Gross profit

“ From the gross profit has first to be deducted as much as will form a fund sufficient on the average to cover all losses incident to the employment. Next, it must afford such an equivalent to the owner of the capital for forbearing to consume it as is then and there a sufficient motive to him to persist in his abstinence. ”

“ You observe that in rich countries profits are often much higher, and in poor countries much lower than according to my theory, to which I reply that profits are very much reduced in the poor country by enormous wages; the wages themselves may be considered as part of the profits of stock, and are frequently the foundation of new capital. In rich countries wages are low, too low for the comforts of the labourers; too large a portion of the gross produce is retained by the owner of stock and is reckoned as profit. ”

“ Relatively to the man of enterprise, whose specialty always supposes other manufacturers cooperating with him, profit is what remains of the value produced after deducting the values consumed, among which must be included the salary of the man of enterprise,—in other words, his wages. Relatively to society, which contains all possible specialties, net product is identical with gross product.
But there is a point the explanation of which I have vainly sought in Say and in the other economists,—to wit, how the reality and legitimacy of net product is established. ”

“ We must next distinguish between gross profits and net profits. The merchant or manufacturer naturally desires to do a large business, he points with pride to the increase in his sales this year over last year. The larger his turnover the smaller the proportionate amount of his overhead expenses that must be borne per unit of product, and other economies follow large-scale production or distribution. ”

“ Profits an element in Cost of Production. Thus far of labor or wages as an element in cost of production. But in our analysis, in the First Book, of the requisites of production, we found that there is another necessary element in it besides labor. There is also capital; and this being the result of abstinence, the produce, or its value, must be sufficient to remunerate, not only all the labor required, but the abstinence of all the persons by whom the remuneration of the different classes of laborers was advanced. The return from abstinence is Profit. ”

“ Returning to the question of interest on actual capital,—i.e., the excess of value produced over the cost of production,—the question as to what determines the value of a product leads to the assertion that capital-profit must be due to an advantage which the producer possesses over the marginal producer. ”

“ If it is strong and increasing, he will feel sure that the consumers will repay the whole cost of production, interest and capital included, and in addition the legitimate profit attached to the business. ”

“ The one school bases its main contention on the economic theory of profits; namely, that profits represent the balance remaining after deducting the cost of land, capital, and labor. The function of the entrepreneur, it is contended, does not in itself involve the owning of capital. Profit is the reward for combining the other factors of production and assuming the risk involved. Interest is a cost for the use of capital and it does not matter who owns the capital. ”

“ As competition becomes keener and the margin of return per unit of product becomes smaller, he has to increase his volume of business to secure the same amount of profit as when he did a lesser volume of business.
To produce goods it is necessary to use the saved wealth of former periods to pay the expenses of materials, labor, management, etc., of the present period. One must consume wealth to produce wealth. After his product is made, he must seek the best market for its exchange or sale. ”

“ If the market price rises high above the cost of production, producers make a profit greater than the average profit made in the country. This induces them, by the appropriation of new land and the employment of new labor and capital, to increase their business. ”

“ The owners, however, of those portions of the produce enjoy a privilege; they obtain a value which yields them more than the ordinary profit. If this advantage depends upon any special exemption, such as being free from a tax, or upon any personal advantages, physical or mental, or any peculiar process only known to themselves, or upon the possession of a greater capital than other people, or upon various other things which might be enumerated, they retain it to themselves as an extra gain, over and above the general profits of capital, of the nature, in some sort, of a monopoly profit. ”

“ Who would lend at 5 per cent. per annum to agriculture, to manufacturers, and to commerce, when a borrower may be found ready to pay an interest of 7 or 8 per cent.? That sort of income, which is called profit of stock, would rise then at the expense of the consumer. Consumption would be reduced by the rise in the price of produce; and the other productive services would be less in demand, less well paid. The whole nation, capitalists excepted, would be the sufferers from such a state of things. ”

“ Wages, profit, and rent, are the three original sources of all revenue, as well as of all exchangeable value. All other revenue is ultimately derived from some one or other of these.
Whoever derives his revenue from a fund which is his own, must draw it either from his labour, from his stock, or from his land. The revenue derived from labour is called wages; that derived from stock, by the person who manages or employs it, is called profit; that derived from it by the person who does not employ it himself, but lends it to another, is called the interest or the use of money. ”

“ Having treated of the laborer's share of the produce, we next proceed to the share of the capitalist; the profits of capital or stock; the gains of the person who advances the expenses of production—who, from funds in his possession, pays the wages of the laborers, or supports them during the work; who supplies the requisite buildings, materials, and tools or machinery; and to whom, by the usual terms of the contract, the produce belongs, to be disposed of at his pleasure. After indemnifying him for his outlay, there commonly remains a surplus, which is his profit ”

“ The amount of all expenses, Including interest and salaries, is ascertained, and the total net profits shall be divided between the firm and the employés sharing in the fund. The amount of the net profit to be distributed will be that proportion of the whole net profit which will correspond to the proportion of the wages paid as compared with the entire cost of production and the expense of the business. ”

