This section is from the "The Science Of Wealth" book, by Amasa Walker.
By the term " profits," we mean that share of wealth which, in the general distribution, falls to those who effect an advantageous union between labor and capital.
All wealth, being the product of labor and capital, would be divided between them, were it not necessary that still another agent should take part in production; viz., an employer, manager, undertaker* (entrepreneur), projector, contractor, business man, merchant, manufacturer, farmer, or whatever else he may be called, whose services are indispensable.
* "It is to be regretted," says J. Stuart Mill, "that this word, in this sense, is not familiar to the English ear. French political economists enjoy a great advantage in being able to speak of les profits de l'entrepreneur."
Capital cannot move itself; labor cannot command capital, and therefore has little power: hence the necessity for an employer, or business man, to effect a union, and put both in successful operation. Capital without labor is an infant; labor without capital, a cripple.
The parties, then, to production are, (1) the laborer; (2) the capitalist; (3) the employer, or manager. Each has a distinct province, and a separate interest; and each must receive his reward, or share of the general product.
This is, undoubtedly, the natural division of the subject. To confound the capitalist with the employer, as often is done, throws the whole matter into confusion. There is no occasion whatever for this. The man who owns the capital, and receives his compensation for its use in the shape of rent, or interest; the laborer, who applies muscular or mental power to the production of value; and the man who, as employer or manager, relieves the first from the anxiety and risks of trade, and furnishes the second with the means by which alone he can work to advantage, — are separate persons, with distinct interests.
The capitalist, as such, has no share in the profits of business. He does nothing but loan his wealth, which, by the value of its services, brings him an income, in the shape of rent for real, or interest for personal estate.* If he is careful in regard to the securities he takes or the credit he gives, it is of no immediate consequence to him whether trade is dull or brisk, whether profits are high or low; but, of course, it is true that the capitalist has a general interest in the profits of business, to this extent, — that unless profits, in the long-run and on the average, are such that the business man can afford to pay the usual rate of interest, the compensation of the capitalist, or his share in the general distribution, must be reduced. He must rent or loan his capital on such terms as those who employ it can afford, over and above all the charges and hazard of business, besides making a satisfactory profit. On the other hand, to the employer, in whatever department of business, the question of profits is vital. His success depends upon the amount he can secure, after meeting all his necessary expenditures for labor, rent, interest, taxes, insurance, bad debts, &c.
* The terra "personal estate," in distinction from real estate (land, buildings, and the like), is generally used in the United States to describe every kind of movable property, and all evidences of debt.
It often happens that the employer (manufacturer, merchant, &c.) is the owner, in whole or in part, of the capital used. This in no wise alters the case; for then he receives income both for his capital and his labor, or efforts. He saves all the interest ho would otherwise pay to the capitalist; he pays interest to himself. He may own the buildings he occupies; and in so far he is a capitalist, paying rent to himself.
It is, then, by this triple alliance of enterprise, capital, and labor that all production is effected; and between them, in the final result, it should be shared. The economical question is, How shall an equitable division be attained?
We have previously said, in relation to capital and labor, that there must be a just proportion of each to the most efficient production, — sufficient labor for the capital, and capital for the labor: so there must be sufficient enterprise, business talent, and tact to use both; and the several parties must be left to act voluntarily, under the instincts of human nature and the laws of value. Indeed, the great difference in the wealth of nations is made by the business class: mind is more effective than muscle. Each party, too, must be protected in his just rights, and be insured against the encroachments of the other. No advantage should be given by legal enactments to either. The capitalist should be free to loan his money to whom he will, and at whatever rate he can get; the employe, to work for whom he pleases, and at such compensation as he can obtain by the competition of employers. If the laws allow capitalists, by concentrating their wealth, to increase its power, laborers should have an equal right to combine their efforts; and employers should be free to secure the services of either, on the best terms they can.