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New to This
Edition
As always, when revising material for the current edition,
all examples, figures, and statistics have been updated to
incorporate any recent developments that affect the world
of business. Additionally, content was updated to ensure the
most pertinent topical coverage is provided.
Here are the highlights for each chapter:
Chapter one
THE DYNAMICS OF BUSINESS AND ECONOMICS
• Three new boxed features describing real-world business
issues
• A new section on “The Importance of the American
Economy”
• New examples of real-world business issues
• New material on standard of living
Chapter two
BUSINESS ETHICS AND SOCIAL
RESPONSIBILITY
• Three new boxed features describing issues in business
ethics and social responsibility
• New examples of ethical issues facing today’s businesses
Chapter two appendix
THE LEGAL AND REGULATORY ENVIRONMENT
• A new section on Source of Law
• A new section on Courts and the Resolution of Disputes
• A new section on Regulatory Administrative Agencies
• A new section on the Important Elements of
Business Law
• A new section on Laws Affecting Business Practices
• A new section on The Internet and Legal and Regulatory
Issues
• A new section on Legal Pressure for Responsible Busi-
ness Conduct
viii
Chapter three
BUSINESS IN A BORDERLESS WORLD
• Three new boxed features describing issues in interna-
tional business
• New examples of international business practices
• Updated data for the top 10 countries with which the
United States has trade deficits and surpluses
Chapter four
OPTIONS FOR ORGANIZING BUSINESS
• Three new boxed features describing real-world business
issues
• New examples of organizing business
• Updated list of major worldwide mergers and acquisitions
from 2007 to 2017
Chapter five
SMALL BUSINESS, ENTREPRENEURSHIP, AND
FRANCHISING
• Three new boxed features describing current business
issues
• New section on the sharing economy
• New examples of small business, entrepreneurship, and
franchising
• Updated data on number of firms by employment size
• Updated data on most business-friendly states
Chapter six
THE NATURE OF MANAGEMENT
• Three new boxed features describing current business
issues
• New examples of management in business practices
• Updated data on CEO compensation packages
• Inside look at the leadership of Starbucks
Chapter seven Chapter twelve
ORGANIZATION, TEAMWORK, AND DIMENSIONS OF MARKETING STRATEGY
COMMUNICATION • Three new boxed features describing current marketing
• Three new boxed features describing current business issues
issues • New examples of marketing strategy in business
• New figure describing desired attitudes and behaviors • Updated data on the 10 most valuable brands in the world
associated with corporate culture
• New examples of organization, teamwork, and communi-
cation in business
Chapter thirteen
DIGITAL MARKETING AND SOCIAL NETWORKING
• Three new boxed features describing current digital mar-
Chapter eight keting issues
• New examples of digital marketing and social networking
MANAGING SERVICE AND MANUFACTURING • New learning objective to understand online monitoring
OPERATIONS and analytics for social media
• Three new boxed features describing current business • New section on Social Media Marketing
operational issues • New section on Consumer-Generated Digital Media
• New examples of managing service and manufacturing • Snapchat, YouTube, and LinkedIn added to the Social
operations Network section
• Updated airline scorecard data • New section on Online Monitoring and Analytics

Chapter nine Chapter fourteen

ACCOUNTING AND FINANCIAL STATEMENTS
MOTIVATING THE WORKFORCE
• Three new boxed features describing current accounting
• Three new boxed features describing current business issues
issues • New learning objective to analyze financial statements,
• New examples of motivating employees in the using ratio analysis, to evaluate a company’s performance
workforce • New information on the financial information and ratios of
• Updated information on best places for businesses and Microsoft
careers • Financial ratio comparisons of Microsoft and Google
• New examples of accounting and financial statements in

Chapter ten business practices

MANAGING HUMAN RESOURCES Chapter fifteen

• Three new boxed features describing current
HR issues
MONEY AND THE FINANCIAL SYSTEM
• New examples of managing human resources in business • Three new boxed features describing current financial issues
practices • New material on reward cards
• New examples of financial systems in business

Chapter eleven Chapter sixteen

CUSTOMER-DRIVEN MARKETING
• Three new boxed features describing current marketing
issues
• New material on marketing analytics
• New examples of customer-driven marketing
• Updated data for buying power of U.S. minorities
by race
• Updated statistics of companies with the best consumer
service
FINANCIAL MANAGEMENT AND SECURITIES
MARKETS
• Three new boxed features describing current financial
issues
• New examples of financial management and securities in
business
• Updated examples of U.S. corporate bond quotes
• Updated data for estimated common stock price-earnings
ratios and dividends for selected companies

new to this edition ix

brief
contents
Part one Part three
BUSINESS IN A CHANGING WORLD MANAGING FOR QUALITY AND
chapter 1 The Dynamics of Business and COMPETITIVENESS
Economics 2 chapter 6 The Nature of Management 108
chapter 2 Business Ethics and Social chapter 7 Organization, Teamwork, and
Responsibility 22 Communication 126
chapter 2 Appendix: The Legal and Regulatory chapter 8 Managing Service and Manufacturing
Environment 41 Operations 144
chapter 3 Business in a Borderless World 54

Part two
STARTING AND GROWING A BUSINESS
chapter 4 Options for Organizing Business 74
chapter 5 Small Business, Entrepreneurship, and
Franchising 92
Part four
CREATING THE HUMAN RESOURCE
ADVANTAGE
chapter 9 Motivating the Workforce 164
chapter 10 Managing Human Resources 180

Part five
MARKETING: DEVELOPING
RELATIONSHIPS
chapter 11 Customer-Driven Marketing 200
chapter 12 Dimensions of Marketing Strategy 218
chapter 13 Digital Marketing and Social Media 240

Part six
FINANCING THE ENTERPRISE
chapter 14 Accounting and Financial Statements 258
chapter 15 Money and the Financial System 280
chapter 16 Financial Management and Securities
Markets 298
Notes 316
Name Index 341
Subject Index 343
©Steve Allen/Stockbyte/Getty Images RF

x
contents
Part one BUSINESS IN A
CHANGING WORLD 2
CHAPTER 1 THE DYNAMICS OF BUSINESS
AND ECONOMICS 2
THE NATURE OF BUSINESS 3
The Goal of Business 3
The People and Activities of Business 4
Why Study Business? 5
THE ECONOMIC FOUNDATIONS OF BUSINESS 6
Economic Systems 6
The Free-Enterprise System 8
The Forces of Supply and Demand 9
The Nature of Competition 10
Economic Cycles and Productivity 11
Whole Foods in a “Food Fight” to Win and Retain
Customers 11
THE AMERICAN ECONOMY 14
The Importance of the American Economy 15
General Mills Brand Strategy: No Trix, Just Treats 15
A Brief History of the American Economy 16
The Role of the Entrepreneur 17
Warby Parker Sees its Business Differently 18
The Role of Government in the American Economy 18
The Role of Ethics and Social Responsibility in Business 19
Building Your Soft Skills by Setting Goals 19
Team Exercise 19
CAN YOU LEARN BUSINESS IN A CLASSROOM? 20
Are You Prepared to Take Advantage of Emerging Job
Opportunities? 21
THE NATURE OF SOCIAL RESPONSIBILITY 33
Social Responsibility Issues 34
Drug Pricing: A Shot in the Arm and a Hole in the Wallet 37
UNEMPLOYMENT 39
Team Exercise 39
Building Your Soft Skills by Considering Your Ethics 39
Are You Ready to Go Green and Think Ethics with Your
Career? 40
APPENDIX: THE LEGAL AND REGULATORY ENVIRONMENT 41
CHAPTER 3 BUSINESS IN A BORDERLESS
WORLD 54
THE ROLE OF INTERNATIONAL BUSINESS 55
Why Nations Trade 56
Trade between Countries 56
Balance of Trade 57
INTERNATIONAL TRADE BARRIERS 58
Economic Barriers 58
Ethical, Legal, and Political Barriers 59
Bobbie the Bridestowe Bear: The Sweet Smell of Success 59
Social and Cultural Barriers 61
Technological Barriers 62
TRADE AGREEMENTS, ALLIANCES, AND ORGANIZATIONS 63
General Agreement on Tariffs and Trade 63
The North American Free Trade Agreement 63
The European Union 64

CHAPTER 2 BUSINESS ETHICS AND SOCIAL

RESPONSIBILITY 22
BUSINESS ETHICS AND SOCIAL RESPONSIBILITY 23
Hugh Jackman and Fair-Trade Coffee: It is a Laughing
Matter 24
THE ROLE OF ETHICS IN BUSINESS 25
Recognizing Ethical Issues in Business 26
Fairness and Honesty 29
Making Decisions about Ethical Issues 30
Improving Ethical Behavior in Business 31
Wells Fargo: The Stagecoach Runs Out of Control 32 ©Rene Lender/123RF

xi
 Steinhoff International: Not Losing any Sleep over
U.S. Entry 65
Asia-Pacific Economic Cooperation 66
Association of Southeast Asian Nations 66
World Bank 67
International Monetary Fund 67
GETTING INVOLVED IN INTERNATIONAL BUSINESS 67
Exporting and Importing 68
Trading Companies 68
Licensing and Franchising 68
Contract Manufacturing 69
Outsourcing 69
Offshoring 69
Joint Ventures and Alliances 70 ©Focal.Point/iStock/Getty Images RF
Direct Investment 70
BMW Revved Up about Carbon Fiber Batteries 70 TRENDS IN BUSINESS OWNERSHIP: MERGERS AND
INTERNATIONAL BUSINESS STRATEGIES 71 ACQUISITIONS 89
Developing Strategies 71 Building Your Soft Skills by Handling Conflict 90
Managing the Challenges of Global Business 72 Want to be An Entrepreneur? Know Which Form of Business
Team Exercise 72 is Best for You 91
Building Your Soft Skills by Understanding Cultural Team Exercise 91
Differences 72
Ready to Take Your Career on a Global
Adventure? 73
CHAPTER 5 SMALL BUSINESS,
ENTREPRENEURSHIP,
AND FRANCHISING 92
Part two STARTING AND
THE NATURE OF ENTREPRENEURSHIP AND SMALL
BUSINESS 93
GROWING A BUSINESS 74 What Is a Small Business? 94
The Role of Small Business in the American Economy 94
Industries That Attract Small Business 95
CHAPTER 4 OPTIONS FOR ORGANIZING Airbnb: Sharing, Caring, and Pairing 96
BUSINESS 74 ADVANTAGES OF SMALL-BUSINESS OWNERSHIP 98
SOLE PROPRIETORSHIPS 75 Independence 98
Advantages of Sole Proprietorships 76 Costs 98
Disadvantages of Sole Proprietorships 77 Flexibility 99
This Company’s Social Responsibility Cascades over Focus 99
Everything It Does 78 Reputation 99
PARTNERSHIPS 79 DISADVANTAGES OF SMALL-BUSINESS OWNERSHIP 99
Types of Partnership 79 Sseko Designs: Weaving Work, Women, and Their Welfare
Articles of Partnership 79 into One 99
Advantages of Partnerships 79 High Stress Level 100
Titan of a Mover that Moves the Titans 80 High Failure Rate 100
Disadvantages of Partnerships 81 STARTING A SMALL BUSINESS 101
Taxation of Partnerships 82 The Business Plan 101
CORPORATIONS 82 Forms of Business Ownership 101
Creating a Corporation 82 Financial Resources 101
Types of Corporations 83 Approaches to Starting a Small Business 102
Elements of a Corporation 84 Help for Small-Business Managers 103
Advantages of Corporations 86 Kombucha that Rocks: Enlightened and Synergy 104
Disadvantages of Corporations 87 THE FUTURE FOR SMALL BUSINESS 104
OTHER TYPES OF OWNERSHIP 87 Demographic Trends 104
Joint Ventures 87 Technological and Economic Trends 105
S Corporations 88 Building Your Soft Skills by Starting Your Own Business 105
Limited Liability Companies 88 MAKING BIG BUSINESSES ACT “SMALL” 106
Cooperatives 88 Team Exercise 106
REI: Co-opted into a Great Business Strategy 88 Do You Know How to Make a Small Business Survive? 107

xii contents
Part three MANAGING FOR CHAPTER 7 ORGANIZATION, TEAMWORK,
AND COMMUNICATION 126
QUALITY AND COMPETITIVENESS 108
ORGANIZATIONAL CULTURE 127
DEVELOPING ORGANIZATIONAL STRUCTURE 128
CHAPTER 6 THE NATURE OF It’s Getting Harder to Find Employees with
MANAGEMENT 108 Soft Skills 128
THE IMPORTANCE OF MANAGEMENT 109 ASSIGNING TASKS 130
Specialization 130
MANAGEMENT FUNCTIONS 110
Departmentalization 131
Planning 110
Pressure: Decision Overload in the Workplace 111 ASSIGNING RESPONSIBILITY 132
Organizing 113 Delegation of Authority 132
Directing 113 Degree of Centralization 133
Controlling 114 Sugar Bowl Bakery: Born in Vietnam . . . Success in the
United States 134
TYPES OF MANAGEMENT 114
Span of Management 134
Levels of Management 114
Organizational Layers 135
Areas of Management 117
FORMS OF ORGANIZATIONAL STRUCTURE 135
SKILLS NEEDED BY MANAGERS 118
Line Structure 135
Technical Expertise 118
Line-and-Staff Structure 136
Conceptual Skills 118
Multidivisional Structure 136
Analytical Skills 118
Matrix Structure 136
Human Relations Skills 119
THE ROLE OF GROUPS AND TEAMS IN
LEADERSHIP 119
ORGANIZATIONS 137
Harmless Harvest: Nuts about Their Farmers 119
Committees 138
The Apple Doesn’t Fall Far from the Tree 120
Task Forces 138
Employee Empowerment 121
Teams 138
Recognizing and Defining the Decision Situation 122
COMMUNICATING IN ORGANIZATIONS 139
DECISION MAKING 122
Formal and Informal Communication 140
Developing Options 123
Monitoring Communications 141
Analyzing Options 123
Zappos Takes Steps to Manage Differently 141
Selecting the Best Option 123
Improving Communication Effectiveness 142
Implementing the Decision 123
Team Exercise 142
Monitoring the Consequences 123
Building Your Soft Skills by Giving and Receiving
MANAGEMENT IN PRACTICE 124 Feedback 142
Team Exercise 124 Organization, Teamwork, and Communication: Are You
Building Your Soft Skills by Becoming a Better Leader 124 Ready to Apply These Skills on the Job? 143
What Kind of Manager Do You Want to Be? 125

