserves compensation. The entrepreneur, then, is performing a service, and a service to the firm (through which he indirectly serves the consumer). This service of providing money and taking responsibility is not only very valuable, but necessary for the firm's very existence; and hence the entrepreneur deserves compensation for what he is doing for it.

And of course, the compensation I am speaking of is the profit of the firm. Since the entrepreneur is responsible for there being a firm in the first place, then there is no reason why, once the firm has performed its service and received (as a firm) its payment for the service, and the entrepreneur has covered his costs and paid the employees a decent wage (i.e. one that enables them to pursue their own goals meaningfully), he cannot take what is left over as his profit, even if the amount is enormous. He is not doing anyone any harm by this, and has no reason to feel guilty at becoming fabulously wealthy by being the entrepreneur in the firm, any more than he should feel guilty if he were the sole person in the firm and people were paying him enormous sums for his service.

But he has a right to a decent profit insofar as he is performing the service of investing his money and being the authority of the firm as a society. He doesn't deserve the profit because he is "risking" his money, as if the danger of losing all of it were the service he was performing. Insofar as the danger of losing it is great, then he might deserve a higher profit than otherwise, just as an employee has a right to ask for a higher salary if he is going to perform a dangerous job. But even if the investment is as safe as putting his money into a bank (which as I originally wrote this didn't seem to be all that safe either), he still deserves a profit, because this money is benefiting not only the public but his employees, who can serve without having the burdens of responsibility for the service on their shoulders.

Note that it is often a value for a person to serve the public through being an employee in a firm rather than serving them directly as an entrepreneur; and this means that he is willing to give up some of the compensation he would probably otherwise receive in order to have the luxury of not being responsible directly to the consumer and of having a steady salary.

I mentioned earlier the contractor who had done some remodeling for us. He had a worker under him for whom he was charging me $17.50 per hour in wages (the same as he was charging me for his own services per hour); but he was paying the worker only $10.00 per hour of the "wages" I was ostensibly paying for the worker's work. The difference looks as if he was siphoning off $7.50 per hour from what the worker was earning; but out of that, he had to take care of insurance and other costs that the worker didn't have to worry about, and in addition he had to plan what the worker was to do and so forth, while the worker had no concerns except to pick up the hammer and saw and do what he was told and then go home and night and forget the whole thing. I talked to him one time and he said, "I know what he's charging you for my work; but I don't care. To me it's worth it not to have to go through the hassle." Hence, the entrepreneur is performing a service to the employees.

But since the entrepreneur's service is necessary, then he is of course in a position of power, just like the provider of any necessary service. And since he is also the one in authority in the firm, then he is the one who sees to it how much each person in the firm is to be paid. This clearly allows for the possibility of abuse, "paying himself" such enormous compensation for his invaluable service that the employees and the service to the consumer suffer.

Hence, we can say this:

Conclusion 40: Entrepreneurs must take great care that, since their service to the firm is a necessity for it, that they do not take advantage of the employees or the consumer by their exorbitant demands.

They are not quite in the position of doctors, however, unless the firm itself is performing a necessary service to the consumer. Doctors, as I said, had to base the price they asked for their service on what would allow them to make a decent living but no more, because they were in effect holding the consumer under a threat. But if the firm in question is performing a non-necessary service, then, even if the entrepreneur is holding the firm itself under a threat of dissolution if he withdraws his money, still, the employees can find jobs elsewhere, and do not need to work in this firm in order to survive.

Furthermore, if the entrepreneur is paying them decent wages, they are not being damaged if he takes a million dollars a year from the firm in profit; and so his demanding of this from the firm does not mean that the employees have to "pay" it or be harmed. They will be less well off, perhaps, than they would be if he took half of the profit and used it to raise their salaries; but they don't need the raise in order to live a human life, in the sense that the patient needs the doctor's service in order to live a human life. So there is nothing wrong in the entrepreneur's becoming very rich from his business, as long as it is performing good service to the consumer at a reasonable price and that it is paying good wages and providing good working conditions for its employees.

All this supposes, as I said, that the firm is not providing a necessity to the consumer. If it is, then what I said about the doctor applies to the firm and to everyone in it, especially the entrepreneur. If the product is a necessity, then the consumer has a right to have it free, except for the fact that others are serving him in providing it, and they have a right to compensation for their service. But this means that the providers (each and all of them in the firm) have a right to a decent living from their collective service, but to no more than this. Hence, the entrepreneur in, say, a pharmaceutical company has no right to more than enough profit to live reasonably decently, and must cut prices if his firm is making more of a return than enough to cover costs, pay decent wages, have decent working conditions, plus this decent profit.

