Chapter 1

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Fundamentals of Prosperity

What They Are and Whence They Come

By

ROGER W. BABSON

_President Babson Statistical Organization_

NEW YORK CHICAGO

Fleming H. Revell Company

LONDON AND EDINBURGH

Copyright, 1920, by FLEMING H. REVELL COMPANY

New York: 158 Fifth Avenue Chicago: 17 North Wabash Ave. London: 21 Paternoster Square Edinburgh: 75 Princes Street

Contents

FOREWORD I. HONESTY OR STEEL DOORS? II. FAITH THE SEARCHLIGHT OF BUSINESS III. INDUSTRY VS. OPPORTUNITY IV. COOePERATION--SUCCESS BY HELPING THE OTHER FELLOW V. OUR REAL RESOURCES VI. STUDY THE HUMAN SOUL VII. BOOST THE OTHER FELLOW VIII. WHAT TRULY COUNTS IX. WHAT FIGURES SHOW X. WHERE THE CHURCH FALLS DOWN XI. THE FUTURE CHURCH

Foreword

Some two thousand years ago the greatest teacher who ever walked the earth advised the people of Judea not to build their houses on the sand. What he had in mind was that they were looking too much to the structure above ground, and too little to the spiritual forces which must be the foundation of any structure which is to stand. Following the war we enjoyed the greatest prosperity this country has ever witnessed;--the greatest activity, the greatest bank clearings, the greatest foreign trade, the greatest railroad gross earnings, the highest commodity prices.

We then constructed a ten-story building on a foundation meant for only a two or three story building. Hence the problem confronting us business men is to strengthen the foundation or else see the structure fall. I am especially glad of the opportunity to write for business men. There are two reasons:--first, because I feel that the business men are largely responsible for having this ten-story structure on a foundation made for one of only two or three stories; secondly, because I believe such men alone have the vision, the imagination and the ability to strengthen the foundation and prevent the structure from falling.

The fact is, we have become crazy over material things. We are looking only at the structure above ground. We are trying to get more smoke from the chimney. We are looking at space instead of service, at profits instead of volume. With our eyes focused on the structure above ground, we have lost sight of those human resources, thrift, imagination, integrity, vision and faith which make the structure possible. I feel that only by the business men can this foundation be strengthened before the inevitable fall comes.

When steel rails were selling at $55 a ton, compared with only $25 a ton a few years previous, our steel plants increased their capacity twenty-five per cent. Increased demand, you say? No, the figures don't show it. Only thirty-one million tons were produced in 1919, compared with thirty-nine million tons in 1916. People have forgotten the gospel of service. The producing power per man has fallen off from fifteen to twenty per cent. We have all been keen on developing consumption. We have devoted nine-tenths of our thought, energy and effort to developing consumption. This message is to beg of every reader to give more thought to developing production, to the reviving of a desire to produce and the realization of joy in production.

We are spending millions and millions in every city to develop the good-will of customers, to develop in customers a desire to buy. This is all well and good, but we can't continue to go in one direction indefinitely. We cannot always get steam out of the boiler without feeding the furnace. The time has come when in our own interests, in the interests of our communities, our industry, and of the nation itself, for a while we must stop adding more stories to this structure. Instead, we must strengthen the foundations upon which the entire structure rests.

R. W. B.

I

HONESTY OR STEEL DOORS?

While fifty-one per cent of the people have their eyes on the goal of integrity, our investments are secure; but with fifty-one per cent of them headed in the wrong direction, our investments are valueless. The first fundamental of prosperity is Integrity.

While on a recent visit to Chicago, I was taken by the president of one of the largest banks to see his new safety deposit vaults. He described these--as bank presidents will--as the largest and most marvellous vaults in the city. He expatiated on the heavy steel doors and the various electrical and mechanical contrivances which protect the stocks and bonds deposited in the institution.

While at the bank a person came in to rent a box. He made the arrangements for the box, and a box was handed to him. In it he deposited some stocks and bonds which he took from his pocket. Then the clerk who had charge of the vaults went to a rack on the wall and took out a key and gave it to the man who had rented the box. The man then put the box into one of the little steel compartments, shut the door and turned the key. He then went away feeling perfectly secure on account of those steel doors and various mechanical and electrical contrivances existing to protect his wealth.

I did not wish to give him a sleepless night so I said nothing; but I couldn't help thinking how easy it would have been for that poorly-paid, humpbacked clerk to make a duplicate of that key before he delivered it to the renter of that box. With such a duplicate, the clerk could have made that man penniless within a few minutes after he had left the building. The great steel door and the electrical and mechanical contrivances would have been absolutely valueless.

