VI Profit and Loss

VI PROFIT AND LOSS THE first and by far the most important function of profit is.to balance loss. Every bu'siness, however sUc cessful, keeps what is known as a "profit-and-loss accoun t," and the profit which emerges at the end r of a year's trading is never anything but the balance between profits that have been made on some sections of the business and losses that have been incurred on others. In calculations with regard to profits, there fore, it is necessary to bear in mind that there are losses to be set against them. The income tax figures, the dividend figures, the reserves, the bonuses, and all the other items that are used by those who argue about profits, are all wrong if they fail to take into considera tion this matter of loss. The tax-collector, for inst~nce, makes no assessment upon the man who loses money, and to add together all the income tax assesSIl).entsand talk of them' as profits in the bulk is to looku pon one side only of the account, from which no accurate con clusions can be drawn.

" ... the number of those who succeed in business," says Professor Marshall, " is but a small percentage of the whole; and in their hands are concentrated the fortunes of others several times as numerous as them selves who have made savings of their own, or who have inherited the savings of others and lost them all, together with the fruits of their own efforts, in unsuc cessful busjness. In order, therefore, to find the average PROFIT AND LOSS 95 profits of a trade, we must not divide the aggregate profits made in it by the number of those who are reaping them, nor even by that number added· to the number who have failed; but from the aggregate pro fits of the successful we must subtract the aggregate losses of those who have failed and, perhaps, dis appeared from the trade; and we must then divide the remainder by the sum of the numbers of those who .have succeeded and those who have failed. It is prob able that the true gross earnings of management, that is, the. excess of profits over interest, is not on· the average. more than a half, and in some risky trades not more than a tenth part, of what it appears to be to persons who form their estimate of the profitableness of a trade by observation only of those who have secured its prizes." (Principlesof Economics.) It is not even possible to divide business men into those who make profits and those who make losses.

All of them make both. The most successful man may make the heaviest losses and, because of his suc cess, be able to bear them. The most unsuccessful may make big profits on occasions and, because of the number and size of his losses, they will be of little use to· him. In my own case, I have at one time or another owned or controlled twenty-five newspapers. Of these, sixteen have lost money, and there remain nine successes. I am probably more fortunate than most, and my pro portion of nine profits to sixteen losses would, in all probability, be foun"d to be above the average. The one big argument for the leaving of profits in the hands of private individuals is that losses must also be left in private hands. The problem, considered as a whole, is how to secure that there shall be more· profits than losses. Notwithstanding the immense power of the whole mass of private interests, struggling 96 THE CONFESSIONS OF A CAPITALIST with all the force that they possess to avoid loss, loss is always running a neck and neck race with profit, which has never yet been known to win by more than a short head.

Those who desire to supersede private enterprise would do well to leave for a mOITlent the fascinating discussion as to what they would do with these profits and gains when they had brought them under public ownership, and devote their thoughts to a much more difficult problem, the discovery of some device whereby losses· could either be avoided, or shared out, in place of the stupendous individual' effort which is now directed to that all-important end. The next introductory point that should be men tioned in the discussion of profits is the extraordinary fuss that is made about them. Generally speaking, the average standard of most things is low, and the public mind is no exception to this rule; jumping to careless conclusions on insufficient data, it magnifies and exaggerates profit out of all proportion to other and more important considerations' in the economic structure. Suppose, for instance, that by a stroke of genius and daring I were to succeed in producing bread at a penny a quartern loaf. To begin with I should' put everybody else in the bread business into bankruptcy. That operation would receive no public notice. The public does not get excited about bank ruptcies. Next, I should double the supply of bread and abolish hunger. That also would excite no com ment. Within a year the whole human race would have completely forgotten that such a thing as hunger ever existed.' Not a word of thanks, not a word 'of appreciation, would come my way. Bread in' plenty and to spare would in a twinkling be the right of every citizen. All these benefits would be overlooked, and everyone would seize upon my profit. Articles would PROFIT AND LOSS 97 be written, meetings would be held, policies would be framed, upon the horrible fact that I was a wealthy man. If, in the ordinary course of making and market ing bread, it became necessary, owing to a rise in rail way rates, to raise the price by a farthing, the world would howl at the " greed of the Bread Trust," and never a whisper would be heard of the 6d. which was the price before I started my operations. That is, in fact, exactly what happened with Rockefeller. His millions are as a drop in the ocean compared with the wealth that he has showered upon every cottage in the world in the shape of cheap light and heat.

The diseased condition of the public mind on this question is in no way better illustrated than by our views on Russia in 1925. Half the world is willing to witness, if not with approval, with silence which gives consent, the reduction of the Russian crops by half, the death by starvation of large numbers of the Russian people, and all the dangerous antics of the Russian bureaucracy, because, whatever else the Bol sheviks may have done, they have. made a bold attack upon this evil thing known as profit. Profit, if separated into its constituent elements, con sists of three parts: (I) the earnings of management; (2) the interest of capital; and (3) an insurance pre mium for the risk undertaken. I have never yet heard a word of criticism or objection levelled at anyone of these three essentials to our economic existence when considered separately. Everyone agrees that manage ment must be paid; nobody doubts that capital must earn interest; and it is not questioned that some margin must be allowed to cover the cost of risk. But as soon as .these three elements are put together and called profits, we are told that we must produce "for use and' not for profit"; that we shall never reach the ideal until we abolish the profit-making habit. These G 98 THE CONFESSIONS OF A CAPITALIsT critics should surely be rather more specific and tell us to which of the three parts of profit they most object, and which they would first abolish.

