. borrower is enabled to produce more goods than he could otherwise have produced. In the following passage, Professor Seager discusses some of the reasons for variations in the interest rate: The most familiar ground for differences in the return from differ- The effect ent investments is the presence of monopoly. The monopolist de- of monop oly. liberately restricts the output of the monopolized product so that the returns to the capital and labor he employs exceed those to be realized in competitive industries. ... Another cause of differences in interest rates results from the Risk may danger of accidental destruction to which some capital goods are raise the interest exposed. Whenever this danger may be provided against by the rate. machinery of insurance, the difference figures simply in the larger replacement fund which must be earned in addition to current interest by the capital goods affected. In many cases the danger is too irregular and uncertain to be insured against, and the increased interest needed to attract capital into the precarious investment depends upon the temperament of investors. Conservative people will be deterred by the fear of loss from investing at all in such enterprises. More reckless and optimistic capitalists may be tempted into taking large risks by the promise of only a slightly larger return than the current rate of interest. In addition to the differences in rates of interest earned in differ- Interest ent investments and by different kinds of capital goods, there are differences among different sections. Although much more readily different transported to the best market than labor, capital also is timid about sections of the venturing too far from its source. Capitalists usually feel that they country, can better estimate the risks involved in investments near home than at a distance. In consequence of this feeling capital tends to be concentrated in the centers where men of wealth live, and new and backward communities are able to command less than their proportionate share of the available capital equipment. Instead of there being one rate of interest on free capital in a country like the United States there are a variety of rates, ranging from the low rates found in the large cities and the manufacturing sections of the North and East to the high rates prevailing in the agricultural and mining regions of the South and West. rates vary among though such variations tend to decrease. A variation of from two to three per cent between the rates of interest regularly charged for equally good loans by banks in New York and Arizona roughly reflects the difference in the earning power of capital goods in the two localities. As the country's banking system is perfected and different districts are brought into more intimate business relations, the supply of capital will tend to distribute itself more equally over the entire industrial field and such differences will become less marked. ... 53. Some factors influencing wages 1 A proper appreciation of the principles influencing rent and interest is an important concern of the student of economics. At least equally important is the matter of the share of the joint income of industry which goes to laborers in the form of wages. Indeed, some observers believe wages to be of more social importance than any of the other shares in distribution, first, because the wage-earners outnumber those who are primarily land-owners, capitalists or entrepreneurs, respectively; and second, because most laborers are dependent entirely upon their wages for their livelihood, while those who are primarily land-owners, capitalists, or entrepreneurs are, in a financial sense, in a less precarious position. Be this as it may, the social importance of the problem of wages cannot be denied. In the following selection Adam Smith discusses some of the factors influencing wages: First, the wages of labor vary with the ease or hardship, the cleanliness or dirtiness . . . of the employment. Thus in most places, take the year round, a journeyman tailor earns less than a journeyman weaver. His work is much easier. A journeyman weaver earns less than a journeyman smith. His work is not always easier, but it is much cleanlier. A journeyman blacksmith, though an artificer, seldom earns so much in twelve hours as a collier, who is only a laborer, does in eight. His work is not quite so dirty, is less dangerous, and is carried on in daylight, and above ground. Secondly, the wages of labor vary with the easiness and cheapness, The effect 1 From Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations. London, 1776. Book 1, Chapter x, Part 1. or the difficulty and expense of learning the business. When any The cost expensive machine is erected, the extraordinary work to be performed of training and educaby it before it is worn out, it must be expected, will replace the capital tion influlaid out upon it, with at least the ordinary profits. A man educated ences wages. at the expense of much labor and time to any of those employments which require extraordinary dexterity and skill, may be compared to one of those expensive machines. The work which he learns to perform, it must be expected, over and above the usual wages of common labor, will replace to him the whole expense of his