Profits the Reward of Management 1

price, business, enterpriser, demand, profit, monopoly and competitive

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5. Com,petitive distinction is drawn by the writers upon the subject of profits, between com petitive and monopoly profits. The fifst -type of profits is,the kind secured by the enterpriser in a competitive business. Under such conditions, prices are determined by the general principles of demand and supply, and the enterpriser is unable to control a large enough part of the supply to enable him to regulate the price.

In the case of monopoly profits, the power to de termine the supply and fix the price is inherent in the monopoly. Competitive business is always in a state of movement. New schemes are being tried, new ma chines introduced, and new combinations of materials and men worked out, in the hope that better results may be obtained and that larger profits may thus be secured. In consequence, there are many fluctuations in price, and many modifications take place in the earnings of the enterpriser. A business concern may decide that materials for their product can be bought for a certain amount. Because of changes, however, they are perhaps able to buy at a lower figure, and since their contract specified a price based upon their original estimates, the profit secured is larger than they anticipated. Just the opposite of this situation may occur, and the concern, in consequence, may lose the whole of the profit that it had fully expected to receive.

Variations in profits due to price fluctuations lead to the formation of arguments in favor of the elimi nation of profit losses. While seemingly such varia tion in demand may spell difficulty for the business man, yet the competitive system has an elasticity that permits the consumer to shift his demand as he meas ures his own economic necessities. In response to the changing demand of consumers there is a con stant shifting of the productive agencies. Certainly profits give an incentive to enterprise which is of enormous importance. It has never been clearly shown that, tho it has many shortcomings, the com petitive regime does not respond satisfactorily to the demands of the consumer.

6. Other economic causes of follow the theme briefly discussed at the close of the preced ing paragraph would carry the reader into questions of government ownership, socialism and monopolies. While we have no intention of avoiding the respon sibilities of such a discussion, it does seem desirable, before taking up the wider topic of monopoly profits, to deal with phases of profits other than those which can be accounted for by the personal ability of the enterpriser and by variances in the costs of produc tion.

There are profits which arise quite unexpectedly. These are purely fortuitous in character and are not to be confused with the profits that result from the intelligence and foresight of the business man. The unexpected discovery of oil on a farm involves a for tune and a profit that are in no wise attributable to the owner's ability. Certain individuals sometimes profit by changes in fashion, while others lose because the demand for their goods ceases. Variations in the values of corporation shares, as in the case of North ern PacifiC shares on May 1, 1901, bring large re turns to the holders -who sell on the crisis day. The high price in the instance cited was the result of the efforts of two rival interests, J. J. Hill and his asso ciates on one side, and the Union Pacific and Hani man interests on the other, to control the Northern Pacific. The Hill interests wanted the road so as to include it in their Northern Securities Company with the Burlington and the Great Northern. Such gains, while important to the individuals who make them, are really not a considerable element in the returns of the entrepreneur class. Skilful bargaining materially adds to the business man's profits by decreasing his costs. Theoretically, the laborer and the capitalist get the returns that arise from their contribution to the product, but in fact they only approximate such returns.

The enterpriser who has real skill as a bargainer may be able to obtain his capital at. a lower rate than that which he should pay. A certain g,rocer had oc casion to borrow additional capital. The bank rate was 7 per cent. Around the corner was the proverbial widow who had been left a considerable sum of money by her husband. Seekirig, investments for her funds, she found that the rate on bonds and high-grade commercial paper was lower than she cared to ac cept ; yet short-term paper ruled at 7 per cent. The grocer was finally able to prevail upon her to loan to him upon fairly satisfactory security at 6 per cent. This story is typical of many that illustrate the gain to be made from careful bargaining.

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