PROFIT, one of the three parts into which all that is derived from the soil by labour and capital is distributed, the other two parts being wages and rent : from these three sources arise all the revenues of the community. Profit is therefore the surplus which remains to the capitalist after he has been reimbursed for the wages advanced and the capital laid out during the process of production. To obtain this surplus is the only object for which capital is employed.
Profits have a tendency to fall to the same level in all branches of industry ; for if the ratio of profit in proportion to the capital employed be greater in one than in another, more capital will be di rected to that which affords the highest profit ; and the powers of production being increased, the supply is greater, prim fall, and the equilibrium of profit is restored. When the employment of capital is attended with extraordinary risk, profits are nominally high; but after deducting the losses to which it is exposed, the real profits tend to the sale level as the ordinary rate. The pleasant ness of a particular occupation may in duce those who pursue it to be content with a low rate of profit. Unless we re duce profits from their apparent to their real value, there is no truth in the maxim that the rate of profit is uniform in the same country at the same time.
The natural tendency of profits (whether arising from capital employed in agricul ture or in manufactures) is to decline as the necessities of the population render it necessary to have recourse to inferior soils. Happily, improvements in ma chinery and in the art of agriculture, better combinations of labour and capital, and greater freedom of commerce, are calculated to arrest this retrograde move ment; and to such sources of relief every highly advanced country must look as a means for sustaining its prosperity ; for whatever diminishes the necessity of rais ing food from the poorer soils, tends to maintain the rate of profit.
Two other causes have great influence upon the rate of profit, namely, wages and taxation. A rise in wages will di minish profits, unless industry becomes more productive ; but if production is increased both may rise at the same time, either in the same or in different propor tions according to circumstances.
Taxation will diminish profits, unless wages fall or industry become more pro ductive. Taxes on profits, when they fall alike upon all capital engaged in pro ductive industry, are paid by the owners of capital, who have not the power of charging the tax upon consumers. The means of accumulation are diminished when the profits of only certain classes of traders are taxed, and they would betake themselves to other occupations not taxed, unless they could charge the consumers with the tax : the tax therefore falls upon the consumers.
The effect of the competition of capi talists in reducing the rate of profit has not been much discussed by writers on political economy. Mr. M'Culloch says : —" Competition cannot affect the produc tiveness of industry, and therefore has nothing to do with the average rate of profit.' In reply to this assertion it has been remarked (Ellin. Rev., No. 142, p. 443), that although the inferior fertility of newly cultivated soils be the immediate cause of the diminution of the rate of profit, yet it is nothing but the competi tion of capitalists which drives capital to seek the inferior soil, and induces its owners to be content with a lower rate of profit. The capitalists who had accumu lated at the old rate of profit are content with a new investment producing a lower rate, instead of consuming their savings unproductively.
(Ricardo, Principles of Political Eco nomy and Taxation, chaps. v. and xiii. ; Mill, Elements of Political Economy, c. ii. sec. 3; and c. iv. sec. 6 ; M'Culloch's ed. of the Wealth of Nations, note vii.; The Laws of Wages, Profits, and Rent investigated, by Professor Tucker, Phila delphia, 1837.)