7. Profit.—The entrepreneur is the only factor of production whose compensation is not fixed in ad vance. He is the only productive agent who runs the risk of receiving no compensation whatever for his work. He takes what is lmown as a business chance, and if he is not an efficient manager of men, a shrewd buyer of materials and a master salesman, the chances are that his enterprise will be a failure. His prob lem is to sell his product at a price in excess of its cost. This excess over cost constitutes the entrepreneur's reward. It is known as profit.
Every man engaged in the production of wealth is an entrepreneur in so far as he assumes risks. The farmer, tho not known' as a business man, is an entrepreneur, for he hires help, is exposed to the risks of the variable seasons and may be compelled to sell his crops at prices which yield him no net re turn. The owner of a small grocery, cigar store, newsstand, small bakery, or candy shop, is in a small way an entrepreneur. He assumes a business risk and does not know what his compensation will be.
Since the entrepreneur is the manager of a busi ness, his compensation is sometimes called by econo mists the wages of management, but profit is the better word. Some economists hold that the owner of a business, /if he gives all his time to it, should pay himself a salary and count as profit only what then remains of the surplus earnings of his business. In the case of an individual or a partnership this might be called net profit to distinguish it from the gross profit. A man should credit to himself a salary no larger than Ile could earn if he worked for someone else.
8. Corporation, great mass of busi ness and industry at the present time is conducted by partnerships and corporations. In a partnership two or more persons are entrepreneurs and they assume the risk jointly. In a corporation shareholders are the risk takers and to a certain extent are therefore entrepreneurs. But they delegate the management of the corporation to a board of directors, who are expected to shape the policy of the corporation and to hire competent managers or executives.
These executiveS, altho they do not always risk their own capital and are paid salaries fixed in ad vance, are in a position very much like that of the in dividual entrepreneur. It is their business to make the corporation earn the largest possible profit. On their so doing hangs their hope of larger salaries.
If they fail to produce a profit, they lose their jobs.
Anv employe of a corporation carries on his ders the responsibility of an entrepreneur in so far as the authority delegated to him by the board of direetors enables him by the exercise of his judgment to increase the profits of the corporation or to prevent losses.
9. Cost of the preceding para graphs we have used the phrase cost of production. Let us here get an idea of exactly what it means.
The cost of production of any article is the sum total of all labor and capital goods used up in its production. Suppose a man makes a box in an hour, using 100 feet of pine boards and a pound of nails. The cost of production is represented by one 'hour's labor, the nails and the boards. But the nails and the boards are themselves products of labor and of capital goods. Hence could we go far enough back in the history of production we might find that the chief and almost exclusive source of the cost of any article was the labor embodied in it.
But in the modern world we are not dealing with primitive conditions. In modern production labor is the chief, but not the sole element of cost. No matter how simple the operation there is always some capital employed, the use of which must be remunerated.
In 1909, 65.8 per cent of the expenses of manu facturing reported by the census went into materials and fuel, and 23.7 per cent into labor. The share assigned to labor varied greatly in different indus tries. While it was 51.5 per cent in marble and stone work, it was 4.1 per cent in flour mills and grist mills.
The fact, however, that in an ultimate analysis a large part of the cost of all articles is reducible to past and present labor has been. made the basis of much fallacious reasoning with regard to the nature of value, themwnership of capital goods, and the rights of present-day workers.
10. Land rent not a cost elentent.—The reader will note that the rent of land is not included among the elements of costs. That is because nature makes no charge for her services. She rewards man's labor with all the product. The owner of a piece of land, if he does not ivish to cultivate it himself, may do one of two things. First, he may hire a man to cultivate it for him and pay him wages, taking himself all the risk as to the product ; second, he may lease the land to a man, either on shares or for a specified sum as rent. Whichever method he adopts the cost of production remains the same.