cycle, with compound units rather than individuals. Accordingly we find agreements and pools arising, then trusts and mergers; until finally we come to the securities-holding companya corporation of corporations. The Tests of Efficiency of Business Organization. What have been the tests of efficiency which have determined the development and survival of the different forms of business organization? What are the tests for judging their relative efficiency to-day? The general test of economy is too indefinite for easy application. We may subdivide it into some five or six more particular and specific tests, as follows: 1. Facility of Formation. At the outset, the question of the ease of setting up in business differentiates one form of business organization from another. Aside from the question of raising capital, which is to be made a distinct test, there are questions of suitable associates, of expense, legal restrictions, etc. The problem of promotion is a big one nowadays, and one of the promoter's usual duties is to devise a suitable organization for his enterprise. 2. Amount of Capital. With the growing importance of capital in production, it has become increasingly essential that the form of business organization shall be one that facilitates the acquisition of large amounts of that factor. To this end it must afford a maximum degree of security, and appeal widely to the investing class. To be sure, where small capital is required, other tests may decide, but the preceding statement holds for industry as a whole. 3. Liability.- Closely connected with the subject of capital is the liability point. Risk is one of the chief elements in all business, and the form which will reduce risk to the minimum will most appeal to business men, when other things are equal. A certain amount of liability is essential in order to secure a proper motivation and direction of industry, and to insure those who deal with the business organization of fair treatment; but any greater liability than will attain these ends is undesirable from all points of view. Liability may be of two kinds : financial and legal. The former concerns economic responsi bility in case of insolvency; the latter concerns juristic responsibility for criminal and civil offenses. 4. Direction. Assuming that the capital has been raised, what efficiency will the form of organization, within which it is combined with the other factors, afford? The test of effective direction is in reality to be reduced to several subordinate tests. First, there is motivation, which concerns the intensity and directness of the stimulus to business activity. Then there are economy of operation, continuity of policy, flexibility of organization, to mention the more important points. By flexibility is meant adaptability to changing conditions, such adaptability being needed now for capital, now for membership, and again for centralization of management. 5. Endurance and Stability. The degree of permanence of the various forms of organization varies considerably, and this is a matter of no small importance. It is important to the individual to be able to lay business plans for the future and to make investments running for considerable periods of time. To the society it is important that some agency should exist for continuing in uninterrupted life the undertakings upon which its members depend for the satisfaction of their economic wants. In order to satisfy these needs the organization must both be able when undisturbed to last through a long period of time, and also to resist temporary disturbing influence, that is, be stable. Finally, (6) a legality test may be mentioned. In every civilized society there is a changing body of legal rules which must be observed if the form of organization is to be most effective. A form of organization like the trust, for example, is obviously inexpedient because of legal conditions. Thus the law reacts upon economy. Indeed, from the association standpoint the various forms of business organization are, as such, children whose father is economic expediency and whose mother is the law. That the foregoing tests may be applied both from the point of view of the individual — the "private point of view" and from the point of view of society - the "public point of view - must ever be borne in mind. In this volume we are primarily interested from the private point of view, but the other will by no means be neglected. CHAPTER III INDIVIDUAL-ENTREPRENEUR ORGANIZATION THE individual-entrepreneur system, or the single-entrepreneur system, as it is sometimes called, is that industrial order in which business is carried on mostly by individuals or families. The individual-entrepreneur form of business organization, accordingly, is an organization at the head of which stands an individual-or sometimes a family group of individuals—as the one who is responsible, who directs its operations, and who alone runs the risk of failure. Formerly the predominant kind of business unit, it is still common, and calls up the typical picture of the born business man whose sagacity, boldness, and organizing ability have put him at the head of a union of land, labor, and capital which he directs with the responsible initiative of a captain steering his own ship. Two great logical stages in the development of the character of the individual-entrepreneur system are apparent when its whole course is surveyed. In one, the entrepreneur is but little separated from the laborer and the capitalist; he combines three functions, and, according to circumstance, his function either as laborer or as capitalist may dominate. This condition was general in early handicrafts business, and is common among farmers and professional men to-day. Indeed, wherever the business is small and produces for "custom" trade, it will be found that the entrepreneur's function is apt to have little separate importance. As business grows in magnitude, however, a phase of division of labor is evidenced by the emergence of the entrepreneur as a distinct and prominent factor. In this capacity he may own no capital and do no labor, but give his whole energy to organizing and directing the business. Then alone is he entrepreneur pure and simple. |