A FUNCTIONAL THEORY OF ECONOMIC PROFIT 325 
bution operates according to a natural economic law, and 1s, 
therefore, true distribution; while bargaining and contract, on 
the other hand, are the practical mode of effecting distribution in 
the work-a-day world. Economic distribution, therefore, sets 
the standards; while the ethical quality of contract distribution 
can be determined only by comparison with these standards. The 
profit-residual theory has no place in economic distribution; 
while in contract distribution the actual income of the business 
man has all the appearance of a residuum,—the immediate result 
of superior bargaining. 
Professor Carver enumerates the “several sets of circumstances 
which enable the business man to bargain so as to have a surplus 
left after paying for the other factors of production” as follows:’ 
The first is his superior knowledge of the actual conditions of the 
market and of the inside workings of his business which enables him 
to tell better than the members of any other class what the marginal 
productivity of the various factors really is at any one time. The 
second is the deception which is frequently practised in order to out- 
bargain the consumer; the third is the method of terrorism; ? the 
fourth is the uncertainty and risk normally attending an independent 
business which makes the average man willing to accept a stipulated 
sum as wages, rent, or interest, even when that sum is slightly less 
than he might be expected in the long run to earn. And finally, there 
is the business man’s superior ability in guessing on the probable 
ductuations of the market, which enables him to reduce his risk 
slightly below that which others less skillful in this respect would 
have to face. 
It would accordingly appear that Professor Carver, finding no 
legitimate place for economic profit under the “marginal produc- 
tivity principle’’ of distribution, ascribes the employer’s actual 
income to superior bargaining, deception, and exploitation, which 
superior knowledge, and possibly a low moral sense, make possi- 
ble under unstable conditions of industry, and finally to superior 
ability in assuming risks. 
It is significant that in Professor Clark’s profit-residual theory 
bargaining, deception, and exploitation find no place. It is, 
rather, Professor Clark’s avowed aim to show the fallacy of the 
socialist indictment ‘‘that workmen are regularly robbed of what 
* The Distribution of Wealth, p. 286. 
* Professor Carver here refers to ‘‘various underhanded and unscrupulous 
methods of driving competitors out,”’ which were ““uniformly adopted by 
trusts’’ and constituted ‘‘the chief purpose of their organization, ’’