So far supposing the entrepreneur’s work to be a constant quantity. In a more exact estimate
the quantity which the entrepreneur seeks to maximise is the utility to be derived from his net
income minus the disutility incident to its production. From this consideration it follows that the
increment of utility due to the increment of product which is produced by the last increment of
entrepreneur’s work is just balanced by the increment of disutility due to that work.
To this condition is superadded the tendency towards equal net advantages in different
occupations, resulting, as Professor Marshall has shown, not so much in the equal advantageousness
as in the equal attractiveness of different occupations. The remuneration of the entrepreneur thus
corresponding to his services may be classed along with the remuneration of the workman as
“earnings,” from a certain point of view, which is doubtless proper to the publicist and philosopher.
As Mangoldt points out, “the circumstance that certain services do or do not attain a market price”
does not “essentially alter the measure of their compensation.” But there is another point of view
which is proper to those who study the mechanism of distribution. As Professor Taussig well
observes, “The cobbler who works alone in his petty shop gets in the main a return for labour as
much as the workman in the shoe factory”; but “with regard to the machinery by which distribution
is accomplished he [the cobbler] belongs in a different class from the hired labourer.”18
The tendency to equality of net advantages of course only exists with respect to positions
between which there is industrial competition. Accordingly, if the union in one person of natural
abilities and money constitutes him a member of a “non-competing group,” there is no presumption
that the remuneration of such an entrepreneur will be exactly equal to the interest which he might
have obtained by lending his money plus the salary which a person of his ability could command as
a hired manager. There exists an excess above that sum, corresponding to what Mangoldt calls
Unternehmergewinn. There may be excesses somewhat similarly caused by different degrees of
ability and resources; the various rents” enumerated by Mangoldt, which, as he observes, tend to
diminish with the progress of society, so far as education becomes more diffused and it becomes
easier for persons properly qualified to obtain the use of capital.
Some additional light on the functions of the entrepreneur may be obtained by comparing
the profits in businesses of a different size. Suppose (for the sake of the argument) that the work and
entrepreneur may then be written (abstraction being made of the entrepreneur’s own effort).
P = πf (a, b, c) - p 1 a - p2b — p3c . In order that this expression may be a maximum, the law of
decreasing returns must hold in the first of the two senses elsewhere distinguished. The condition
must still be postulated when account is taken of the entrepreneur’s subjective feelings,—effort and
sacrifice in the way of production balanced by satisfaction immediate or prospective in the way of
consumption. Nor is the case essentially altered when account is taken of the possibility (noticed by
Professor Pareto, Cours, Art. 718) that the factors are not independent. Suppose that the amount of
labour must always be in proportion to, or on any definite function of, the amount of land. Then,
eliminating one of these quantities, we may treat the other as independent.
18. Quarterly Journal of Economics, Vol. X (1895) p. 88. Professor Taussig goes on, “For an
understanding of the machinery by which distribution is accomplished in modern times, the
classification of sources of income should thus be different from that to be adopted for an
explanation of the fundamental causes.”