Profits are, in the main, as small as it is possible to make them. The largest profits, those which are re ported in the newspapers,are, as a rule, infinitesimal when considered in the only way in which a profit should be considered-as a percentage on price. The most superficial examination will show that this must be so. The first object of the serious business man is to make and keep a customer, to build up ,a trade, and it is an object which he can only achieve if he will give to the customer the maximum of satisfaction. If a shopkeeper can ensure a regular order by accepting a price which represents a very narrow margin of recurring profit, he is infinitely better off than if he has to be searching always for a new customer out of whom he can squeeze an unreasonable profit, well knowing that in doing so he is closing another account. The old adage, " small profits and quick returns," is as true to-day as ever it was and remains a guiding principle for every earnest trader. Profits, therefore, from their nature, will always be, in a free market, calculated on the lowest scale consistent with safety.

The publishing business is more speculative than most forms of manufacturing. There are, no doubt, others equally risky, but, as a publisher, I may be per mitted to entertain the notion that I run rather more risk than is usual. The manufacturer of'furniture who makes a number of chairs and fails to sell them at once may be in difficulties, but he has at least the chairs with which to console himself. The manufacturer of overcoats who finds, when his goods are ready for the market, that they will not sell, because the fashions have changed, can at worst cut them up and turn diem into caps or some other garment that wilL But the PROFIT AND toss 99 manufacturer of a newspaper must sell his whole out put the moment it is produced. If it is not so sold the loss is absolute and complete. It is quite imposs ible to turn a copy of The Daily Telegraph into an Ethel M. Dell novel, or to sell any quantity of last Saturday's issue in the following week. The outstand ing characteristic of the publishing business is, there fore, that the publisher must pay the whole expense of producing his maximum output whether he sells it or not, and that, in so far as he does not sell it, he is faced with complete and irretrievable loss. Another point about publishing, which is to some extent connected with the above, is that costs of production bear very little relation to selling prices. This will be made more clear by some of the figures which follow, but it is obvious that in arranging for the payment of £r,ooo to some correspondent to explore the position in China or to make a flight across the desert, tlle newspaper proprietor cannot add that figure to the price of his paper and announce that on Monday, Wednesday, and Friday next The Daily Telegraph, on account of special features, will be charged at 6d. The newspaper pro prietor, who is, of course;just as much a manufacturer as is a maker of bOQt1aces,has to consider the expenses of his enterprise as a whole and his revenues as a whole, and endeavour to make them balance.

I ought, perhaps, to apologise to the general reader for inflicting upon him a: series of figures which would appear to possess a minimum of ordinary interest, but the task which I have set myself in writing this book makes it essential. I thereforep ubIish on pages roo and 101 three specimens of actual newspaper accounts. I do not ask the reader to waste much time over them. Figures can never mean very much except to those who have an intimate knowledge of all the circum stances out of which they come. But politicians and Six Weeks' Trading Accounts of a Prosperous Trade Paper Weeks Ending Oct. 4th, Oct. 11th, Oct. 18th, Oct. 25th, Nov. 1St, Nov. 8th, 1924. 1924. 1924. 1924. 1924. 1924. ------------- ----~- ------ ------ ------------ -----REVENUE: £ s. d. £ s. d. £ s. d. £ s. d. £ s. d. £ s. d. Advertisements .... 892 o 10 ' 673 14 6 812 3 7 827 2 4 810 15 4 626 o 10 Sales and Subscriptions "' ••O' 47 0 3 64 17 10 53 12. 8 46 0 0 38 I 6 35 15 I ------ ------ ------ ------------ -----£939 I I £738 12 4 £865 16 3 £873 2 4 £848 16 IQ £661 15 II EXPENDITURE: .... £ s. d. £ s. d. £ s. d. £ s. d. £ s. d. £ s. d.

Printing and Paper .... .... 529 4 7 414 0 4 436 4 0 475 15 7 442 I 5 400 16 9Blocks .... .... .... 10 9 7 16 12 II 13 12. 8 II 5 5 10 12 II 10 3 5Contributions .... ..... 14 17 3 .23 19 4 1.2 8 10 17 19 7 17 3 6 12 2 3Commissions .... ..... 9 9 9 II 4 6 II 1.2 5 14 9 0 13 3 0 9 15 5Salaries .... .... 68 10 6 69 17 3 68 12 3 70 12 9 68 10 6 71 0 9 Trade Expenses .... .... 1.2 10 0 12' 10 0 18 10 0 18 10 0 18 10 0 18 10 0 Petty Cash .... .... 10 0 0 10 0 0 10 0 0 10 0 0 10 0 0 10 0 0 Legal Expens~s ..... .2 5 0 3 5 0 5 5 0 5 5 0 5 5 0 5 5 0 Bad Debts and Discounts .... 14 15 0 4 15 0 14 15 0 14 15 0 19 15 0 19 15 0 Carriage .... .... .... I 6 0 1 8 0 I 3 0 I 3 0 I 7 0 I 7 0 Interest on Capital at 5 per cent. .""," .... ..... 8 0 0 8 0 0 8 0 0 8 0 0 8 0 0 8 0 0 ------ ------ ------ ------ ------ -----£681 7 8 £575 12 4 £600 3 2 £647 15 4 £ 614 8 4 £5 66 15 7 £ s. d. £ s. d. £ s. d. £ s. d. £ s. d. £ s. d.

