Principles of Political Economy Part 17

B. Wages and interest for the labor and capital utilized only in one's own production, and which cannot be let. _v.

Mangoldt_ himself admits, that, in the long run, only certain qualified labor belongs to this category.

C. Undertaker's rent (_Unternekmerrente_) depending on the rarity of undertakers (men of enterprise) compared with the demand. This, therefore, is not a third component part, but only one which adds to the other two, _Storch_, Handbuch, I, 180, and _Rau_, Lehrbuch, I, -- 237 ff., consider the profit of the undertaker as an admixture of wages and interest.

Professor _J. Miscszewicz_ has given expression to an interesting thought in opposition to myself: that credit is a fourth factor of production (natural forces, labor and capital being the other three) produced by the three older factors, as capital by the two oldest. The undertaker's profit he then considers the product of this fourth factor, corresponding to rent, interest and wages.]

[Footnote 195-5: Compare _Canard_, Principes, ch. 3; _J. B.

Say_, Traite, II, ch. 7, Cours pratique, V, 1-2, 7-9, distinguishes three branches of income: rent, interest and the profits of industry; and he divides the latter again into the profits of the _savant_, the undertaker and workmen, (_v. Jacob_, Grundsatze der Nat.-Oek., -- 292; _Lotz_, Handbuch, I, 471; _Schmalz_, Staatswirthschaftslehre, I, 116; _Nebenius_, ff. Credit, I, Aufl., 466.)]

[Footnote 195-6: I need only call attention to the influence that the mere name of a general sometimes exerts over the achievements and sometimes even over the composition of his army (Wallenstein!); and how important it sometimes is to keep his death a secret. And so the mere name of a minister of finance may facilitate loans, etc.]

[Footnote 195-7: It is sufficient to mention the different positions occupied by the shareholders and preferred creditors of a joint-stock company.]

[Footnote 195-8: Compare _von Thunen's_ Isolirter Statt, II, 80 ff., and his Life, 1868, 96. _Meister muss sich immer plagen!_ (_Schiller._) See a long catalogue of books on the position of the undertaker in the princ.i.p.al different branches of industry in _Steinlein_, Handbuch der Volkswirthschaftslehre, I, 445 ff.]

[Footnote 195-9: _Tantiemes_ occupy a middle place between wages and the undertaker's profit; dividends a middle place between undertaker's profit and the interest of capital. On this is based _Rodbertus's_ view, that an increase of joint stock companies raises _ceteris paribus_ the rate of interest, and an increase of productive a.s.sociations the rate of wages, for the reason that in each instance, there is some admixture of "undertaker's profit," or reward of enterprise.]

SECTION CXCVI.

UNDERTAKER'S PROFIT.--CIRc.u.mSTANCES ON WHICH IT DEPENDS.

As the wages or reward of labor, in all instances, depends on the circ.u.mstances mentioned in -- 167 ff., so, also does the reward of enterprise; in other words, the undertaker's profit or wages. It depends, therefore:

A. On the rarity of the personal qualities required in a business, which qualities may be divided into technical and ethical qualities. Among the latter are, especially, the capacity to inspire capitalists with confidence and workmen with love for their task; the administrative talent to systematize a great whole made up of men and to order it properly, to keep it together by sternness of discipline in which pedantry has no part, and by economy with no admixture of avarice; and frequently endurance and even presence of mind. These ethical, statesmanlike qualities are, take them all in all, a more indispensable condition of high undertaker's profit than the technical are.[196-1]

B. On the risk of the undertaking in which not only one's property, but one's reputation, may be lost.[196-2]

C. As to the disagreeableness of the undertaking or enterprise, we must take into especial consideration the disinclination of capitalists in general to a.s.sume the care and trouble of concerning themselves directly with the employment of their capital. (-- 183.) The undertaker's profit is, besides, lower in proportion as he needs to care less for the profitable application of the different sources of production, and for their preservation. Hence it is, in general, higher for the direction of circulating than of fixed capital; in speculative trade and in wholesale trade which extends to the whole world, than in retail trade and merely local business.[196-3]

It has, indeed, been remarked, that the undertaker's profit is, as a rule, proportioned to the capital employed.[196-4] This may be true in most cases, but only as the accidental compromise between opposing forces. It is evident that the greater the enterprise is, the greater may be the surplus over and above the compensation stipulated for in advance of all the cooperating productive forces, and not only absolutely but also relatively. We need only call to mind the successful results attending the greater division of labor (-- 66) and the greater division of use (_Gebrauchstheilung_) (-- 207); the greater facility of using remains in production on a large scale, and the fact that all purchases, and all obtaining of capital are made, when the items are large, at cheaper rates, because of the more convenient conducting of the business.

