18 ECONOMIC ESSAYS IN HONOR OF JOHN BATES CLARK 
the result that there is a far more close correspondence between the 
ability of business men and the size of the businesses which they own 
than at first sicht would appear probable.? 
Writing in 1893, Professor Cannan regarded the management 
theory of profits as firmly established. He said: 
III 
FL 
. 
The displacement of capital from the triad of productive requisites 
and its relegation to the same rank as organisation, knowledge, mental 
and muscular powers would not, perhaps, have been of much impor- 
tance if it had not been represented as the most active element in the 
triad. As it is the change is immense. . . . The power of managing 
industry is attributed not to the mute and inanimate capital, nor 
even to the owners of capital, but to a particular class of workers— 
the entrepreneurs—and it is clearly seen that even they can only 
direct industry into particular channels by virtue of their intelligent 
anticipation of the orders of the consumers, whose demands they have 
to satisfy on pain of bankruptcy.? 
Already, however, Professor John B. Clark, in an article pub- 
lished first in the Political Science Quarterly and later in The 
Modern Distributive Process, had formulated the now dominant 
views that the earnings of management are reducible to wages. 
Pure profit [he says] is the return of simple ownership. It is free 
from all admixture of wages and interest. It accrues to him who 
simply extends the @gis of his civil rights over the elements of a 
product and then withdraws it in order that the product may pass 
into other hands. The entrepreneur or assumer is he who takes upon 
himself the responsibility of ownership.® 
The subordination of management was, however, only a denial 
of the correctness of the business management theory. The next 
step naturally was the assignment of profits to a new factor. 
Since that time and, even before, the theory of profits has taken 
increasingly the form of the risk theory of Hawley or the “active 
capitalist” of Professor Fetter. All of this involves the recogni- 
tion of the fact that under modern economic organization profits 
accrue over the larger part of the field not to business manage- 
ment, but to the capital which owns the product. 
The great changes in industrial organization and capital 
markets which forced the business manager to relinquish owner- 
ship of the product over a great part of the field of business may 
t Ibid., p. 391. 
? Cannan, E., Theories of Production and Distribution, p. 398. 
® Clark and Giddings, The Modern Distributive Process, pp. 38-39.