Revenue .... .... .... 939 I I 738 12 4 865 16 3 873 2 4 848 16 10 661 15 II Expenditure ...... .... ..... 681 7 8 575 12 4 600 3 2 647 15 4 614 8 4 566 15 7 ------ ------ ------ ------ ------ -----Profit .... .... .... £257 13 5 £ 163 0 0 £ 265 13 I £.225 7 0 £234 8 6 £95 0 4 8 ~' ~' ,t'Ij (J oZ ~1 t'Ij enen 5' Zen' o ~\ > (J ~ '"'d' ~' t'"'" ~. en ~: Six Weeks' Trading Accounts of an Unsuccessful Trade Paper Weeks Ending Oct. 4th, Oct. 11th, I Oct. 18th, Oct. 25th, Nov. 1St, Nov. 8th, 1924. 1924. 1924. 1924. 1924. 1924. -------------- ------ ------ ------------ ------ -----REVENUE: £ s. d. £ s. d. £ s. d. £ s. d. £ s. d. £ s. d. Advertisements ...... 127 7 0 209 3 3 157 II 6 173 15 3 200 0 3 161 15 0 Sales and Subscriptions .... 57 14 8 63 8 1 70 15 6 76 12 9 122 3 6 95 10 2 ------ ------ ------ ------ ------ -----£ 185 I 8 £272 II 4 £228 7 0 £25 0 8 0 £3 22 3 9 £257 5 2 EXPENDITURE: £ s. d. £ s. d. £ s. d. £ s. d. £ s. d. £ s. d.

Printing and Paper .... .... 398 19 4 505 3 6 409 19 8 423 9 3 584 17 5 489 19 9Travelling Expenses and Commissions ..... .... 147 18 2 152 4 7 157 1 3 165 5 7 173 2 I 175 18 2 Contributions .... .... 46 4 9 49 5 7 45 19 5 45 15 3 44 8 9 45 4 7Salaries, Postages and Sundries 41 0 0 41 0 0 41 0 0 41 0 0 42 0 0 42, 10 0 Trade E~penses, Blocks, Stationery, etc. .... .... 35 18 5 58 16 10 37 10 0 69 II 6 39 II 2 34 15 6 Bad Debts and Discounts ..... 3 0 0 3 0 0 3 0 0 3 0 0 3 0 0 3 0 0 Interest on Capital at 5 per cent. .... .... .... 4 0 0 4 0 0 4 0 0 4 0 0 4 ° ° 4 0 °------ ------ ------ -_--..11_-- ------ -----£677 ° 8 £813 10 6 £698 10 4 £75 2 I 7 £89 0 19 5 £795 8 0 £ s. d. £ s. d. £ s. d. £ s. d. £ s. d. £ s. d. Expenditure .... ..... .... 677 0 8 813 10 6 698 10 4 75 2 1 7 890 19 5 795 8 0 Revenue .... .... .... 185 1 8 272 II 4 228 7 0 250 8 0 322 3 9 257 5 2 ------ ------------ ------ ------ -----Loss .... .... .... £49 1 19 0 £540 19 2 £470 3 4 £5 01 13 7 £5 68 15 8 £53 8 2 10 '"'d ~ o t"7:j ~ ~ t""1 oenen o 1-1 102 THE CONFESSIONS OF A CAPITALIST bureaucrats and committees love figures, and the best way to make them understand how little they can ever know is to supply them with more and more figures.

I begin, on page 100, with the trading accounts for six weeks of a very prosperous trade paper. This· is a paper with which I was at one time con nected and is a rare case of a valuable advertising medium involving very small expenses and producing very large profits. These profits arise from the fact that the industry with which the paper is conn.ected discovered that it suits its purpose to make full use of the advertisment pages, although the circulation is small and the editorial expenses almost negligible. On page 101 is given a similar set of figures of an unsuccessful trade paper which came into my hands a few yeats. ago. . Here it will be noticed that the losses are even bigger than the profits in the previous case. This was a paper that had enjoyed a successful career for twenty or thirty years before Lord Northcliffe began his net sales cam paign. The paper then came into the hands of an energetic young man, full of theories and good inten tions and confident of his complete knowledge of the principles and practice of publishing. He decided that he could beat Lord Northcliffe at his own game and launched a big circulation campaign. How far he suc ceeded may be judged from the figures which appear in .. the account.

