Folk economics: good business practices

Recently I was talking with a friend about another fellow with whom he had business dealings; the other fellow was acting in a way my friend thought was unscrupulous, and it was causing him headaches (and costing him money). My friend called this fellow a poor businessman.

I asked him what he thought made a good businessman, and he listed a number of traits: honesty, fair dealing, concern for a quality product, willingness to bend over backward to make things right. I told my friend that I thought he was confusing business with neighborliness, and that the two realms were unrelated; the fellow who was causing him trouble was clearly being a bad neighbor, but he may very well be doing exactly what a good businessman should do in his situation.

I think we can easily confuse the two realms because we often conduct business in our neighborhood, and in fact most of what the average person understands about business comes from their business dealings with neighbors. And neighborliness can definitely have an effect on how we conduct business.

One great example is recounted in The Long Winter by Laura Ingalls Wilder. The winter has been hard, no supplies are coming in to DeSmet, and the townspeople are on the edge of starvation. Almanzo Wilder and Cap Garland hear that somewhere south of town there is a man with a supply of wheat, and they decide to make a dangerous journey in search of it. Mr. Loftus, a town storekeeper, agrees to put up the money to buy whatever wheat they find. Almanzo and Cap return with the wheat and turn it over to Mr. Loftus. Then Almanzo gives Mr. Loftus his change:

“You gave me eighty dollars to buy wheat with, and here’s what’s left, just five dollars even.”

“A dollar and twenty-five cents a bushel. That’s the best you could do?” Mr Loftus said, looking at the receipt.

“Any time you say, I’ll take it off your hands at that price,” Almanzo retorted.

“I don’t go back on a bargain,” the storekeeper hastily replied. “How much do I owe you for hauling?”

“Not a red cent,” Almanzo told him, leaving.

“Hey, aren’t you going to stay and thaw out?” Mr Loftus called after him.

“And let my horse stand in this storm?” Almanzo slammed the door.

Here we see Almanzo playing the neighbor and Mr. Loftus the businessman. Almanzo has rescued the town from starvation; Mr. Loftus intimates that he hasn’t gotten the best possible bargain for his money. Almanzo offers to make it right by paying for the wheat himself; Mr. Loftus, knowing that even if the bargain isn’t the best it is plenty good, demurs by insisting on his own honorableness. Almanzo refuses to put a price on his valiant effort, and Mr. Loftus doesn’t argue, happy to keep the hauling fee for himself. Almanzo is certainly an exemplary neighbor here, but I would also say that even though Mr. Loftus is being a rotten neighbor, he is concerned with exactly the thing a businessman should be concerned with: the bottom line.

When Mr. Loftus puts the wheat on sale, he decides to charge three dollars per bushel for it. The townspeople are not happy—in fact, many are determined to just go and take the wheat from him—but Pa Ingalls persuades them to go with him and talk to Mr. Loftus.

They all tramped along after him single file over the snowdrifts. They crowded into the store where Loftus, when they began coming in, went behind his counter. There was no wheat in sight. Loftus had moved the sacks into his back room.

Mr. Ingalls told him that they thought he was charging too much for the wheat.

“That’s my business,” said Loftus. “It’s my wheat, isn’t it? I paid good hard money for it.”

“A dollar and a quarter a bushel, we understand,” Mr. Ingalls said.

“That’s my business,” Mr. Loftus repeated.

“We’ll show you whose business it is!” the angry man shouted.

“You fellows so much as touch my property and I’ll have the law on you!” Mr. Loftus answered. Some of them laughed snarlingly. But Loftus was not going to back down. He banged his fist on the counter and told them, “That wheat’s mine and I’ve got a right to charge any price I want to for it.”

“That’s so, Loftus, you have,” Mr. Ingalls agreed with him. “This is a free country and every man’s got a right to do as he pleases with his own property.” He said to the crowd, “You know that’s a fact, boys,” and he went on, “Don’t forget every one of us is free and independent, Loftus. This winter won’t last forever and maybe you’ll want to go on doing business after it’s over.”

“Threatening me, are you?” Mr. Loftus demanded.

“We don’t need to,” Mr. Ingalls replied. “It’s a plain fact. If you’ve got a right to do as you please, we’ve got a right to do as we please. It works both ways. You’ve got us down now. That’s your business, as you say. But your business depends on our good will. You maybe don’t notice that now, but along next summer you’ll likely notice it.”

“That’s so, Loftus,” Gerald Fuller said. “You got to treat folks right or you don’t last long in business, not in this country.”

The angry man said, “We’re not here to palaver. Where’s the wheat?”