This again is a moral issue, and until it is recognized as such, I don't see much hope that legislation can alter the abuse of economic necessities that is going on today. Once it is recognized for what it is, though, legislation can probably curb abuses, because the people will be basically willing to do the right thing, and can exert enough pressure on each other that the greedy ones will stand out and can be dealt with.

There are legal technicalities that I don't want to go into connected with firms that have more than one entrepreneur. If the firm is a partnership, then the partners are jointly responsible for what the firm does; and so if one partner absconds, the other is held fully responsible. To avoid this sort of thing, the corporation was devised, where each entrepreneur can be held liable only to the extent of the amount of money he invested in the firm, and his private assets are then exempt from seizure to pay off the firm's bills.

But I do want to say a word or two about a structural difference that emerges when the corporation has a relatively large number of investors. In that case, it becomes impractical for the entrepreneurs to take authority for the actual running of the firm; and so for practical purposes their sole service to the firm is that of investing money in it. It follows from that, of course, that the return on their investment would tend to be less than the return to the entrepreneur who also directs the operations of the firm.

Very often, of course, in our stock markets, investors "invest," not really to serve the firm, but because it is a kind of lottery or game, where not even the dividends of the stock (the share of the profits) make much difference, but the increase and decrease of the selling-price of the stock is all that is of interest. In theory, this price should reflect the profitability of the firm, its soundness, and so on; but in practice, it is often pure mob psychology which determines the way a stock's selling-price will go. Speculators in the stock market are not really capitalists (and most stock trading is speculation to one degree or another), but simply gamblers, though the game happens to benefit to some extent the businesses they are shuffling round on the Big Board, because at least the initial stock issue raised money for the company. But beyond that, the company does not really see any return for the fluctuations in the price of its stock in the market.

But that aside, when the number of stockholders is large, then the firm has to be managed by an employee or employees who take over the authority in running the firm. These employees, of course, are top management: the board of trustees (who are usually some of the stockholders) and the president. What I want to say here is that

Conclusion 41: The function of the policy-setting level of management is to see to it that all three of the goals of the firm are recognized and promoted, and that the firm is not run simply as a machine for making profit for the investors.

Since large firms are so impersonal, it is frighteningly easy to turn them into bureaucratic machines that do nothing but grind out money for the investors, caring nothing at all about decency towards the employees or a good service to the consumer, except insofar as this makes greater or lesser profits. This, though it is what is taught in economics textbooks, is wrong and inconsistent with the nature of a firm; and it must be stopped.

Managers also, since they hold authority in the firm and also are necessary to its existence, should not have so exalted an idea of the "value" of their service that they charge outlandish fees for their service. Once again, they get what they ask for, not because they are so valuable, but because they are necessary; and insofar as they help decide their salary, they have a double opportunity to exploit others so that they can have more money than any rational human being would know what to do with.

But that is about all I am going to say about the complex firm. Let me simply finish up this section by stating that government can affect the economy of the country in various ways: by spending money, borrowing money, exacting taxes, allowing inflation, and regulating things like interest rates. It is exceedingly tempting to use government's vast economic power to tinker with the country's economy and try to manage it.

But (a) this is an almost certain recipe for disaster, because the economy of a whole country is so complex that, Keynes notwithstanding, no one has much of a clue to what is going to happen by this or that government intervention. A great deal of what the economy of the country as a whole does is mob psychology, and the thing that brought prosperity yesterday can bring disaster today as that most irrational of all animals the public is swayed one way or another. Also (b), even if it could be done, it shouldn't be, because of the Principle of Subsidiarity.

True, some tinkering with the economy is probably necessary, because what government does in performing its tasks has an effect on the economy of the country, and it has to correct for adverse consequences of what it is doing; and also, when there are things going on in the private sector that cause inflation or deflation and affect the value of money, government must correct this and keep the money stable as far as possible. But this sort of thing should be kept to an absolute minimum. Government's task is not "producing prosperity," but preventing violations of rights and dehumanization.

So let me end this treatment of society and the part of the book that is analysis of the way things are as I see them by issuing the cry to government that all citizens of every country, it seems, must always issue to government. In the words of Moses,

Let my people go!



1. The fact that earlier generations were treated unjustly does not, of course, justify treating the present generation unjustly "to get even." Two evils never add up to a good.

2. It also follows, of course, that the volume of what is offered to the public increases, even though not at a rate which implies a profit to the entrepreneur; and thus the first goal of the firm, providing a service to the consumer, is also enhanced. It is only when profit is regarded as the goal, such that service and employment may suffer to achieve it, that it is "silly" to hire a worker beyond the point of diminishing returns.