This section is from the "The Science Of Wealth" book, by Amasa Walker.
The necessary rate of profit depends greatly on the rapidity of sales, as compared with the capital employed and the expense of conducting business.
This may be shown in the following illustration: —
A, with a capital of $10,000, which he turns every six months, charges twenty per cent profit.
B, with same amount, turns his capital once in three months, at fifteen per cent.
C, with same amount, turns his capital every thirty days, at seven and one-half per cent.
Large sales, with small profits, or a rapid turning of capital, is the natural tendency of trade, as population and wealth increase, and especially as credits are diminished.
Those who sell for cash have immensely the advantage of those who give long credits, particularly under a mixed currency, which so largely increases the hazards of trade.
In those communities in which the people are generally poor, and their wants great and pressing, as in newly settled countries, credits are naturally much extended, and, of course, the rate of profits proportionally increased. This is known to be the case over a large part of our Western States. The people can afford to pay large profits, if by so doing they can get the use of capital, because capital produces so large a return; as, for example, one thousand dollars invested in the spring in ploughing the prairie, and getting in a crop of wheat, will, not unlikely, give a net profit, within six months, of one hundred per cent. But when such communities accumulate capital, and are able to pay as they purchase, they come to buy at greatly reduced rates, and profits fall to the minimum. This is the general law in all countries, though most clearly seen in new settlements. The average rate of profits in a country is determined by the same law as wages. Profits are merely wages received by the employer. This idea should be kept constantly in mind. The wages of the laborer depend upon supply and demand: why not the wages of those who employ him? The employer is as truly a laborer as the man who toils with the spade, only on a higher plane.
If there are more laborers than are wanted, wages fall; if fewer, they advance: just so with employers, or business undertakers. If there are too many competing for profits, the rate will fall until the excess is driven back into the ranks of labor. As there are, however, comparatively few, in proportion to the whole number of persons capable of labor, who have the requisite capacity and training required for transacting business successfully, and fewer still who can command the necessary means or capital, it will follow that the rewards of the employer will be larger than those of the persons employed. But we must not forget that this difference is less than at first appears, because our observation shows us, that, of all who undertake to trade or manufacture, a large majority become bankrupts; and, consequently, the average difference between the employer and the employed is greatly reduced.
There is, undoubtedly, a constant tendency to an equalization and reduction of profits from continual improvements in the means of locomotion, and the increasing intelligence of the people. The opening of railroads has wrought a great revolution in this particular. These not only greatly reduce the cost of transportation, but the average rate of profits. For example, a given town is one hundred miles from the mart of trade, by which it is supplied. There are only common roads, and those of bad construction. Eight or ten days are required to pass teams to and from the city. Under such circumstances, the people generally will be likely to know but little of the market value of commodities. As they must very rarely visit the places where merchandise is obtained, and, consequently, are ignorant of the worth of the articles they are obliged to purchase, and quite unable to supply themselves directly, they are charged large profits on what they buy. Let a railroad be put in operation, so that the time distance is reduced from eight or ten days to four or five hours, the price of all commodities in market will be known, and those who supply them must do so at a small advance; while yet, it may be, the dealers will make as large aggregate profits from increased sales.