A FUNCTIONAL THEORY OF ECONOMIC PROFIT 335 
marginal productivity accordingly determines the laborer’s share 
directly, and that of the entrepreneur differentially. 
Let us now shift our point of view from that of labor to that 
of capital. If we assume that the labor at the disposal of the 
organizer of the business unit is a fixed quantity, and then intro- 
duce successively “units of capital,” the principle of diminishing 
productivity will again manifest itself in the decreasing incre- 
ments of product. Now we have a glimpse of the varied quality 
of the opportunities for “units of capital” within the business unit, 
ranging all the way from the best where the product is large 
to the poorest where the product is small, or conceivably vanish- 
ing altogether. 
On the assumption of a static state, in which “competition 
works without let or hindrance,” the marginal opportunity for 
“units of capital” emerges. It evidently varies with the relative 
number of units to be invested within the business unit. It is here 
that capital’s product is free from admixture with other elements; 
the whole product is specificially capital’s contribution to the 
joint product, and this determines the rate of interest. At the 
margin for capital the productivity of all “units of capital” is 
measured. Here is found the best free opportunity within the 
business unit for the investment of capital, and likewise the 
poorest opportunity that any “unit of capital” would have to 
accept. Capital here receives its whole product. 
It is evident, if our analysis is correct, that the larger product 
resulting from “units of capital” invested in the limited number 
of supra-marginal opportunities for capital within the business 
unit is not wholly capital’s product. Here again the principle of 
marginal productivity serves to differentiate the product into two 
parts. One of these is clearly the product of capital; while the 
other must be attributed to the exceptional quality of the invest- 
ment opportunity in which the capital is placed. 
The logical conclusion here also follows. In view of the fact 
that all the investment opportunities for capital within the busi- 
ness unit are owned, with the exception of one group next to be 
considered, by the entrepreneur, the differential belongs to him 
and constitutes his functional share. This differential also 
becomes an item in the entrepreneur’s functional income,—namely 
economic profit. Accordingly the principle of marginal produc- 
tivity determines the capitalist’s share directly, and that of 
the entrepreneur differentially.