870 AGRICULTURAL ECONOMICS 



A. The Doctrine of Profits 



281. THE NATURE AND SOURCES OF PROFITS 1 

 BY EDWIN R. A. SELIGMAN 



Profits are the income from business enterprise, and the entrepre- 

 neur may deal in labor, in land, in capital, or in all three. It is hence 

 inexact to speak only of the profits of capital. 



The best method of gaining an insight into the nature of profits 

 is to consider, first, ordinary profits. By ordinary profits are meant the 

 profits of a regular business that deals in a repetition of analogous 

 transactions in competition with others. The term normal profits 

 which is sometimes employed is less satisfactory, because it incor- 

 rectly implies that there is such a thing as a normal or general rate 

 of profits, as well as because it brings to mind the conception of normal 

 value; whereas profits are a result of fluctuations in market values and 

 would not exist in a state of normal equilibrium. Profits are always a 

 surplus the difference between the cost of production or acquisition 

 and the selling price. They form a differential, however, in a second 

 sense. Profits are the surplus of the intramarginal over the marginal 

 producer. At any given time, under competitive conditions, market 

 price is the same, but cost varies. The cost of raw material, wages, 

 rent, interest on capital borrowed or invested, taxes, and miscellaneous 

 outlays like insurance, advertisements, and transportation expenses 

 vary from individual to individual. Some will display more care in 

 the selection of their labor force; some will choose a more advan- 

 tageous location,. with a saving in both rent and transportation; some 

 will accomplish better results with less capital and economize in 

 interest as well as taxes; some will exercise more ingenuity in pur- 

 chasing the raw material or securing a market. At the bottom of 

 the scale is the marginal producer, working under the least favorable 

 circumstances, who can nevertheless get no more for his goods. With 

 him price equals cost. The excess of price over cost constitutes 

 profits. 



In ordinary enterprises profit is the great lure of energy, and 

 competition the great destroyer of profit. Competitive profits, the 

 union of both, are hence the symptom of progress. They can exist 

 only by being continually renewed; they are not attached to any 

 community, but are a draft on nature. Profits are a result of price, 



1 Adapted from Principles of Economics (3d ed.), pp. 353~59, 366-67. (Copy- 

 right by Longmans, Green, & Co.) 