Of course the point I am making is that the real security which that great bank in Chicago had to offer its clientele lay not in the massive stone columns in front of its structure; nor in the heavy steel doors; nor the electrical and mechanical contrivances. The real strength of that institution rested in the honesty,--the absolute integrity--of its clerks.

* * * * *

That afternoon I was talking about the matter with a business man. We were discussing securities, earnings and capitalization. He seemed greatly troubled by the mass of figures before him. I said to him: "Instead of pawing over these earnings and striving to select yourself the safest bond, you will do better to go to a reliable banker or bond-house and leave the decision with him."

"Why," he said, "I couldn't do that."

"Mr. Jones," I went on, "tell me the truth! After you buy a bond or a stock certificate, do you ever take the trouble to see if it is signed and countersigned properly? Moreover, if you find it signed, is there any way by which you may know whether the signature is genuine or forged?"

"No," he said, "there isn't. I am absolutely dependent on the integrity of the bankers from whom I buy the securities."

And when you think of it, there is really no value at all in the pieces of paper which one so carefully locks up in these safety deposit boxes. There is no value at all in the bank-book which we so carefully cherish. There is no value at all in those deeds and mortgages upon which we depend so completely. The value rests _first_, in the integrity of the lawyers, clerks and stenographers who draw up the papers; _secondly_, in the integrity of the officers who sign the documents; _thirdly_, in the integrity of the courts and judges which would enable us to enforce our claims; and _finally_, in the integrity of the community which would determine whether or not the orders of the court will be executed.

These things which we look upon as of great value:--the stocks, bonds, bank-books, deeds, mortgages, insurance policies, etc., are merely nothing. While fifty-one per cent. of the people have their eyes on the goal of Integrity, our investments are secure; but with fifty-one per cent. of them headed in the wrong direction, our investments are valueless. So the first fundamental of prosperity is integrity. Without it there is no civilization, there is no peace, there is no security, there is no safety. Mind you also that this applies just as much to the man who is working for wages as to the capitalist and every owner of property.

Integrity, however, is very much broader than the above illustration would indicate. Integrity applies to many more things than to money. Integrity requires the seeking after, as well as the dispensing of, truth. It was this desire for truth which founded our educational institutions, our sciences and our arts. All the great professions, from medicine to engineering, rest upon this spirit of integrity. Only as they so rest, can they prosper or even survive.

Integrity is the mother of knowledge. The desire for truth is the basis of all learning, the value of all experience and the reason for all study and investigation. Without integrity as a basis, our entire educational system would fall to the ground; all newspapers and magazines would become sources of great danger and the publication of books would have to be suppressed. Our whole civilization rests upon the assumption that people are honest. With this confidence shaken, the structure falls. And it should fall, for, unless the truth be taught, the nation would be much better off without its schools, newspapers, books and professions. Better have no gun at all, than one aimed at yourself. The corner-stone of prosperity is the stone of Integrity.

II

FAITH THE SEARCHLIGHT OF BUSINESS

This religion which we talk about for an hour a week, on Sunday, is not only the vital force which protects our community, but it is the vital force which makes our communities. The power of our spiritual forces has not yet been tapped.

About three years ago I was travelling in South America. When going from Sao Paulo up across the tablelands to Rio Janeiro, I passed through a little poverty-stricken Indian village. It was some 3,000 feet above sea level; but it was located at the foot of a great water-power. This water-power, I was told, could easily develop from 10,000 to 15,000 horse-power for twelve months of the year. At the base of this waterfall lived these poverty-stricken Indians, plowing their ground with broken sticks, bringing their corn two hundred miles on their backs from the seacoast, and grinding it by hand between two stones. Yet,--with a little faith and vision, they could have developed that water-power, even though in a most primitive manner, and with irrigation, could have made that poverty-stricken valley a veritable Garden of Eden. They simply lacked _faith_. They lacked vision. They were unwilling, or unable, to look ahead to do something for the next generation and trust to the Lord for the results.

I met the head man of the village and said to him: "Why is it that you don't do something to develop this power?"

"Why, if we started to develop this thing," he answered, "by the time we got it done, we would be dead."

Indians had lived there for the last two hundred years lacking the vision. No one in that community had the foresight or vision to think or see beyond the end of his day. It was lack of faith which stood between them and prosperity. Hence, the second great fundamental of prosperity is that intangible "something,"--known as faith, vision, hope, whatever you may call it.

