Book 3 — CHAPTER V.

THE UNDERTAKER'S PROFIT. (UNTERNEHMERLOHN.)

SECTION CXCV.

THE REWARD OF ENTERPRISE.

The essence of an enterprise or undertaking, in the politico-economical sense of the word, consists in this, that the undertaking party engages in production for the purpose of commerce, at his own risk. In the earlier stages of a nation's economy, the production of consumers is, naturally enough, limited chiefly by their own personal wants. Somewhat later, when the division of labor has been further developed, the workman produces at first, enough to meet occasional determinate "orders;" and still later to meet them regularly and as a business. Later yet, and in stages of civilization yet higher, especially when the freedom of labor constantly grows, as it is wont to, here, and the freedom of capital and trade becomes more extensive, enterprise plays a part which grows more important as time rolls on, and is usually carried on more at one's own risk.[195-1] This transition is a great advance, inasmuch as the advantages of the coöperation of labor and of use may be utilized in a much higher degree by undertakers (Unternehmer) than by producers who labor only to satisfy their own household wants, or to meet "orders" already made. The awakening of latent wants, a matter of the utmost importance to a people who would advance in civilization, is something which can enter into the mind only of a man endowed with the spirit of enterprise (an undertaker).[195-2]

While most English political economists have confounded the personal gain of the undertaker with the interest on the capital used by him,[195-3] many German writers have called the "undertaker's earnings" or profit a special, and fourth, branch of the national income, coördinate with rent, wages, and the interest on capital.[195-4] Yet, the net income of every undertaker is either the fruit of his own land used for purposes of production and of his capital, in which case it is subject to the usual laws of development of rent and interest; or, it must be considered as wages paid for his labor.[195-5] These wages he earns, as a rule, by organizing and inspecting the work, calculating the chances of the whole enterprise; frequently by, at the same time, keeping the books and acting as cashier; and, in the case of small undertakings, as a common fellow-workman. (Tradesman, peasant). In every case, however, even when he puts an agent paid by himself in his place, he earns these wages from the fact that his name keeps the whole enterprise together; and for the reason that, in the last instance,[195-6] he has to bear the care and responsibility attending it.[195-7] When a business goes wrong, the salaried director or foreman may permit himself to be called on to engage in another; but the weary, watchful nights belong to the undertaker or man of enterprise, alone; and "how productive such nights frequently are!"[195-8]

This profit of the undertaker is subject essentially to the same natural law as wages in general are; only it differs in this from all other branches of income, that it can never be stipulated for in advance. Rather does it consist of the surplus which the product of the undertaking affords over and above all the rent stipulated for in advance or estimated at the rate usual in the country, the interest on capital, and wages of common labor.[195-9]

SECTION CXCVI.

UNDERTAKER'S PROFIT.—CIRCUMSTANCES ON WHICH IT DEPENDS.

As the wages or reward of labor, in all instances, depends on the circumstances mentioned in § 167 ff., so, also does the reward of enterprise; in other words, the undertaker's profit or wages. It depends, therefore:

A. On the rarity of the personal qualities required in a business, which qualities may be divided into technical and ethical qualities. Among the latter are, especially, the capacity to inspire capitalists with confidence and workmen with love for their task; the administrative talent to systematize a great whole made up of men and to order it properly, to keep it together by sternness of discipline in which pedantry has no part, and by economy with no admixture of avarice; and frequently endurance and even presence of mind. These ethical, statesmanlike qualities are, take them all in all, a more indispensable condition of high undertaker's profit than the technical are.[196-1]

B. On the risk of the undertaking in which not only one's property, but one's reputation, may be lost.[196-2]

C. As to the disagreeableness of the undertaking or enterprise, we must take into especial consideration the disinclination of capitalists in general to assume the care and trouble of concerning themselves directly with the employment of their capital. (§ 183.) The undertaker's profit is, besides, lower in proportion as he needs to care less for the profitable application of the different sources of production, and for their preservation. Hence it is, in general, higher for the direction of circulating than of fixed capital; in speculative trade and in wholesale trade which extends to the whole world, than in retail trade and merely local business.[196-3]