This is true up to the point where the magnitude of the whole becomes so great as to render the conducting of it difficult. Considered even subjectively, the great undertaker, whose name and responsibility keep a great many productive forces together, may demand a higher reward, because there are so few persons competent to do the same. On the other hand, it cannot be denied that a support in keeping with his position may be called the amount of the cost of production of the undertaker's labor. If this cost is once fixed by custom, it will, of course, be relatively high in those branches of business which permit only of the employment of a small capital.[196-5]

In the higher stages of civilization, the undertaker's profit has, like the rate of interest, a tendency to decline. This decline is, indeed, in part, only an apparent one, caused by the decreased risk and the smaller indemnity-premium. But it is, in part, a real one, produced by the increased compet.i.tion of undertakers.[196-6] The more intelligent landowners and workmen become, the more readily do they acquire the capacity and desire to use the productive forces peculiar to them in undertakings of their own; and the number of retired persons who live from their rents grows smaller with the decline of the rate of interest.

The strong compet.i.tion of undertakers now leads to degeneration, and undertakings or enterprises become usual in which the gains or losses are subjective, and are dest.i.tute of all politico-economical productiveness; for instance, the purchase of growing fruits, and businesses carried on in "margins," or differences. It is self-evident that the circ.u.mstances which r.e.t.a.r.d the rate of interest, or turn it retrograde, would have a similar effect on the undertaker's profit. (-- 186.) On the whole, a rapidly growing people meet with great gains and losses, but the preponderance is in favor of the former. A stationary people are wont to become more and more careful and cautious. A declining people underestimate the chances of loss, although in their case they tend more and more to preponderate over the chances of gain.

(_v. Mangoldt._)

[Footnote 196-1: Thus _Arkwright_, by his talent for organization princ.i.p.ally, attained to royal wealth, while _Hargreaves_, a greater inventive genius, from a technic point of view, had to bear all the hardships of extreme poverty.]

[Footnote 196-2: An experienced Frenchman, _G.o.dard_, estimates that of 100 industrial enterprises attempted or begun, 20 fail altogether before they have so much as taken root; that from 50 to 60 vegetate for a time in continual danger of failing altogether, and that, at the furthest, 10 succeed well, but scarcely with an enduring success.

(Enquete commerciale de 1834, II, 233.)]

[Footnote 196-3: Thus _Ganilh_, Theorie de l'Economie politique I, p. 145, was of the opinion that in France's foreign trade the profit was only 20, and in its internal trade, scarcely 10 per cent. of the value put in circulation.]

[Footnote 196-4: _Hermann_ loc. cit. 208.]

[Footnote 196-5: According to _Sinclair_, Grundgesetze des Ackerbaues, 1821, the profit on capital of English farmers was wont to be from 10 to 18 per cent. Only in very remarkable cases, by persons in very favorable circ.u.mstances, was from 15 to 20 per cent. earned; that is, on the whole, less than in commerce and industry. In the case of farmers of meadow land, 15 per cent. and even more was not unusual; because there is a need of less outlay here, but more mercantile speculation, especially in the fattening of live stock.

At the end of the last century English farmers expected 10 per cent. profit on their capital. (_A. Young_, View of the Agriculture of Suffolk, 1797, 25.) And so _Senior_ is of opinion that, in the England of to-day, industrial enterprises of 100,000 yield a profit of less than 10 per cent. a year; those of 40,000, at least 12 per cent.; those of from 10,000 to 20,000, 15 per cent.; smaller ones 20 per cent. and even more. He makes mention of fruit hucksters who earned over 20 per cent. a day; that is, over 7,000 per cent. a year! (Outlines, 203 seq.) In Manchester, manufacturers, according to the same authority, turned over their capital twice a year at 5 per cent.; retail dealers, three times a year at 3 per cent. (Ibid, 143.) _Torrens_, The Budget (1844), 108, designates 7 per cent. as the minimum profit which would induce an English capitalist to engage in an enterprise of his own. According to _v.

Viebahn_, Statistik des Regierungsbezirks Dusseldorf, 836, I, 180, the undertaker's profit, i. e., the surplus money of the value of the manufactured articles, after deduction made of the raw material and wages, in the Berg country, amounted to, in 81 iron factories, 146,400 thalers; in 6 cotton factories, to 21,200 thalers; in 15 cloth factories, to 14,725 thalers; in 4 worsted factories, to 1,700 thalers; in 4 brush factories, to 800 thalers; in 2 tobacco factories to 10,220 thalers; in 2 paper factories, to 7,400 thalers; on an average, 1,924 thalers; although many undertakers earned only from 200 to 400 thalers, and some few from 5,000 to 10,000 thalers.]

