Various Shades of Profits

§ 4.

Element of pure chance. But after all these quali fications, cases remain in which profits can only be said to be the result of pure chance or luck. It still sometimes appears better to be born lucky than to be born rich. What is luck? A result that is not calculable, coming to pass in conditions where a rational choice is not possible, is called luck, for lack of another name. There is bad luck as well as good luck. According to the law of chance, in the tossing of a coin for "heads or tails," one side is as likely to come up as the other, and in the long run the number of heads and tails will be equal. Taking all together the pure accidents of certain kinds, in the community, they are so numerous that losses and gains distribute themselves about a general average by what is called the law of averages, or the law of large numbers. The individual's risk then may be eliminated by insurance, as that against fire, flood, lightning, against sickness of the employer, which would cripple the business, or against his death, which would check it. But many factors evade all attempts to reduce them to rule and there is no possibility of insuring against them : war, changes in markets, good and bad harvests, financial crises, etc. One year the enterprise gains, another it loses. One man makes a success because he happened to engage in business at that time, another man fails because he happened to undertake it at another time, with no more real judgment in the one case than in the other.

§ 5. Changes in transportation and in land-values. The union of choice and chance in varying proportions is seen in many instances of the increase in the value of land. The rapid changes in transportation since the beginning of the nineteenth century have wrought great changes in the value of lands for many purposes, and thus have brought great chance profits (and often great losses) to individuals. To take a few examples.

The Erie Canal, completed in 1825, increased the trade of the ports of New York and Buffalo, brought prosperity to many cities on its waters, increased the value of agricultural lands on and near the Great Lakes, but reduced the value of many farms in New York and New England. The completion of the Boston and Albany railroad in 1841 and the later open ing of the Hoosac tunnel probably helped the mechanical and depressed the agricultural industries of New England. The spread of the railroads in the United States from 1850 to 1880 went on with unparalleled rapidity, and opened up to settlement great areas of rich lands which rose in value. At the same time the large new supplies of agricultural produce so reduced prices in the great markets, and the incomes from lands in eastern America and in western Europe fell so greatly that many farmers were bankrupted. Timber lands bought from the government at fifty cents an acre made enor mous fortunes for the so-called "lumber kings" of the North west. The Panama Canal raised the efficiency of ships plying between New York and San Francisco, enabling them to carry freight more quickly and in greater amounts. The railroads must lower some freight rates and even then lose a part of their traffic, and many of the lands on the Pacific coast must rise in value.

Changes in transportation alter the location and character of all kinds of enterprises. After the building of the rail roads in Pennsylvania new forges were built where deposits were richer or where materials and products could be more cheaply shipped, and many prosperous small forges on the country roads became valueless. A similar change has relo cated the flour milling, the mechanical, and the textile indus tries of a large part of the country. As population has been growing rapidly in Christendom in the past century or more, farms have become villages, villages have become cities, low priced residential lots have become expensive business sites.

§ 6.

The so-called unearned increment. Such changes and chances as these have resulted in profits and losses to great numbers of landowners, who as investors have seen their lands rise above or fall below the price for which they bought the land. The name "unearned increment" has frequently been applied especially to this kind of profit of the land owner. It is true that in many ways the ownership of a piece of land may give unexpected gains. Farm land of the poorest kind often is found to contain valuable mineral de posits. Such a lucky find lifted the mortgage from a farm in eastern Pennsylvania, from which, in two or three years, feld spar was taken exceeding in value the agricultural products of the same land in the fifty years before. The discovery of building stone, coal, natural gas, or oil beneath the surface has brought riches to many a poor landowner. A mineral spring, because of the supposed or proved healing properties of its waters, may be as good as a mine. Fitness to produce nettles is not ordinarily a virtue in land, but the discovery that certain fields produce a superior quality of the nettle used for heckling cloth, causes them to rise in price. Marsh land, almost valueless, found to be peculiarly fitted for the cultivation of celery, becomes very valuable. While the in come of the owners of these lands is increased, that of other owners may be diminished, as a result of the fall of prices and the shift of demand.

The increment of land values seems especially unearned when it arises as an incident to the holding of the land for other purposes, as for farming, or for one's own residence. The striking fact in the extreme cases of chance increments of land values is that profits accrue to quite unenterprising landowners. Many dramatic changes of fortune have re sulted and in many a case some half-miserly old farmer doing nothing to improve the community and opposing all change, has left a fabulous fortune to his heirs. And yet, compara tively speaking, such cases are about as rare among land owners as are capital prizes in a lottery, and there are many cases of profit in things other than lands, where there is a similar profit due to chance. Stocks of goods are worth more or less, horses, cattle, grain, go up and down in price in the hands of farmers or of produce merchants. All profit in volves this element. Land profit is but one notable example of a general fact.