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A TREATISE ON MONEY

BK. Ill

definition of which for the present purpose will begiven in (2) below—is included in income, and, there-fore, in the costs of production, under heading ( b ). Butwe exclude their windfall profits or losses representedby the difference (positive or negative) between theearnings, thus defined, of the factors of production andthe actual sale proceeds. The income of holders ofordinary shares will usually include elements of eachof the items ( b ), (c) and ( d ), and they will also be re-cipients of windfall profits and losses.

(2) Profits .—Thus the difference between the actualremuneration of the entrepreneurs, arrived at bydeducting from the sale proceeds their outgoings (a),

( c ), and (I d ) above and their normal remuneration (b),is, whether positive or negative, the Profits .

Accordingly, whilst the amount of the entre-preneurs’ normal remuneration must be reckoned,whether their actual remuneration exceeds it or fallsshort, as belonging to the income of the individualswho perform entrepreneur functions, the profits mustbe regarded, not as part of the earnings of the com-munity (any more than an increment in the value ofexisting capital is part of current income), but asincreasing (or, if negative, as diminishing) the value ofthe accumulated wealth of the entrepeneurs. If anentrepreneur spends part of his profits on currentconsumption, then this is equivalent to negativesaving ; and if he restricts his normal consumptionbecause he is suffering windfall losses, this, on theother hand, is equivalent to positive saving.

To make this precise, however, we need to give adefinition of entrepreneurs’ “ normal ” remuneration, :which will enable us to divide their total receipts(positive or negative) between income on the onehand and profits (positive or negative) on the other.What is the most appropriate and convenient defini-tion partly depends on the nature of the inquiry onhand. For my present purpose I propose to define