[Footnote 196-6: This is, of course somewhat oppressive to many individuals, and hence we find that in those countries which are unquestionably making great advances in civilization, there are so many complaints of alleged growing impoverishment. Compare _Sam. Fortrey_, England's Interest and Improvement, 1663; _R. c.o.ke_, A Treatise wherein is demonstrated that the Church and State of England are in equal danger with the Trade of it, 1671. Britania languens, showing the Grounds and Reasons of the Increase and Decay of Land, etc., 1680. And per contra, England's great Happiness, wherein is demonstrated that a great Part of our Complaints are causeless, 1677. a.n.a.logous claims might be shown to exist in Germany by a collection of almost any number of opinions advanced during the last thirty years.]

SECTION CXCVI (_a._).

UNDERTAKER'S PROFIT.--HAVING THE "LEAD."

The undertaker's profit is that branch of the national income in which the greater number of new fortunes are made. If a landowner has a large income, he generally considers himself obliged to make a correspondingly large outlay, one in keeping with his position; and workmen who are not undertakers themselves seldom have the means to make large savings.

Besides, undertakers stand between the purchasers of their products and the lessors of the productive forces used by them in the peculiarly favorable situation which I may describe by the expression: having, as they say in card-playing, "the lead."[196a-1] When, in the struggle for prices, one party occupies a position which enables him to observe every change of circ.u.mstance much sooner than his opponent, the latter may always suffer from the effects of erroneous prices. If, for instance, the productiveness of business increases, even without any personal merit of the individual undertakers themselves, it will always be some time before the decline in the price of commodities and the rise in the rate of interest take place, as a result of the increased compet.i.tion of undertakers, consequent upon the extraordinary rate of the undertaker's profit. It is difficult, and even impossible in most instances for the proprietors of the productive forces which they have rented out, to immediately estimate accurately the profit made by undertakers. On the other hand, the least enhancement of the price of the forces of production is immediately felt by the undertakers, and causes them to raise their prices. They just as quickly observe a decline of the prices of the commodities, and know how to make others bear it by lowering wages and the rate of interest.[196a-2] It should not be forgotten that the persons most expert, far-seeing, active and expeditious in things economic, belong to the undertaking cla.s.s.[196a-3] [196a-4]

[Footnote 196a-1: The same principle is effective in intermediate commerce, and in the intervention of bankers between government and state creditors.]

[Footnote 196a-2: This is much less the case in rents, for the reason that contracts here are made for a much longer term. Hence, here the farmer has as much to fear as to hope from a change of circ.u.mstances. Hence, too, we meet with a farmer who has grown rich much more seldom than with a manufacturer or a merchant.]

[Footnote 196a-3: If an undertaker can cede his higher reward to another and guaranty its continuance, the circ.u.mstances which enable him to do this a.s.sume the nature of fixed capital; for instance, the trade or _clientele_ secured by custom or privilege. If the undertaker has not the power to dispose of it in this way, the increased profit either disappears with his retirement from the business or falls to the owner of the capital employed, and still more to the land owner. Thus, for instance, how frequently it has happened that a store, which has been largely resorted to by the public, drawn thither by the business tact of the lessee, has afterwards been rented by the owner at a higher rent! (_Hermann_, loc. cit. 210.)]

[Footnote 196a-4: _La.s.salle's_ socialistic attacks on Political Economy have been directed mainly against the undertaker's profit or reward. Compare the work "Bastiat-Schulze von Delitzsch, der okonom. Julian oder Kapital und Arbeit," 1863. By means of state credit, he would have this branch of income turned over to common labor. _Duhring_ also, Kapital und Arbeit 90, declaims not so much against capital as against "the absolutism of undertakers." _Schaffle_ D. Vierteljahrsschrift Nr. 106, II, 223, objects to this, that undertakers give value in exchange to unfinished products, a great service rendered even to the laboring cla.s.s, who otherwise would have to resign the advantages of the division of labor.

The undertaker's profit is precisely the part of the great politico-economical tree from which further growth chiefly takes place. To artificially arrest it, therefore, would be to hasten the stationary state, and thus make general and greater the pressure on workmen and capitalists, which it is sought to remove locally. Hence _Roesler_, Grundsatze, 507 ff., very appropriately calls the undertaker's profit the premium paid by society to those who most effectually combat the "law of rent." The importance of a good undertaker may be clearly seen when a joint stock manufacturing company pays a dividend of from 20 to 30 per cent., while one close by, of the same kind, produces no profit whatever. But, at the same time, the socialistic hatred of this branch of income may be easily accounted for, in a time full of stock-jobbing, which last never produces except a pseudo-undertaker's profit.]