“ You compare a commodity, in the production of which the advances in labour remain the same while the profits of stock diminish, to another commodity 'obtained by a given quantity of labour, a given quantity of capital, and a given rate of profits.' Is not this supposing two rates of profit at the same time? ”

“ It is common to speak of two kinds of revenue. That which we have mentioned,—the profits of capital,—is called neat revenue; while the name of gross revenue is given to the whole return made to the capitalist; that is, his reproduced capital and his profits together make his gross revenue, and his profits alone make his neat revenue. ”

“ What would be the consequence of this difference in the rates of profit for capitals employed in the different branches of industry? Why, the consequence that generally obtains whenever, from whatever reason, the average rate of profit comes to differ in the different spheres of production. ”

“ That portion which he annually saves, as, for the sake of the profit, it is immediately employed as a capital, is consumed in the same manner, and nearly in the same time too, but by a different set of people: by labourers, manufacturers, and artificers, who re-produce, with a profit, the value of their annual consumption. ”

“ The gross revenue of all the inhabitants of a great country comprehends the whole annual produce of their land and labor; the net revenue, what remains free to them after deducting the expense of maintaining; first, their fixed; and, secondly, their circulating capital; or what, without encroaching upon their capital, they can place in their stock reserved for immediate consumption, or spend upon their subsistence, conveniences, and amusements. Their real wealth, too, is in proportion, not to their gross, but to their net revenue. ”

“ But if the profits of all the different employers of those working people should be raised five per cent, that part of the price of the commodity which resolved itself into profit would, through all the different stages of the manufacture, rise in geometrical proportion to this rise of profit. ”

“ Capital and enterprise could, under such circumstances, be retained in the business at all only by an increase in the price of the product through reduced production, increased demand, or other means, so as to pay both the increase of wages and the usual interest of capital and profit to management. ”

“ The third source of great wealth is manufacturing on a large scale. In this case the owner or borrower of capital plunders his employés who sell him their daily labor. The difference between the actual value of this daily labor, as expressed in the price of the articles it produces and the wages paid for it, forms the profit of the manufacturer, allowing of course, for raw material and other running expenses. ”

“ But the same amount of demand and the same price, which enable this least productive portion of capital barely to replace itself with the ordinary profit, enable every other portion to yield a surplus proportioned to the advantage it possesses. ”

“ Variable capital, v, is the annual wages bill. Surplus, s, is annual rent, interest, and net profit, so that v + s represents net national income. (In this introduction surplus is used interchangeably with rent, interest and net profit.) Constant capital, c, represents at the same time the contribution which materials and capital equipment make to annual output, and the cost of maintaining the stock of physical capital in existence at the beginning of the year. ”

“ This being the definition of profits, it might seem natural to adopt, as a sufficient theory in regard to the rate of profit, that it depends upon the productive power of capital. Some countries are favoured beyond others, either by nature or art, in the means of production. If the powers of the soil, or of machinery, enable capital to produce what is necessary for replacing itself, and twenty per cent more, profits will be twenty per cent ”

“ The main object in view is the control of any external or internal factors that affect earnings. Profit may be increased by economy of operation resulting from large-scale production, by economies in use of by-products, by the standardization of product and improvement of quality, and by the elimination of duplicate effort; or the control of sources of supplies or of a marketing organization, or greater ease in obtaining capital, or greater facility in dealing with labor, may be among the advantages obtained. ”

“ When such profit is evidently not to be had, if people do not actually withdraw their capital, they at least abstain from replacing it when consumed. The cost of production, together with the ordinary profit, may therefore be called the necessary price, or value, of all things made by labour and capital. Nobody willingly produces in the prospect of loss. ”

“ The effect will be, that the same profit of business will be divided among double the number of men, while, at the same time, rents and the price of provision in market will be double. The clear profit of the merchant will therefore be reduced to one fourth part of what it was two years ago. ”

“ He is paying money away on every side, which he would not do if he did not expect a return, with a profit. By all these operations—by the [Pg 367] work of his horses and his labourers—by the increase in number, and the increase in value of his flocks and herds,—and by the harvest after the seed-time,—new produce is created which produces a return of capital, and ought to produce a profit if that capital is properly expended. The hope of profit sets the capital to work, and the capital sets the labour to work. ”

“ The profits of stock in different employments, having been shewn to bear a proportion to each other, and to have a tendency to vary all in the same degree and in the same direction, it remains for us to consider what is the cause of the permanent variations in the rate of profit, and the consequent permanent alterations in the rate of interest. ”

“ If the supply is either more or less than this, it is so accidentally, and affords either more or less than the ordinary rate of profit, which, under free and active competition, can not long continue to be the case. ”

“ The profit is shared between the banker, who receives interest, and a succession of borrowers, mostly for short periods, who, after paying the interest, gain a profit in addition, or a convenience equivalent to profit. The capital itself in the long run becomes entirely wages, and, when replaced by the sale of the produce, becomes wages again; thus affording a perpetual fund, of the value of $200,000,000, for the maintenance of productive labor, and increasing the annual produce of the country by all that can be produced through the means of a capital of that value. ”

“ It is not the absolute, but the relative fall of profits, which pre359vents capital from being employed in any particular trade: it is the difference of profit which sends capital from one employment to another. ”