Fifth—The practices of the modern economic world have gone far to increase the security of property rights.
Business men have worked ardently to "stabilize" business. They have insisted upon the importance of "business sanity;" of conservatism in finance; of the returns due a man who risks his wealth in a business venture; and of the fundamental necessity of maintaining business on a sound basis. After centuries of experiment they have evolved what they regard as a safe and sane method of financial business procedure. Every successful business man tried to live up to the following well-established formula.
First, he pays out of his total returns, or gross receipts, the ordinary costs of doing business—materials, labor, repairs and the like. These payments are known as running expenses or up-keep.
Second, after up-keep charges are paid he takes the remainder, called gross income, and pays out of it the fixed charges—taxes, insurance, interest and depreciation.
Third, the business man, having paid all of the necessary expenses of doing business (the running expenses and the fixed charges), has left a fund (net income) which, roughly speaking, is the profits of the business. Out of this net income, dividends are paid, improvements and extensions of the plant are provided for.
Fourth, the careful business man increases the stability of his business by adding something to his surplus or undivided profits.
The operating statistics of the United Steel Corporation for 1918 illustrate the principle:
| 1. | Gross Receipts | $1,744,312,163 |
| Manufacturing and Operating expenses | ||
| including ordinary repairs | 1,178,032,665 | |
| ——————— | ||
| 2. | Gross Earnings | $ 566,279,498 |
| Other income | 40,474,823 | |
| ——————— | ||
| $ 606,754,321 | ||
| General Expense, (including commission | ||
| and selling expense, taxes, etc.) | 337,077,986 | |
| Interest, depreciation, sinking fund, etc. | 144,358,958 | |
| ——————— | ||
| 3. | Net Income | $ 125,317,377 |
| Dividends | 96,382,027 | |
| ——————— | ||
| 4. | Surplus for the year | $ 28,935,350 |
| Total surplus | 460,596,154 |
Like every carefully handled business, the Steel Corporation,—