THE ENTREPRENEUR AND THE SUPPLY OF CAPITAL 17 
A new theory of profits—the labor management theory—was 
the outcome. This theory was based not so much on a historical 
analysis of the changes in the capital market as on observation 
of existing facts. But there are some passages in Walker and 
Marshall which indicate that they were not unconscious of these 
changes and of their significance. Walker says: 
English and American economists, in general, have chosen to regard 
the capitalist as the employer of labor, that is, as employing labor 
merely because of the possession of capital and to the extent only to 
which he possesses capital. . . . In the later stages of industrial devel- 
opment the possession of capital no longer constitutes the sole or even 
the main qualification for employing labor. . .. So important and 
difficult are these duties, so rare are the abilities they demand, that 
he who can discharge these will generally find the capital required. 
If he be the man to conduct business, food, tools, and materials will 
not, under our modern system of credit, long be wanting to him. . . . 
It is no longer true that a man becomes the employer of labor because 
he is a capitalist. Men command capital because they have the 
qualifications to employ labor. To men so endowed, capital and labor 
alike resort. . . . By this is not meant that the employer is not in any 
case or to any extent a capitalist, but that he is not an employer to 
the extent only to which he is a capitalist nor is he an employer at 
all because he is a capitalist.® 
It is interesting to observe the gradual development of Mar- 
shall’s view of profits. In the Economics of Industry (1886 ed.) 
a very large part of the discussion of earnings of management 
deals with the relative advantages of trading on borrowed capital 
and on owned capital. He came to the conclusion that “men 
trading with borrowed capital seem likely to displace to a great 
extent those trading with their own.” This view was based on 
the opinion that the man who owns little capital will be content 
with lower earnings of management.® In the Principles, how- 
ever, the emphasis is laid primarily on ability to obtain capital 
as the necessary condition for business power to receive profits. 
Thus, in spite of vicissitudes, the able business man generally finds 
that in the long run the capital at his command grows in proportion 
to his ability.® 
Meanwhile . . . he who with small ability is in command of a large 
capital speedily loses it. ... These two sets of forces, the one 
increasing the capital at the command of able men and the other 
destroying the capital that is in the hands of weaker men bring about 
* Walker, F. A., Political Economy, 3rd ed., pp. 233-234. 
P. 136. 
* 3rd edition, p. 390