education, with at least the ordinary profits of an equally valuable capital. It must do this, too, in a reasonable time, regard being had to the very uncertain duration of human life. The difference between the wages of skilled labor and those of An illuscommon labor is founded upon this principle. ... [Those desiring tration. to become skilled laborers must first serve an apprenticeship.] During the continuance of the apprenticeship, the whole labor of the apprentice belongs to his master. In the meantime he must, in many cases, be maintained by his parents or relations, and in almost all cases must be clothed by them. Some money, too, is commonly given to the master for teaching him his trade. In country labor, on the contrary, the laborer, while he is employed about the easier, learns the more difficult parts of his business, and his own labor maintains him through all the different stages of his employment. It is reasonable, therefore, that in Europe the wages of mechanics, artificers, and manufacturers, should be somewhat higher than those of common laborers. . . . Education in the ingenious arts and in the liberal professions, is still more tedious and expensive. The pecuniary recompense, therefore, of painters and sculptors, of lawyers and physicians, ought to be much more liberal: and it is so accordingly. ... Thirdly, the wages of labor in different occupations vary with Wages vary the constancy or inconstancy of employment. Employment is much with the constancy more constant in some trades than in others. In the greater part of employof manufactures, a journeyman may be pretty sure of employment ment. almost every day in the year that he is able to work. A mason or bricklayer, on the contrary, can work neither in hard frost nor in foul weather, and his employment at all other times depends upon the occasional call of his customers. He is liable, in consequence, . . 1 ness man 54. Some factors influencing profits The busi- We have briefly considered some of the factors which influence the payment of rent to the land owner, interest to the capitalist, influences which help to determine the amount of profits going to other may have incurred, he keeps as profits. Whether profits are large or small will depend partly upon the characteristics of the business man. The qualities of a successful business man are discussed by Professor Taussig in the following language: Qualities The business man of the first order must have imagination and necessary judgment; he must have courage; and he must have administrative in business: capacity. Imagination Imagination and judgment, – these are needed for the generaland ship of industry. The successful business man must be able to forejudgment. see possibilities, to estimate with sagacity the outcome in the future. to success 1 1 From Frank W. Taussig, Principles of Economics. The Macmillan Co., 1915. Vol. 11, pp. 163–166. It ability. stantly urged on the business community, most of them visionary. Among them the captain of industry will pick out those that really have possibilities, will reshape and develop them, and bring them eventually to success. Sometimes he errs; there could be no great successes unless there were occasional failures; but the right sort of man has a handsome balance of profitable ventures. Courage and some degree of venturesomeness are obviously Courage essential to the successful business man: so much follows from that and assumption of risks which is of the essence of his doings. But courage and imagination and personality will not avail in the end unless there be sound judgment. Executive ability is probably less rare than the combination of executive judgment with imagination. But it is by no means common. calls, on the one hand, for intelligence in organization, on the other hand for knowledge of men. The work must be planned, and the right man assigned to each sort of work. The selection of efficient subordinates is of the first importance. A business man almost always has to do with the physics and mechanics of industry. Every director of large enterprises must choose between competing mechanical dev ces, must watch the course of invention, must be in the fore with improvements. . . . In selecting among the numberless projects constantly pressed on his attention, the business man exercises one of his most characteristic functions. Too much stress must not be laid on any enumeration of the busi- But no one ness man's qualities. All sorts and conditions of men prove to have key opens the door to the qualities needed for pecuniary success, the cautious and the daring, the sober and the enthusiastic, the loquacious and the taciturn, those given to detail and those negligent of detail. The different aptitudes appear in every kind of combination. ... No one key opens the doors to success. ... The variety among the men who prove to have the money-making capacity is a standing cause of wonder. Among all these different sorts of persons, a process very like The procnatural selection is at work. To predict who has in him the qualities trial among for success is much harder than is prediction with regard to most business occupations. The aptitudes and abilities which must be possessed by one who would succeed in law, in medicine, in engineering, in success. ess of men. 9 |