Profits from of selling the mineral lands still belonging to the government the policy of leasing them on a royalty basis, as is very commonly done by private owners. § 116. Thus far in our analysis of profits we have assumed that the rents and wage and interest rates that enterprisers must pay are fixed by general market conditions and may not be changed by individual enterprisers. This is true to the extent that general market conditions remain stable, but when these are changing, as they usually are in developing countries, when new lands are being brought under cultivation, when the population is growing, and when capital is increasing, then rents and wage and interest rates must change too, and there is opportunity for capable enterprisers to hasten or resist general tendencies and in this way to secure for a time profits above the wages-of-management. A few examples will indicate how profits may arise from these sources. One change that went on in the United States for several decades was the lowering of agricultural rents in the Eastern States as new lands were developed in the West. Aggressive farmers of rented farms took the initiative in demanding better terms as economic conditions made a fall in rents inevitable. By so doing they avoided the losses that their less progressive neighbors sustained by consenting to renew their leases on the same terms as before. In other sections where rents were rising the more aggressive tenant farmers refused to pay more until actually compelled to, and in this way kept their expenses below those of their more tractable neighbors. Similarly there have been general movements in the wages that competition secures for different grades of labor. When wage rates are rising, it is usually possible for some enterprisers to resist the movement for a time and in this way to keep down their expenses, without losing any considerable number of their employees. Eventually they must accept the higher rates or lose their men, but during the interval that they refuse to do so, they may reap an extra profit. On the other hand, aggressive enterprisers lead the movement to reduce wages when rates are tending downward and may in this way cut down their expenses sooner than their competitors, who receive no higher prices than they do for their products. In agreements as to rates of interest there is less chance for overreaching because those who lend and those who borrow are about equally conversant with the conditions. At the same time even here some enterprisers gain an advantage when rates are changing by making better terms than their competitors. In all of these cases prompt adaptation to favorable .conditions or grudging acceptance of unfavorable changes only at the eleventh hour give rise to profits. Failure to cut down expenses as occasion offers or too ready acquiescence in rising expenses may, on the other hand, cause losses. § 117. In this brief discussion of the causes of competitive Conclusion. profits it has been possible to indicate only the more important of the many circumstances which give rise to them. The financial columns of every newspaper teem with items illustrative of the general causes of profits that have been described and suggest others to which no reference has been made. In connection with all of these causes of profits the essential principle to note is that they originate in change and are important because it takes time for competition to adjust economic relations to changed conditions. When an industrial society is progressing and in each period there is more wealth to be divided among the sharers in distribution than in the preceding period, a large part of the increase will appear temporarily as extra profits going to its enterprisers. In the same way, when an industrial society is retrogressing the loss will fall first upon its enterprisers. Theirs is the elastic share that increases or diminishes readily in response to changed conditions. But whether the net balance happens to be above or below the wages-of-management, competition among enterprisers themselves is a force which tends constantly to make their gains correspond to bare wages. Profits stimulate them to bid against one another for the factors of production and to raise rents and wage and interest rates until expenses and prices are again equal. Losses lead them to contract production and cut down expenses until in this way equality is restored. Thus, however large profits or losses may be at any given time, they are always in process of extinction-always, that is, unless monopoly influences in tervene and prevent the forces of competition from accomplishing their work of elimination. REFERENCES FOR COLLATERAL READING *Seligman, Principles of Economics, Chap. XXIII.; *Carver, Distribution of Wealth, Chap. VII.; Fetter, Principles of Economics, Chap. XXXI.; *Bullock, Selected Readings in Economics, Chap. XII.; *Marshall, Principles of Economics, Book VI., Chaps. VII. and VIII.; *Pierson, Principles of Economics, Part I., Chap. V.; Taussig, Principles of Economics, Chaps. XLIX. and L. CHAPTER XIII DISTRIBUTION: MONOPOLY PROFITS of Monopoly. § 118. Monopoly means usually in economics such control Definition over the supply of an economic good as enables the monopolist to regulate its price. This definition refers to producers' or sellers' monopolies. Contrasted with these are buyers' monopolies, which rest on control over the demand and the regulation of prices from that side. In practice buyers' monopolies are so unusual that only brief consideration is given to them in this treatise. with A distinction which it is important to note at the outset is Contrast that between monopoly and differential advantage. In nearly Differential every branch of competitive business differential advantages Advanare found. In farming one producer of wheat uses better tages. land than another producer. In manufacturing one mill owner utilizes a superior source of water power. In all pursuits competitors are themselves differently endowed, some being more capable than others and receiving larger returns, while all are selling the same goods in the same markets at the same prices. Although important sources of income, such differential advantages are not the cause of monopoly profits. The fact that some pieces of land and some sources of power are better than others, does not prevent an active competition among farmers and manufacturers which tends to keep prices down to the expenses of production of representative firms. Equally ineffectual as a bar to active competition are the personal differences among men. The consideration of the influence of these differential advantages upon the distribution of incomes, belongs under the head, not of monopoly, but of rent and wages. Only when competition is interfered with and one firm or a combination of firms secures such control over the supply that it may regulate the price, does monopoly appear. Its essence is control over the supply and its surest indication is regulation of prices. Kinds of § 119. The principal classes of monopolies which are of Monopolies. interest to the economist are: (1) personal monopolies; (2) legal monopolies, which may be (a) public or (b) private; (3) natural monopolies of situation; (4) natural monopolies of organization; (5) capitalistic monopolies; (6) labor monopolies. A personal monopoly arises when one individual controls the supply of a given good, either because he possesses unique talent (e. g., an artist's monopoly of his own works), or because he uses a secret process so superior to all other processes that he is able to drive all competitors from the field. A legal monopoly is one based upon some law or governmental privilege. Examples of public legal monopolies are furnished by the tobacco monopoly of France, the salt monopoly of Saxony and the post-office monopoly of the United States. The most familiar private legal monopolies are those based on patents, copyrights and exclusive franchises. Natural monopolies of situation are of two kinds: those due to social and those due to physical conditions. Of the first kind are the monopolies which the single village blacksmith and storekeeper enjoy until competitors enter the field. More important are monopolies of the second kind, which depend upon some physical limitation in the sources of supply of the goods controlled. Of this type are businesses using unique mineral springs or mountain passes, or controlling the whole areas from which certain commodities, such as diamonds in Africa or anthracite coal in the United States, are obtained. Natural monopolies of organization are businesses which obey a law of diminishing expense, no matter how large the business becomes. Such are the railroad and businesses concerned with the distribution of letters, telegrams, parcels, gas, water and electrical power. Capitalistic monopolies are those which result from the concentrated power of large aggregations of capital and are represented in the United States by the socalled trusts. Labor monopolies are monopolies resulting from combinations of skilled workmen able to control the supply of the economic good, labor. When all of the businesses in a country like the United States which may properly be classed under one or other of. |