My third illustration. (page 103) is put in a more regular form. The earlier examples are weekly returns such as are produced for the benefit of the newspaper proprietor. These figures show the profit and loss account for a period-of eight months of another trade paper. This, again, is an old-established and well known journal which in its time prospered greatly.

PROFIT AND LOSS 1°3 Profit and Loss Account, March I st to October 3 lSI To Printing and Paper; ..• Illustrations and Blocks; ... Contributions Postages ..• Salaries Advertising Wages . Rent, etc. . Rates ... Gas and Electric Light Telephone... ... Printing and Stationery Insurance ..• •.• ..• Bank Charges and Sundry' Expenses ..• Auditor's Fee Bank Intere~t Loan Interest Legal Expenses Commission [. s. d.; 3,341 2 3 32 9 6 5 170 13 10 215 19 6 1,078 ° ° 17 8 6 469 19 3 137 6 8 28 8 3 22 ° 10 22 I 3 60 3 6 3 3 II 8I 19 5 17 6 8 16 5 6 130 16 3 9 18 6 361 4 2 By Advertisements... ... Subscriptions and Sales•.• Balancc-N,ET Loss [. s. d. %,732 19 8 1,83% 10 5 1,947 14 7 My diagnosis of the disease which killed it is excessive economy. It came under management very different from that of the young man who tried to imitate Northcliffe, managenlent whose one idea of business wisdom was summed up in the word "economy."

True economy, especially in newspaper work, consists of knowing how and when to spend money. The cutting out of expenses may be a most fallacious policy. This paper, under the blight of parsimony, managed - to hold its own until the War came, and with it the increase in printers' charges. The loss of nearly £2,000 is accounted for to some extent by the increase in the printers' account. It is only one of many hundreds of cases of minor publishing efforts driven off the market by the policy that has guided the printing industry for the last ten years. The figures bring out one or two other points that are worth making in passing. It will be noticed that the block-makers took, in· the eight months under review, almost twice as much money out of this little enterprise as did the men and women who wrote for it. Contributions amounted to £17° as 104 THE CONFESSIONS OF A CAPITALIST against £329 for illustrations and block.s, another example of the price we are paying for the organisa tion of labour into trade unions, and, still more, of.

employers into trade associations. The business of photo-engraving ,has been so completely organised and so misdirected that masters and men together have been able to raise their prices to four times the pre War figure, with results sufficiently obvious in this case. Similarly, the Postmaster-General took from this business nearly half as much as all the weekly clerical wages spent upon it. That is to say, that for every £I paid to the office staff, clerks, typists, and messengers, the postman, whose work was to carry the finished product to the subscriber, cost Ios.-a further instance of what organised pr trustified or nationalised industry can do. I have already given in another chapter the figures of The Hardware Trade Journal. It was one of my successes, and I now add a' couple of my failures. In these cases I .am able to give the names of the papers involved, because I 'am completely responsible for each one of the three, and, unlike the accounts to which I have just referred, I have not to consider the intere~ts of other individuals.

In the following table of-losses, month by month, incurred during its life by the weekly journal, Ways and Means, we have an illustration of the folly of attempting to mix up propaganda with business. This . is the fundamental trouble with The Daily Hera/d.W ays and Means, a journal of commerce and economics, was published by me during 1919 and 1920 with an object very similar to that of this book. I was foolish enough to imagine that the public might be interested ilJ, econ omicproblems looked at from a business point ofview. For two years, week by week, I devoted myself to this effort. A section of the public responded bravely. It PROFIT AND LOSS 105 was willing, Friday by Friday, to pay 6d for a paper that cost 25. or 35. We are thoroughly spoiled in, this matter of periodical literature. The Piess is really a present to the public from the advertisers. It is ob viously impossible to ask people to pay half-a-crown for a two-and-sixpenny journal. They have never done anything of the kind. Ways and Means had to be offered for 6d. in the vain hope that the advertiser might be willing to make up the 2S. loss. But the advertiser knows better. He will support only a paper published to supply the public with what it demands.

