CH. io THE FUNDAMENTAL EQUATIONS 139

There is one peculiarity of profits (or losses) whichwe may note in passing, because it is one of the reasonswhy it is necessary to segregate them from incomeproper, as a category apart. If entrepreneurs chooseto spend a portion of their profits on consumption(and there is, of course, nothing to prevent them fromdoing this), the effect is to increase the profit on thesale of liquid consumption-goods by an amountexactly equal to the amount of profits which havebeen thus expended. This follows from our defini-tions, because such expenditure constitutes a diminu-tion of saving, and therefore an increase in thedifference between T and S. Thus, however much oftheir profits entrepreneurs spend on consumption, theincrement of wealth belonging to entrepreneurs re-mains the same as before. Thus profits, as a sourceof capital increment for entrepreneurs, are a widow’scruse which remains undepleted however much ofthem may be devoted to riotous living. When, onthe other hand, entrepreneurs are making losses, andseek to recoup these losses by curtailing their normalexpenditure on consumption, i.e. by saving more, thecruse becomes a Danaid jar which can never be filledup ; for the effect of this reduced expenditure is toinflict on the producers of consumption-goods a lossof an equal amount. Thus the diminution of theirwealth, as a class, is as great, in spite of their savings,as it was before.

Since the volume of the public’s savings, plus theprofits (or minus the losses) of entrepreneurs turningout liquid consumption-goods, is always exactly equalto the cost of production of investment-goods, does itfollow that investment-goods must always sell at aprice equal to their cost of production ?

No—for the reason that if investment-goods sell ata price above (or below) their cost of production, theresulting profit (or loss) to entrepreneurs producinginvestment-goods necessarily provides the difference