TRANSACTIONS OF SECTION F. 689 



community a number of omployers, more or fewer, who alone are, by law or by custom, per- 

 mitted to do the business of that community, ... or else who are so exceptionally gifted and 

 endowed by nature for performiuL? this industrial function that no one not of that class would 

 n.«pire thereto, or would be conceded any credit or ]iatrona;ie should he so aspire. Secondly, 

 we assume that neither in point of ability nor opportunity has any one member of this class an 

 advantage as against another ... all being, we might say, the exact copies of the type taken, 

 whether that should involve a very high or a comparatively low order of industrial power. 



' Now, in the case assumed, what would be true of business profits, the remuneration of the 

 employing class ? I answer that if the members of this class were few, they might conceivably 

 effect a combination among themselves, and ... fix a standard for their own remuneration. 

 ... If, however, the community were a large one, and if the business class . . . were nume- 

 rous, such a combination . . . would be impracticable, . . . the members of the business class 

 would begin to compete with each other. From the moment comiietition set in it would find 

 no natural stopping place until it had reduced profits to that minimum which, for the purposes 

 of the present discussion, we call n//. 



' What, in the case supposed, would be the minimum of profits? I answer : This would 

 depend upon an element not yet introduced into our problem. The ultimate minimum would 

 be the amount of profits necessary to keep alive a sufficient number of the employing class to 

 transact the business of the community. Whether, however, competition would force profits 

 down to this low point would depend on the ability or inability of the employing class to 

 escape into the labouring class. We have supposed that labourers could not become employers ; 

 but it does not follow that employers might not become labourers and earn the wages of 

 labourers. . . .' ('Quarterly Journal of Economics,' 1887, p. 270 and context.) 



This reasoning will puzzle those who have received the abstract theory of supply 

 and demand as formulated by the mathematical school [above, notes (a) and (rf)]. 

 Because the dealers on one side of a market, as the employers in the labour market, 

 compete against each other without combination, it does not follow that the advan- 

 tage which they obtain from their bargains is nil. The minimum to which the play 

 of competition tends is not necessarily .small in the sense of a bare subsistence. It 

 is a minimum only in the matliematical sense in which every position of equilibrium 

 is a minimum (of potential energy in physics ; in psychics, may we say, of potential 

 utility. See note d). 



Representing the entrepreneur's demand for work by the curve G (fig. 5), where 

 the abscissa measures work done, and the ordinate money payable out of the wages 

 and profit fund, and putting O E for the offer of the workmen, we see that the point 

 r may differ to any extent from the Utility-curve O N, which indicates the advantage 

 of a transaction (see note c). As far as abstract theory, without specific data, carries 

 us, the competing entrepreneurs may make very good bargains. They may be ever 

 so prosperous ; they may be, in Burke's fine phrase, ' gambolling in an ocean of 

 superfluity.' 



So far, on the hypothesis that neither in point of ability nor opportunity has any one 

 member of this class an advantage as against another. The heterogeneity of faculty 

 will, of course, introduce a graduation of gain. But in this flight of steps it is not 

 necessary that the lowest should be on a level with the gi-ade of common labour. 

 The scale of profits may be a sort of Jacob's ladder, culminating in a paradise of 

 luxury, and having its lowest rung suspended high above the plain of ordinary 

 wages. 



Let us suppose, however, that the writer has tacitly made some assumption 

 as to the numbers of the ' numerous ' business class relatively to the ' large * 

 community (compare the parallel passages in his ' Political Economy ' : pars. 280, 230). 

 • Still what does the consideration of business profits as rent do more than the 

 received principle of Supply and Demand ? If the workmen, believing that in the 

 distribution regulated by competition too much has been assigned to brain and 

 too little to muscle, determine to reduce profits by means of a combination, should 

 they stay their hand because they are told that profits (above the lowest grade) 

 are of the nature of rent ? The terms ' rent ' and ' margin ' may indeed suggest 

 that the extra profits of the abler entrepreneurs exactly correspond to their grcatei 

 ability. It might seem that if, so to speak, we pushed down all the higher faculties 

 to the level of the lowest grade of IJusiness power, the diminution of the total dis- 

 tributed, of the wages and profits fund, would exactly correspond to the subtraction 

 from the earnings of the degraded entrepreneurs, while everything else remained con- 

 stant. Conversely it might be argued that the increment of produce due to the 

 existence of superior ability may justly be assigned as extra profit. 



But how little appropriate is this precise conception will at once appear from 

 1889 Y Y 