That is, after all, a logical attitude for him to adopt. The newspaper or journal existing to educate the public makes no appeal to him. Ways and J.rleans.therefore had to come to a,n end. " Ways and Means" Losses - 1919 1920 £ s. d. £ s. d. anijary ... ... ... 20 10 2 328 13 10 ebruary ... ... ... 173 7 3 25 2 12 2 arch ... ... ... 324-13 II 235 9 8 pril ... ... ... 64-4- 9 10 14-5 8 7 ay ... ... ... 625 6 8 34-1 8 10 une ... ... ... 34-3 13 II 299 IS 2 uly ... ... ... 278 17 3 377 7 0 ugust ... ... ... 160 5 II 577 14-2 eptember ... ... ... 267 3 I 4-1 3 14-6 ctober ... ... ... 139 10 3 556 18 0 ovember ... ... ... 34-7 2 0 4-1,6 9 6 ecember ... ... ... 572 8 4-J F M A M JJ A S o N D My last example is of another kind. It serves to bring out the many-sided nature of this difficult ques106 THE CONFESSIONS OF A CAPITALIST tion of profit and loss in newspaper and publishing work. · I give the figures from October, 1 920,~ to Nov ember, 1922, of a weekly called Farm and Home, Qwned and published by me during that ·period. This was a good little paper, as is shown by the fact that at one time no less than 40,000 people thought it worth buying. That is not a big circulation for a farming paper, but Farm and Home served its purpose in that its matter and policy appealed to small farmers who found in it something they were willing to pay for and to read. On a 40,000 circulation, there is a definite limit to the charges that can be made to advertisers, but the paper from about 1880 to 1920 managed to balance its accounts and produce a satisfactory income for its proprietors. I made two mistakes in .acquiring Farm and Home. In the first place, like the young man with the ideas about circulation mentioned above, I was vain enough to think that I ~ould do rather better with it than its previous somewhat old-fashioned owners, and that, with those up-to-date methods I am supposed to understand, circulation and advertise ments might both be improved and a great paper developed. I proved wrong in these calculations.

Farm and Home had lived, so it proved, upon its Vic torian character. The people who read it did so because they preferred old-fashioned to modern ideas. My proprietorship was unwelcome to them. In the second place, I overlooked (and I confess I should have known better) the question of printers' charges. The paper was one of those which managed nicely on pre-War figures. It was, however, incapable of ex pansion, and the figures in the printers' bill, four times the size of those before the War, turned a small profit into a heavy loss, with the result that publica tion had to cease, PROFIT AND LOSS " Farm and Home" Losses 1°7 1920 1921 1922 £ s. d. £ s. d. £ s. d. January ... ... - 152 10 8 99 IS 4February ... ... - 24 3 3 51 8 °March ... ... - 4-6 13 3 117 2 I April ... ... - 169 8 I 4-4- 5 3 May ... ... - 4-7° 16 10 74-7 5 June ... ... - 1,14-0 I 10 9 16 9 July ... ... - 5°2 14 8 347 6 9 August ... ... - 168 2 5 59 ° II September ... - 412 9 9 26 12 10 October ... ... 41 12 9 1°9 2 7 86 16 II November ... 97 4-I 95 17 II 58 5 7 December ... 4-21 7 4-171 4-2 The manufacture and publication of a book presents a problem differing in many ways from that connected with the publication of a newspaper. Two examples are sufficient to make this clear. In October, 1924, I had written and put into type a pamphlet which I called Prosperity and Politics, with the sub-title: "The Business Implications of Socialism." When the General Election was precipitated in the middle of that month, it was thought advisable to rush this pamphlet on to the market, and it was given the unhappy title, " Why Not to Vote Labour." We had then to consider what .would be the probable sale of the pamphlet; how many we should print; at what price it should be marketed.

Two thousand copies could be produced at a total cost of gd. a copy. Ten thousand copies, on the other hand, were quoted at figureswhich worked out at 6d. a copy. The figure 9d. would have involved a selling price to the public of IS. 6d., and 6d. a selling price of IS. It should be explained that the selling or published price 108 THE CONFESSIONS OF A CAPITALIST is subject to a reduction of one-third to the bookseller or newsagent. A selling price of IS. 6d. would there fore produce to the publisher a net return of IS., and a selling price of IS. a net return of 8d. If, therefore, we had. printed 2,000 copies at a cost of 9d. and sold them all at IS. apiece, there would have been a profit of £25. If, on the other hand, we had produced an edition of 10,000 at 6d. and sold them all at 8d., there would have been a profit of £83 6s.8d. It is, of course, impossible in considering the problem of a book at this early stage to gauge with any exactitude how many copies, it is wise to print or how many may be sold.

Publishing is in this respect like producing a play. Even the greatest experts, have never been able to judge beforehand whether a play would run for a week, or whether it would last, like" Charley's Aunt," for-years. We might have printed 10,000 copies of our pamphlet at6d., spent £250, sold I,500 at 8d., received £50, and involved ourselves in a loss of £200. On the other .hand, we might have printed 2,0.00 copies, costing £75, and sold 1,500 at IS., exactly balancing the account and leaving ourselves with 500 copies as waste-paper. At the moment of writing, this trans action is not complete, and exact figures are not avail able., but, on the present showing, I expect to be faced with a loss of £I 00 on this little speculation. I now turn to a good book, good not only as a book but as a piece of business, a weighty, technical work, typical of the kind of thing for which my firm has a reputation. The book is in its third year. It was published at the end of 1922, one thousand copies being produced at a cost of £1. 4S. per copy. The published price of the book is £2 8s., and the net return to us from the wholesale book trade £I I 6s.