CHAPTER 8 MANAGING SERVICE

AND MANUFACTURING
OPERATIONS 144
THE NATURE OF OPERATIONS MANAGEMENT 145
The Transformation Process 145
Amazon: A Prime Example of Distribution Success 146
Operations Management in Service Businesses 147
PLANNING AND DESIGNING OPERATIONS SYSTEMS 149
Planning the Product 149
Designing the Operations Processes 150
Planning Capacity 150
Planning Facilities 151
Sustainability and Manufacturing 153
MANAGING THE SUPPLY CHAIN 154
Purchasing 154
Quality Bicycle Products Pedals a Successful Wholesale
©Rawpixel.com/Shutterstock.com RF Model 155

contents xiii
 Managing Inventory 155 Expectancy Theory 173
Outsourcing 157 Goal-Setting Theory 173
Routing and Scheduling 157 STRATEGIES FOR MOTIVATING EMPLOYEES 174
MANAGING QUALITY 158 Behavior Modification 174
International Organization for Standardization (ISO) 160 Job Design 174
Trader Joe’s: Sometimes Less is More 161 Circling the Wagons: The Success of Radio Flyer 176
Inspection 161 Would You Be Good at Motivating a Workforce? 177
Sampling 161 Importance of Motivational Strategies 178
Building Your Soft Skills by Improving Your Organizational Building Your Soft Skills by Staying Motivated 178
Skills 161 Team Exercise 178
INTEGRATING OPERATIONS AND SUPPLY CHAIN
MANAGEMENT 162
Careers Abound in Operations Management 162 CHAPTER 10 MANAGING HUMAN
Team Exercise 162 RESOURCES 180
THE NATURE OF HUMAN RESOURCE MANAGEMENT 181
Part four CREATING THE HUMAN PLANNING FOR HUMAN RESOURCE NEEDS 181
Snagajob: Hooked on Helping and Hiring 182
RESOURCE ADVANTAGE 164
RECRUITING AND SELECTING NEW EMPLOYEES 183
Recruiting 183
CHAPTER 9 MOTIVATING THE Selection 183
Legal Issues in Recruiting and Selecting 185
WORKFORCE 164
DEVELOPING THE WORKFORCE 186
NATURE OF HUMAN RELATIONS 165
Training and Development 186
HISTORICAL PERSPECTIVES ON EMPLOYEE Assessing Performance 187
MOTIVATION 167 Turnover 188
Classical Theory of Motivation 167
COMPENSATING THE WORKFORCE 189
Put a Smile on My Face: Impact of the Unlimited Vacation
Financial Compensation 189
Plan 167
Ditch the Résumé and Solve a Puzzle: Changing Hiring
The Hawthorne Studies 168
Practices 190
THEORIES OF EMPLOYEE MOTIVATION 168 Benefits 191
Maslow’s Hierarchy of Needs 169
MANAGING UNIONIZED EMPLOYEES 192
Herzberg’s Two-Factor Theory 170
Collective Bargaining 192
McGregor’s Theory X and Theory Y 171
Resolving Disputes 193
Bar None: A Company Willing to Go “Out on a Clif” for Its
Employees 171 THE IMPORTANCE OF WORKFORCE DIVERSITY 194
Theory Z 172 The Characteristics of Diversity 194
Equity Theory 172 Why Is Diversity Important? 194
The Benefits of Workforce Diversity 195
Affirmative Action 196
Walmart’s New EDLP: Every Day Living Pay—and Low
Prices 196
TRENDS IN MANAGEMENT OF THE WORKFORCE 197
Are You Ready for a Job in Human Resources? 197
Team Exercise 198
Bringing Soft Skills to Your Résumé 198

Part five MARKETING:

DEVELOPING RELATIONSHIPS 200

CHAPTER 11 CUSTOMER-DRIVEN
MARKETING 200
NATURE OF MARKETING 201
The Exchange Relationship 201
©ColorBlind Images/Getty Images Functions of Marketing 203

xiv contents
 Product Line and Product Mix 222
Product Life Cycle 222
Identifying Products 224
Dollar Shave Club: Smooth Operator 226
PRICING STRATEGY 227
Pricing Objectives 228
Specific Pricing Strategies 228
DISTRIBUTION STRATEGY 228
Marketing Channels 229
Intensity of Market Coverage 231
Patagonia Climbs to New Level of Environmental
Responsibility 231
Physical Distribution 232
Importance of Distribution in a Marketing Strategy 233
PROMOTION STRATEGY 233
The Promotion Mix 234
Promotion Strategies: To Push or to Pull 236
Objectives of Promotion 237
Building Your Soft Skills by Developing Your Personal
Brand 238
©tashka2000/iStock/Getty Images RF Promotional Positioning 238
Are You Interested in Becoming a Marketing
Manager? 238
IMPORTANCE OF MARKETING STRATEGY 239
Creating Value with Marketing 203 Team Exercise 239
The Marketing Concept 204
Evolution of the Marketing Concept 205
DEVELOPING A MARKETING STRATEGY 206
Selecting a Target Market 207 CHAPTER 13 DIGITAL MARKETING AND
Developing a Marketing Mix 209 SOCIAL MEDIA 240
MARKETING RESEARCH AND INFORMATION GROWTH AND BENEFITS OF DIGITAL
SYSTEMS 210 COMMUNICATION 241
Boom or Bust: Don’t Overlook This Generation 211 USING DIGITAL MEDIA IN BUSINESS 242
Online Marketing Research 212
DIGITAL MEDIA AND THE MARKETING MIX 243
BUYING BEHAVIOR 212 Ipsy’s Subscription Is a Prescription for Success 245
Psychological Variables of Buying Behavior 213 Social Media Marketing 246
Social Variables of Buying Behavior 213
CONSUMER-GENERATED DIGITAL MEDIA 247
Whey Better than Other Bars: The Protein Bar 213
Social Networks 247
Understanding Buying Behavior 214
It Just Got Easier to Get a Piece of the Pie 247
THE MARKETING ENVIRONMENT 214 Blogs and Wikis 249
Sports Clips Shoots for the Male Sportster 215 Media Sharing 249
IMPORTANCE OF MARKETING TO BUSINESS Mobile Marketing 251
AND SOCIETY 215 Applications and Widgets 251
Team Exercise 215 ONLINE MONITORING AND ANALYTICS 252
Do You Have What It Takes to Get a Job in
USING DIGITAL MEDIA TO LEARN ABOUT
Marketing? 216
CONSUMERS 253
Building Your Soft Skills by Considering Your Personal
Brand 216 LEGAL AND SOCIAL ISSUES IN INTERNET MARKETING 253
Privacy 254
Identity Theft and Online Fraud 254
GE Plugs into Consumers 255
CHAPTER 12 DIMENSIONS OF MARKETING Intellectual Property Theft and Other Illegal
STRATEGY 218 Activities 256
THE MARKETING MIX 219 Team Exercise 256
PRODUCT STRATEGY 219 DIGITAL MEDIA’S IMPACT ON MARKETING 256
Developing New Products 219 What Does It Mean to Be a Digital Marketer? 257
Netflix: Full “Stream” Ahead 220 Building Your Soft Skills by Reflecting Your Personal
Classifying Products 221 Brand 257

contents xv
Part six FINANCING THE
ENTERPRISE 258

CHAPTER 14 ACCOUNTING AND

FINANCIAL
STATEMENTS 258
THE NATURE OF ACCOUNTING 259
Accountants 259
Accounting or Bookkeeping? 260
The Uses of Accounting Information 261
Fraudsters and Tipsters: Achieving Balance in the
Accounting World 262
THE ACCOUNTING PROCESS 263
The Accounting Equation 263
Double-Entry Bookkeeping 264
The Accounting Cycle 264
FINANCIAL STATEMENTS 266
The Income Statement 266
Buffalo Wild Wings: From Accounting Mess
to Success 269
The Balance Sheet 270
The Statement of Cash Flows 272
RATIO ANALYSIS: ANALYZING FINANCIAL
STATEMENTS 273
Profitability Ratios 274
Environmental Reporting: It’s Not Easy
Being Green 275
Asset Utilization Ratios 275
Liquidity Ratios 276
Debt Utilization Ratios 276
Per Share Data 276
Industry Analysis 277 ©Tetra Images/Getty Images RF
Team Exercise 278
IMPORTANCE OF INTEGRITY IN ACCOUNTING 278
Building Your Soft Skills by Thinking about Ethics 278 Building Your Soft Skills by Handling Conflict 296
Would You Make a Good Accountant? 279 Do You Want a Career in Finance or Banking? 296
Team Exercise 297

CHAPTER 15 MONEY AND THE FINANCIAL CHAPTER 16 FINANCIAL MANAGEMENT

SYSTEM 280 AND SECURITIES
MONEY IN THE FINANCIAL SYSTEM 281
Functions of Money 281
MARKETS 298
Banking on Credit Unions 282 MANAGING CURRENT ASSETS AND
Characteristics of Money 282 LIABILITIES 299
Types of Money 284 Managing Current Assets 299
Mr. CFO: “Houston, We Have a Problem!” 300
THE AMERICAN FINANCIAL SYSTEM 286
Managing Current Liabilities 303
The Federal Reserve System 286
Banking Institutions 289 MANAGING FIXED ASSETS 304
Cybersecurity: Making It Safer in Banking 290 Capital Budgeting and Project Selection 305
Nonbanking Institutions 292 Assessing Risk 305
Greenleaf Trust Has a Green Thumb and Much Pricing Long-Term Money 305
More 293 FINANCING WITH LONG-TERM LIABILITIES 307
Electronic Banking 294 Bonds: Corporate IOUs 307
Future of Banking 295 Types of Bonds 308

xvi contents
FINANCING WITH OWNERS’ EQUITY 308 Building Your Soft Skills by Becoming Financially
Cue Ball: In It for the Long Haul 309 Literate 314
INVESTMENT BANKING 310 Team Exercise 314
Legal Tax Evasion: The Flight of U.S. Companies What Is It Like to Work in Financial Management or
Abroad 311 Securities? 315
THE SECURITIES MARKETS 311
NOTES 316
Stock Markets 312
The Over-the-Counter Market 313 NAME INDEX 341
Measuring Market Performance 313 SUBJECT INDEX 343

contents xvii
business 6e
 chapter
one
the dynamics of
business and economics ©Steve Allen/Stockbyte/Getty Images RF

LEARNING OBJECTIVES
After reading this chapter, you will be able to:
LO 1-1 Define basic concepts such as business, LO 1-4 Describe the role of supply, demand, and
product, and profit. competition in a free-enterprise system.
LO 1-2 Identify the main participants and activities of LO 1-5 Specify why and how the health of the
business and explain why studying business economy is measured.
is important. LO 1-6 Trace the evolution of the American economy
LO 1-3 Define economics and compare the four types and discuss the role of the entrepreneur in
of economic systems. the economy.

2 PART 1 | Business in a Changing World

W
e begin our study of business in this chapter by
examining the fundamentals of business and eco-
nomics. First, we introduce the nature of business,
including its goals, activities, and participants. Next, we describe
the basics of economics and apply them to the U.S. economy.
Finally, we establish a framework for studying business in this
text. ■

by businesses support nonprofit

LO 1-1 Define basic concepts such as business,
organizations through donations business individuals
product, and profit.
from employees. or organizations who try to
earn a profit by providing
To earn a profit, a person or orga-
THE NATURE OF BUSINESS nization needs management skills
products that satisfy
people’s needs.
A business tries to earn a profit by providing products that to plan, organize, and control the
satisfy people’s needs. The outcomes of its efforts are ­products activities of the business and to product a good or
that have both tangible and intangible characteristics that pro- find and develop employees so service with tangible and
vide satisfaction and benefits. When you purchase a product, that it can make products consum- intangible characteristics
ers will buy. A business also needs that provide satisfaction
you are buying the benefits and satisfaction you think the prod-
and benefits.
uct will provide. A Subway sandwich, for example, may be marketing expertise to learn what
purchased to satisfy hunger, while a Honda Accord may be pur- products consumers need and want profit the difference
chased to satisfy the need for transportation and the desire to and to develop, manufacture, price, between what it costs to
present a certain image. promote, and distribute those prod- make and sell a product
ucts. Additionally, a business needs and what a customer pays
Most people associate the word product with tangible goods— for it.
financial resources and skills to
an automobile, smartphone, jeans, or some other tangible item.
fund, maintain, and expand its oper-
However, a product can also be a service, which occurs when nonprofit
ations. A business must cover the
people or machines provide or process something of value to cus- organizations
cost of labor, operate facilities, pay organizations that may
tomers. Dry cleaning, a checkup by a doctor, a movie or sports
taxes, and provide management. provide goods or services
event—these are examples of services. Some services, such as
Other challenges for businesspeople but do not have the
­Instagram, do not charge a fee for use but obtain revenue from
include abiding by laws and govern- fundamental purpose of
ads on their sites. A product can also be an idea. Accountants
ment regulations, and adapting to earning profits.
and attorneys, for example, generate ideas for solving problems.
economic, technological, political,
and social changes. Even nonprofit stakeholders groups
The Goal of Business organizations engage in manage- that have a stake in the
The primary goal of all businesses is to earn a profit, the difference success and outcomes of a
ment, marketing, and finance activi-
between what it costs to make and sell a product and what a cus- business.
ties to help reach their goals.
tomer pays for it. In addition, a business has to pay for all expenses
necessary to operate. If a company spends $8 to produce, finance, To achieve and maintain profit-
promote, and distribute a product that it sells for $10, the busi- ability, businesses have found that
ness earns a profit of $2 on each product sold. Businesses have they must produce quality products, operate efficiently, and
the right to keep and use their profits as they choose—within legal be socially responsible and ethical in dealing with customers,
limits—because profit is the reward for their efforts and for the employees, investors, government regulators, and the commu-
risks they take in providing products. Earning profits contributes nity. Because these groups have a stake in the success and out-
to society by creating resources that support our social institutions comes of a business, they are sometimes called stakeholders.
and government. Businesses that create profits, pay taxes, and Many businesses, for example, are concerned about how the
create jobs are the foundation of our economy. In addition, prof- production and distribution of their products affect the envi-
its must be earned in a responsible manner. Not all organiza- ronment. New fuel requirements are forcing automakers to
tions are businesses, however. Nonprofit organizations—such invest in smaller, lightweight cars. Electric vehicles may be a
as National Public Radio (NPR), Habitat for Humanity, and solution, but only about 1 percent of new car sales are plug-
other charities and social causes—do not have the fundamental in-electric.1 Other businesses are concerned with promoting
purpose of earning profits, although they may provide goods science, engineering, and mathematics careers among women.
or services and engage in fund-raising. They also utilize skills Traditionally, these careers have been male dominated.
related to management, marketing, and finance. Profits earned A global survey found that when the number of men and

CHAPTER 1 | The Dynamics of Business and Economics 3

 participants in business activities throughout this book. Next,
we will examine the major activities of business.

