A FUNCTIONAL THEORY OF ECONOMIC PROFIT 
Charles A. Tuttle 
CurrenT explanations of profit as the income which the 
employer actually draws from business have been formulated 
without reference to any distinctive function which he performs. 
Their logical inconsistency in a theory of distribution which 
posits function as the basis of personal incomes from the product 
of socialized industry is obvious. The distinctive function among 
the varied relations which the employer sustains to business is the 
ownership of the business, viewed as an organized unit. This 
function the writer * denominates the function of the entrepreneur. 
It involves no labor, no capital-owning, and no ownership of land 
or other durable production goods. The personal income which 
attaches to this function is economic profit. 
Economic profit is therefore viewed as a distinctive income 
which attaches to a distinctive function. Unit organization, in 
which a portion of land, a portion of capital, and a portion of 
labor are placed in effective relationship to each other in a given 
business, is viewed as a distinctive factor of production, coordi- 
nate with land, capital and labor; and its ownership 1s viewed, 
accordingly, as a distinctive function coordinate with those of 
the landowner, the capitalist and the laborer. The product of 
socialized industry is therefore viewed as the joint result of 
four functions, and it is the problem of distribution to analyze 
this joint product into four functional shares which constitute 
the personal incomes of those who perform them. The immediate 
problem, therefore, which the writer of this paper sets himself, 
is to formulate a coordinate theory of economic profit as the 
functional share of the entrepreneur. 
The principle of diminishing returns which the classical econ- 
omists discovered in connection with land, enabled them to 
differentiate the product of land from that of the other factors. 
1 «The Function of the Entrepreneur,” American Economic Review, Vol. 
XVII, pp. 13-25.