PROFITS THE REWARD OF MANAGEMENT 1. Function of the profit-earner.—No fact is more patent than that a risk is involved in getting a return from an industrial enterprise. The laborer is will ing, and under modern conditions is compelled, to accept less than the full value of the product Ile pro duces, because there is a risk involved in getting it. The business man assumes the risk in bringing the different factors of production together. He guides the enterprise and guesses more or less intelligently at the outcome.
To the business man, then, come the proceeds, in due time, and he advances or pays out of them the shares due to those who lend capital, who furnish labor, or who allow him to use their land. If any thing is left be takes it, and becomes what may be called the residual claimant. As such, he must as sume the losses that may arise from change in prices, from the lowering of costs (owing to the purchase or acquirement of new inventions and processes by his competitors) from strikes and from any other exigen cies. On the other hand, prices may rise and, as a consequence, he may have a brief period of large re turns that make the enterprise highly profitable.
2. The eliminating process.—The employment of capital, using the term in its truest sense, involves an employer and an employe. There is no doubt that labor uses capital and, in view of the materials and tools required by men when they work, such use of capital may well be termed physical. And the em ployment of labor by capital is a legal fact, Capital consists necessarily of means of production; hence labor's contact is physical, as already suggested.
But the relationship between capital and labor con sists of a contract based upon the supposition that the laborer is free either to accept or to reject it. The socialist declares that this relationship is one of wage slavery, since the man who works with his hands must work for a capitalist. But he is not required to work always for the same capitalist. There is competition for labor between capitalists, and, for that matter, be tween laborers for the same capitalists. But when the capitalist buys the labor power of an individual, lie assumes the risk of its being represented in a product that will bring him a profit. If there were not such a
return there could be no great motive for saving money.
In the long run, the entrepreneur must show more' ability in business matters than his competitors, or be reduced to a standing less pretentious than his rivals. Moreover, under the competitive system, if the enter prise fails to produce results, the loss does not fall upon the community, nor even upon the laborers who work on the enterprise, but upon the persons who originated and fmanced it.
Thus the process of elimination goes steadily on, weeding out the employ-ers who are not equal to the task imposed upon them.
About ten years ago, so the story goes, a corpora tion was formed in Arkansas to take over some coal mines. The incorporators were sufficiently- familiar with the investment methods to know that they would have to rely upon their friends to finance a local concern. The proportion of the money that they raised which found its way to the owners of leases was so large that they had no adequate working capital after the equipment was bought. The cold water of financial embarrassment soon poured over their enterprise and made their situation extremely difficult. A local banker came to their rescue and lent them small amounts at 10 per cent. The notes, con stantly maturing, and the heavy burden of interest forced the incorporators into foolish mining methods, and finally into foreclosure.
The banker appeared in the final scene as the owner of leases and equipment. The lack of working capi tal wrecked the enterprise before the incorporators were able to resolve the business into a financial prop osition that would interest the investor. So numerous are stories of failure and the elimination of the un successful business man that the statement is made that 90 per cent of business enterprises fail to make good. In the face of such facts the enterpriser is con fronted with many difficulties which make the win ning of profits a, difficult and uncertain task.