Management. Notice that in Figure 1.1, management and

Sustainability is a growing concern among both consumers and
businesses. Walmart has invested in solar panels at some of its stores
to decrease its energy usage.
©Thomas Cooper/Getty Images
women were evenly matched, the team was 23 percent more
likely to have an increase in profit over teams dominated by
one gender.2 Nonprofit organizations, such as the American
Red Cross, use business activities to support natural-disaster
victims, relief efforts, and a national blood supply.
LO 1-2 Identify the main participants and activities of
business and explain why studying business is important.
The People and Activities
of Business F I G U R E 1 .1
Overview of the Business World
Figure 1.1 shows the people and activities
involved in business. At the center of the figure
are owners, employees, and customers; the outer
circle includes the primary business activities—
management, marketing, and finance. Owners
have to put up resources—money or credit—to
start a business. Employees are responsible for
the work that goes on within a business. Own-
ers can manage the business themselves or hire
employees to accomplish this task. The presi-
dent and CEO of Procter & Gamble, David S. Competition
Taylor, does not own P&G but is an employee
who is responsible for managing all the other
employees are in the same segment of the circle. This is because
management involves developing plans, coordinating employ-
ees’ actions to achieve the firm’s goals, organizing people to
work efficiently, and motivating them to achieve the business’s
goals. Management involves the functions of planning, organiz-
ing, leading, and controlling. Effective managers who are skilled
in these functions display effective leadership, decision making,
and delegation of work tasks. Management is also concerned
with acquiring, developing, and using resources (including peo-
ple) effectively and efficiently.
Operations is another element of management. Managers must
oversee the firm’s operations to ensure that resources are suc-
cessfully transformed into goods and services. Although most
people associate operations with the development of goods,
operations management applies just as strongly to services.
Managers at the Ritz-Carlton, for instance, are concerned with
transforming resources such as employee actions and hotel
­amenities into a quality customer service experience. In essence,
managers plan, organize, staff, and control the tasks required to
carry out the work of the company or nonprofit organization.
We take a closer look at management activities in Parts 3 and 4
of this text.
Marketing. Marketing and customers are in the same seg-
ment of Figure 1.1 because the focus of all marketing activities
Economy
Finance
Owners
Digital
Technology
Emp

s
m er
Mana

employees in a way that earns a profit for inves-

loy

sto

es
tors, who are the real owners. Finally, and most Cu
e
ge m

importantly, a business’s major role is to satisfy

ti n
en

ke
t

the customers who buy its goods or services.

ar

M
Note also that forces beyond an organization’s
control—such as legal and regulatory forces, the
economy, competition, technology, the political Social Legal, Political, and
environment, and ethical and social concerns— Responsibility Regulatory Forces
all have an impact on the daily operations of and Ethics
businesses. You will learn more about these

4 PART 1 | Business in a Changing World

 People who work as accountants, stock-
brokers, investment advisors, or bankers
are all part of the financial world. Own-
ers sometimes have to borrow money
from banks to get started or attract addi-
tional investors who become partners or
stockholders. Owners of small businesses
in particular often rely on bank loans
for funding. Part 6 of this text discusses
financial management.

Why Study Business?

Studying business can help you develop
skills and acquire knowledge to prepare for
your future career, regardless of whether
you plan to work for a multinational For-
tune 500 firm, start your own business,
work for a government agency, or manage
or volunteer at a nonprofit organization.
The Aflac duck ad uses humor in its advertising to promote the insurance company.
The field of business offers a variety of
©Chance Yeh/Getty Images Entertainment/Getty Images
interesting and challenging career oppor-
tunities throughout the world, such as mar-
is satisfying customers. Marketing includes all the activities keting, human resources management, information technology,
designed to provide goods and services that satisfy consumers’ finance, production and operations, wholesaling and retailing,
needs and wants. Marketers gather information and conduct and many more.
research to determine what customers want. Using information
Studying business can also help you better understand the
gathered from marketing research, marketers plan and develop
many business activities that are necessary to provide satisfy-
products and make decisions about how much to charge for
ing goods and services. Some businesses such as Snap, par-
their products and when and where to make them available.
ent company of Snapchat, are operating for many years at a
They also analyze the marketing environment to understand
loss to build market share. Most businesses charge a reason-
changes in competition and consumers. The retail environ-
able price for their products to ensure that they cover their
ment is changing based on competition from online retailing
production costs, pay their employees, provide their owners
such as Amazon. This has caused some retail stores and malls
with a return on their investment, and perhaps give something
to close.3 Marketing focuses on the four P’s—­product, price,
back to their local communities and societies. Habitat for
place (or distribution), and promotion—also known as the
marketing mix. Product management involves such key man-
agement decisions as product adoption, development, brand-
ing, and product positioning. Selecting the right price for the
product is essential to the organization as it relates directly
to profitability. Distribution is an important management con-
cern because it involves making sure products are available
to consumers in the right place at the right time. Marketers
use promotion—advertising, personal selling, sales promotion
(coupons, games, sweepstakes, movie tie-ins), and publicity—
to communicate the benefits and advantages of their products
to consumers and to increase sales. We will examine market-
ing activities in Part 5 of this text.

Finance. Owners and finance are in the same part of Figure 1.1
because, although management and marketing have to deal
with financial considerations, it is the primary responsibility
of the owners to provide financial resources for the operation Many companies engage in socially responsible behavior to give back
of the business. Moreover, the owners have the most to lose if to their communities. Home Depot partners with Habitat for Humanity
the business fails to make a profit. Finance refers to all activi- to build homes for disadvantaged families.
ties concerned with obtaining money and using it effectively. ©Ariel Skelley/Getty Images RF

CHAPTER 1 | The Dynamics of Business and Economics 5

economics the
study of how resources
are distributed for the
production of goods and
services within a social
system.
natural resources
land, forests, minerals,
water, and other things that
are not made by people.
human resources
(labor) the physical and
mental abilities that people
use to produce goods and
services.
financial resources
(capital) the funds used
to acquire the natural and
human resources needed
to provide products.
economic system a
description of how a
particular society distributes
its resources to produce
goods and services.

Humanity is an international nonprofit organization building
housing for those who cannot afford simple, decent housing.
Habitat operates like a business relying on volunteer labor and
offers no-interest mortgages for repayment. Habitat ReStore
is a retail unit that sells new and used building materials that
are donated. The Home Depot Foundation provided grants to
remodel and renovate homes of U.S. military veterans.4 Thus,
learning about business can help you become a well-informed
consumer and member of society.
Business activities help generate the profits that are essential
not only to individual businesses and local economies, but also
to the health of the global economy. Without profits, businesses
find it difficult, if not impossible, to buy more raw materials,
hire more employees, attract more capital, and create additional
products that, in turn, make more profits and fuel the world
economy. Understanding how our free-enterprise economic sys-
tem allocates resources and provides incentives for industry and
the workplace is important to everyone.
LO 1-3 Define economics and compare the four types
of economic systems.
THE ECONOMIC
is to turn the factors of production and intangible resources
into a competitive advantage.
Economic Systems
An economic system describes how a particular society dis-
tributes its resources to produce goods and services. A central
issue of economics is how to fulfill an unlimited demand for
goods and services in a world with a limited supply of resources.
Different economic systems attempt to resolve this central issue
in numerous ways, as we shall see.
Although economic systems handle the distribution of resources
in different ways, all economic systems must address three
important issues:
1. What goods and services, and how much of each, will satisfy
consumers’ needs?
2. How will goods and services be produced, who will produce
them, and with what resources will they be produced?
3. How are the goods and services to be distributed to
consumers?
Communism, socialism, and capitalism, the basic economic
systems found in the world today (Table 1.1), have fundamental
differences in the way they address these issues. The factors of
production in command economies are controlled by govern-
ment planning. In many cases, the government owns or controls

FOUNDATIONS OF the production of goods and services. Communism and social-

ism are, therefore, considered command economies.

BUSINESS Communism. Karl Marx (1818–1883) first described

To continue our introduction to business, it is useful to explore
the economic environment in which business is conducted. In
this section, we examine economic systems, the free-enterprise
system, the concepts of supply and demand, and the role of
competition. These concepts play important roles in determin-
ing how businesses operate in a particular society.
Economics is the study of how resources are distributed for
the production of goods and services within a social system.
You are already familiar with the types of resources available.
Land, forests, minerals, water, and other things that are not
made by people are natural resources. Human resources,
or labor, refer to the physical and mental abilities that people
use to produce goods and services. Financial resources, or
capital, are the funds used to acquire the natural and human
resources needed to provide products. These resources are
related to the factors of production, consisting of land, labor,
capital, and enterprise used to produce goods and services. The
firm can also have intangible resources such as a good reputa-
tion for quality products or being socially responsible. The goal
­communism as a society in which the people, without regard
to class, own all the nation’s resources. In his ideal political-
economic system, everyone contributes according to ability and
receives benefits according to need. In a communist economy,
the people (through the government) own and operate all busi-
nesses and factors of production. Central government planning
determines what goods and services satisfy citizens’ needs, how
the goods and services are produced, and how they are distrib-
uted. However, no true communist economy exists today that
satisfies Marx’s ideal.
On paper, communism appears to be efficient and equitable,
producing less of a gap between rich and poor. In practice,
however, communist economies have been marked by low
standards of living, critical shortages of consumer goods, high
prices, corruption, and little freedom. Russia, Poland, Hun-
gary, and other eastern European nations have turned away
from communism and toward economic systems governed by
supply and demand rather than by central planning. However,
their experiments with alternative economic systems have been

6 PART 1 | Business in a Changing World

fraught with difficulty and hardship. Countries such
as Venezuela have tried to incorporate communist
economic principles without success. Even Cuba is
experiencing changes to its predominately commu-
nist system. Massive government layoffs required
many Cubans to turn toward the private sector,
opening up more opportunities for entrepreneur-
ship. The U.S. government has reestablished diplo-
matic relations with Cuba. Americans have more
opportunities to visit Cuba than they have had for
the past 50 years. Similarly, China has become the
first communist country to make strong economic
gains by adopting capitalist approaches to busi-
ness. Economic prosperity has advanced in China
with the government claiming to ensure market
openness, equality, and fairness through state capi-
talism.5 As a result of economic challenges, com-
munism is declining and its future as an economic The Federal Trade Commission enforces antitrust laws and monitors businesses to
system is uncertain. ensure fair competition.
©PAUL J. RICHARDS/Getty Images

Socialism. Socialism is an economic system in

which the government owns and operates basic ­industries—
make decisions about what is best
postal service, telephone, utilities, transportation, health care,
for the nation. People are free to go communism first
banking, and some manufacturing—but individuals own most
into the occupation of their choice, described by Karl Marx
businesses. For example, in France the postal service industry as a society in which the
but they often work in government-
La Poste is fully owned by the French government and makes people, without regard to
operated organizations. Social-
a profit. Central planning determines what basic goods and class, own all the nation’s
ists believe their system permits a
services are produced, how they are produced, and how they resources.
higher standard of living than other
are distributed. Individuals and small businesses provide other
economic systems, but the differ- socialism an economic
goods and services based on consumer demand and the avail-
ence often applies to the nation as system in which the
ability of resources. Citizens are dependent on the government
a whole rather than to its individual government owns and
for many goods and services.
citizens. Socialist economies pro- operates basic industries
Most socialist nations, such as Sweden, India, and Israel, are fess egalitarianism—equal distribu- but individuals own most
democratic and recognize basic individual freedoms. Citizens can tion of income and social services. businesses.
vote for political offices, but central government planners usually They believe their economies are

T A B L E 1 . 1 Comparison of Communism, Socialism, and Capitalism

Communism Socialism Capitalism

Business ownership Most businesses are owned and The government owns and operates Individuals own and operate all
operated by the government. some basic industries; individuals own businesses.
small businesses.
Competition Government controls competition and Restricted in basic industries; Encouraged by market forces and
the economy. encouraged in small business. government regulations.
Profits Excess income goes to the government. Profits earned by small businesses may Individuals and businesses are free to
The government supports social and be reinvested in the business; profits keep profits after paying taxes.
economic institutions. from government-owned industries go
to the government.
Product availability Consumers have a limited choice of Consumers have some choice of goods Consumers have a wide choice
and price goods and services; prices are usually and services; prices are determined by of goods and services; prices are
high. supply and demand. determined by supply and demand.
Employment options Little choice in choosing a career; most More choice of careers; many people Unlimited choice of careers.
people work for government-owned work in government jobs.
industries or farms.