The figures for 1923 and 1924, taken at the nearest hundreds, are as follows: PROFIT AND LOSS First rear 1°9 £ 1,000 copies at £1 4-S. .•. 1,200 Profit .. . 24-0 £1,4-40 Sell 4-00 at £1 16s. Stock 600 at £'1 4-8. £ 720 720 £1,4-4° Stock Profit Second rear £ 720 Sell 50 at £1 16s; 30 Stock 550 at £1 4-S. £ 9°660 For the purpose of our accounts we have made on this book up to date a profit-of £270, and we hold stock valued at £660. The book is selling at the rate of fifty copies a year, and we have enough in .stock to supply the market for eleveQ years to come. If the book holds good for that· time and sells right out, 1 shall make a handsome profit. If,as of course happens with technical literature, this book should be super seded by a better, or the matter which it contains should require revision, or for any of a number of other reasons the demand should fall off, we may be left with our stock. If that should happen, a fact which I cannot possibly know until another five or six years have elapsed, I shall have to write off £660 of the stock as lost. Instead of having made £270, I shall be £390 out of pocket. Meanwhile, I have paid income tax at 4S. 6d. in the £ on the £270, and, if the rate of tax goes down to, say, 2S •.6d., I shall recover taxation at the lower rate on the loss which I cannot discover for some years to come.

The account as set out above requires adjustment in tto THE CONFESSIONS of A CAPITALIsT several minor ways, notably in the matter of deprecia tion. Pres ent purposes would not, however, be served by indulging in complications, and the simple figures given illustrate, as accurately and conveniently as poss ible, the complicated nature of this thing called profit, about which so many wax eloquent, and the distribu tion and taxation of which appear to the public so easy and obvious a matter. ° Profits are made not only by people like publishers, who undertike the work and responsi15ility of organis~ ing production, but by others who, being ° mere owners of money, invest it in various ways and live upon the interest or dividends. "The money-owner strides in front," says Karl Marx, and the impression that one gets from the trend of political discussion is that nothing is easier than to live a life of luxury and batten on the efforts of others. The real justification for the idle rich lies in the fact that none of us would save, if we had not a hope of ourselve$ becoming some day, and to some extent, independent, and we should all die if we did not save.

Personally I have never been able to generate for myself the indignation which is so widely spread at this abuse of riches and idleness, the reason being that I have tried to imitate the methods of these people and have made a ghastly failure of it. Such little money as I have made has for the most part been invested in my own business. But out of respect for the theory that it is not wise to have all one's eggs in one basket, I have from time to time made outside investments. I possess not a large but a fair amount in stocks, shares, and bonds bought on the market after the manner of the idle rich, in the hope that I might enjoy an income from the interest arising out of my investments. I do not like to confess that I am a fool in money matters. In fact,theoevidence ~ould appear to show that I have :PROFIT AND toss ttt been fairly successful in managing money. It is, never theless, true that 5s. of every sovereign invested outside my own business has been lost. I am not a gambler; I have not taken undue risks. Whenever I have had a few hundred pounds to invest I have sought advice and considered the matter carefully, but it remains true that these outside investments would realise to-day only three-quarters of what I paid for them.

My opinion is that the much-talked-of idle rich are very largely engaged in losing money made for them by previous generations, who became rich because they were not idle. I· have had one or two real gambles. I once backed a clever little man who made out a case which seemed to me unanswerable for making a for tune out of soap. He had a process which he claimed would produce soap in half the time now required for the purpose. Time being the most expensive thing there is, it appeared to me that the idea was good. This little man certainly made soap, and he certainly saved time. It was very good soap, but he overlooked the fact that while he was saving time he was wasting glycerine, which ran away at such a rate that all the time and all the 'money that he and I could put together were not sufficient compensation for it. . I lost a few hundred pounds over another old friend who had solved the problem of making jam. I went into this scheme revelling in imaginary delights of a world full of jam, and the fortunes that would be showered upon me when the object was achieved. I have also dropped money on clocks. All of which makes me perhaps a little more appreciative than the man in the street of the skill and wisdom of the makers and suppliers of these useful and necessary goods, and a little more convinced that the only people who are likely to suffer from the investing activities of the idle rich are the idle rich themselves.

t12 TilE CONFESSIONS OF A CAPITALIST There is one sum of £100 wluch I have tried and failed to lose, and of which· I am very proud. I put it aside some years ago to carry out an experiment of my own. It has been lent without security on thre·e occasions. First it was lent to an old school friend, one of those decent fellows with middle-class ideas and modest ambitions, whose chief desire was a quiet life. He had the notion that he would settle down in a small country hptel where he could keep a pony, and perhaps do a little shooting. He bought the hotel with my £100 and £200 of his own, and a year or two later, much to my surprise, the money came back. It was next lent to an energetic mechanic whose skill at his trade had frequently attracted my attention. He was a fidgety, ambitious type, altogether different from my country publican friend. I lent him my '£100. He began in a small way on his own account, and the sum came back to me with interest within a couple of years.

The money next went into the hands of a commercial traveller who wished to run a small agency business of his own and he in a position to give a little credit. Again the £100 came back to me safely, and is now performing a fourth and similar mission .. Returning, however, to my main question, there are much weightier reasons why the factors of profit and loss must always remain in a successful industrial sys tem, and why they should always be left in private hands. Commerce and industry consist in exchange; we all live by exchanging our goods and services for the goods and services of others. The profit or loss is the test by which the mutual benefits of the opera tion of exchange may be judged. If your goods are acceptable, or your services useful, you will receive a profit. If, on the other hand, your fellow-creatures decide (wisely or unwisely,. it makes no matter) that they do not want your goods, or that they will get on PROFIT AND LOSS 113 better without your services, then you will make a loss.