“Don’t be a fool, Loftus,” Mr. Harthorn said.

“The money wasn’t out of your till more than a day,” Mr. Ingalls said. “And the boys didn’t charge you a cent for hauling it. Charge a fair profit and you’ll have the cash back inside of an hour.”

“What do you call a fair profit?” Mr. Lofton asked. “I buy as low as I can and sell as high as I can; that is good business.”

“That’s not good business,” said Gerald Fuller. “I say it’s good business to treat people right.”

“We wouldn’t object to your price, if Wilder and Garland here had charged you what it was worth to go after that wheat,” Mr. Ingalls told Lofton.

“Well, why didn’t you?” Mr. Lofton asked them. “I stood ready to pay any reasonable charge for hauling.”

Cap Garland spoke up. He was not grinning. He had the look that made the railroader back down. “Don’t offer us any of your filthy cash. Wilder and I didn’t make that trip to skin a profit off folks that are hungry.”

Almanzo was angry, too. “Get it through your head if you can, there’s not money enough in the mint to pay for that trip. We didn’t make it for you and you can’t pay us for it.”

Mr. Loftus looked from Cap to Almanzo and then around at the other faces. They all despised him. He opened his mouth and shut it. He looked beaten. Then he said, “I’ll tell you what I’ll do, boys. You can buy the wheat for just what it cost me, a dollar twenty-five cents a bushel.”

“We don’t object to your making a fair profit, Loftus,” Mr. Ingalls said, but Loftus shook his head.

“No, I’ll let it go for what it cost me.”

This was so unexpected that for a moment no one knew exactly how to take it. Then Mr. Ingalls suggested, “What do you say we all get together and kind of ration it out, on a basis of how much our families need to last through the winter?”

They did this. It seemed that there was wheat enough to keep every family going for eight to ten weeks.

I quote this passage at length because I don’t know of a more beautiful picture of the uneasy relationship between business and neighborliness. Here are some of the things that occur to me as I read it:

  • Throughout the episode Mr. Loftus follows good business principles. His only mistake is to forget that he is also a neighbor of the folks he is selling to, and as such he is subject to the sorts of pressures that neighbors can apply.

  • As Mr. Loftus points out, the law is on his side. He is free to charge what he likes for the wheat, and the townspeople are free to buy or not buy it from him. The townspeople are free to be angry about the price he charges, but they are not free to express that anger by appropriating the wheat or otherwise doing injury to Mr. Loftus.

  • Pa Ingalls and Gerald Fuller rightly point out that the good will of one’s customers is an important factor in doing business. But Gerald Fuller goes too far in claiming that it is necessary to treat people right, i.e. be a good neighbor, in order to do business. Provided that Mr. Loftus is willing to put up with being despised (as many businessmen are), there are plenty of other tools at his disposal to keep ill-treated customers: low prices, better selection, advertising, convenience, deception, collusion, and so on.

  • Pa Ingalls is mistaken to bring up the idea of a “fair” profit, at least as he means it. It is possible to have a system where such an idea operates, but modern business defines a fair profit exactly the same way as Mr. Loftus does: buy as low as possible, sell as high as possible. Pa is trying to temper the ill effects of good business with neighborliness.

  • The most striking example of how average people have confused good business with neighborliness (willfully, I think, so as to leave open the possibility that they themselves might sometimes benefit from a “fair profit”) is when Pa Ingalls tells Mr. Loftus that they wouldn’t object to his price if Almanzo and Cap had charged what their trip had actually been worth. Mr. Loftus was quick to point out that he was willing to pay any reasonable charge for hauling, since that would have put the entire transaction in the realm of business. Pa may have been implying that Almanzo and Cap’s trip was in fact priceless, but he seems to be reluctant to say so, instead implying that the price was very high—but there was a price, nonetheless.

  • Cap and Almanzo are clear, though—the value of what they had done was entirely out of the realm of supply and demand. Their community was in need, and they met that need valiantly. To even suggest that they had compensation in mind was a gross insult.

  • When Mr. Lofton capitulates and decides to sell the wheat with no markup, it may or may not have been a business decision. Pa Ingalls had left open the possibility of a smaller, “fair” profit. But either Mr. Lofton decided that the cost in ill will wouldn’t be worth the money, or he decided to simply back off completely from a bad situation. He may actually have decided to do what would have been the neighborly thing in the beginning, but also realized that it wouldn’t be perceived as such. At that moment, not much short of giving away the wheat would have changed folks’ minds about him.