CHAPTER 1 | The Dynamics of Business and Economics 7

capitalism (free
enterprise) an
economic system in which
individuals own and
operate the majority of
businesses that provide
goods and services.
free-market system
pure capitalism, in which
all economic decisions are
made without government
intervention.
mixed economies
economies made up of
elements from more than
one economic system.
duced, and how they are distributed. The United States, Canada,
Japan, and Australia are examples of economic systems based on
capitalism.
more stable than those of other
nations. Although this may be true,
taxes and unemployment are gen-
erally higher in socialist countries.
However, countries like Denmark
have a high standard of living and
they rate high in being happy.
Capitalism. Capitalism, or free
enterprise, is an economic system
in which individuals own and oper-
ate the majority of businesses that
provide goods and services. Com-
petition, supply, and demand deter-
mine which goods and services
are produced, how they are pro-
owned and operated by private individuals. In capitalist United
States, an independent federal agency operates the postal ser-
vice and another independent agency operates the Tennes-
see Valley Authority, an electric utility. In Great Britain and
­Mexico, the governments are attempting to sell many state-run
businesses to private individuals and companies. In Germany,
the Deutsche Post is privatized and trades on the stock market.
In once-­communist Russia, Hungary, Poland, and other east-
ern European nations, capitalist ideas have been implemented,
including private ownership of businesses.
Countries such as China and Russia have used state capitalism
to advance the economy. State capitalism tries to integrate the
powers of the state with the advantages of capitalism. It is led by
the government but uses capitalistic tools such as listing state-
owned companies on the stock market and embracing global-
ization.6 State capitalism includes some of the world’s largest
companies such as Russia’s Gazprom, which is the largest natu-
ral gas company. China’s ability to make huge investments to

[ “Free enterprise provides an opportunity for a business to

succeed or fail on the basis of market demand.”
There are two forms of capitalism: pure capitalism and modi-
fied capitalism. In pure capitalism, also called a free-market
system, all economic decisions are made without government
intervention. This economic system was first described by Adam
Smith in The Wealth of Nations (1776). Smith, often called the
father of capitalism, believed that the “invisible hand of compe-
tition” best regulates the economy. He argued that competition
should determine what goods and services people need. Smith’s
system is also called laissez-faire (“let it be”) capitalism because
the government does not interfere in business.
Modified capitalism differs from pure capitalism in that the
government intervenes and regulates business to some extent.
One of the ways in which the United States and Canadian
governments regulate business is through laws. Laws such as
the Federal Trade Commission Act, which created the Fed-
eral Trade Commission to enforce antitrust laws, illustrate the
importance of the government’s role in the economy. In the
most recent recession, the government provided loans and
took ownership positions in banks such as Citigroup, AIG (an
insurance company), and General Motors. These actions were
thought necessary to keep these firms from going out of busi-
ness and creating a financial disaster for the economy.
Mixed Economies. No country practices a pure form
of communism, socialism, or capitalism, although most tend
to favor one system over the others. Most nations operate as
mixed economies, which have elements from more than one
economic system. In socialist Sweden, most businesses are
]
the point of creating entirely new industries puts many private
industries at a disadvantage.7
The Free-Enterprise System
Many economies—including those of the United States, Canada,
and Japan—are based on free enterprise, and many communist
and socialist countries, such as China and Russia, are apply-
ing more principles of free enterprise to their own economic
systems. Free enterprise provides an opportunity for a business
to succeed or fail on the basis of market demand. In a free-­
enterprise system, companies that can efficiently manufacture
and sell products that consumers desire will probably succeed.
Inefficient businesses and those that sell products that do not
offer needed benefits will likely fail as consumers take their busi-
ness to firms that have more competitive products.
A number of basic individual and business rights must exist for
free enterprise to work. These rights are the goals of many coun-
tries that have recently embraced free enterprise.
1. Individuals must have the right to own property and to pass
this property on to their heirs. This right motivates people to
work hard and save to buy property.
2. Individuals and businesses must have the right to earn profits
and to use the profits as they wish, within the constraints of
their society’s laws, principles, and values.
3. Individuals and businesses must have the right to make
decisions that determine the way the business operates.
Although there is government regulation, the philosophy in

8 PART 1 | Business in a Changing World

 demand the number supply the number equilibrium price the
of goods and services that of products—goods and price at which the number
consumers are willing to services—that businesses of products that businesses
countries like the United States and Austra-
buy at different prices at a are willing to sell at different are willing to supply equals
lia is to permit maximum freedom within a
specific time. prices at a specific time. the amount of products that
set of rules of fairness.
consumers are willing to buy
4. Individuals must have the right to choose at a specific point in time.
what career to pursue, where to live, what
goods and services to purchase, and more.
Businesses must have the right to choose
where to locate, what goods and services to produce, what Supply is the number of products that businesses are willing
resources to use in the production process, and so on. to sell at different prices at a specific time. In general, because
the potential for profits is higher, businesses are willing to sup-
Without these rights, businesses cannot function effectively
ply more of a good or service at higher prices. For example, a
because they are not motivated to succeed. Thus, these rights
company that sells rugs may be willing to sell six at $650 each,
make possible the open exchange of goods and services. In the
four at $500 each, but just two at $350 each. The relationship
countries that favor free enterprise, such as the United States,
between the price of rugs and the quantity the company is will-
citizens have the freedom to make many decisions about the
ing to supply can be shown graphically with a supply curve (see
employment they choose and create their own productivity sys-
Figure 1.2).
tems. Many entrepreneurs are more productive in free-enterprise
societies because personal and financial incentives are available In Figure 1.2, the supply and demand curves intersect at the
that can aid in entrepreneurial success. For many entrepreneurs, point where supply and demand are equal. The price at which

Consumers are usually willing to buy more of an item as

its price falls because they want to save money.

their work becomes a part of their system of goals, values, and
lifestyle. Consider the panelists (“sharks”) on the ABC program
Shark Tank who give entrepreneurs a chance to receive funding
to realize their dreams by deciding whether to invest in their
projects. They include Barbara Corcoran, who built one of New
York’s largest real estate companies; Mark Cuban, founder
of Broadcast.com and MicroSolutions; and Daymond John,
founder of clothing company FUBU, as well as others.8
LO 1-4 Describe the role of supply, demand, and
competition in a free-enterprise system.
the number of products that businesses are willing to supply
equals the amount of products that consumers are willing to
buy at a specific point in time is the equilibrium price. In
our rug example, the company is willing to supply four rugs
at $500 each, and consumers are willing to buy four rugs at
F I G U R E 1 . 2 Equilibrium Price of Handmade Rugs
Prices of
Rugs
(dollars)

The Forces of Supply and Demand $800

Equilibrium
In the United States and in other free-enterprise systems, the Price
650
distribution of resources and products is determined by supply
and demand. Demand is the number of goods and services
500
that consumers are willing to buy at different prices at a specific
time. From your own experience, you probably recognize that
350
consumers are usually willing to buy more of an item as its price
Supply Demand
falls because they want to save money. Consider handmade Curve Curve
rugs, for example. Consumers may be willing to buy six rugs at 200
$350 each, four at $500 each, but only two at $650 each. The
relationship between the price and the number of rugs consum- 0
1 2 3 4 5 6 7
ers are willing to buy can be shown graphically with a demand Handmade Rugs
curve (see Figure 1.2).

CHAPTER 1 | The Dynamics of Business and Economics 9

competition the rivalry
among businesses for
consumers’ dollars
pure competition the
market structure that exists
when there are many small
businesses selling one
standardized product.
monopolistic
competition the market
structure that exists when
buyers who cannot afford to buy goods at the
there are fewer businesses
than in a pure-competition
equilibrium price from participating in the mar-
environment and the ket. According to critics, the wealthy can afford
differences among the goods to buy more than they need, but the poor may
they sell are small. be unable to buy enough of what they need to
survive.

The Nature of Competition

An entrepreneur presents his idea for a new product. Entrepreneurs are
more productive in free-enterprise systems.
©BJI/Blue Jean Images/Getty Images RF
$500 each. Therefore, $500 is the equilibrium price for a rug
at that point in time, and most rug companies will price their
rugs at $500. As you might imagine, a busi-
ness that charges more than $500 (or what-
ever the current equilibrium price is) for
its rugs will not sell as many and might not
earn a profit. On the other hand, a busi- Competition
ness that charges less than $500 accepts a
lower profit per rug than could be made at allows for open
the equilibrium price.
markets and provides
If the cost of making rugs goes up, busi-
nesses will not offer as many at the old opportunities for
price. Changing the price alters the sup-
ply curve, and a new equilibrium price
both individuals
results. This is an ongoing process, with and businesses to
supply and demand constantly changing
in response to changes in economic condi- successfully
tions, availability of resources, and degree
of competition. For example, the price compete.
of oil can change rapidly and has been
between $30 and $113 a barrel over the last seven years. Prices
for goods and services vary according to these changes in sup-
ply and demand. Supply and demand is the force that drives
the distribution of resources (goods and services, labor, and
money) in a free-enterprise economy.
Critics of supply and demand say the system does not distribute
resources equally. The forces of supply and demand prevent sellers
who have to sell at higher prices (because their costs are high) and
Competition, the rivalry among businesses for consumers’
dollars, is another vital element in free enterprise. According
to Adam Smith, competition fosters efficiency and low prices
by forcing producers to offer the best products at the most
reasonable price; those who fail to do so are not able to stay
in business. Thus, competition should improve the quality
of the goods and services available and reduce prices. Com-
petition allows for open markets and provides opportunities
for both individuals and businesses to successfully compete.
Entrepreneurs can discover new technology, ways to lower
prices, as well as methods for providing better distribution or
services. Founder Jeff Bezos of Amazon.com is a prime exam-
ple. ­Amazon was able to offer products online at competitive
prices. Today, Amazon competes against such retail giants as
Walmart in a number of industries, including cloud comput-
ing, entertainment, food, and most consumer products found
in retail stores.
Within a free-enterprise system, there are four types of competi-
tive environments: pure competition, monopolistic competition,
oligopoly, and monopoly.
Pure competition exists when there are
many small businesses selling one standard-
ized product, such as agricultural commodi-
ties like wheat, corn, and cotton. No one
business sells enough of the product to influ-
ence the product’s price. And, because there
is no difference in the products, prices are
determined solely by the forces of supply
and demand.
Monopolistic competition exists when
there are fewer businesses than in a pure-
competition environment and the differ-
ences among the goods they sell are small.
Aspirin, soft drinks, and vacuum cleaners
are examples of such goods. These products
differ slightly in packaging, warranty, name,
and other characteristics, but all satisfy the
same consumer need. Businesses have some
power over the price they charge in monopolistic competition
because they can make consumers aware of product differences
through advertising. Consumers value some features more than
others and are often willing to pay higher prices for a product
with the features they want. For example, many consumers are
willing to pay a higher price for organic fruits and vegetables
rather than receive a bargain on nonorganic foods. The same
holds true for non-genetically modified foods.

10 PART 1 | Business in a Changing World

 oligopoly the market
structure that exists
9 when there are very
An oligopoly exists when there are very few businesses selling States in patent applications.
few businesses selling a
a product. In an oligopoly, individual businesses have control This monopoly allows the devel- product.
over their products’ price because each business supplies a large oper to recover research, develop-
portion of the products sold in the marketplace. Nonetheless, ment, and production expenses monopoly the market
the prices charged by different firms stay fairly close because and to earn a reasonable profit. An structure that exists when
a price cut or increase by one company will trigger a similar example of this type of monopoly there is only one business
response from another company. In the airline industry, for is the dry-copier process developed providing a product in a
example, when one airline cuts fares to boost sales, other air- by Xerox. Xerox’s patents have given market.
lines quickly follow with rate decreases to remain competitive. expired, however, and many imita- economic
On the other hand, airlines often raise prices at the same time. tors have forced market prices to expansion the
Oligopolies exist when it is expensive for new firms to enter decline. situation that occurs
the marketplace. Not just anyone can acquire enough financial when an economy is
capital to build an automobile production facility or purchase Economic Cycles growing and people are
enough airplanes and related resources to build an airline. spending more money;
and Productivity their purchases stimulate
When there is one business providing a product in a given mar- the production of goods
ket, a monopoly exists. Utility companies that supply electric- Expansion and Contraction. and services, which in turn
ity, natural gas, and water are monopolies. The government Economies are not stagnant; they stimulates employment.
permits such monopolies because the cost of creating the good expand and contract. Economic
or supplying the service is so great that new producers cannot expansion occurs when an econ- inflation a condition
compete for sales. Government-granted monopolies are subject omy is growing and people are characterized by a
spending more money. Their pur- continuing rise in prices
to government-regulated prices. Some monopolies exist because
of technological developments that are protected by patent laws. chases stimulate the production of
Patent laws grant the developer of new technology a period of goods and services, which in turn
time (usually 20 years) during which no other producer can stimulates employment. The standard of living rises because more
use the same technology without the agreement of the original people are employed and have money to spend. Rapid expansions
developer. The United States granted its first patent in 1790. of the economy, however, may result in inflation, a continuing
Now its patent office receives hundreds of thousands of patent rise in prices. Inflation can be harmful if individuals’ incomes
applications a year, although China has surpassed the United do not increase at the same pace as rising prices, reducing their

WHOLE FOODS IN A “FOOD FIGHT” TO WIN

AND RETAIN CUSTOMERS

A t Whole Foods, acquired by Amazon,

everything revolves around the cus-
tomer. The first two of the company’s core
values involve selling high-quality organic
products and satisfying customer needs. This
has resulted in a number of initiatives to main-
tain and enhance its customer relationships.
Employees are organized into self-
directed work teams that are empowered to
make decisions involving the daily operations
of their stores. This organizational structure
recognizes that all Whole Foods stores—and
the customers who patronize them—are dif-
ferent. Self-directed employee teams have
the power to meet the needs of their store’s
customers in individualized ways.
Whole Foods has also implemented many
corporate initiatives to improve the customer
experience. Its 365 Everyday Value brand
is geared toward customers who want to
purchase high-quality food at lower prices.
Each store maintains an inviting environment,
with eat-in cafes and sampling. Its adoption
of quality-product standards helps custom-
ers make informed decisions about their
purchases.
Despite its high emphasis on customer
services, the competitive environment has
cut into Whole Foods’ sales. Rivals such as
Walmart have introduced their own organic
product offerings at lower prices, leading
to the perception that Whole Foods is over-
priced. As a result, Whole Foods is taking
on a number of initiatives, including open-
ing stores in lower-income neighborhoods,
selling staple foods at lower prices, and
partnering with digital startup Instacart to
provide delivery options for customers. It
also launched its Whole Foods 365 chain of
stores, which sells lower-priced products.
Although it faces many challenges, Whole
Foods demonstrates that it listens to cus-
tomer needs and is willing to adapt to meet
the competition head on.10
Discussion Questions
1. What is it about the Whole Foods business
concept that has made it so successful?
2. Describe how competitors are eating into
Whole Foods’ profits.
3. What actions is Whole Foods taking to
operate in an increasingly competitive
environment?