It has, indeed, been remarked, that the undertaker's profit is, as a rule, proportioned to the capital employed.[196-4] This may be true in most cases, but only as the accidental compromise between opposing forces. It is evident that the greater the enterprise is, the greater may be the surplus over and above the compensation stipulated for in advance of all the coöperating productive forces, and not only absolutely but also relatively. We need only call to mind the successful results attending the greater division of labor (§ 66) and the greater division of use (Gebrauchstheilung) (§ 207); the greater facility of using remains in production on a large scale, and the fact that all purchases, and all obtaining of capital are made, when the items are large, at cheaper rates, because of the more convenient conducting of the business.

This is true up to the point where the magnitude of the whole becomes so great as to render the conducting of it difficult. Considered even subjectively, the great undertaker, whose name and responsibility keep a great many productive forces together, may demand a higher reward, because there are so few persons competent to do the same. On the other hand, it cannot be denied that a support in keeping with his position may be called the amount of the cost of production of the undertaker's labor. If this cost is once fixed by custom, it will, of course, be relatively high in those branches of business which permit only of the employment of a small capital.[196-5]

In the higher stages of civilization, the undertaker's profit has, like the rate of interest, a tendency to decline. This decline is, indeed, in part, only an apparent one, caused by the decreased risk and the smaller indemnity-premium. But it is, in part, a real one, produced by the increased competition of undertakers.[196-6] The more intelligent landowners and workmen become, the more readily do they acquire the capacity and desire to use the productive forces peculiar to them in undertakings of their own; and the number of retired persons who live from their rents grows smaller with the decline of the rate of interest. The strong competition of undertakers now leads to degeneration, and undertakings or enterprises become usual in which the gains or losses are subjective, and are destitute of all politico-economical productiveness; for instance, the purchase of growing fruits, and businesses carried on in "margins," or differences. It is self-evident that the circumstances which retard the rate of interest, or turn it retrograde, would have a similar effect on the undertaker's profit. (§ 186.) On the whole, a rapidly growing people meet with great gains and losses, but the preponderance is in favor of the former. A stationary people are wont to become more and more careful and cautious. A declining people underestimate the chances of loss, although in their case they tend more and more to preponderate over the chances of gain. (v. Mangoldt.)

SECTION CXCVI (a.).

UNDERTAKER'S PROFIT.—HAVING THE "LEAD."

The undertaker's profit is that branch of the national income in which the greater number of new fortunes are made. If a landowner has a large income, he generally considers himself obliged to make a correspondingly large outlay, one in keeping with his position; and workmen who are not undertakers themselves seldom have the means to make large savings. Besides, undertakers stand between the purchasers of their products and the lessors of the productive forces used by them in the peculiarly favorable situation which I may describe by the expression: having, as they say in card-playing, "the lead."[196a-1] When, in the struggle for prices, one party occupies a position which enables him to observe every change of circumstance much sooner than his opponent, the latter may always suffer from the effects of erroneous prices. If, for instance, the productiveness of business increases, even without any personal merit of the individual undertakers themselves, it will always be some time before the decline in the price of commodities and the rise in the rate of interest take place, as a result of the increased competition of undertakers, consequent upon the extraordinary rate of the undertaker's profit. It is difficult, and even impossible in most instances for the proprietors of the productive forces which they have rented out, to immediately estimate accurately the profit made by undertakers. On the other hand, the least enhancement of the price of the forces of production is immediately felt by the undertakers, and causes them to raise their prices. They just as quickly observe a decline of the prices of the commodities, and know how to make others bear it by lowering wages and the rate of interest.[196a-2] It should not be forgotten that the persons most expert, far-seeing, active and expeditious in things economic, belong to the undertaking class.[196a-3] [196a-4]