PROFIT, one of the three parts into which all that is derived from the soil by labour and capital is distributed, the other two being wages and rent : from these three sources arise all the revenues of the com munity. Profit is therefore the surplus which remains to the capitalist after he has been reimbursed for the wages advanced and the capital expended 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 em ployed be greater in one than in another, more capital will be directed to that which affords the highest profit ; and the powers of production being increased, the supply is greater, prices fall, and the equilibrium of profit is restored. A distinction must however be made between real and apparent profit. Whea the employment of capital is attended with extraordinary risk, profits are nominally high ; but after deduct ing the loosen to which it is exposed, the real profits tend to the same level as the ordinary rate. The case is similar in occupations of a diaagreeable or agreeable nature, the pleasantness of the latter counter balancing the low rate of profit. A wholesale merchant and a retail trader both dealing in the same commodities may appear to obtain different rates of profit ; but in the latter case wages are confounded with profits, and when they are properly distinguished, the apparent disproportion is diminished. Unless we reduce 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 em ployed in agriculture or in manufactures) is to decline as the neces sities of the population render it necessary to have recourse to inferior soils. Happily, improvements in machinery and in the art of agri
culture, better combinations of labour and capital, and greater freedom of commerce, are calculated to arrest this retrograde movement ; and to such sources of relief every highly advanced country must look as a mains of sustaining its prosperity; for whatever diminishes the neces sity of raising 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 diminish profits, unfold industry becomes more productive; but if the latter take place, both may rise at the same time, either in the same or in different pro portions according to circumstances.
Taxation will diminish profits, unless wages fall or industry become more productive. Taxes on profits, when they fall alike upon all capital engaged in productive induatry, 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, mikes they could charge the consumer* with the tax : the tax therefore falls Upon the consumers.
The competition of capitalists also acts in reducing the rate of profit, though this has been denied by some writer*. Capitalists who have accumulated at the old rate of profit are content with a new invest ment producing a lower rate, instead of consuming their savings un productively.