CHAPTER 1 | The Dynamics of Business and Economics 11

economic
contraction a
slowdown of the economy
characterized by a decline
in spending and during
which businesses cut back
on production and lay off
workers.
recession a decline in
production, employment,
and income.
unemployment the
condition in which
a percentage of the
population wants to work
but is unable to find jobs.`
buying power. The worst case of
hyperinflation occurred in Hungary
in 1946. At one point, prices were
doubling every 15.6 hours. One of
the most recent cases of hyperin-
flation occurred in Zimbabwe.11
Z­imbabwe suffered from hyperin-
flation so severe that its inflation
percentage rate rose into the hun-
dreds of millions. With the elimina-
tion of the Zimbabwean dollar and
certain price controls, the inflation
rate began to decrease, but not
before the country’s economy was
virtually decimated.12
Economic contraction occurs when spending declines. Busi-
nesses cut back on production and lay off workers, and the
economy as a whole slows down. Contractions of the economy
lead to recession—a decline in production, employment, and
income. Recessions are often characterized by rising levels of
­unemployment, which is measured as the percentage of the
population that wants to work but is unable to find jobs. ­Figure 1.3
shows the overall unemployment rate in the civilian labor force
over the past 75 years. Rising unemployment levels tend to sti-
fle demand for goods and services, which can have the effect of
forcing prices downward, a condition known as deflation. Defla-
tion poses a serious economic problem because price decreases
could result in consumers delaying purchases. If consumers wait
for lower prices, the economy could fall into a recession. The
European Union faced the dangers of deflation in 2015. France

FIGURE 1.3
Annual Average Unemployment Rate, Civilian Labor Force, 16 Years and Over

Percentage
Unemployed
16%
14
12
10
8
6
4
2
0
1940 1950 1960 1970 1980 1990 2000 2008 2009 2010 2011 2012 2013 2014 2015 2016
Year

Sources: Bureau of Labor Statistics, “Labor Force Statistics from the Current Population Survey,” http://data.bls.gov/timeseries/LNS14000000 (accessed
March 30, 2017).

You can see what the U.S. government currently owes—down to the penny—by going to the website for the Bureau of the Public
Debt, www.publicdebt.treas.gov/
Source: Courtesy of the U.S. Department of the Treasury Bureau of the Public Debt

12 PART 1 | Business in a Changing World

 depression a condition gross domestic budget deficit the
of the economy in which product (GDP) the condition in which a nation
unemployment is very high, sum of all goods and spends more than it takes
experienced major deflation, an occurrence that
consumer spending is low, services produced in a in from taxes.
spelled trouble for the rest of the Eurozone as and business output is country during a year.
France is the union’s second largest economy.13 sharply reduced.
The United States has experienced numerous
recessions, the most recent ones occurring
in 1990–1991, 2002–2003, and 2008–2011.
The most recent recession (or economic slowdown) was
caused by the collapse in housing prices and consumers’ inabil-
LO 1-5 Specify why and how the health of the
economy is measured.
ity to stay current on their mortgage and credit card payments.
This caused a crisis in the banking industry, with the govern-
ment bailing out banks to keep them from failing. This in turn Measuring the Economy. Countries measure the state
caused a slowdown in spending on consumer goods and a of their economies to determine whether they are expanding or
decrease in employment. Unemployment reached 10 percent contracting and whether corrective action is necessary to mini-
of the labor force. Don’t forget that personal consumption mize the fluctuations. One commonly used measure is gross
makes up almost 70 percent of gross domestic product, so con- ­domestic product (GDP)—the sum of all goods and services pro-
sumer engagement is extremely important for economic activ- duced in a country during a year. GDP measures only those goods
ity. A severe recession may turn into a depression, in which and services made within a country and therefore does not include
unemployment is very high, consumer spending is low, and profits from companies’ overseas operations; it does include prof-
business output is sharply reduced, such as what occurred in its earned by foreign companies within the country being mea-
the United States in the early 1930s. The most recent recession sured. However, it does not take into account the concept of GDP
is often called the Great Recession because it was the longest in relation to population (GDP per capita). Figure 1.4 shows the
and most severe economic decline since the Great Depression. increase in U.S. GDP over several years, while Table 1.2 com-
pares a number of economic statistics for a sampling of countries.
Economies expand and contract in response to changes in con-
sumer, business, and government spending. War also can affect Another important indicator of a nation’s economic health is
an economy, sometimes stimulating it (as in the United States the relationship between its spending and income (from taxes).
during World Wars I and II) and sometimes stifling it (as dur- When a nation spends more than it takes in from taxes, it has a
ing the Vietnam, Persian Gulf, and Iraq wars). Although fluc- budget deficit. In the 1990s, the U.S. government eliminated
tuations in the economy are inevitable and to a certain extent its long-standing budget deficit by balancing the money spent
predictable, their effects—inflation and unemployment—disrupt for social, defense, and other programs with the amount of
lives and thus governments try to minimize them. money taken in from taxes.

F I G U R E 1 . 4 Growth in U.S. Gross Domestic Product

Billions of
Dollars
20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
1950 1960 1970 1980 1990 2000 2008 2009 2010 2011 2012 2013 2014 2015 2016
Years

Source: U.S. Department of Commerce Bureau of Economic Analysis, “National Economic Accounts,” www.bea.gov/national/index.htm#gdp
(accessed Accessed April 5, 2017).

CHAPTER 1 | The Dynamics of Business and Economics 13

 T A B L E 1 . 2 Economic Indicators of Different Countries

Country GDP (in billions of dollars) GDP per Capita Unemployment Rate (%) Inflation Rate (%)
Argentina 879 20,500 8.0 42.8
Australia 1,189 48,800 5.8 1.4
Brazil 3,135 15,200 12.6 8.4
Canada 1,674 46,200 7.1 1.6
China 21,270 15,400 4.2 2.3
France 2,737 42,400 9.7 0.3
Germany 3,979 48,200 4.3 0.4
India 8,721 6,700 8.4 5.6
Israel 297 34,800 5.0 −0.5
Japan 4,932 38,900 3.2 −0.1
Mexico 2,307 18,900 4.4 2.7
Russia 3,745 26,100 8.2 7.2
South Africa 736 13,200 26.8 6.5
United Kingdom 2,788 42,500 5.1 0.5
United States 18,560 57,300 4.7 1.3
Source: CIA, The World Fact Book, https://www.cia.gov/library/publications/the-world-factbook/rankorder/rankorderguide.html (accessed April 5, 2017) ; International Monetary
Fund, http://www.imf.org/external/index.htm (accessed July 1, 2016).

In recent years, however, the budget deficit has reemerged of which is politically popular. The size of the national debt and
and grown to record levels, partly due to defense spending in little agreement on how to reduce the deficit caused the credit
the aftermath of the terrorist attacks of September 11, 2001. rating of the U.S. debt to go down. The national debt figure
Massive government stimulus spending during the most recent changes daily and can be seen at the Department of the Trea-
recession also increased the national debt. Because many Amer- sury, Bureau of the Public Debt, website. Table 1.3 describes
icans do not want their taxes increased and Congress has diffi- some of the other ways we evaluate our nation’s economy.
culty agreeing on appropriate tax rates, it is difficult to increase
taxes and reduce the deficit. Like consumers and businesses, LO 1-6 Trace the evolution of the American economy
when the government needs money, it borrows from the pub- and discuss the role of the entrepreneur in the economy.
lic, banks, and even foreign investors. By 2017, the national
debt had exceeded $20 trillion. By 2018, the national debt is
expected to be $23.3 trillion.14 This figure is especially worri-
some because, to reduce the debt to a manageable level, the THE AMERICAN ECONOMY
government either has to increase its revenues (raise taxes) or As we said previously, the United States is a mixed economy
reduce spending on social, defense, and legal programs, neither with a foundation based on capitalism. The answers to the
three basic economic issues
T A B L E 1 . 3 How Do We Evaluate Our Nation’s Economy?
are determined primarily by
competition and the forces of
Unit of Measure Description supply and demand, although
Trade balance The difference between our exports and our imports. If the balance is negative, as it has the federal government does
been since the mid-1980s, it is called a trade deficit and is generally viewed as unhealthy intervene in economic deci-
for our economy. sions to a certain extent. For
Consumer Price Index Measures changes in prices of goods and services purchased for consumption by typical instance, the federal govern-
urban households. ment exerts oversight over
Per capita income Indicates the income level of “average” Americans. Useful in determining how much the airline industry to make
“average” consumers spend and how much money Americans are earning. sure airlines remain economi-
Unemployment rate Indicates how many working-age Americans are not working who otherwise want to work. cally viable as well as for
Inflation Monitors price increases in consumer goods and services over specified periods of time. safety and security purposes.
Used to determine if costs of goods and services are exceeding worker compensation Standard of living refers
over time.
to the level of wealth and
Worker productivity The amount of goods and services produced for each hour worked. material comfort that people

14 PART 1 | Business in a Changing World

 standard of living
refers to the level of wealth
and material comfort that
have available to them. The United States, Germany, Austra- much regulation hinders business
people have available to
lia, and Norway all have a high standard of living, meaning activities and their contribution to them.
that most of their citizens are able to afford basic necessities the American economy.16
and some degree of comfort. These nations are often charac- open economy an
When looking at the American
terized by a high GDP per capita. However, a higher GDP per economy in which
economy, growth in GDP and jobs economic activities occur
capita does not automatically translate into a higher standard
are the two primary factors econo- between the country
of living. Costs of goods and services are also factors. The Euro-
mists consider. A positive relation- and the international
pean Union and Japan, for instance, tend to have higher costs
ship exists between a country’s community.
of living than in the United States. Higher prices mean that
employment rate and economic
it costs more to obtain a certain level of comfort than it does
growth. A nation’s output depends
in other countries. Countries with low standards of living are
on the amount of labor used in
usually characterized by poverty, higher unemployment, and
the production process, so there is also a positive correlation
lower education rates. To understand the current state of the
between output and employment. In general, as the labor force
American economy and its effect on business practices, it is
and productivity increase, so does GDP. Profitable companies
helpful to examine its history and the roles of the entrepreneur
tend to hire more workers than those that are unprofitable.
and the government.
Therefore, companies that hire employees not only improve
their profitability but also drive the economic well-being of the
The Importance of the American American economy.17
Economy
Government public policy also drives the economy through job
The American economy is an open economy, or an economy
creation. In order for any nation to ensure the social and eco-
in which economic activities occur between the country and the
nomic health of the country, there must be a tax base to provide
international community. As an open economy, the United States
for the public interest. The vast majority of taxes come from
is a major player in international trade. Open economies tend to
individuals. It is estimated that the U.S. government obtains
grow faster than economies that do not engage in international
$1.4 trillion in individual income taxes annually. Figure 1.5
trade. This is because international trade is positively related
shows the distribution of returns and income taxes paid by
to efficiency and productivity. Companies in the United States
individuals based on their gross income. Those who earn more
have greater access to a wider range of resources and knowledge,
than $250,000 pay an average tax rate of 25.6 percent and pay
including technology. In today’s global environment, the ability
48.9 percent of individual income taxes. Consumers earning less
to harness technology is critical toward increased innovation.15
than $50,000 comprise the majority of individual tax returns
In contrast, research indicates a negative relationship between
filed but pay 6.2 percent of total taxes.18
regulatory actions and innovation in firms, suggesting that too

GENERAL MILLS BRAND STRATEGY: NO TRIX,

JUST TREATS

G eneral Mills has adopted a new brand

strategy: “Consumers first.” The com-
pany believes this strategy will help it thrive
food is growing so rapidly, the supply has been
unable to keep up. As a result, General Mills
has begun underwriting the costs for farmers
products accordingly to maintain its competi-
tive position.19

in a highly competitive business environment.
Adopting this strategy, however, requires Gen-
eral Mills to make costly investments to keep
up with consumers’ rapidly changing values.
In its 150-year history, General Mills has
evolved from a flour mill to a packaged-
consumer-goods company with revenues of
$16 billion. More recently, General Mills has
begun investing heavily in organic and natu-
ral foods with its acquisition of organic food
brands Cascade Farms, Annie’s, and Larabar.
Sales of organic products are a $43.4 billion
industry and growing. Demand for organic
to convert their farms to organic crops.
General Mills wants its customer-centric
focus to differentiate it from rival firms. In
keeping with this customer emphasis, it has
agreed to adopt GMO labeling for some of
its products. While General Mills believes
GMO products are safe, it wants customers
to know that it is listening to their concerns.
In fact, General Mills became a first mover in
this endeavor by reformulating its Cheerios to
be GMO-free. As competitors also turn toward
organic ingredients, General Mills continues
to monitor consumer demand and adapt its
Discussion Questions
1. Describe some of the ways that General
Mills is reinforcing its “Consumers first”
brand strategy?
2. Why is General Mills agreeing to underwrite
the costs for farmers to convert their farm-
land to organic crops?
3. Do you believe General Mills’ adoption
of GMO labeling for some of its products
is a sincere effort to listen to customers
or more of a response to pressure from
­external stakeholders? Why?

