OUTLAY AND INCOME 19 



dends, is sacrificed before any loss of either interest or capital 

 is permitted to fall upon the holder of mortgages or liens. For 

 this reason bankrupts may fraudulently conceal the assets and 

 thus defraud creditors. 



33. Profits. According to Marshall,* " When a man is 

 engaged in business his profits for the year are the excess of his 

 receipts from his business during the year over his outlay for 

 his business. The difference between the value of his stock 

 and plant at the end and at the beginning of the year is taken 

 as part of his receipts, or as part of his outlay, according as 

 there has been an increase or decrease of value. What remains 

 of his profits after deducting interest on his capital at the current 

 rate may be called his earnings of undertaking or management." 

 According to this definition, interest paid on borrowed money 

 is excluded from profits, but interest on the owner's capital is 

 considered as constituting part of the profits. This is the dis- 

 tinguishing point between a purely economic or impersonal 

 consideration of a business and a personal account with the 

 proprietor. In an economic consideration of the general ques- 

 tion of profits on an industry as a whole, such as is needed, for 

 instance, in the process of appraising stumpage values for stand- 

 ing timber (Chapter XI), the distribution of the required capital 

 between proprietors and creditors has no significance. The 

 entire net revenue available as returns on capital for the current 

 year must be regarded as profits. 



34. Wages versus Profits. Wages are an outlay, or an 

 expense, which serves to diminish profits. The wage or salary, 

 ultimately met from income, is the share of the wage earner 

 in the returns of the enterprise. 



In most undertakings the owners themselves give at least 

 part of their time to the management of the business. In very 

 small enterprises the owner may even do most of his own work, 

 thus saving the expense of employing labor. The larger forms 

 of business, in which the ownership is scattered in the form of 

 capital stock, are managed by proxy, through boards of direc- 



* "Principles of Economics," by Alfred Marshall, 5th Ed., Vol. I, p. 142. 

 Macmillan & Co., London, 1907. 



