20 ECONOMIC ESSAYS IN HONOR OF JOHN BATES CLARK 
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The great changes in industry which embody themselves in the 
shift from the individual or partnership entrepreneur to the cor- 
porate form have been gradual. The adherents of the business 
management theory had to face the facts, since already when 
Walker and Marshall were formulating the management theory 
of profits the corporate form was growing in importance. Walker 
regarded the corporation, apparently, as a development of minor 
importance and explained the profits of stockholders as sheer 
exploitation of business ability. In an article in the Quarterly 
Journal of Economics entitled “The Doctrine of Rent and the 
Residual Claimant Theory of Wages,” he said: 
Disguised profits also enter into the dividends of many companies 
or corporations which have had the good fortune, good sense and good 
feeling to retain, as managers, men of the highest business ability, 
born captains of industry who yet, by considerate treatment and high 
salaries (the force of habit and perhaps pride in the work concurring) 
are induced to remain long after they have reached the pitch of 
reputation which would give them command of the situation if they 
chose to set up as manufacturers for themselves. 
Marshall also was aware of the fact that in the corporation 
there existed a formal allocation of profits inconsistent with its 
inclusion in “earnings of management.” In them, he recognized 
a new distribution of the various parts of the work of manage- 
ment, but he entertained grave doubts as to the possibilities of 
their wide extension.” It was apparently only his skepticism as 
to the future growth of the corporate form of organization which 
enabled him to regard the business management theory as an 
adequate explanation of the facts. 
IV 
The history of the theory of profits, if the foregoing is correct, 
has been determined not by increasing accuracy of economic 
analysis, but by great industrial and credit changes which from 
time to time have shifted the ownership of the product. The 
really important historical question has been: Under a given set 
of conditions to whom do profits come, not what does the entre- 
preneur do to get them. When conditions were such that business 
ability was usually able to secure the profits, a theory that profits 
are the reward of business ability came into existence; when 
' Dewey’s ed. of Walker's Discussions, Vol. 1, p. 427. 
2 Principles, p. 382.