CHAPTER 1 | The Dynamics of Business and Economics 15

Businesses are also an important form of tax revenue. Those
that are classified as sole proprietorships, partnerships, and S
corporations (discussed further in the chapter titled “Options
for Organizing Business”) pay taxes according to the individual
income tax code. Corporations are taxed differently. Approxi-
mately 10.6 percent of the government’s total revenues comes
from corporate income taxes.20 The United States has one of the
highest corporate tax rates in the world. Its combined federal
and state statutory corporate tax rate averages approximately
39 percent.21 For this reason, many American companies have
sought to reduce their tax rates through activities such as tax
inversions, in which they locate their headquarters in a country
with a lower tax rate, allowing them to save millions in taxes.
For example, Burger King acquired Tim Hortons and became
domiciled in Canada. Now that Burger King is under Canadian
tax law, it pays U.S. taxes at the same rate, but its earnings in
Canada and Ireland are taxed at the rate where they do business
rather than the higher U.S. tax rate. The federal government is
attempting to close loopholes that allow for tax inversions for
the purposes of avoiding taxes. Also, there are proposals to
allow businesses to bring profits back to the United States at
a low tax rate. It is likely that there will be comprehensive tax
reforms in the near future.
A Brief History of the
American Economy
The Early Economy. Before the colonization of North
America, Native Americans lived as hunter/gatherers and farm-
ers, with some trade among tribes. The colonists who came later
operated primarily as an agricultural economy. People were self-
sufficient and produced everything they needed at home, includ-
ing food, clothing, and furniture. Abundant natural resources
F I G U R E 1 . 5 Individual Income Tax Statistics by Income Group
60%
% of returns filed
% of income tax paid
50
40
30
20
10
0 one devoted to manufacturing goods and
< $15,000 $15,000– $30,000– $50,000– $100,000– $200,000– $250,000
$29,999 $49,999 $99,999 $199,999 $249,999 and above
Source: Internal Revenue Service (Accessed April 4, 2017)
16 PART 1 | Business in a Changing World
and a moderate climate nourished industries such as farming,
fishing, shipping, and fur trading. A few manufactured goods
and money for the colonies’ burgeoning industries came from
England and other countries.
As the nation expanded slowly toward the West, people found
natural resources such as coal, copper, and iron ore and used
them to produce goods such as horseshoes, farm implements,
and kitchen utensils. Farm families who produced surplus goods
sold or traded them for things they could not produce them-
selves, such as fine furniture and window glass. Some families
also spent time turning raw materials into clothes and house-
hold goods. Because these goods were produced at home, this
system was called the domestic system.
The Industrial Revolution. The 19th century and the
Industrial Revolution brought the development of new technol-
ogy and factories. The factory brought together all the resources
needed to make a product—materials, machines, and workers.
Work in factories became specialized as workers focused on
one or two tasks. As work became more efficient, productivity
increased, making more goods available at lower prices. Rail-
roads brought major changes, allowing farmers to send their
surplus crops and goods all over the nation for barter or for sale.
Factories began to spring up along the railways to manufacture
farm equipment and a variety of other goods to be shipped by
rail. Samuel Slater set up the first American textile factory after
he memorized the plans for an English factory and emigrated
to the United States. Eli Whitney revolutionized the cotton
industry with his cotton gin. Francis Cabot Lowell’s factory
organized all the steps in manufacturing cotton cloth for maxi-
mum efficiency and productivity. John Deere’s farm equipment
increased farm production and reduced the number of farmers
required to feed the young nation. Farmers
began to move to cities to find jobs in facto-
ries and a higher standard of living. Henry
Ford developed the assembly-line system
to produce automobiles. Workers focused
on one part of an automobile and then
pushed it to the next stage until it rolled off
the assembly line as a finished automobile.
Ford’s assembly line could manufacture
many automobiles efficiently, and the price
of his cars was $200, making them afford-
able to many Americans.
The Manufacturing and Marketing
Economies. Industrialization brought
increased prosperity, and the United States
gradually became a manufacturing economy—
providing services rather than producing
agricultural products. The assembly line
was applied to more industries, increas-
ing the variety of goods available to the
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 DANCE ON STILTS AT THE GIRLS’ UNYAGO, NIUCHI

Newala, too, suffers from the distance of its water-supply—at least

the Newala of to-day does; there was once another Newala in a lovely
valley at the foot of the plateau. I visited it and found scarcely a trace
of houses, only a Christian cemetery, with the graves of several
missionaries and their converts, remaining as a monument of its
former glories. But the surroundings are wonderfully beautiful. A
thick grove of splendid mango-trees closes in the weather-worn
crosses and headstones; behind them, combining the useful and the
agreeable, is a whole plantation of lemon-trees covered with ripe
fruit; not the small African kind, but a much larger and also juicier
imported variety, which drops into the hands of the passing traveller,
without calling for any exertion on his part. Old Newala is now under
the jurisdiction of the native pastor, Daudi, at Chingulungulu, who,
as I am on very friendly terms with him, allows me, as a matter of
course, the use of this lemon-grove during my stay at Newala.
 FEET MUTILATED BY THE RAVAGES OF THE “JIGGER”
(Sarcopsylla penetrans)

The water-supply of New Newala is in the bottom of the valley,

some 1,600 feet lower down. The way is not only long and fatiguing,
but the water, when we get it, is thoroughly bad. We are suffering not
only from this, but from the fact that the arrangements at Newala are
nothing short of luxurious. We have a separate kitchen—a hut built
against the boma palisade on the right of the baraza, the interior of
which is not visible from our usual position. Our two cooks were not
long in finding this out, and they consequently do—or rather neglect
to do—what they please. In any case they do not seem to be very
particular about the boiling of our drinking-water—at least I can
attribute to no other cause certain attacks of a dysenteric nature,
from which both Knudsen and I have suffered for some time. If a
man like Omari has to be left unwatched for a moment, he is capable
of anything. Besides this complaint, we are inconvenienced by the
state of our nails, which have become as hard as glass, and crack on
the slightest provocation, and I have the additional infliction of
pimples all over me. As if all this were not enough, we have also, for
the last week been waging war against the jigger, who has found his
Eldorado in the hot sand of the Makonde plateau. Our men are seen
all day long—whenever their chronic colds and the dysentery likewise
raging among them permit—occupied in removing this scourge of
Africa from their feet and trying to prevent the disastrous
consequences of its presence. It is quite common to see natives of
this place with one or two toes missing; many have lost all their toes,
or even the whole front part of the foot, so that a well-formed leg
ends in a shapeless stump. These ravages are caused by the female of
Sarcopsylla penetrans, which bores its way under the skin and there
develops an egg-sac the size of a pea. In all books on the subject, it is
stated that one’s attention is called to the presence of this parasite by
an intolerable itching. This agrees very well with my experience, so
far as the softer parts of the sole, the spaces between and under the
toes, and the side of the foot are concerned, but if the creature
penetrates through the harder parts of the heel or ball of the foot, it
may escape even the most careful search till it has reached maturity.
Then there is no time to be lost, if the horrible ulceration, of which
we see cases by the dozen every day, is to be prevented. It is much
easier, by the way, to discover the insect on the white skin of a
European than on that of a native, on which the dark speck scarcely
shows. The four or five jiggers which, in spite of the fact that I
constantly wore high laced boots, chose my feet to settle in, were
taken out for me by the all-accomplished Knudsen, after which I
thought it advisable to wash out the cavities with corrosive
sublimate. The natives have a different sort of disinfectant—they fill
the hole with scraped roots. In a tiny Makua village on the slope of
the plateau south of Newala, we saw an old woman who had filled all
the spaces under her toe-nails with powdered roots by way of
prophylactic treatment. What will be the result, if any, who can say?
The rest of the many trifling ills which trouble our existence are
really more comic than serious. In the absence of anything else to
smoke, Knudsen and I at last opened a box of cigars procured from
the Indian store-keeper at Lindi, and tried them, with the most
distressing results. Whether they contain opium or some other
narcotic, neither of us can say, but after the tenth puff we were both
“off,” three-quarters stupefied and unspeakably wretched. Slowly we
recovered—and what happened next? Half-an-hour later we were
once more smoking these poisonous concoctions—so insatiable is the
craving for tobacco in the tropics.
Even my present attacks of fever scarcely deserve to be taken
seriously. I have had no less than three here at Newala, all of which
have run their course in an incredibly short time. In the early
afternoon, I am busy with my old natives, asking questions and
making notes. The strong midday coffee has stimulated my spirits to
an extraordinary degree, the brain is active and vigorous, and work
progresses rapidly, while a pleasant warmth pervades the whole
body. Suddenly this gives place to a violent chill, forcing me to put on
my overcoat, though it is only half-past three and the afternoon sun
is at its hottest. Now the brain no longer works with such acuteness
and logical precision; more especially does it fail me in trying to
establish the syntax of the difficult Makua language on which I have
ventured, as if I had not enough to do without it. Under the
circumstances it seems advisable to take my temperature, and I do
so, to save trouble, without leaving my seat, and while going on with
my work. On examination, I find it to be 101·48°. My tutors are
abruptly dismissed and my bed set up in the baraza; a few minutes
later I am in it and treating myself internally with hot water and
lemon-juice.
Three hours later, the thermometer marks nearly 104°, and I make
them carry me back into the tent, bed and all, as I am now perspiring
heavily, and exposure to the cold wind just beginning to blow might
mean a fatal chill. I lie still for a little while, and then find, to my
great relief, that the temperature is not rising, but rather falling. This
is about 7.30 p.m. At 8 p.m. I find, to my unbounded astonishment,
that it has fallen below 98·6°, and I feel perfectly well. I read for an
hour or two, and could very well enjoy a smoke, if I had the
wherewithal—Indian cigars being out of the question.
Having no medical training, I am at a loss to account for this state
of things. It is impossible that these transitory attacks of high fever
should be malarial; it seems more probable that they are due to a
kind of sunstroke. On consulting my note-book, I become more and
more inclined to think this is the case, for these attacks regularly
follow extreme fatigue and long exposure to strong sunshine. They at
least have the advantage of being only short interruptions to my
work, as on the following morning I am always quite fresh and fit.
My treasure of a cook is suffering from an enormous hydrocele which
makes it difficult for him to get up, and Moritz is obliged to keep in
the dark on account of his inflamed eyes. Knudsen’s cook, a raw boy
from somewhere in the bush, knows still less of cooking than Omari;
consequently Nils Knudsen himself has been promoted to the vacant
post. Finding that we had come to the end of our supplies, he began
by sending to Chingulungulu for the four sucking-pigs which we had
bought from Matola and temporarily left in his charge; and when
they came up, neatly packed in a large crate, he callously slaughtered
the biggest of them. The first joint we were thoughtless enough to
entrust for roasting to Knudsen’s mshenzi cook, and it was
consequently uneatable; but we made the rest of the animal into a
jelly which we ate with great relish after weeks of underfeeding,
consuming incredible helpings of it at both midday and evening
meals. The only drawback is a certain want of variety in the tinned
vegetables. Dr. Jäger, to whom the Geographical Commission
entrusted the provisioning of the expeditions—mine as well as his
own—because he had more time on his hands than the rest of us,
seems to have laid in a huge stock of Teltow turnips,[46] an article of
food which is all very well for occasional use, but which quickly palls
when set before one every day; and we seem to have no other tins
left. There is no help for it—we must put up with the turnips; but I
am certain that, once I am home again, I shall not touch them for ten
years to come.
Amid all these minor evils, which, after all, go to make up the
genuine flavour of Africa, there is at least one cheering touch:
Knudsen has, with the dexterity of a skilled mechanic, repaired my 9
× 12 cm. camera, at least so far that I can use it with a little care.
How, in the absence of finger-nails, he was able to accomplish such a
ticklish piece of work, having no tool but a clumsy screw-driver for
taking to pieces and putting together again the complicated
mechanism of the instantaneous shutter, is still a mystery to me; but
he did it successfully. The loss of his finger-nails shows him in a light
contrasting curiously enough with the intelligence evinced by the
above operation; though, after all, it is scarcely surprising after his
ten years’ residence in the bush. One day, at Lindi, he had occasion
to wash a dog, which must have been in need of very thorough
cleansing, for the bottle handed to our friend for the purpose had an
extremely strong smell. Having performed his task in the most
conscientious manner, he perceived with some surprise that the dog
did not appear much the better for it, and was further surprised by
finding his own nails ulcerating away in the course of the next few
days. “How was I to know that carbolic acid has to be diluted?” he
mutters indignantly, from time to time, with a troubled gaze at his
mutilated finger-tips.
 Since we came to Newala we have been making excursions in all
directions through the surrounding country, in accordance with old
habit, and also because the akida Sefu did not get together the tribal
elders from whom I wanted information so speedily as he had
promised. There is, however, no harm done, as, even if seen only
from the outside, the country and people are interesting enough.
The Makonde plateau is like a large rectangular table rounded off
at the corners. Measured from the Indian Ocean to Newala, it is
about seventy-five miles long, and between the Rovuma and the
Lukuledi it averages fifty miles in breadth, so that its superficial area
is about two-thirds of that of the kingdom of Saxony. The surface,
however, is not level, but uniformly inclined from its south-western
edge to the ocean. From the upper edge, on which Newala lies, the
eye ranges for many miles east and north-east, without encountering
any obstacle, over the Makonde bush. It is a green sea, from which
here and there thick clouds of smoke rise, to show that it, too, is
inhabited by men who carry on their tillage like so many other
primitive peoples, by cutting down and burning the bush, and
manuring with the ashes. Even in the radiant light of a tropical day
such a fire is a grand sight.
Much less effective is the impression produced just now by the
great western plain as seen from the edge of the plateau. As often as
time permits, I stroll along this edge, sometimes in one direction,
sometimes in another, in the hope of finding the air clear enough to
let me enjoy the view; but I have always been disappointed.
Wherever one looks, clouds of smoke rise from the burning bush,
and the air is full of smoke and vapour. It is a pity, for under more
favourable circumstances the panorama of the whole country up to
the distant Majeje hills must be truly magnificent. It is of little use
taking photographs now, and an outline sketch gives a very poor idea
of the scenery. In one of these excursions I went out of my way to
make a personal attempt on the Makonde bush. The present edge of
the plateau is the result of a far-reaching process of destruction
through erosion and denudation. The Makonde strata are
everywhere cut into by ravines, which, though short, are hundreds of
yards in depth. In consequence of the loose stratification of these
beds, not only are the walls of these ravines nearly vertical, but their
upper end is closed by an equally steep escarpment, so that the
western edge of the Makonde plateau is hemmed in by a series of
deep, basin-like valleys. In order to get from one side of such a ravine
to the other, I cut my way through the bush with a dozen of my men.
It was a very open part, with more grass than scrub, but even so the
short stretch of less than two hundred yards was very hard work; at
the end of it the men’s calicoes were in rags and they themselves
bleeding from hundreds of scratches, while even our strong khaki
suits had not escaped scatheless.

