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and large returns, out of which high rates of interest may go to the capitalists who have furnished the capital. Other businesses which are not so fortunate must be content with lower rates of interest.

4. The Degree of Security, political, legal, moral, existing in a community, and determining the amount of risk capital is exposed to, when invested for various productive purposes. Anything that threatens this security will produce a hoarding of capital and a withdrawal of it from investment.

QUESTIONS

1. What questions are involved under distribution?

2. What is the Catholic view in regard to social conditions?

3. What are the principles of the Socialists regarding distribution? What is your conclusion with regard to the practical application of each of the principles ?

4. What is the object of coöperation?

5. What are the views of the Catholic School with regard to distribution? 6. Who are the parties to distribution?

7. What is rent? Illustrate by example. Why has the owner of land a right to rent? Does rent affect the price of foodstuffs ?

8. Explain Ricardo's theory of rent. What are its laws?

9. Give an example to show the working of Ricardo's theory of rent. 10. What objection is there to Ricardo's theory of rent?

II. What is interest?

12. Give an historical sketch of interest.

13. How can the attitude of the Catholic Church towards interest be explained?

14. State the objections made against interest. Answer the objections. 15. Mention and explain the various theories of interest. To what can they all be reduced?

16. Explain and refute the Socialist theory of interest.

17. What is rate of interest? What factors determine the rate of interest?

The Manager.

CHAPTER XXII

PROFITS

The name given to the class that receives profits is the manager, or, as the French has it, the entrepreneur. It means the person who conducts the business, who collects the capital, invests it, labors to make it productive. It means the small storekeeper, the small individual producer, whatever his line of business, as it means the bank president, the director of large-scale industries, and the manager of great manufacturing establishments.

It is he "who organizes and conducts production, deciding what shall be produced, in what amounts, of what varieties, materials, and patterns; and to what persons, at what prices, and on what terms of payment the products shall be sold." (Walker, Political Economy, p. 232.)

The qualities required in a successful manager, especially in the great industries, are manifold. He must have knowledge of the technical processes of his business. He must have ability to judge men, and tact in his relations with them; he must be able to choose his subordinates and to win the confidence and good will of all under him. He must have unusual foresight in his commercial dealings, anticipate future demand and prepare for it, guard against loss which may depend on future conditions imperceptible at the present time to ordinary minds, and form a commercial policy that will be at once broad and safe.

He must assume responsibilities and provide against contingencies, shape and direct production, organize and control the industrial machinery. He must have ability to command financial resources. Business is done to-day usually with bor

rowed capital, and the ability to obtain loans when they are needed will depend in great measure on the credit and reputation of the business manager.

These are some of the qualities which must be possessed by the manager, or entrepreneur. Such men often rise from the lowest grades. More than one half of the present employers, as Marshall, an English economist, remarks, have risen from the ranks of labor. Whenever such men are to be found, there will never be wanting the resources, the capital, with which to undertake great commercial enterprises.

The manager may at the same time be a capitalist and may furnish much or part of the capital employed in the business which he directs. We are here, however, considering him only as manager, and studying the principles which affect the share of the product which he receives as manager. The share which the manager receives is called profits.

The term "profits" has different meanings according to the conception one forms of the class called manager. After the English economists' view, the manager is identical with the capitalist, and the profits of the manager are a capitalistic income, analogous to interest, but fixed at a somewhat higher level than ordinary interest, because of the risks taken by the manager and his personal labor in directing the business.

According to French economists, the entrepreneur is distinct from the capitalist, and his predominant characteristic is the performance of a certain kind of labor. Profits, therefore, in this view, are the remuneration of labor, but of a peculiar kind of labor, differing from manual labor, superior to it from the standpoint of productivity, and consisting of the following factors:

(1) Invention. The entrepreneur must have ideas, he must invent new methods of production, new varieties of commodities, new wants among the consumers.

(2) Superintendence. - Collective labor is more productive than individual and isolated labor only on condition that it is organized, disciplined, and commanded by some one leader. The work must be divided among numerous laborers in such a

way that the best results may be obtained. Good generalship is required in business as it is in war, for business is very much like war. "Everyday experience shows that of two enterprises employing an equal number of workmen possessing the same ability, one succeeds and the other fails miserably simply because one has the better leadership." (Gide, Principles of Political Economy, p. 625.)

(3) Commercial Speculation. -The great problem in business is not so much to produce goods as to sell them. The ability to create markets, to buy and sell on the most favorable terms, is one of the principal accomplishments of the successful entrepreneur.

Other economists consider the entrepreneur as a monopolist. The monopoly may be a natural monopoly resulting from the exceptional personal abilities of the manager, or from special advantages of situation or opportunity. It may be a legal monopoly due, for example, to a protective tariff or to the exclusive possession of certain inventions. Profits would here be considered as a monopolistic income, a surplus due to the manager because he possesses the monopoly. This monopoly consists not always in the ability of the manager to sell goods above the current prices, but in the possession of a secret or of some advantage which enables him to make goods at less than the ordinary cost of production.

What constitute Profits. It would at first appear to be an easy matter to determine what actually constitute profits in any business.

Profits are classified as Gross profits and Net profits. Gross profits are the entire returns gained by an industry on the produce of that industry. Net profits are all those returns less the expenses incurred in carrying on the industry and putting the finished product finally on the market.

The real profits, consisting properly of the net profits, may be said to consist of the surplus that remains after deducting the whole cost of production. But the difficulty consists in calculating just what make up the cost of production.

The cost of production includes:

(1) Wages the amount paid the laborers.

(2) Interest

capital.

the amount paid the persons who furnish the

(3) Land Rent (according to some economists, to be included) the amount paid for the renting of the land on which the business is carried on.

Thus, the three factors of production - land, labor, and capital must first take their shares before we can calculate the profits of the manager. But it may happen, and very frequently does happen, that the manager is also the contributor of land, labor, and capital to the business. He contributes the land which he owns in his own right. He contributes all or a great share of the capital employed in the business. He contributes his labor as overseer and director, and his labor is greater and more important and more productive than is the labor of any other employee.

The manager should receive, therefore, rent for his land, interest on his capital, and wages for his labor. And the amounts he is to receive under these several heads may be calculated by estimating what he would have to pay to landlord, capitalist, overseer, if these persons were distinct from himself. The equity of this arrangement cannot rightly be questioned. For if these sums must be paid and reckoned up in the cost of production, it cannot change matters because these individuals, landlord, capitalist, and employee, happen to be one and the same with the manager.

Indeed, in such a case, some would have his rate of interest increased above the current rate, because the return for his capital is variable depending on the state of business, whereas the income arising from loaned capital is fixed.

Again, they would allow the salary or wages to be greater than the salary or wages paid to a hired overseer, because of the greater interest and greater mental strain felt in one's own business than could be experienced by any outside third person.

These various items having been deducted from the product

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