14: The Employing Class and the Entrepreneur Function
It is a common misconception to divide society into two categories - those who have capital and those who have not - and assume that anyone who employs labor is a member of the capital class. As we have seen, many entrepreneurs who establish manufacturing or other operations are not capitalists, but borrow capital from others to finance their operations. The employing class is therefore neither capital nor labor, but something of its own nature.
Such men are called by various names in various sources: a businessman, a middleman, an adventurer, and undertaker, and employer, or an entrepreneur - the latter term seems most neutral, in that it is not specific to a given behavior bur encompasses a broad array of activities. The nature of the activity is incidental, as the economic function is one who coordinates activities and directs efforts using the capital of some and the labor of others.
There seems to be a distraction here in the distinction of labor and capital - as labor is an intangible thing and capital is tangible. But in many instances, labor is transmuted into capital - when the effort of a man produces a tangible thing, his work has become a physical object (capital). So often the argument over the apportioning of profit considers the degree to which raw material (wool and a spinning wheel) and labor (the spinning activity) produced the product.
(EN: In the modern world, the supporting tasks also have their demand. To deliver a thing, to sell a thing, to plan what is made, and other tasks are deemed valuable as well even though they do not contribute to its fabrication.)
Management, and its various labors, do not contribute to the act of production, and as such their necessity is often called into question. When a task is simple and can perform it on his own, there is little need for a manager to supervise and coordinate his efforts. But industry has become complex, and the work of many must be coordinated and managed. A factory would be paralyzed if the workers merely showed up and did as they thought was necessary with no-one to coordinate their efforts.
It has also been observed that the mere possession of capital is not a qualification for employing labor competently. Those who have money to invest in a business they do not understand are better served by engaging an entrepreneur to manage the firm they own, so that productive use can be made of the labor they hire. There have in many instances been significant failures because those who own wealth figure themselves best disposed to direct the activities of those whom they hire.
(EN: This is often seen within businesses in the modern day: a boss who supervises knowledge workers often prevents them from applying their knowledge, a sponsor who organizes a project interferes with the experts that are hired to effect it. Even in the area of customer services, a customer who hires an architect, a doctor, or any other skilled professional and dictates their activities often ends up getting poorer service than if they had given them less direction.)
There's further fussiness about a number of mistakes that have been made in economic theory as a failure to distinguish between the capital and employing classes.
More fussiness:
There are various instances in which such groups may be defined as being "in" or "out" of the employing class depending on how it is defined. How people within a society are to be categorized is a broader issue that the roles that are played on the supply-side of a market.
In economic terms, the employing class is considered those men or organizations who pay for the labor of others in support of a productive undertaking or enterprise in which the product is sold and a portion of the proceeds is paid to those whose labor created the product or contributed to its value. These are not necessarily the masters of the majority of the population as it largely depends on the economy of a society and the arrangements by which individuals agree to contribute their labor in exchange for payment.
Employers vary in size. There are operations that employ men by the thousands (and even ten-thousands), others than employ a few hundred, others that may employ five or even one. In any case the employing class is rather small - most people work for themselves, or work for others.
Employers are characterized by some as the villains who oppress the working class, and hailed by others as heroes who create employment for those who need it. That is neither here nor there.
It is also suggested that the employer is another party in the competition for the profits of industry. Some of the profit is paid out to the laborers who furnished their work, some paid to the capitalists who financed the operation, and some to the employers who manage the business. Where a man funds a business out of his own capital, he is capitalist and manager; where he borrows from others, they are his investor and he is their manager, and there is some question over who ought to control the business and who is owed the greatest share.
It's been observed that poor management can make a business unprofitable just as surely as sound management can improve its profitability - and because a manager coordinates the work of so many laborers, a management decision has a great deal more impact of the performance of the firm than a bad decision on the part of any individual laborer.
Walker encourages the perspective that the employment of labor is an occupation, and one that requires the development of knowledge and the application of skill to organize, coordinate, and motivate a workforce to be productive and efficient.