expositions” is “highly puzzling.” For the idea of an economic person laying out doses up to the
margin and obtaining the remuneration equal to the number of doses multiplied by the marginal
productivity of each dose is only proper to the case in which the doses are for sale. But it is only in
the conditions proper to our third definition that doses of capital are put on a market in exchange for
profit. Perhaps the classical writers, having an eye to practice and not restricted by a sharp definition,
often tacitly introduce the supposition that it is open to the “capitalist” to take part in some other
business besides his own.12
The classical formula for surplus may be employed along with our second definition if we
use the phrase “amount of outlay multiplied by average rate of return” to designate the amount which
the entrepreneur of the Walker type pays in the way of interest from year to year to those who have
lent him the means of carrying on his business. The surplus, according to this conception, will
include not only the landlord’s rent, but also the entrepreneur’s net income. The portion of this
surplus which accrues to the entrepreneur is not given by any simple formula. The conditions by
which it is determined may be considered under two heads, corresponding to Cairnes’s
categories,—commercial and industrial competition. This distinction becomes clearest when, in
conformity with the division of employments, we conceive different occupations to be separated by
great gulfs, so that they who would pass from one to the other must make a complete, or at least a
considerable, change in their business arrangements.13 In virtue of the first kind of competition the
entrepreneur endeavours to make the best possible arrangements within the occupation which he has
chosen. In virtue of the second kind of competition he endeavours to choose the occupation which
will afford to him the greatest net advantage.
His motive under the first head may be understood by likening him to a monopolist who does
not control the prices of the factors of production, nor yet the price of the product, the latter being
fixed by a maximum law, or, rather, the case being that in which the monopoly is just becoming
extinct, as Cournot would say, by the introduction of competitors, so that this entrepreneur can no
longer sensibly alter at will the price of the product. Under such circumstances each entrepreneur
will vary all the variables under his control up to the margin at which his own advantage becomes
greatest. If he or we be content with a rough estimate of this advantage, it may be measured by the
12. Cp. Mill on various employments of capital, Political Economy, Book II. chap. xv. §1, par. 4.
13. See note to the present writer’s Address to the British Association, Section F, 1889 (a, vol. ii.),
which, written before the publication of Marshall’s Principles of Economics, does not sufficiently
emphasise the “principle of continuity.” It may he observed that the two kinds of competition
involve respectively two mathematical operations, the determination of a maximum, and of the
greatest among maxima. There is the distinction between finding the top of a hill and finding the
highest hill-top. The demarcations between the two species of competition and between the two
mathematical operations are not coincident, so far as an entrepreneur, without leaving his business,
may introduce considerable and, so to speak, integral changes in its organisation, in accordance with
the “principle of substitution” (Marshall). This principle seems to cover both the species of com-
petition and both the mathematical operations. Doubtless, it is convenient to have a term applicable
to every method by which maximum advantage is sought. Among such methods ought, perhaps, to
be placed the calculus of variations, where the “margin of profitableness” is considered as “a sort
of boundary line, cutting one after another every possible line of business organisation.” Principles
of Economics, Book VI. chap. vii. §7, 4th edition.