THE PROFIT PROBLEM 1. Cost and prices.—The man who is responsible for the management of a going business concern must always have in mind two things : first, to keep the costs at the lowest possible point; second, to get for his goods the highest possible price. It is obvious that profits increase as the gulf between costs and the selling price grows wider. • This profit problem would be a comparatively sim ple one if human wants were fixed and unchanging in their nature, if the seasons year after year were uniform so that the weather in each month could be foretold with certainty, and if the population of the country were stationary. Then we should have what might be called a static society, all the trade and in dustrial problems of which could be solved for all time. But our twentieth century civilization is just the opposite—it is dynamic rather than static. Busi ness and industry are in a constant state of flux. Change rather than stability is the law of the day. This statement is especia113,- true of the United States, for here the population is increasing rapidly and the tastes and needs of the people are subject to great and sudden variations.
Hence the man who does business under the con ditions of modern civilization, if he is to be really suc cessful, must solve difficult problems and overcome obstacles which to many seem insurmountable. In this chapter we will briefly consider some of these problems and difficulties.
2. Necessity for late Marshall Field of Chicago, who was often spoken of as the "AIerchant Prince," was once asked by an acquaintance what particular achievement of his had cost him the most work and worry. "Saving my first thousand dol lars," was his prompt reply. Inasmuch as he began his business career as a clerk in a small country store at a salary of possibly fifty dollars a year and "keep," and never had a "pull" with influential relatives or friends, it is not remarkable that the efforts necessary to save that first thousand dollars loomed up at the age of sixty in much greater proportion than all the brilliant achievements which had turned the first thou sand dollars into many millions.
Air. Field realized, even as a boy, the importance of capital in business. Economists usually state that there are three factors essential for the production of wealth—namely, land, labor and capital. Mr. Field had never read a book on political economy and as he did not intend to be a farmer, he did not go out after land. He doubtless knew that both labor and capital were necessary factors. He had command of his own labor and he used it to acquire the needed capital.
It should not be necessary to show that a business carmot be done without capital and that a man can not start a business if he has no capital. Yet it is necessary, for most people have only a hazy idea of what capital means. They- generally confuse it with money, yet the two things are entirely different. Money is a mere medium of exchange, whereas capital is an instrument of production, or some form of wealth, such as raw cotton, or wheat, which by labor can be converted into something more valuable. The money supply of the United States in 1916 amounted to less than four thousand million dollars, whereas, the capital, which includes all the factories, railroads, raw materials and goods passing thru the channels of trade from producer to consumer, was many times greater. We always value capital in terms of monev, and people commonly think of capital as so much money, yet money is only an instrument which men use in the purchase and valuation of capital.
Just as a man cannot chop a tree down without an axe, the axe being capital to the wood-chopper, so a man cannot manufacture any article, even on a small scale, unless he has the necessary tools and raw ma terials ; nor can he start out as a small tradesman un less he has the necessary stock on his shelves. In other words, he must have capital.