Academic journal article Journal of Markets & Morality

Human Finitude and Specialized Production: A Christian-Realist Rationale for Business Enterprises

Academic journal article Journal of Markets & Morality

Human Finitude and Specialized Production: A Christian-Realist Rationale for Business Enterprises

Article excerpt

Modern economies rely on firms to produce most of the goods and services that people use. There have been organizations that specialize in the production of goods and services for centuries, but many modern business firms differ substantively from earlier production organizations. The modern business firm is often very large and complex, employing a hierarchy that resembles that of governments and utilizing a corporate form of ownership. This is quite different from crafts production by guilds in preindustrial Europe or even the pin factory cited in Adam Smith's 1776 An Inquiry into the Nature and Causes of the Wealth of Nations.

How are Christians to think about business and the for-profit enterprises that produce most of the goods and services provided today? Why is the instinctive reaction on the part of so many Christians at the mention of big business or profits a negative one? We begin this discussion with an exploration of why there are these large, for-profit organizations that specialize in the production of goods that other people will use or consume. Such organizations do not have to be the type of business firm ubiquitous in modern economies; they could be government-owned and operated concerns, or communes, or cooperatives, or non-profit organizations. We argue that human finitude is the root cause of the existence of such organizations. Though at first glance, one might think that human finitude would lead to small, easily controlled institutions of production rather than large, complex organizations, in fact just the opposite has occurred. Human finitude leads to specialization in production: This finitude implies that we cannot be self-sufficient because we cannot know how to do everything. Adam Smith showed us long ago, and time continues to prove, that specialization of labor is productive, but specialization of labor ultimately involves specialized knowledge. Human beings must find ways to generate, maintain, transmit, and use the specialized knowledge needed for production and distribution. Further, the existence of specialization implies the need for coordination among the activities of producers and consumers in addition to the coordination of people and groups within the organizations of production.

Human finitude is not the only relevant factor in the development of the modern business organization; another is human sin. Due to sin, humans are often slothful, dishonest, envious, hateful, domineering, and selfish. One consequence of this is that coordination of the activities of people is more difficult. When people working together have different goals and objectives, often tainted by selfishness, conflict or disorder may result. Producers must find ways to convince these different individuals to cooperate and to work well together. An effective way of doing so is to align incentives such that the members of the organization behave in the desired manner. Incentive systems (which, though often monetary, do not necessarily need to be such) are used to coordinate many specialized groups of people with different personal or small group objectives and motivations. When people are slothful, dishonest, and selfish, appropriate incentives can motivate people to behave in the desired manner.

Below, we discuss how Christian realism aids our understanding and appreciation of what business enterprises are able to accomplish. Then we develop more fully the idea of specialization of labor and the coordination problems associated with specialization, drawing on both business and economic literatures. We briefly examine coordination by prices in the marketplace, and then develop more fully the necessity of coordination within the business firm, including a discussion of incentives. We will argue that it is the utilization of incentives in conjunction with marketplace competition that enables the business enterprise to operate more effectively than governments, cooperatives, or not-for-profit organizations in the production of many goods and services that people use or consume in today's complex global economy. …

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