PROFITS IN AGRICULTURE 873 



282. THE CONCEPTION OF PURE PROFITS 1 

 BY F. A. FETTER 



The term profit (or profits) means broadly the residual share, the 

 one non-contractual income in the business. It is what is left as a 

 net gain to that person (or group of persons) who assumes the financial 

 risks of the business, after paying off the claims of everyone else for 

 any uses or services rendered. Profit in this broad and popular sense 

 is a complex of incomes from various sources and must fluctuate in 

 nature (as well as in amount) from case to case for reasons that are 

 accidental and personal. 



Is there, then, no exacter conception of profits possible ? Among 

 the various meanings in which the word is applied is there one not 

 pre-empted by another term, one which expresses a sort of income 

 found in practical affairs, which business men are constantly trying 

 to estimate and of which economists must take account? Let us 

 try to express such a conception in this definition: Pure profit is the 

 income of the active capitalist as such, attributable solely to the active 

 capital-investment in the particular enterprise. It is an investment- 

 profit. The amount and rate of investment-profit are peculiar to each 

 business and indeed to each investment. It is never an agreed price, 

 or a contractual payment. It is the residual after the actual contrac- 

 tual dues have been paid, and the estimated value of other factors 

 (such as the services of the manager, etc.) have been deducted. The 

 investment-profit concept is most nearly exemplified in practical 

 affairs in the bookkeeping of a corporation. Out of gross receipts 

 must be paid all rents, interest, maintenance, and depreciation of the 

 plant, price of materials, wages, salaries of managers and officers, 

 fees of directors, etc.; the residue is the amount which may be paid 

 as dividends to stockholders (or added to surplus) without impairing 

 the capital-investment. 



Even investment-profit usually is subjected to a comparison which 

 divides it into two elements. It is of the very essence of the active 

 capital function that it takes the financial risk of the outcome. When 

 therefore at the end of the year (or income period) it appears that a 

 certain profit has resulted (say $1,000), this is compared with the 

 capital invested (say $10,000) and expressed as a percentage on the 

 investment (thus 10 per cent). Now this in turn is compared with 

 the rate of interest common on the safest loans (say 4 per cent) and 



1 Adapted from Economic Principles, pp. 343-49- (Copyright by the Cen- 

 tury Co.) 