  • The final situation is about as un-free-market as you can get. Everyone pays for the wheat they buy, but it is allocated strictly by need; no doubt there were folks who could have afforded to buy more (and eat better), but their buying power was not allowed to trump the need of those with less.

The final irony is that in this case the merchant was totally irrelevant to solving the problem. It would have been just as easy for Almanzo and Cap to gather up what money there was in town (there was obviously enough, since everyone ended up paying) and use it to buy the wheat, then settle up accounts once they were back in town. But somehow these folks have been so deeply propagandized by business proponents that they think it is natural, even required, to give Mr. Loftus a profit for simply opening his till and lending out some money that he knows he will get back. Their only objection is that it be a “fair” profit, namely one that doesn’t cause them too much pain. Unfortunately for them, their situation is so dire that any reasonable calculation would peg the demand as being nearly infinite, meriting a very painful price for the buyer and a handsome profit for the seller.

What the people of DeSmet have forgotten, along with the rest of us, is that business practices were explicitly developed as an alternative to neighborliness, not an elaboration or enhancement of it. Karl Polanyi points out in his book The Great Transformation that until recently business trade was a relatively limited endeavor, taking place between towns and cities, leaving the countryside (and most of the population) largely unaffected. The reason was that there was no reliable means of enforcing business arrangements with villagers; until recently, a business dispute with a customer in a village had to be settled in that hard-to-get-to village, before a council of elders that might very well decide in favor of the villager if it was determined that the deal was somehow unfair to him. Business practices, especially enforcable legal contractual obligations, were developed specifically so people could conduct transactions with people who weren’t their neighbors.

My point here is not to rail against modern business practice, but only to urge readers not to romanticize business relationships by infusing them with the traits we expect to find in human relationships. There is nothing wrong with engaging in commerce, except to the extent that you give in to the temptation to treat your neighbor badly; those temptations are legion, and not only the world but much of the church is devoted to soothing our consciences about succumbing to them. But if you do choose to enter into a business relationship with a stranger, whether it be the box store whose headquarters is a thousand miles away, or the Chinese laborer who assembled your iPod, or the produce packer in south Texas who negligently contaminates your hot pepper, the contractor who gouges you for labor and materials in the aftermath of a hurricane, or the hometown bank that is shamelessly willing to say, “Well, this is business, after all” when you trigger some conjunction of events that violate the small print of your account agreement and incur some huge fee that compensates them for a trifling inconvenience—well, you shouldn’t be outraged or even surprised if you are being treated badly as a person. After all, the whole point of modern practice is to make it possible to deal with distant people at all, dealings that until recently couldn’t be conducted at all except between neighbors.

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3 thoughts on “Folk economics: good business practices

  1. My biggest complaint these days, is the tendency for business arrangements to treat humans as abstractions. Like the tendency of everybody, from insurance companies, to landlords to use something like a credit rating to set prices. where I work, as a groundskeeper, I saw our manager turn down a soldier, just back from 3 years in Iraq, who arrived with his fiancé, who wanted to rent an apartment. this man had learned a skill in the military, that had already earned him considerable income in the first 6 months home, he was well disciplined, had served his country, did not want to use his parents as cosigners, because he could easily pay for his own way, etc. Yet, because he had been over seas, he did not have a credit rating. On the other hand, we have many people who are just plain losers, who get in, becuase they have, a credit card. Wait till he tries to get some car insurance. Our manager desperately wanted them as renters, but could not rent to them. What kind of socity creates a system, where a fine young self supporting fellow, has to go into debt, to rent a cheap apartment, and buy car insurance? I wonder what Almanzo Wilder, would have said about that. {by the way, I live only 30 miles from Mansfield, Mo., where Almanso, and Laura settled, for the rest of thier lives}

  2. I couldn’t agree with Mark more over the ‘credit’ rating issue. Our whole society is trying to tie us into debt structures, how about we save some money up if we really need that huge flat-screen tv. Some years ago we were looking to borrow money to buy a house, just a small, starting out house, but the banks continually tried to get us to borrow more so that we could buy a bigger one – not what we wanted! We had good incomes but didn’t want a huge mortgage. One year later whilst living overseas the bank wouldn’t give my husband $500 increase to his credit card even though we were still reguarlly banking in Australia. No such problems now with the regular limit increase offers which come through the mail box.

  3. Listening to’ How to Watch TV News’ and the point is made that successful news programs orchestrate everything around our desire for family/friendships in order to entice us to watch. Businesses do the exact same thing, that is how most marketing is orientated, either that or how they can help us achieve some status of some sort. We should be wise of course and realize that no real relationship exists. I am not sure we are confusing the two realms as much as just being duped by good marketing.

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