ENTREPRENEURS PLANTS,FIRMS,
AND INDUSTRIES

Business enterprises are called “firms.” John Brown and his family run a farm; the farm is a firm. United States Steel is a firm, with steel mills in many cities, with iron and coal mines, with ore ships on the Great Lakes. The important characteristic of the firm is that it is owned and controlled essentially as a unit, however diverse its parts.

The function of making fundamental policy decisions in a firm is generally called “entrepreneurship.” The entrepreneur decides when to establish a firm, what goods to produce, how the concern will be financed, what price policies to follow, when to expand or contract, and so on. A firm is thus a business unit under one coordinated “entrepreneurship.”

In the independent corner grocery store, the proprietor is the entrepreneur. He decides whether to borrow funds to remodel his store, what prices to set on his merchandise. In bigger businesses, it is harder to pick out the entrepreneur. For example, who is the entrepreneur of American Telephone and Telegraph? The 3 million stockholders? The board of directors? The finance committee of the board? The president? Here it is impossible to pick out any person or group of persons as the entrepreneur; the functions of the entrepreneur are performed in a coordinated way by the various individuals and groups concerned.

A “plant” is a building or a group of buildings, along with other more or less fixed physical equipment, that are used together in producing something—such as a shoe-manufacturing plant or an auto-assembly plant. The Ford Motor Company is a firm with plants in Dearborn, St. Louis, Kansas City, and so forth. John Brown’s farm, on the other hand, is a firm with only one plant.

An “industry” is harder to define. Usually we use the word to mean all the producers of any “commodity.” Farmer Brown is part of the wheat industry if he produces wheat, part of the corn industry if he produces corn; he may be in both simultaneously. ~General Motors is part of many industries. The trouble comes when we try to be precise. Shall we consider a “motor-vehicles industry,” or an “auto industry,” or a “low-priced auto industry”? For elementary purposes, how finely we divide up commodities is not a major probletn. You will seldom get in trouble if you let common sense be your guide and if you stick to the same definition of “commodity” and the associated “industry” throughout the analysis of any problem.

The Shifting Legal OrganIzotion of Firms

The legal forms of business firms have changed with the times. When small-scale business was the rule, the individual proprietorship was dominant. This is a simple arrangement in which an individual puts up the money, starts his own business, runs it himself, and has the profits and losses to himself. There are still more individual proprietorships in the United States than any other form of business organization—some 9 million in all, Of these, 3 million are in agriculture, and most of the rest are small-scale retail concerns and service enterprises, such as cleaning establishments, filling stations, doctors, lawyers, and so on.

As the need for larger capital funds increased, partnerships became popular. In these, two or more people assume joint proprietorship— usually joint provision of funds, joint management, and joint financial responsibility. This arrangement has substantial advantages over the single proprietorship, but it still falls short of providing enough capital for really large-scale business operations. And it shares one serious drawback with the single proprietorship: The partners are personally liable for all the debts of the business. Thus, in most cases, each partner is personally liable to an unlimited amount for the deeds of the other partners—a somewhat precarious position at best, and definitely not suited to drawing in funds from absentee investors. Partnerships are not very important in the United States today, though there are some 900,000 in existence. About half of them are in retailing; the rest are widely scattered.