Is it valid to say that a business can only be practiced and not studied theoretically at all?

The study and understanding of a business entity begins with a definition:

Business definition by www.businessdictionary.com/definition/business.html

“An organization or economic system where goods and services are exchanged for one another or for money.”

With this definition at hand visiting history will serve well any student planning to study business, commerce or trade because by definition that what a business is. Business in antiquity was in many ways, surprisingly similar to that of today. The comparison provides a relatively simple model showing the dynamics that affect business prosperity. Here are a couple of examples:

· The Iron Age, around 1000 B.C. Iron dramatically reduced the cost of tools, armor, and weaponry. A cooking tripod was worth three women or twelve oxen to Bronze Age Achilles, but only a small fraction of that in the Iron Age.

· Around 200 BC The Silk Road or Silk Route was an ancient network of trade routes that were for centuries the dominant cultural interaction through regions of Eurasia.

· The Phoenicians, based on a narrow coastal strip of the Levant, used their excellent seagoing skills to create a network of colonies and trade centers across the ancient Mediterranean. By the 9th century B.C., the Phoenicians had become one of the greatest trading powers of the ancient world.

· In the 12th Century Marco Polo, is probably the most notorious Italian who traveled on the Silk Road. This merchant of Venice reached further than any of his forerunners, beyond Mongolia to China.

In 1974 Donald J. Harris and David P. Levine of Stanford University published a private paper about the theory of capital which is available online.

In this paper they describe the meaning and measurement of “capital,” in its underlying and far-reaching issues of economic theory which appeared in various scholastic literature and in many forms going back to the era of Classical economics.

The debate that continues today over the nature of capital is virtually a defining characteristic of the development of economic analysis. The issue has rarely been accepted as a solid theory because of its surrounding and problematic conceptual foundations. Nevertheless, a coherent meaning must be assigned to the idea of "capital" which remains to this day as the source of dissonance within the generally inexpressive structure of modern economic theory.

The idea of “value-exchange” has been, since the original parsing of economics, the starting point for a theory which incorporates and expands into exchange, production, and distribution concepts. The analysis of production, which requires essential distinctions within the social world, brings conflict in the analysis of exchange for the only distinctions between members of the market economy are singularly bound to the specific "use-value" which individuals bring to the market.

Economic theory teaches a connection between the domains of exchange and production which is a critical juncture to the consistency of an economic system as a whole where equalizing and differentiating at equivalent exchanges and exploitation, converges. It is at this juncture that the economic analysis faces directly the problem of capital’s precise definition.

In this light, the first role of capital is to mediate the two spheres of production and consumption. The theory of capital formation which is what a business entails constitutes an economic process as a whole and in this process of exchange is where capital as value contradicts the neo-classical theory of capital formation.

Within this theory of capital the value of a commodity is ultimately grounded and expressed on the manner in which that commodity relates to the consumption of individuals. With this in mind, the foundation of capital must begin with the notion of consumption as the goal of an economic process. The crucial difference is between the "circulation of commodities" and the circulation of capital. In the circulation of capital as value is added to capital when it passes through a commodity form happens only in order to expand it into an increased stock of value. This is the most general conception of capital and is common in this form to all theories of capital. There can be no independent measure of value, no self-generation of value as all expressions of it are directly related to commodities and consumption as the goal of the entire economic process that is consumption. The Theory of an exchange-economy in its simplest terms involves only the direct exchange of utilities one against the other.

This specification of need of individuals to consume is essential to the derivation of a consistent price system and at the same time incapable of any legitimate theoretical derivation for in its nature sits arbitrary assumptions. At this time, a connection must be made to the concept of time which it is not, in itself, the basis of the transformation from the theory of exchange into the theory of capital formation and production for any form of business activity. The business occupation is therefore, the allocation of scarce resources over time and maximization of temporal utility. In this case the measure of capital value must be derived from consumption to the return on investment. The determination of price in an exchange economy rests in the interaction of a system of individuals in need of consumption.

It follows that in the absence of production each individual receives an “income” of a given shape from nature which, is equivalent to the initial endowment in the theory of exchange. The theory of capital and interest considers the optimal rearrangement of that income stream that such arrangement yields a return on capital. In this way, the individual either combines his labor or business effort with that of nature and the income this individual receives is consumed.

In conclusion, the occurrence of inter-temporal consumption in an economy it simply reduces to the exchange of commodities without capital and interest. However, the date of consumption becomes a characteristic which affects the utility gained in consumption.

This is the first and most general condition which is introduced in the concept of capital and interest where a business entity must exist.

The second condition on the theory of capital which directly connects to businesses is that choice of an income stream expresses a preference for present over future consumption that results in present and future value in a time frame of reference. Any shift of consumption from one period to another, from present to future, must involve the receipt of a greater amount of consumption in the future than is inevitable in the present.

On one side of the neo-classical behavior of capital seems to require time-preference which favors present over future consumption. Without this specification a positive rate of return could not arise and a business entity could not succeed.