CH. 9

CERTAIN DEFINITIONS

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the “ normal ” remimeration of entrepreneurs at anytime as that rate of remimeration which, if they wereopen to make new bargains with all the factors ofproduction at the currently prevailing rates of earn-ings, would leave them under no motive either toincrease or to decrease their scale of operations.

Thus when the actual rate of entrepreneurs’ re-muneration exceeds (or falls short of) the normal asthus defined, so that profits are positive (or negative),entrepreneurs will—in so far as their freedom of actionis not fettered by existing bargains with the factorsof production which are for the time being irrevocable—seek to expand (or curtail) their scale of operationsat the existing costs of production. When, however,an entrepreneur has entered into commitments whichcannot be revised immediately—when, for example,he has sunk part of the resources over which he hasobtained command in the form of fixed capital—thenin certain easily conceivable circumstances it may notbe worth his while, even though his profits are nega-tive, to reduce his output until after the expiry of aperiod of time, the length of which depends on thecharacter of the commitments which he has enteredinto; so that there may be a time-lag betweenprofits turning negative and the full reaction of thison output.

It has been suggested to me that, owing to thevariety of ways in which the term Profits has beenemployed, both by economists and in business usage,it might be better to employ the term Windfalls forwhat I here call Profits. It may help some readersmentally to substitute this term ; but for my ownpart I prefer the term Profits as carrying with it onthe whole the most helpful penumbra of suggestion.

The fact that entrepreneurs have generally enteredinto long-time contracts with the factors of production,particularly in respect of fixed capital, is indeed of greatimportance. For it is the explanation—taken in con-