Another meaning is given to the term by expressing yearly sales-profits as a percentage of the capital invested. The rate of profit in this case varies partly with the rate of the turnover. To illustrate: if the amount invested in a printing-office is $100,000, and the annual business done is $300,000, the capital is said to be turned over three times; if the yearly sales-profit were 20 per cent, the ratio of sales-profit to investment would be 60 per cent; but, if the capital had been turned over four times, the rate would have been 80 per cent on the investment. In none of these cases is profit used truly as an income.
The source and cause of profits in economic writings. Profits, as used by the English economists from Adam Smith ("Wealth of Na tions," 1776) to John Stuart Mill ("Principles of Political Economy," 1848) and after, was the residual amount combining the incomes attribu table to the personal management together with the capital-investment. These functions were assumed without discussion to be united in one per-1 son, as they usually were, stock companies at that time being rare outside of banking and foreign trading companies. The capital-income was as
sumed to be much the larger part and there was almost no thought of the varying degrees of ability in management as affecting the result. Hence profits in the older English economics often means nearly the same as yield from capital, peculiarly the income of the capitalist; tho usually it means this plus an allowance for risk and services of management. "Normal" profit was thought of as varying from one class of business to another but not very clearly as varying from one establishment to another.
Then the pendulum swung in the other direction and some writers, notably the American, Francis A. Walker, made profit mean almost solely the earnings of management, it being assumed that financial re sources naturally rolled into the possession of able business managers. But, as it was assumed that they always had some capital themselves, the concept of profit still had a dual character. Capitalists were thought of as always getting a contractual income, interest, whereas the entrepreneur got an income varying from zero (or a minus quantity) upwards, according to his skill in management.
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