A FUNCTIONAL THEORY OF ECONOMIC PROFIT 331 
ground of his performing no distinctive function, and merging 
capital with labor on the ground that capital is but a form of 
labor, views land and labor as the sole factors of production. He, 
therefore, regards the product of industry as divided by a natural 
law between the landlord and the laborer. To him the landlord, 
rather than the entrepreneur, appears as the beneficiary of 
material progress. 
The other American economist, to whom reference is made, is 
Professor John Bates Clark. In the preface of his great work, 
The Distribution of Wealth, he expressly says:* 
It was the claim advanced by Mr. Henry George, that wages are 
fixed by the product which a man can create by tilling rentless land, 
that first led me to seek a method by which the product of labor 
everywhere may be disentangled from the product of cooperating 
agents and separately identified. 
Our attention is called to the fact that Professor Clark, like 
Henry George, recognizes, in static industry, but two factors of 
production; but differs with him, first, in retaining the entre- 
preneur as residual claimant of the results of dynamic changes, 
which Mr. George allots to the landlord, and second, in merging 
land with capital, as one factor of production, and regarding labor 
as the other; while Mr. George, on the other hand, merges capital 
with labor, as one factor, and, as the other, emphasizes the dis- 
tinctive character of land. 
It is important, here, to note a further difference in the thought 
of these two economists. The Ricardian law of rent is regarded 
by Mr. George as of fundamental importance; while by Pro- 
fessor Clark it is viewed as “an obstacle to scientific progress,” 
retarding “the attainment of a true theory of distribution.” Mr. 
George's use of the principle of diminishing returns, although in 
accord with the classical employment of it, is regarded by Pro- 
fessor Clark as only a minor application of a general principle of 
diminishing productivity. He says of it:* 
The principle which has been made to govern the income derived 
from land actually governs those from capital and from labor. Interest 
as a whole is rent; and even wages as a whole are so. Both of these 
incomes are “differential gains,” and are gauged in amount by the 
Ricardian formula. 
* The Distribution of Wealth, 1889, Preface, p. viii. 
* “Distribution as Determined by a Law of Rent,” Quarterly Journal of 
Economics, Vol. V, p. 289.