Chapter LIII: Section CXCVI

UNDERTAKER'S PROFIT.--CIRCUMSTANCES ON WHICH IT DEPENDS.

As the wages or reward of labor, in all instances, depends on the circumstances 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 assume 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 coöperating 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 competition 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 competition of undertakers now leads to degeneration, and undertakings or enterprises become usual in which the gains or losses are subjective, and are destitute 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 circumstances which retard 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 principally, 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, _Godard_,
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.
(Enquête commerciale de 1834, II, 233.)]

[Footnote 196-3: Thus _Ganilh_, Théorie 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
circumstances, 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 12-1/2 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 3-1/2 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 Düsseldorf, 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. Coke_, 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. Analogous claims
might be shown to exist in Germany by a collection of almost
any number of opinions advanced during the last thirty
years.]