gently by effecting economies which the other man was unable to effect. He would then find himself in the possession of a surplus. Beginning with profits and accounting for them by this differential law, Walker proceeded to show that rent and interest are also determined by definite laws. This left only wages to be accounted for. Therefore he assumed that wages are a residual share. One may, however, prove by the same process that either rent or interest is a residual share. It all depends on which share you consider last in the series. The result of this, moreover, has resolved the whole doctrine of a residual share into an absurdity. Since the independent business man, or the entrepreneur, is the only one whose income is not the result of specific bargaining, and since he is the only one who does not sell his services for a definite price, he may be said to receive whatever is left over. The laboring man bargains for a definite rate of wages; and whether the business is making a profit or a loss he gets these wages as long as the contract stands. The capitalist lends his capital at a definite rate of interest and gets that rate of interest so long as the business keeps going, whether it is making a profit or a loss. Similarly with the landowner. But the entrepreneur is the only one whose income hinges on the question of profit or loss for the business as a whole. The business man the chief bargainer. Every participant in a competitive enterprise is more or less a bargainer, but the independent business man is the chief bargainer of all. When the laboring man has bargained for a rate of wages, the rest of his work consists not in bargaining but in working; when the capitalist has bargained for a rate of interest, that is the end of his bargaining; and so with the landlord. But the independent business man is the bargainer per se; he bargains for everything-his raw materials, his help, his capital, his interest and he also bargains with the purchasers of the product. He is the unbought buyer of everything and the unsold seller of everything connected with the business. It therefore happens that skill in bargaining is one of the greatest elements in his success in securing profits. Bargaining, however, consists, in the first place, in investing, and the investment of capital is a very delicate operation. To invest successfully one must foresee the future needs of the community as expressed in the demands of the market. To err at this point is to fail. Because of the disinclination of the average man toward taking the ordinary risk, the competition is somewhat intense for the safe positions of the laborer and the lender of capital. The intensity of this competition tends to keep their shares somewhat lower than they would otherwise be, but this disinclination makes the competition somewhat less intense among the business men who have to assume the chief risks. This, in turn, leaves them with somewhat larger incomes than they would get if the risks were less irksome and the competition more intense. The surplus income which comes to them in this way is called profits. COLLATERAL READING CARVER, THOMAS NIXON. The Distribution of Wealth. New York, 1904. MALTHUS, T. R. An Essay on the Principle of Population (ninth edition), chaps. i and ii. London, 1888. (Develops the famous thesis regarding "the constant tendency of all animated life to increase beyond the nourishment prepared for it.") MARSHALL, ALFRED. Principles of Economics (fifth edition), Book VI. New York, 1907. (Develops the idea of a normal equilibrium of demand and supply as the determining factor in distribution.) RICARDO, DAVID. Principles of Political Economy and Taxation, chap. ii. London, 1913. (States the famous Ricardian theory of rent.) TAUSSIG, F. W. Wages and Capital. New York, 1896. (A clear and convincing exposition of the relation of capital to wages.) |