CHAPTER VI.

CONCLUDING REMARKS ON THE THREE BRANCHES OF INCOME.

SECTION CXCVII.

INFLUENCE OF THE BRANCHES OF INCOME ON THE PRICE OF COMMODITIES.

We have seen, -- 106, that the cost of production of a commodity, considered from the point of view of individual economy, may be reduced to the payment for the use of the requisite productive forces rented or loaned to the producer. Hence every great variation in the relation of the three branches of income to one another must produce a corresponding variation in the price of commodities.[197-1] When, for instance, the rate of wages increases because they absorb a larger part of the national income, those commodities in the production of which human labor, directly employed, is the chief factor, must become dearer as compared with others. Whether this difference shall be felt princ.i.p.ally by the products of nature or of capital (compare -- 46 seq.), depends on the causes which brought about the enhancement of the rate of wages.

Thus, a large decrease of population, or emigration on a large scale, will usually lower rent as well as the rate of interest;[197-2] an extraordinary improvement made in the art of agriculture, only the former; and an extraordinary increase of capital, only the latter. The usual course of things, namely that the growth of population necessitates a heavier draft on the resources of the soil, and thus causes rents to go up, and makes labor dear, must have the effect of raising the price of the products of labor and of natural forces, as compared with the products of capital; and all the more as it causes the rate of interest to suffer a positive decline. The products of mechanical labor become relatively cheaper; and cheaper in proportion as the producing machinery is more durable; therefore in proportion as, in the price of the services it renders, mere interest preponderates over compensation for its wear and tear.[197-3]

Let us, for a moment, leave ground-rent out of the question entirely, and suppose a nation's economy whose production is conducted by eleven undertakers employed on different commodities. Let us suppose that undertaker No. 1 uses machinery exclusively and employs only as many workmen as are strictly necessary to look after it, that undertaker No.

2 has a somewhat larger number of workmen and a somewhat smaller amount of fixed capital, etc.; and that this increase in the number of workmen and decrease in the amount of fixed capital continues until we reach undertaker No. 11, who employs all his capital in the payment of wages.

If now, the rate of wages were to rise, and the interest on capital to fall in the same proportion, the commodities produced by undertaker No.

11 would rise most in price, and those of No. 1 decline most. In the case of undertaker No. 6, the opposing influences would probably balance each other, and if the producers of money belonged to this sixth cla.s.s, it would be very easy to get a view of the whole change in the circ.u.mstances of production, in the money-price of the different commodities.[197-4]

[Footnote 197-1: Compare _Adam Smith_, I, ch. 7, fin. This relative increase or decrease of one branch of income at the expense or to the advantage of another, should be distinguished from the absolute change of its amount which does not affect the cost of production. Thus, for instance, when the rent of land indeed increases, but in consequence of a simultaneous improvement in agriculture, a decline in the rate of interest, and an enhancement of the price of wheat is avoided (-- 157). So, too, when individual wages increase on account of the greater skill and energy of labor, but the same quant.i.ty and quality of labor do not become dearer (-- 172 seq.); and lastly, when the rate of interest remaining unaltered, the receipts of capitalists are increased by reason of an increase of their capital (-- 185).]

[Footnote 197-2: After the great plague in the 14th century in England, when all the products of labor became dearer, skins and wool fell largely in price: _Rogers_, I, -- 400.]

[Footnote 197-3: Anyone who carefully reads all the five divisions of _Ricardo's_ first chapter will soon find that this great thinker rightly understood the foregoing, although the great abstractness and hypothetical nature of his conclusions might easily lead the reader astray. The proposition which closes the second part, and which has been so frequently misunderstood by his disciples, can be maintained only on the supposition that the prices of all commodities. .h.i.therto have been made up of equal proportions of rent, capital and wages. But think of Brussels lace and South American skins!]

[Footnote 197-4: Compare _J. Mill_, Anfangsgrunde der polit.

Oekonomie, Jacob's translation, -- 13 ff.; _McCulloch_, Principles, III, 6. _Adam Smith_ was of opinion, that higher wages enhanced the price of commodities in an arithmetical ratio, a higher rate of interest in a geometrical one (I, ch. 9). Similarly _Child_, Discourse of Trade, 38. This last _Kraus_, Staatswirthschaft, better expresses by saying that an increase in the rate of interest operates in the ratio of the compounded interests.]