NATIVE PATH THROUGH THE MAKONDE BUSH, NEAR

MAHUTA

I see increasing reason to believe that the view formed some time
back as to the origin of the Makonde bush is the correct one. I have
no doubt that it is not a natural product, but the result of human
occupation. Those parts of the high country where man—as a very
slight amount of practice enables the eye to perceive at once—has not
yet penetrated with axe and hoe, are still occupied by a splendid
timber forest quite able to sustain a comparison with our mixed
forests in Germany. But wherever man has once built his hut or tilled
his field, this horrible bush springs up. Every phase of this process
may be seen in the course of a couple of hours’ walk along the main
road. From the bush to right or left, one hears the sound of the axe—
not from one spot only, but from several directions at once. A few
steps further on, we can see what is taking place. The brush has been
cut down and piled up in heaps to the height of a yard or more,
between which the trunks of the large trees stand up like the last
pillars of a magnificent ruined building. These, too, present a
melancholy spectacle: the destructive Makonde have ringed them—
cut a broad strip of bark all round to ensure their dying off—and also
piled up pyramids of brush round them. Father and son, mother and
son-in-law, are chopping away perseveringly in the background—too
busy, almost, to look round at the white stranger, who usually excites
so much interest. If you pass by the same place a week later, the piles
of brushwood have disappeared and a thick layer of ashes has taken
the place of the green forest. The large trees stretch their
smouldering trunks and branches in dumb accusation to heaven—if
they have not already fallen and been more or less reduced to ashes,
perhaps only showing as a white stripe on the dark ground.
This work of destruction is carried out by the Makonde alike on the
virgin forest and on the bush which has sprung up on sites already
cultivated and deserted. In the second case they are saved the trouble
of burning the large trees, these being entirely absent in the
secondary bush.
After burning this piece of forest ground and loosening it with the
hoe, the native sows his corn and plants his vegetables. All over the
country, he goes in for bed-culture, which requires, and, in fact,
receives, the most careful attention. Weeds are nowhere tolerated in
the south of German East Africa. The crops may fail on the plains,
where droughts are frequent, but never on the plateau with its
abundant rains and heavy dews. Its fortunate inhabitants even have
the satisfaction of seeing the proud Wayao and Wamakua working
for them as labourers, driven by hunger to serve where they were
accustomed to rule.
But the light, sandy soil is soon exhausted, and would yield no
harvest the second year if cultivated twice running. This fact has
been familiar to the native for ages; consequently he provides in
time, and, while his crop is growing, prepares the next plot with axe
and firebrand. Next year he plants this with his various crops and
lets the first piece lie fallow. For a short time it remains waste and
desolate; then nature steps in to repair the destruction wrought by
man; a thousand new growths spring out of the exhausted soil, and
even the old stumps put forth fresh shoots. Next year the new growth
is up to one’s knees, and in a few years more it is that terrible,
impenetrable bush, which maintains its position till the black
occupier of the land has made the round of all the available sites and
come back to his starting point.
The Makonde are, body and soul, so to speak, one with this bush.
According to my Yao informants, indeed, their name means nothing
else but “bush people.” Their own tradition says that they have been
settled up here for a very long time, but to my surprise they laid great
stress on an original immigration. Their old homes were in the
south-east, near Mikindani and the mouth of the Rovuma, whence
their peaceful forefathers were driven by the continual raids of the
Sakalavas from Madagascar and the warlike Shirazis[47] of the coast,
to take refuge on the almost inaccessible plateau. I have studied
African ethnology for twenty years, but the fact that changes of
population in this apparently quiet and peaceable corner of the earth
could have been occasioned by outside enterprises taking place on
the high seas, was completely new to me. It is, no doubt, however,
correct.
The charming tribal legend of the Makonde—besides informing us
of other interesting matters—explains why they have to live in the
thickest of the bush and a long way from the edge of the plateau,
instead of making their permanent homes beside the purling brooks
and springs of the low country.
“The place where the tribe originated is Mahuta, on the southern
side of the plateau towards the Rovuma, where of old time there was
nothing but thick bush. Out of this bush came a man who never
washed himself or shaved his head, and who ate and drank but little.
He went out and made a human figure from the wood of a tree
growing in the open country, which he took home to his abode in the
bush and there set it upright. In the night this image came to life and
was a woman. The man and woman went down together to the
Rovuma to wash themselves. Here the woman gave birth to a still-
born child. They left that place and passed over the high land into the
valley of the Mbemkuru, where the woman had another child, which
was also born dead. Then they returned to the high bush country of
Mahuta, where the third child was born, which lived and grew up. In
course of time, the couple had many more children, and called
themselves Wamatanda. These were the ancestral stock of the
Makonde, also called Wamakonde,[48] i.e., aborigines. Their
forefather, the man from the bush, gave his children the command to
bury their dead upright, in memory of the mother of their race who
was cut out of wood and awoke to life when standing upright. He also
warned them against settling in the valleys and near large streams,
for sickness and death dwelt there. They were to make it a rule to
have their huts at least an hour’s walk from the nearest watering-
place; then their children would thrive and escape illness.”
The explanation of the name Makonde given by my informants is
somewhat different from that contained in the above legend, which I
extract from a little book (small, but packed with information), by
Pater Adams, entitled Lindi und sein Hinterland. Otherwise, my
results agree exactly with the statements of the legend. Washing?
Hapana—there is no such thing. Why should they do so? As it is, the
supply of water scarcely suffices for cooking and drinking; other
people do not wash, so why should the Makonde distinguish himself
by such needless eccentricity? As for shaving the head, the short,
woolly crop scarcely needs it,[49] so the second ancestral precept is
likewise easy enough to follow. Beyond this, however, there is
nothing ridiculous in the ancestor’s advice. I have obtained from
various local artists a fairly large number of figures carved in wood,
ranging from fifteen to twenty-three inches in height, and
representing women belonging to the great group of the Mavia,
Makonde, and Matambwe tribes. The carving is remarkably well
done and renders the female type with great accuracy, especially the
keloid ornamentation, to be described later on. As to the object and
meaning of their works the sculptors either could or (more probably)
would tell me nothing, and I was forced to content myself with the
scanty information vouchsafed by one man, who said that the figures
were merely intended to represent the nembo—the artificial
deformations of pelele, ear-discs, and keloids. The legend recorded
by Pater Adams places these figures in a new light. They must surely
be more than mere dolls; and we may even venture to assume that
they are—though the majority of present-day Makonde are probably
unaware of the fact—representations of the tribal ancestress.
 The references in the legend to the descent from Mahuta to the
Rovuma, and to a journey across the highlands into the Mbekuru
valley, undoubtedly indicate the previous history of the tribe, the
travels of the ancestral pair typifying the migrations of their
descendants. The descent to the neighbouring Rovuma valley, with
its extraordinary fertility and great abundance of game, is intelligible
at a glance—but the crossing of the Lukuledi depression, the ascent
to the Rondo Plateau and the descent to the Mbemkuru, also lie
within the bounds of probability, for all these districts have exactly
the same character as the extreme south. Now, however, comes a
point of especial interest for our bacteriological age. The primitive
Makonde did not enjoy their lives in the marshy river-valleys.
Disease raged among them, and many died. It was only after they
had returned to their original home near Mahuta, that the health
conditions of these people improved. We are very apt to think of the
African as a stupid person whose ignorance of nature is only equalled
by his fear of it, and who looks on all mishaps as caused by evil
spirits and malignant natural powers. It is much more correct to
assume in this case that the people very early learnt to distinguish
districts infested with malaria from those where it is absent.
This knowledge is crystallized in the
ancestral warning against settling in the
valleys and near the great waters, the
dwelling-places of disease and death. At the
same time, for security against the hostile
Mavia south of the Rovuma, it was enacted
that every settlement must be not less than a
certain distance from the southern edge of the
plateau. Such in fact is their mode of life at the
present day. It is not such a bad one, and
certainly they are both safer and more
comfortable than the Makua, the recent
intruders from the south, who have made USUAL METHOD OF
good their footing on the western edge of the CLOSING HUT-DOOR
plateau, extending over a fairly wide belt of
country. Neither Makua nor Makonde show in their dwellings
anything of the size and comeliness of the Yao houses in the plain,
especially at Masasi, Chingulungulu and Zuza’s. Jumbe Chauro, a
Makonde hamlet not far from Newala, on the road to Mahuta, is the
most important settlement of the tribe I have yet seen, and has fairly
spacious huts. But how slovenly is their construction compared with
the palatial residences of the elephant-hunters living in the plain.
The roofs are still more untidy than in the general run of huts during
the dry season, the walls show here and there the scanty beginnings
or the lamentable remains of the mud plastering, and the interior is a
veritable dog-kennel; dirt, dust and disorder everywhere. A few huts
only show any attempt at division into rooms, and this consists
merely of very roughly-made bamboo partitions. In one point alone
have I noticed any indication of progress—in the method of fastening
the door. Houses all over the south are secured in a simple but
ingenious manner. The door consists of a set of stout pieces of wood
or bamboo, tied with bark-string to two cross-pieces, and moving in
two grooves round one of the door-posts, so as to open inwards. If
the owner wishes to leave home, he takes two logs as thick as a man’s
upper arm and about a yard long. One of these is placed obliquely
against the middle of the door from the inside, so as to form an angle
of from 60° to 75° with the ground. He then places the second piece
horizontally across the first, pressing it downward with all his might.
It is kept in place by two strong posts planted in the ground a few
inches inside the door. This fastening is absolutely safe, but of course
cannot be applied to both doors at once, otherwise how could the
owner leave or enter his house? I have not yet succeeded in finding
out how the back door is fastened.

MAKONDE LOCK AND KEY AT JUMBE CHAURO

 This is the general way of closing a house. The Makonde at Jumbe
Chauro, however, have a much more complicated, solid and original
one. Here, too, the door is as already described, except that there is
only one post on the inside, standing by itself about six inches from
one side of the doorway. Opposite this post is a hole in the wall just
large enough to admit a man’s arm. The door is closed inside by a
large wooden bolt passing through a hole in this post and pressing
with its free end against the door. The other end has three holes into
which fit three pegs running in vertical grooves inside the post. The
door is opened with a wooden key about a foot long, somewhat
curved and sloped off at the butt; the other end has three pegs
corresponding to the holes, in the bolt, so that, when it is thrust
through the hole in the wall and inserted into the rectangular
opening in the post, the pegs can be lifted and the bolt drawn out.[50]

MODE OF INSERTING THE KEY

With no small pride first one householder and then a second

showed me on the spot the action of this greatest invention of the
Makonde Highlands. To both with an admiring exclamation of
“Vizuri sana!” (“Very fine!”). I expressed the wish to take back these
marvels with me to Ulaya, to show the Wazungu what clever fellows
the Makonde are. Scarcely five minutes after my return to camp at
Newala, the two men came up sweating under the weight of two
heavy logs which they laid down at my feet, handing over at the same
time the keys of the fallen fortress. Arguing, logically enough, that if
the key was wanted, the lock would be wanted with it, they had taken
their axes and chopped down the posts—as it never occurred to them
to dig them out of the ground and so bring them intact. Thus I have
two badly damaged specimens, and the owners, instead of praise,
come in for a blowing-up.
The Makua huts in the environs of Newala are especially
miserable; their more than slovenly construction reminds one of the
temporary erections of the Makua at Hatia’s, though the people here
have not been concerned in a war. It must therefore be due to
congenital idleness, or else to the absence of a powerful chief. Even
the baraza at Mlipa’s, a short hour’s walk south-east of Newala,
shares in this general neglect. While public buildings in this country
are usually looked after more or less carefully, this is in evident
danger of being blown over by the first strong easterly gale. The only
attractive object in this whole district is the grave of the late chief
Mlipa. I visited it in the morning, while the sun was still trying with
partial success to break through the rolling mists, and the circular
grove of tall euphorbias, which, with a broken pot, is all that marks
the old king’s resting-place, impressed one with a touch of pathos.
Even my very materially-minded carriers seemed to feel something
of the sort, for instead of their usual ribald songs, they chanted
solemnly, as we marched on through the dense green of the Makonde
bush:—
 “We shall arrive with the great master; we stand in a row and have
no fear about getting our food and our money from the Serkali (the
Government). We are not afraid; we are going along with the great
master, the lion; we are going down to the coast and back.”
With regard to the characteristic features of the various tribes here
on the western edge of the plateau, I can arrive at no other
conclusion than the one already come to in the plain, viz., that it is
impossible for anyone but a trained anthropologist to assign any
given individual at once to his proper tribe. In fact, I think that even
an anthropological specialist, after the most careful examination,
might find it a difficult task to decide. The whole congeries of peoples
collected in the region bounded on the west by the great Central
African rift, Tanganyika and Nyasa, and on the east by the Indian
Ocean, are closely related to each other—some of their languages are
only distinguished from one another as dialects of the same speech,
and no doubt all the tribes present the same shape of skull and
structure of skeleton. Thus, surely, there can be no very striking
differences in outward appearance.
 Even did such exist, I should have no time
to concern myself with them, for day after day,
I have to see or hear, as the case may be—in
any case to grasp and record—an
extraordinary number of ethnographic
phenomena. I am almost disposed to think it
fortunate that some departments of inquiry, at
least, are barred by external circumstances.
Chief among these is the subject of iron-
working. We are apt to think of Africa as a
country where iron ore is everywhere, so to
speak, to be picked up by the roadside, and
where it would be quite surprising if the
inhabitants had not learnt to smelt the
material ready to their hand. In fact, the
knowledge of this art ranges all over the
continent, from the Kabyles in the north to the
Kafirs in the south. Here between the Rovuma
and the Lukuledi the conditions are not so
favourable. According to the statements of the
Makonde, neither ironstone nor any other
form of iron ore is known to them. They have
not therefore advanced to the art of smelting
the metal, but have hitherto bought all their
THE ANCESTRESS OF
THE MAKONDE
iron implements from neighbouring tribes.
Even in the plain the inhabitants are not much
better off. Only one man now living is said to
understand the art of smelting iron. This old fundi lives close to
Huwe, that isolated, steep-sided block of granite which rises out of
the green solitude between Masasi and Chingulungulu, and whose
jagged and splintered top meets the traveller’s eye everywhere. While
still at Masasi I wished to see this man at work, but was told that,
frightened by the rising, he had retired across the Rovuma, though
he would soon return. All subsequent inquiries as to whether the
fundi had come back met with the genuine African answer, “Bado”
(“Not yet”).
 BRAZIER