The profit-making system is the only one under which the consumer can be perfectly sure of obtaining the article he wants-o-any other scheme can only mean that he' will have forced upon him the article which some body else thinks he ought to want. Working for a profit on an individualistic system also ensures that the people who receive the goods are the same as those who pay for them-a very important point. Based upon the interests of the consumer, it is the only system under which the consumer can ever stand a chance. We can make no money, we can do no good, unless we can persuade others to accept our services at the value that we and they jointly place upon them. We are asked to work up our indignation over the question of incentive.W e are told that the ideal man would " produce for use and not for profit. " We are' asked to believe that the desire for profit is abase instinct; that it demoralises; that it is not worthy.

This argument always leaves me cold for two reasons. First of all, however much a man may want to make money, however depraved may be his liking for money, he is, under the profit system, altogether powerless to get hold of a sixpenny-piece until he is willing to render some acceptable service to others at the price they will willingly pay for it. Secondly, considering only the welfare of society as a whole, the important thing is that goods should be made and sold; that employment should be found and ameni~ies provided; that the maximum of activity should be maintained, and, if these blessings are secured, it is altogether immaterial what may be the motive or incentive of the man who makes them poss ible. Every time that he initiates a business trans action he does two things. First, he tends to raise the H 114 THE CONFESSIONS OF A CAPITALIST rate of wages by adding to the demand for labour, and, secondly, he tends to reduce prices to the consumer, by adding to the available supply of commodities.

These two direct effects of his operation are so impor tant, so necessary, so entirely beneficial, as to render a discussion of his motives not only irrelevant but unwise. Whatever his motives, he cannot succeed unless his actions result in benefit to the community. The objection to profit has its roots in the fallacy that one' man's gain is another man's loss. This mis take is connected with the stupid theory that wealth is a limited thing, a fixed quantity,. which must be equally divided among us. If it can be shown, and my case seems to me to show, that the making of a profit means more profit all round, that the creation of a piece of wealth is simply a step towards the creation of much more wealth, the error of the argument against profit becomes apparent. My profits, so far as I can see (and I have analysed them pretty closely), have never done anything but make profits for everybody. It is of the very first importance to me that the other man should make a profit. If someone who has supplied me with some thing fails to make a satisfactory profit out of the transaction, he will not supply me with any more, and I shall be in difficulties. The notion that the business man is engaged in screwing the price down to the point at which the other man loses will not bear exam ination. The business man knows perfectly well. that unless every transaction that he makes is satisfactory to both parties to it, his business will come to an, end.

I sometimes think that herein lies one of the weak nesses of the Jew. The native bus'iness ability of the Jewish race has done immense service to civilisation, but the wisdom of the Jew so often stops short of the other man's profit, and that constitutes a difference PROFIT AND LOSS which seems somehow to mark him off from the rest. There are, of course, excessive profits. Occasions arise when the real profiteer can and does practise extortion upon his victims, but such cases are generally traceable to restrictive arrangements, many of them d~signep. to remove the evil which they only accentuate. High profits in a free market confer a real benefit upon it and upon the community. They induce competition, they increase supplies and thus produce economy. Something may be said for the economic effects of excessive profits in a limited market such as those made by a trust 'or a trade union, for in these circumstances the consumer is driven to alternatives. This is clearly shown by the history of printing in the last ten years.

It is permissible to argue that the short-sighted policy 'of both masters and men has hastened the time when letterpress printing will be supplanted by photographic printing. I have already produced second editions of books by photography, being unable to bear the heavy . terms of the printer at present prices. Tl).e day it would seem is not far distant when photography will take the place of the old method entirely. The Black '0 pool Times is only an instance in support of this view. The same kind of thing is happening, with the brick layers, whose excessive profits are forcing the con sumers to use concrete. Another illustration may be found in the rapid rise in the price of laundry work, which has become so expensive as to drive womenfolk to silk underwear, which they can wash themselves, and men to soft collars, which they can wear for a week. Excessive profits are therefore not the unmixed evil that on the face of it they appear to be.

No discussion on profits would be complete without a note on the essential difference b.etween profit on capital and profit on turnover. The company making 20 or 30 per cent. divid~nd upon its capital is not neces116 THE CONFESSIONS OF A CAPITALIST sarily making an undue profit upon its turnover. If a company displays no energy, possesses no initiative, and is content to turn its capital over once a year, and finally announces a 5 per cent. profit, little or no com ment is made upon its operations. If, however, it understands. its business, shows skill and resource, uses up-to-date methods, and turns over the same capital five times a year, thus making 25 per cent., .criticism is loud and furious; though the latter pro cess would appear to be more truly in the interests not only of the company but .of the community as a whole. Soon after Mr~ Ramsay MacDonald became Prime Minister there was a railway strike, and one of the first pronouncements made by the Government took the form of a warning to butchers and other traders that if, as a result of the strike, there was any attempt to profiteer in meat or other food products, the Govern ment would take action. That pronouncement was received with pleasure and applause by the people. It was considered a reasonable and proper pronounce ment for a Government to make, and it demonstrates, as well as any recent instance, the depth of the ignor ance of the public generally o~ this question of profit.

