This chapter of the book "The Functions of the Executive," by Chester I. Barnard (1938), explores what Barnard calls the "economy of incentives." According to Barnard, incentives are fundamental in formal organizations and in conscious efforts to organize. He explains that the power of coöperation is dependent upon the willingness of individuals to coöperate and to contribute their individual efforts to the coöperative system. The contributions of personal efforts, which constitute the energies of organizations, are yielded by individuals because of incentives. Barnard calls the processes of offering objective incentives "the method of incentives" and the processes of changing subjective attitudes "the method of persuasion." Barnard discusses the inherent difficulty that organizations experience either in supplying incentives or in exercising persuasion. Barnard refers to this inherent difficulty as the economy of incentives. He points out that "economy" is used in a broad sense and refers not merely to material or monetary economy. In the economy of incentives, Barnard is concerned with the net effects of the income and outgo of things resulting from the production of objective incentives and the exercise of persuasion.