ivably
do) they must make good their case.

Sec.7. _General Analysis of Profits_. Let us conclude this chapter by
clearing the ground for the next. Earnings of management, payments for
risk-taking and for the special knowledge and advantages associated
with it, are ingredients of the gross profits of a business. The chief
element that remains is that of interest on capital. Frequently,
indeed, it is not the only one. As we saw in the last chapter, a
farmer may not be required by his landlord to pay the full economic
rent for his farm; and he may therefore make profits above the normal
level, above the ordinary return for his own services, his own capital
expenditure, and the risks to which he is necessarily exposed. In such
a case the farmer is really the recipient, as we have already
suggested, of part of the economic rent of the land; and an element of
rent accordingly enters into his gross profits. But profits may
include a surplus element which may arise in a great variety of other
ways. A business may possess some decided advantage which is not open
to competitors; and it may reap high profits accordingly. You can,
for instance, if you choose, regard the high money profits, which, as
was suggested in Chapter IV, are likely to accrue in future to the
owners of pre-war factories, as a surplus profit of this kind. But
while, as this illustration indicates, the phenomenon of surplus
profits becomes of very great importance when we seek to study the
distribution of wealth, it need not detain us here. For the surplus
element arises only in so far as the costs of a business are lower
than the marginal costs; and it is the marginal costs, which, with
good reason, we are now endeavoring to analyze. The marginal costs
must include a normal profit, i.e. a profit which will cover earnings
of management, the reward of risk and enterprise, interest on capital,
but nothing further. It remains, then, only to consider this last
element of interest.

CHAPTER VIII

CAPITAL

Sec.1. _A Reference to Marx_. Interest is the price paid simply for the
use of capital. But what is capital, and in what does its use consist?
What claim has it to be regarded as an independent factor of
production? Our very familiarity with the term, our habit of employing
it with the rich looseness of every-day life is an obstacle to the
clearness of thought, which is again essential. We recognize, most of
us, clearly enough that capital, although