The writer of the Book of Proverbs says: "Where there is no vision, the people perish." Statistics teach that where there is no vision, civilization never gets started! The tangible things which we prize so highly,--buildings, railroads, steamships, factories, power plants, telephones, aeroplanes, etc., are but the result of faith and vision. These things are only symptoms of conditions, mere barometers which register the faith and vision of mankind.

This religion which we talk about for an hour a week, on Sunday, is not only the vital force which protects our community, but it is the vital force which _makes_ our communities. _The power of our spiritual forces has not yet been tapped!_ Our grandchildren will look back upon us and wonder why we neglected our trust and our opportunity, just as we look back on those poor Indians in Brazil who plowed with crooked sticks, grinding their corn between stones and hauling it on their backs two hundred miles from the seaboard.

* * * * *

These statements are not the result of any special interest as a churchman. I am not a preacher. I am simply a business man, and my work is almost wholly for bankers, brokers, manufacturers, merchants and investors. The concern with which I am associated has one hundred and eighty people in a suburb of Boston who are collecting, compiling and distributing statistics on business conditions. We have only one source of income, and that is from the clients who pay us for an analysis of the situation. Therefore you may rest assured that it is impossible for us to do any propaganda work in the interests of any one nation, sect, religion or church. The only thing we can give clients is a conclusion based on a diagnosis of a given situation. As probably few of you readers are clients of ours, may I quote from a Bulletin which we recently sent to these bankers and manufacturers?

"The need of the hour is not more legislation. The need of the hour is more religion. More religion is needed everywhere, from the halls of Congress at Washington, to the factories, the mines, the fields and the forests. It is one thing to talk about plans or policies, but a plan or policy without a religious motive is like a watch without a spring or a body without the breath of life. The trouble, to-day, is that we are trying to hatch chickens from sterile eggs. We may have the finest incubator in the world and operate it according to the most improved regulations--moreover, the eggs may appear perfect specimens--but unless they have the germ of life in them all our efforts are of no avail."

I have referred to the fact that the security of our investments is absolutely dependent upon the faith, the righteousness and the religion of other people. I have stated that the real strength of our investments is due, not to the distinguished bankers of America, but rather to the poor preachers. I now go farther than that and say that the development of the country as a whole is due to this _something_, this indescribable _something_, this combination of faith, thrift, industry, initiative, integrity and vision, which these preachers have developed in their communities.

Faith and vision do not come from the wealth of a nation. It's the faith and vision which produce the wealth. The wealth of a country does not depend on its raw materials. Raw materials are to a certain extent essential and to a great extent valuable; but the nations which to-day are richest in raw materials are the poorest in wealth. Even when considering one country--the United States--the principle holds true. The coal and iron and copper have been here in this country for thousands of years, but only within the last fifty years have they been used. Water-powers exist even to-day absolutely unharnessed. Look the whole world over and there has been no increase in raw materials. There existed one thousand years ago more raw materials than we have to-day, but we then lacked men with a vision and the faith to take that coal out of the ground, to harness the water-powers, to build the railroads and to do other things worth while. So I say, the second great fundamental of prosperity is Faith.

III

INDUSTRY VS. OPPORTUNITY

Industry is the mother of invention. Struggle, sacrifice and burning midnight oil have produced the cotton gin, the sewing machine, the printing press, the steam engine, the electric motor, the telephone, the incandescent lamp and the other great inventions of civilization. Some religious enthusiasts think only of the "lilies of the fields" and forget the parable of the talents.

A few years ago I was employed by one of the largest publishing houses in the country to make a study of America's captains of industry. The real purpose of the study was to discover some industry or some man that could be helped greatly through national advertising. In connection with that study of those captains of industry, I tabulated their ancestry. These were the seventy greatest manufacturers, merchants and railroad builders, the leading men who have made America by developing the fields, the forests, the mines and the industries. What did I find? I found that only five per cent. of these captains of industry are the sons of bankers; only ten per cent. of them are the sons of manufacturers; fifteen per cent. of them are the sons of merchants, while over thirty per cent. of them are the sons of poor preachers and farmers.

Why is it that ministers' sons hold a much more important place in the industrial development of America than the sons of bankers? The ministers' sons inherit no wealth, they have no more than their share of college education; they are not especially religious as the world measures religion. In fact, there is an old saying about "ministers' sons and deacons' daughters." I would be false to my reputation as a statistician to hold up these captains of industry as saintly examples for young men to follow. But the fact remains nevertheless that these men are creating America to-day. Now, what's the reason?

