Economic essays

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Monograph

Identifikator:: 1753623200

URN:: urn:nbn:de:zbw-retromon-136107

Document type:: Monograph

Title:: Economic essays

Place of publication:: New York

Publisher:: Macmillan

Year of publication:: 1927

Scope:: viii, 368 S.; Ill., graph. Darst.

Digitisation:: 2021

Collection:: Economics Books

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Document type:: Monograph

Structure type:: Chapter

Title:: A functional theory of economic profit / Charles A. Tuttle

Collection:: Economics Books

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.

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