Some consolation was afforded me by a brassfounder, whom I

came across in the bush near Akundonde’s. This man is the favourite
of women, and therefore no doubt of the gods; he welds the glittering
brass rods purchased at the coast into those massive, heavy rings
which, on the wrists and ankles of the local fair ones, continually give
me fresh food for admiration. Like every decent master-craftsman he
had all his tools with him, consisting of a pair of bellows, three
crucibles and a hammer—nothing more, apparently. He was quite
willing to show his skill, and in a twinkling had fixed his bellows on
the ground. They are simply two goat-skins, taken off whole, the four
legs being closed by knots, while the upper opening, intended to
admit the air, is kept stretched by two pieces of wood. At the lower
end of the skin a smaller opening is left into which a wooden tube is
stuck. The fundi has quickly borrowed a heap of wood-embers from
the nearest hut; he then fixes the free ends of the two tubes into an
earthen pipe, and clamps them to the ground by means of a bent
piece of wood. Now he fills one of his small clay crucibles, the dross
on which shows that they have been long in use, with the yellow
material, places it in the midst of the embers, which, at present are
only faintly glimmering, and begins his work. In quick alternation
the smith’s two hands move up and down with the open ends of the
bellows; as he raises his hand he holds the slit wide open, so as to let
the air enter the skin bag unhindered. In pressing it down he closes
the bag, and the air puffs through the bamboo tube and clay pipe into
the fire, which quickly burns up. The smith, however, does not keep
on with this work, but beckons to another man, who relieves him at
the bellows, while he takes some more tools out of a large skin pouch
carried on his back. I look on in wonder as, with a smooth round
stick about the thickness of a finger, he bores a few vertical holes into
the clean sand of the soil. This should not be difficult, yet the man
seems to be taking great pains over it. Then he fastens down to the
ground, with a couple of wooden clamps, a neat little trough made by
splitting a joint of bamboo in half, so that the ends are closed by the
two knots. At last the yellow metal has attained the right consistency,
and the fundi lifts the crucible from the fire by means of two sticks
split at the end to serve as tongs. A short swift turn to the left—a
tilting of the crucible—and the molten brass, hissing and giving forth
clouds of smoke, flows first into the bamboo mould and then into the
holes in the ground.
The technique of this backwoods craftsman may not be very far
advanced, but it cannot be denied that he knows how to obtain an
adequate result by the simplest means. The ladies of highest rank in
this country—that is to say, those who can afford it, wear two kinds
of these massive brass rings, one cylindrical, the other semicircular
in section. The latter are cast in the most ingenious way in the
bamboo mould, the former in the circular hole in the sand. It is quite
a simple matter for the fundi to fit these bars to the limbs of his fair
customers; with a few light strokes of his hammer he bends the
pliable brass round arm or ankle without further inconvenience to
the wearer.
SHAPING THE POT

SMOOTHING WITH MAIZE-COB

CUTTING THE EDGE

 FINISHING THE BOTTOM

LAST SMOOTHING BEFORE

BURNING

FIRING THE BRUSH-PILE

 LIGHTING THE FARTHER SIDE OF
THE PILE

TURNING THE RED-HOT VESSEL

NYASA WOMAN MAKING POTS AT MASASI

Pottery is an art which must always and everywhere excite the
interest of the student, just because it is so intimately connected with
the development of human culture, and because its relics are one of
the principal factors in the reconstruction of our own condition in
prehistoric times. I shall always remember with pleasure the two or
three afternoons at Masasi when Salim Matola’s mother, a slightly-
built, graceful, pleasant-looking woman, explained to me with
touching patience, by means of concrete illustrations, the ceramic art
of her people. The only implements for this primitive process were a
lump of clay in her left hand, and in the right a calabash containing
the following valuables: the fragment of a maize-cob stripped of all
its grains, a smooth, oval pebble, about the size of a pigeon’s egg, a
few chips of gourd-shell, a bamboo splinter about the length of one’s
hand, a small shell, and a bunch of some herb resembling spinach.
 Nothing more. The woman scraped with the
shell a round, shallow hole in the soft, fine
sand of the soil, and, when an active young
girl had filled the calabash with water for her,
she began to knead the clay. As if by magic it
gradually assumed the shape of a rough but
already well-shaped vessel, which only wanted
a little touching up with the instruments
before mentioned. I looked out with the
MAKUA WOMAN closest attention for any indication of the use
MAKING A POT. of the potter’s wheel, in however rudimentary
SHOWS THE a form, but no—hapana (there is none). The
BEGINNINGS OF THE embryo pot stood firmly in its little
POTTER’S WHEEL
depression, and the woman walked round it in
a stooping posture, whether she was removing
small stones or similar foreign bodies with the maize-cob, smoothing
the inner or outer surface with the splinter of bamboo, or later, after
letting it dry for a day, pricking in the ornamentation with a pointed
bit of gourd-shell, or working out the bottom, or cutting the edge
with a sharp bamboo knife, or giving the last touches to the finished
vessel. This occupation of the women is infinitely toilsome, but it is
without doubt an accurate reproduction of the process in use among
our ancestors of the Neolithic and Bronze ages.
There is no doubt that the invention of pottery, an item in human
progress whose importance cannot be over-estimated, is due to
women. Rough, coarse and unfeeling, the men of the horde range
over the countryside. When the united cunning of the hunters has
succeeded in killing the game; not one of them thinks of carrying
home the spoil. A bright fire, kindled by a vigorous wielding of the
drill, is crackling beside them; the animal has been cleaned and cut
up secundum artem, and, after a slight singeing, will soon disappear
under their sharp teeth; no one all this time giving a single thought
to wife or child.
To what shifts, on the other hand, the primitive wife, and still more
the primitive mother, was put! Not even prehistoric stomachs could
endure an unvarying diet of raw food. Something or other suggested
the beneficial effect of hot water on the majority of approved but
indigestible dishes. Perhaps a neighbour had tried holding the hard
roots or tubers over the fire in a calabash filled with water—or maybe
an ostrich-egg-shell, or a hastily improvised vessel of bark. They
became much softer and more palatable than they had previously
been; but, unfortunately, the vessel could not stand the fire and got
charred on the outside. That can be remedied, thought our
ancestress, and plastered a layer of wet clay round a similar vessel.
This is an improvement; the cooking utensil remains uninjured, but
the heat of the fire has shrunk it, so that it is loose in its shell. The
next step is to detach it, so, with a firm grip and a jerk, shell and
kernel are separated, and pottery is invented. Perhaps, however, the
discovery which led to an intelligent use of the burnt-clay shell, was
made in a slightly different way. Ostrich-eggs and calabashes are not
to be found in every part of the world, but everywhere mankind has
arrived at the art of making baskets out of pliant materials, such as
bark, bast, strips of palm-leaf, supple twigs, etc. Our inventor has no
water-tight vessel provided by nature. “Never mind, let us line the
basket with clay.” This answers the purpose, but alas! the basket gets
burnt over the blazing fire, the woman watches the process of
cooking with increasing uneasiness, fearing a leak, but no leak
appears. The food, done to a turn, is eaten with peculiar relish; and
the cooking-vessel is examined, half in curiosity, half in satisfaction
at the result. The plastic clay is now hard as stone, and at the same
time looks exceedingly well, for the neat plaiting of the burnt basket
is traced all over it in a pretty pattern. Thus, simultaneously with
pottery, its ornamentation was invented.
Primitive woman has another claim to respect. It was the man,
roving abroad, who invented the art of producing fire at will, but the
woman, unable to imitate him in this, has been a Vestal from the
earliest times. Nothing gives so much trouble as the keeping alight of
the smouldering brand, and, above all, when all the men are absent
from the camp. Heavy rain-clouds gather, already the first large
drops are falling, the first gusts of the storm rage over the plain. The
little flame, a greater anxiety to the woman than her own children,
flickers unsteadily in the blast. What is to be done? A sudden thought
occurs to her, and in an instant she has constructed a primitive hut
out of strips of bark, to protect the flame against rain and wind.
This, or something very like it, was the way in which the principle
of the house was discovered; and even the most hardened misogynist
cannot fairly refuse a woman the credit of it. The protection of the
hearth-fire from the weather is the germ from which the human
dwelling was evolved. Men had little, if any share, in this forward
step, and that only at a late stage. Even at the present day, the
plastering of the housewall with clay and the manufacture of pottery
are exclusively the women’s business. These are two very significant
survivals. Our European kitchen-garden, too, is originally a woman’s
invention, and the hoe, the primitive instrument of agriculture, is,
characteristically enough, still used in this department. But the
noblest achievement which we owe to the other sex is unquestionably
the art of cookery. Roasting alone—the oldest process—is one for
which men took the hint (a very obvious one) from nature. It must
have been suggested by the scorched carcase of some animal
overtaken by the destructive forest-fires. But boiling—the process of
improving organic substances by the help of water heated to boiling-
point—is a much later discovery. It is so recent that it has not even
yet penetrated to all parts of the world. The Polynesians understand
how to steam food, that is, to cook it, neatly wrapped in leaves, in a
hole in the earth between hot stones, the air being excluded, and
(sometimes) a few drops of water sprinkled on the stones; but they
do not understand boiling.
To come back from this digression, we find that the slender Nyasa
woman has, after once more carefully examining the finished pot,
put it aside in the shade to dry. On the following day she sends me
word by her son, Salim Matola, who is always on hand, that she is
going to do the burning, and, on coming out of my house, I find her
already hard at work. She has spread on the ground a layer of very
dry sticks, about as thick as one’s thumb, has laid the pot (now of a
yellowish-grey colour) on them, and is piling brushwood round it.
My faithful Pesa mbili, the mnyampara, who has been standing by,
most obligingly, with a lighted stick, now hands it to her. Both of
them, blowing steadily, light the pile on the lee side, and, when the
flame begins to catch, on the weather side also. Soon the whole is in a
blaze, but the dry fuel is quickly consumed and the fire dies down, so
that we see the red-hot vessel rising from the ashes. The woman
turns it continually with a long stick, sometimes one way and
sometimes another, so that it may be evenly heated all over. In
twenty minutes she rolls it out of the ash-heap, takes up the bundle
of spinach, which has been lying for two days in a jar of water, and
sprinkles the red-hot clay with it. The places where the drops fall are
marked by black spots on the uniform reddish-brown surface. With a
sigh of relief, and with visible satisfaction, the woman rises to an
erect position; she is standing just in a line between me and the fire,
from which a cloud of smoke is just rising: I press the ball of my
camera, the shutter clicks—the apotheosis is achieved! Like a
priestess, representative of her inventive sex, the graceful woman
stands: at her feet the hearth-fire she has given us beside her the
invention she has devised for us, in the background the home she has
built for us.
At Newala, also, I have had the manufacture of pottery carried on
in my presence. Technically the process is better than that already
described, for here we find the beginnings of the potter’s wheel,
which does not seem to exist in the plains; at least I have seen
nothing of the sort. The artist, a frightfully stupid Makua woman, did
not make a depression in the ground to receive the pot she was about
to shape, but used instead a large potsherd. Otherwise, she went to
work in much the same way as Salim’s mother, except that she saved
herself the trouble of walking round and round her work by squatting
at her ease and letting the pot and potsherd rotate round her; this is
surely the first step towards a machine. But it does not follow that
the pot was improved by the process. It is true that it was beautifully
rounded and presented a very creditable appearance when finished,
but the numerous large and small vessels which I have seen, and, in
part, collected, in the “less advanced” districts, are no less so. We
moderns imagine that instruments of precision are necessary to
produce excellent results. Go to the prehistoric collections of our
museums and look at the pots, urns and bowls of our ancestors in the
dim ages of the past, and you will at once perceive your error.
MAKING LONGITUDINAL CUT IN
BARK

DRAWING THE BARK OFF THE LOG

REMOVING THE OUTER BARK

 BEATING THE BARK

WORKING THE BARK-CLOTH AFTER BEATING, TO MAKE IT

SOFT

MANUFACTURE OF BARK-CLOTH AT NEWALA

To-day, nearly the whole population of German East Africa is
clothed in imported calico. This was not always the case; even now in
some parts of the north dressed skins are still the prevailing wear,
and in the north-western districts—east and north of Lake
Tanganyika—lies a zone where bark-cloth has not yet been
superseded. Probably not many generations have passed since such
bark fabrics and kilts of skins were the only clothing even in the
south. Even to-day, large quantities of this bright-red or drab
material are still to be found; but if we wish to see it, we must look in
the granaries and on the drying stages inside the native huts, where
it serves less ambitious uses as wrappings for those seeds and fruits
which require to be packed with special care. The salt produced at
Masasi, too, is packed for transport to a distance in large sheets of
bark-cloth. Wherever I found it in any degree possible, I studied the
process of making this cloth. The native requisitioned for the
purpose arrived, carrying a log between two and three yards long and
as thick as his thigh, and nothing else except a curiously-shaped
mallet and the usual long, sharp and pointed knife which all men and
boys wear in a belt at their backs without a sheath—horribile dictu!
[51]
Silently he squats down before me, and with two rapid cuts has
drawn a couple of circles round the log some two yards apart, and
slits the bark lengthwise between them with the point of his knife.
With evident care, he then scrapes off the outer rind all round the
log, so that in a quarter of an hour the inner red layer of the bark
shows up brightly-coloured between the two untouched ends. With
some trouble and much caution, he now loosens the bark at one end,
and opens the cylinder. He then stands up, takes hold of the free
edge with both hands, and turning it inside out, slowly but steadily
pulls it off in one piece. Now comes the troublesome work of
scraping all superfluous particles of outer bark from the outside of
the long, narrow piece of material, while the inner side is carefully
scrutinised for defective spots. At last it is ready for beating. Having
signalled to a friend, who immediately places a bowl of water beside
him, the artificer damps his sheet of bark all over, seizes his mallet,
lays one end of the stuff on the smoothest spot of the log, and
hammers away slowly but continuously. “Very simple!” I think to
myself. “Why, I could do that, too!”—but I am forced to change my
opinions a little later on; for the beating is quite an art, if the fabric is
not to be beaten to pieces. To prevent the breaking of the fibres, the
stuff is several times folded across, so as to interpose several
thicknesses between the mallet and the block. At last the required
state is reached, and the fundi seizes the sheet, still folded, by both
ends, and wrings it out, or calls an assistant to take one end while he
holds the other. The cloth produced in this way is not nearly so fine
and uniform in texture as the famous Uganda bark-cloth, but it is
quite soft, and, above all, cheap.
Now, too, I examine the mallet. My craftsman has been using the
simpler but better form of this implement, a conical block of some
hard wood, its base—the striking surface—being scored across and
across with more or less deeply-cut grooves, and the handle stuck
into a hole in the middle. The other and earlier form of mallet is
shaped in the same way, but the head is fastened by an ingenious
network of bark strips into the split bamboo serving as a handle. The
observation so often made, that ancient customs persist longest in
connection with religious ceremonies and in the life of children, here
finds confirmation. As we shall soon see, bark-cloth is still worn
during the unyago,[52] having been prepared with special solemn
ceremonies; and many a mother, if she has no other garment handy,
will still put her little one into a kilt of bark-cloth, which, after all,
looks better, besides being more in keeping with its African
surroundings, than the ridiculous bit of print from Ulaya.
MAKUA WOMEN