It is deplorable that an institution with a reputation for wisdom like the British Government should be able to issue to a people with a reputation for intelligence a pronouncement such as this, and that the matter should go almost unchallenged. Look at it from the point of view of the unfortunate butcher. Suppose for the sake of argument that he is doing a trade of five tons of meat a week. A most cursory examination of the facts will show that the profit of the butcher rests in the sale of the last five cwts. of meat in the week. His organisa tion, his premises, his general expenses are all arranged upon the basis of fiv-e tons a week, and. his life as a PROFIT AND LOSS 117 butcher depends upon the successful sale of the whole of that quantity. Then comes the railway strike, and his weekly supplies are reduced to, let us say, three tons. That is a hardship to the public, for it involves a limitation of the consumption of meat, but it is disaster to the butcher. He must lose money. He dare not raise the price of the three tons to the figure he would ordinarily secure for the five, and if he ven tures to make any upward movement at all in order to mitigate somewhat the losses he is bound to suffer, " the Government will take action."

What possible action can the Government take? What results could such action have but to accentuate the difficulty? The provision by the Government of machinery for collecting and distributing the meat must be a more expensive method than the utilisation of the butcher's organisation, and any action of the kind can only result in a heavier loss than ever. And yet, so warped has the. public intelligence become in these matters that, while accepting as normal the refusal of the railwayman to carry the meat except on his own terms, it heaps obloquy and abuse upon the butcher who dares to reduce the loss inflicted upon him by however small a margin. Profit-sharing has been the subject of a good deal of discussion and experiment in recent years, and in this cop.nection I must admit an indefensible inconsistency. I practise profit-sharing. I have a scheme in operation in my firm that has worked extremely well for several years past. I began upon the assumption i that a 10 per cent. dividend is the minimum return upon capital that can be regarded as satisfactory in a speculative business like publishing. I agreed that, if the profits were suffi cient to pay more than 10 per cent., the salaried staff should receive a percentage upon their salaries equaL to any excess of 10 per cent. paid in the way of divilIS THE CONFESSIONS OF A CAPITALIST dend: As for some years past the dividend has been at the rate of 17! per cent., those members of my staff in receipt of fixed wages or salaries ·have received a " bonus" upon their earnings at the rate of 7! per cent. In my case there is probably more justification for profit-sharing than in most, because it is a fact that, in an intricate business like publishing, most of the mem bers of the administrative staff can· exercise some influence upon profits and losses. But in general, I think, it is absolutely unsound to share profits with a wage-earner.

To begin with, any such arrangement appears to admit that there is some connection between wages and profits; that the one is paid at the expefise of the other, or vice-versa. This was Ruskin's mistake. Any such idea is, in my judgment, completely false. Wages and profits are two different things arising from two different sets of causes and should not be confused one with the other. It is, for instance, absurd to sug gest that a porter on the Southern Railway can have any influence on the profits of that undertaking. People who want to travel to Birmingham do not go to Brighton in preference because of the superior charm of the Brighton railway porter. Short of declining to do the duty assigned to him to the best of his ability, the railwayman can exercise n9 influence one way or the other on profits. The same is true of the com positor or ledger clerk. Approaching the argument from the other end, the same conclusions· are reached. Bad management can make a loss out of the most conscientious and efficient work. It· is· not suggested that the worker should share that loss, nor is bad management accepted as a reason for the reduction of wages. Nevertheless, I practise profit-sharing, and, while believing it to be, in theory, thoroughly bad, I. confess it is, in practice, in the nature PROFIT AND LOSS of a gesture or a concession to those psychological and ethical influences which, notwithstanding all the econo mic theory on earth, are part of the problem of indus trial success.

There is a much better road than the profit-sharing road, and that also I am trying to follow. It is the road along which the worker becomes a capitalist and an employer. It is the road which has been traversed to an extraordinary length in the United States. Nothing short of a financial revolution has taken place in that country in the last few years. The Edison Common wealth Corporation is only one of hundreds of huge concerns which have established within the last ten years big departments for the purpose of selling stock and bonds to the working classes. It was told me in both New York and Chicago, when I was there in 192 I, that there were in the United States eleven million owners of industrial stock. I have been work ing gently along these lines and have exercised all my influence to induce the members of my staff to invest in the capital stock of my company, with the result that at the present moment some £36,000 worth of shares in Benn Brothers, Ltd., are held by persons who are actually working in the business. This is the ideal position. The wage-earner should be during working hours a wage-earner, performing a given task for a , given price. Theoretically and scientifically, it must be possible to assess the exact value of manual effort and to pay that exact value. Side by side with this the worker should, by investing savings in the capital of the business in which ?e is working, or in any other business for that matter, become himself a capitalist, and thus combine within himself the dual function.