The International Institute of Agriculture, with headquarters at Rome, was established for the study of agricultural problems and for the dissemination of knowledge about the great staple crops. Such in formation should be of great service, but it cannot supplant the function of the man who is willing to enter into financial obligation in order to prove the correctness of his views. Sometimes he is wrong, and mistakes are made in calculations. But the miller wants to know how much wheat will cost him six months from now, and the textile manufacturer wants to know what the price of cotton will be a month from today. The service rendered by the dealer in futures is of the highest importance, even tho, owing to exist ing conditions, it cannot be perfect.
8. Profits and prices.—It is generally admitted that a period of rising prices is a period of prosperity. In general, people reckon their incomes on the basis of their money returns. The larger these are, the bet ter off they think they are, forgetting that their ex penses may have increased in the same proportion. Business men, feeling a stimulus from rising prices, transmit that feeling down the line.
In the middle of the year 1915, there was much speculation as to why business did not respond to the rising tide of prices. The answer was to be found in the uncertainties incident to the war. As a mat ter of fact, there is reason enough for the stimulating influence that increasing prices exert upon industry. It is a well-known fact that wages do not rise as rap idly as prices ; hence, the enterpriser, in a period of advancing prices, can employ labor at the old rate, while he sells his product on a rising market. The opposite situation, in the event of declining prices, comes into existence, for the wage price of labor holds longer than the price of commodities, and falls much more slowly.
Such a period soon manifests itself in the falling 1 off in enterprise and the decline in business activity. I The relation of profits to prices is a very direct one ; in fact, prices, determined by widely differing forces, make the profit great or small. However, the human factor, represented by the enterpriser, enters as the determinant in the matter. It is the enterpriser who suggests the wisdom of the undertaking and unon whom the blame must rest in the event of failure.
Net profits do not form a part of the price of man ufactured products when a, state of competition exists.
In the same market and under the same conditions of. competition the price must be uniform, since it is determined by that portion of the supply which is produced under the greatest disadvantage. Those makers of the product who supply the last portion of the demand receive no net profits for their work. They receive interest for their capital, and the man agers must have wages of management, but otherwise for these marginal producers there is no profit of a differential character. It is the cost of producing this last portion of the supply that determines the price of the whole supply offered at that time in the market.
Rent is a payment the features of which correspond rather closely with some of the features of profits. But rent is determined by well-known principles, and while the enterpriser may now and then make a profit from the landlord's lack of knowledge, he does not generally do so. By employing labor at a price beloi,v the market price, the enterpriser may be able to gain some advantage; he may also be able to profit by the money market.
Wages and interest, as well as rent, are determined by well-known principles. These payments do not vary in the case of the various enterprisers competing in the same market. High-grade employers pay the same wages as those of less ability. Two farmers may work side by side on adjoining land, both paying the same wages and the same interest cost but earn ing different returns, owing to differences in the fer tility of the two tracts of land. In the same way, two employers, competing in the same market, may earn different returns. One may earn no real profit, while the other, thru careful study of his materials, machin ery and organization may be able to earn a large re-turn over and above what were called, earlier in this chapter, necessary profits.
9. The profit-maker must secure his profit by producing at a smaller cost than the men on the margin of production. When the enterpriser is able to do that, he is an earner of real profits. In a constantly changing and shifting industrial society, there is an opportunity for the business man to obtain something more than the wages and interest that would be his in a society where everything is in a fixed state. By taking the lead, seeking new openings, and utilizing information in advance of his competi tors, he can secure a considerable profit.