In the foregoing paragraphs we have assumed that the inability of the business men under consideration to get living profits is due to their own lack of capacity as compared with their more efficient competitors. When, however, their competitors are not more efficient, but are enabled to undersell through the use of unfair methods, such as adulteration of goods and oppression of labour, a different moral situation is presented. Honest and humane business men undoubtedly have a claim upon society to protection against such unfair competition. And the consumers are under obligation to make reasonable efforts to withhold their patronage from those business men who practise dishonesty and extortion.
The Question of Superfluous Business Men
Although we have rejected as impractical the proposal to set a legal limit to profit-incomes, we have to admit that many of the abler business men would continue to do their best work even if the profits that they could hope to obtain were considerably smaller in volume. These men hold a strategic position in industry, inasmuch as they are not subject to the same degree of constant competition as the other agents of production.[164] Were the supply of superior business capacity more plentiful, their rewards would be automatically reduced, and the burden of profits resting upon society would be to that extent diminished. On the other hand, the number of mediocre business men, especially in the distributive industries, is much larger than is necessary to supply the wants of the community. This constitutes a second unnecessary volume of payments under the head of profits. Is there no way by which these wastes can be reduced?
The volume of exceptionally large profits could be diminished by an extension of the facilities of technical and industrial education. Thus the number of persons qualifying as superior business men could be gradually increased, competition among this class of men would be intensified, and their rewards correspondingly diminished.
The profits that go to superfluous business men, especially in the class known as middlemen, can be largely eliminated through combination and co-operation. The tendency to unite into a single concern a large number of small and inefficient enterprises should be encouraged up to the point at which the combination threatens to become a monopoly. That this process is capable of effecting a considerable saving in business profits as well as in capital, has been amply demonstrated in several different lines of enterprise. As we have seen in a preceding chapter, the co-operative movement, whether in banking, agriculture, or stores, has been distinctly successful in reducing profits. Millions of dollars are thus diverted every year from unnecessary profit-receivers to labourers, consumers, and to the man of small resources generally. Yet the co-operative movement is only in its infancy. It contains the possibility of eliminating entirely the superfluous business man, and even of diminishing considerably the excessive profits of the exceptionally able business man.
CHAPTER XVIII
THE MORAL ASPECT OF MONOPOLY
The conclusion was drawn in the last chapter that the surplus gains of corporations operating in conditions of competition, can justly be retained by the stockholders as the remuneration of exceptional productive efficiency. It is, of course, to be understood that the proper allowance for interest on the capital is not necessarily the amount authorised by the stipulated rate of dividend on the stock, but the prevailing or competitive rate of interest plus an adequate rate of insurance against the risks of the enterprise. If the prevailing rate of interest is five per cent., and the risk is sufficiently protected by an allowance of one per cent., the fair rate of return on the investment is six per cent. The fact that a concern may actually award its stockholders ten per cent. dividends, has no bearing on the determination of the genuine surplus. If the actual surplus that remains after paying all other charges and allowing ten per cent. on the stock, is only 50,000 dollars, whereas it would be 100,000 dollars with an allowance of only six per cent., then the true surplus gains, or profits, are the latter amount not the former. No part of the 100,000 dollars can be justified as interest on capital. It must all find its justification as profits proceeding from superior productivity.
Bearing in mind this distinction between the actual rate of dividend and the proper allowance for interest on capital, we take up the question of the morality of profits or surplus gains in conditions of monopoly.