18 ECONOMIC ESSAYS IN HONOR OF JOHN BATES CLARK
the result that there is a far more close correspondence between the
ability of business men and the size of the businesses which they own
than at first sicht would appear probable.?
Writing in 1893, Professor Cannan regarded the management
theory of profits as firmly established. He said:
III
FL
.
The displacement of capital from the triad of productive requisites
and its relegation to the same rank as organisation, knowledge, mental
and muscular powers would not, perhaps, have been of much impor-
tance if it had not been represented as the most active element in the
triad. As it is the change is immense. . . . The power of managing
industry is attributed not to the mute and inanimate capital, nor
even to the owners of capital, but to a particular class of workers—
the entrepreneurs—and it is clearly seen that even they can only
direct industry into particular channels by virtue of their intelligent
anticipation of the orders of the consumers, whose demands they have
to satisfy on pain of bankruptcy.?
Already, however, Professor John B. Clark, in an article pub-
lished first in the Political Science Quarterly and later in The
Modern Distributive Process, had formulated the now dominant
views that the earnings of management are reducible to wages.
Pure profit [he says] is the return of simple ownership. It is free
from all admixture of wages and interest. It accrues to him who
simply extends the @gis of his civil rights over the elements of a
product and then withdraws it in order that the product may pass
into other hands. The entrepreneur or assumer is he who takes upon
himself the responsibility of ownership.®
The subordination of management was, however, only a denial
of the correctness of the business management theory. The next
step naturally was the assignment of profits to a new factor.
Since that time and, even before, the theory of profits has taken
increasingly the form of the risk theory of Hawley or the “active
capitalist” of Professor Fetter. All of this involves the recogni-
tion of the fact that under modern economic organization profits
accrue over the larger part of the field not to business manage-
ment, but to the capital which owns the product.
The great changes in industrial organization and capital
markets which forced the business manager to relinquish owner-
ship of the product over a great part of the field of business may
t Ibid., p. 391.
? Cannan, E., Theories of Production and Distribution, p. 398.
® Clark and Giddings, The Modern Distributive Process, pp. 38-39.