Profits

Laborers, landlords, and lending capitalists are all alike in that the amount of remuneration received by them for the aid which they render to production is commonly fixed in advance by agreement, and is not immediately affected by the profitableness or unprofitableness of the undertaking. It remains to examine the economic fortunes of those men whose money incomes are made up by the sums left over in any business after all the stipulated expenses have been met.

A very important part of the solution of the problem of profits has already been contributed by the preceding studies of wages, rent, and interest. The evidence has been found to support the conclusion that in almost all cases the sums of money wages, rent, and interest received by laborers, landlords, and capitalists increased much less rapidly than did the general price level. If the wording of this conclusion be reversed—the prices of products rose more rapidly than wages, rent, or interest—we come at once to the proposition that as a rule profits must have increased more rapidly than prices. For, if the sums paid to all the other co-operating parties were increased in just the same ratio as the prices of the articles sold, it would follow that, other things remaining the same, money profits also would increase in the same ratio. But if, while prices doubled, the payments to labourers, landlords, and capitalists increased in any ratio less than 100 per cent., the sums of money left for the residual claimants must have more than doubled. In other words, the effect of the depreciation of the paper currency upon the distribution of wealth may be summed up in the proposition: The shares of wage-earners, landowners, and lenders in the national dividend were diminished and the share of residual claimants was increased.

Two other general propositions respecting profits are suggested. First, other things being equal, profits varied inversely as the average wage per day paid to employees. This conclusion follows directly from the fact that the money wages of men earning $1-$1.49 per day before the perturbation of prices increased in higher ratio than those of men earning $1.50-$1.99; that the wages of the latter class increased more than the wages of men in the next higher wage class, etc. Second, other things being equal, profits varied directly as the complexity of the business organization. By this proposition is meant, for example, that a farmer who paid money rent, used borrowed capital, and employed hired labourers, made a higher percentage of profits than a farmer of whom any one of these suppositions did not hold true. If, as has been argued, the increase of profits was made at the expense of laborers, landlords, and capitalists, it follows that that entrepreneur fared best whose contracts enabled him to exploit the largest number of these other persons.

PROFITS IN AGRICULTURE

The farmers of the loyal states were among the unfortunate producers whose products rose in price less than the majority of other articles, and from this standpoint they were losers rather than gainers by the paper currency. Of course, it is possible that the farmer's loss from this inequality of price fluctuations might be more than offset by his gains at the expense of labourers, landlord, and lending capitalist. But there is good reason for believing that the increase of the entrepreneur's profits in the latter fashion was less in farming than in any other important industry. This conclusion seems to follow from the proposition that, other things being equal, profits varied directly as the complexity of business organization. The American farmers of the Civil War were in a large proportion of cases their own landlords, capitalists, and laborers. So far as this was true, they had few important pecuniary contracts with other persons of which they could take advantage by paying in depreciated dollars. Of those farmers who hired labor very many paid wages partly in board and lodging—an arrangement which threw a considerable part of the increased cost of living upon them instead of upon their employees. Finally, the renting farmer probably gained less on the average from the contract with his landlord than tenants of any other class, because in a majority of cases the rent was not a sum of money, but a share of the produce. While, then, the general effect of the paper standard was in the direction of increasing profits, it seems very doubtful whether farmers as a whole did not lose more than they gained because of the price disturbances.

STATISTICAL EVIDENCE REGARDING PROFITS

It would be highly desirable to test our general conclusions by means of direct information regarding profits made in various branches of trade, but the data available for such a purpose are very meager. What scraps of information are available, however, support the view that profits were uncommonly large. Mr. David A. Wells, for example, in his reports as special commissioner of the revenue, has stories of "most anomalous and extraordinary" profits that were realized in the paper, woolen, pig-iron, and salt industries. A more general indication of the profitableness of business is afforded by the remark in the annual circular of Dun's Mercantile Agency for 1864, that "it is generally conceded that the average profits on trade range from 12 to 15 per cent."

But the most important piece of evidence is found in the statistics of failures compiled by the same agency. The following table shows Dun's report of the number of bankruptcies and the amount of liabilities in the loyal States from the panic year 1857 to the end of the war:

YearNumberLiabilities
18574,257$265,500,000
18583,11373,600,000
18592,95951,300,000
18602,73361,700,000
18615,935$178,600,000
18621,65223,000,000
18634957,900,000
18645108,600,000
186550017,600,000

The very great decrease both in the number and the liabilities of firms that failed is the best proof that almost all business enterprises were "making money."

From one point of view the small number of failures is surprising. An unstable currency is generally held to make business unsafe, and seldom has the standard money of a mercantile community proven so unstable, undergone such violent fluctuations in so short a time, as in the United States during the Civil War. Yet, instead of being extremely hazardous, business seems from the statistics of failures to have been more than usually safe.

The explanation of the anomaly seems to be that the very extremity of the danger proved a safeguard. Business men realized that the inflation of prices was due to the depreciation of the currency, and that when the war was over gold would fall and prices follow. They realized very clearly the necessity of taking precautions against being caught in a position where a sudden decline of prices would ruin them. They did this by curtailing credits. So long as prices continued to rise such precautions were really not needed by the man in active business except, in so far as he was a creditor of other men; but when prices commenced to fall prudence had its reward. Such a sudden and violent drop of prices as occurred between January and July, 1865, would have brought a financial revulsion of a most serious character upon a business community under ordinary circumstances. But so well had the change been prepared for, that the number of failures was actually less than it had been in the preceding year of rapidly rising prices.

The whole situation can hardly be explained better than it was by a New York business man writing in Harper's Monthl Magazine: "When the war ended," he said, "we all knew we should have a panic. Some of us, like Mr. Hoar, expected that greenbacks and volunteers would be disbanded together. Others expected gold to fall to 101 or 102 in a few days. Others saw a collapse of manufacturing industry, owing to the cessation of Government purchases. But we all knew a 'crisis' was coming, and having set our houses in order accordingly, the 'crisis' of course never came."