The reason is that these men have a combination of the two traits already mentioned and a third added thereto;--namely, the habit of work. They have inherited a certain rugged integrity from their mothers and a gift of vision from their fathers which, when combined with the habit of work--forced upon them by their family's meager income--means _power_. Integrity is a dry seed until put in the ground of faith and allowed to grow. But faith with works is prosperity.

A man may be honest and wonder why he does not get ahead; a man may have vision and still remain only a dreamer; but when integrity and vision are combined with hard work, the man prospers. It is the same with classes and nations.

It has been said that genius is the author of invention. Statistics do not support this statement. The facts show that industry is the mother of invention. Struggle, sacrifice and burning midnight oil have produced the cotton gin, the sewing machine, the printing press, the steam engine, the electric motor, the telephone, the incandescent lamp and the other great inventions of civilization.

Why is it that most of the able men in our great industries came from the country districts? The reason is that the country boy is trained to work. Statistics indicate that very seldom does a child, brought up in a city apartment house, amount to much; while the children of well-to-do city people are seriously handicapped. The great educator of the previous generation was not the public school, but rather the _wood box_. Those of us parents who have not a wood box for our children to keep filled, or chores for them to do, are unfortunate.

Run through the list of the greatest captains of industry, as they come to your mind. How many of the men who are really directing the country's business gained their position through inherited wealth? You will find them astonishingly few. There is no "divine right of kings" in business. In fact, statistics show us that the very things which most people think of as advantages, namely, wealth and "not having to work" are really obstacles which are rarely surmounted.

Industry and thrift are closely allied. Economic studies show clearly that ninety-five per cent. of the employers are employers because they systematically saved money. Any man who systematically saves money from early youth automatically becomes an employer. He may employ thousands or he may have only two or three clerks in a country store, but he nevertheless is an employer. These same studies show that ninety-five per cent. of the wage workers are wage workers because they have systematically spent their money as fast as they have earned it. They of necessity remain wage workers. These are facts which no labour leader can disprove and which are exceedingly significant. This is especially striking when one considers that the employer often started out at the same wages and in the same community as his wage workers. The employer was naturally industrious and thrifty; while those who remained wage workers were not.

The development of this nation through the construction of the transcontinental railways, the financing of the western farms, and the building of our cities is largely due to the old New England doctrine that laziness and extravagance are sins. In some western communities it is popular to laugh at these New England traits; but had it not been for them, these western communities would never have existed. The industry and thrift developed by the old New England religion were the basis of our national growth.

I especially desire to emphasize this point because of the position of certain religious enthusiasts who think only of "the lilies of the field" and forget the parable of the talents. It is a fact that the third fundamental of prosperity is Industry.

IV

COOePERATION--SUCCESS BY HELPING THE OTHER FELLOW

Our industrial system has resulted in making many men economic eunuchs. The salvation of our cities, the salvation of our industries and the salvation of our nation depend on discovering something which will revive in man that desire to produce and joy in production which he had instinctively when he was a small boy.

A few days ago I was present at a dinner of business men in Boston who were called together in order to secure some preferential freight rates for Massachusetts. The principal theme of that gathering was to boom Massachusetts at the expense of the rest of the country. At the close of the dinner I was asked to give my opinion and said: "Let us see how many things there are in this room that we could have were we dependent solely on Massachusetts. The chairs and furniture are from Michigan; the cotton is from Georgia; the linen from Ireland; the silver from Mexico; the glassware from Pennsylvania; the paper from Maine; the paint from Missouri; the clock from Connecticut--and so on." Finally I got the courage to ask if there was a single thing in the room that did not originate from some state other than Massachusetts. Those men were absolutely helpless in finding a single thing.

The same fact applies in a general way to every state and every home. Look about, where you are sitting now. How many things are there in the room just where you are,--there is a table, a chair, a shoe, a coat, a necktie, a cigar, a lampshade, a piano, a basket--for all of these you are dependent upon others.

The same fact is true when we analyze one staple like shoes which, primarily, are made of leather. Where does the leather come from? Just follow that leather from the back of the steer until you buy it in the form of shoes. Think where that steer was raised, and where the leather was tanned. Think of all the men engaged in the industry from the cow-punchers to the salesmen in the stores. But there is more than leather involved in shoes. There is cotton in the shoe lacing and lining. There is metal in the nails and eyelets. Not only must different localities cooeperate to produce a shoe; but various industries must give and take likewise.