In the general discussion of distribution in the preceding chapter it was shown that the enterpriser tends to get his marginal product; but in that discussion certain assumptions were made which require that a supplemental treatment be accorded to the share which the enterpriser receives. It was assumed for the purposes of the preliminary investigation that all enterprisers were equally efficient and that the supply of the several factors in production was constant. Furthermore, it was assumed that under the influence of competition the rewards of the different factors would settle down to a condition of stability and that the price fluctuations of the business world of to-day would be absent. But the actual business world is a world of change rather than a world of stability; or perhaps it would be more accurate to say that it is an essentially stable world which gives the impression of changeableness because of fluctuations in its contour. In this respect it resembles a lake which when considered as a whole is a level body of water, but when closer attention is directed to any particular part of its surface it is seen to be in a constant state of agitation. The analogous agitation in the business world, represented by price fluctuations, gives rise to an income for the enterpriser in addition to that discussed in the previous chapter.

In the popular sense the profit of the enterpriser is the difference between what he gets for the commodity or service in which he deals and what he has paid for it. Several elements, however, will have to be subtracted from profit in this broader sense before we arrive at profits in the sense in which the economist uses the term. In the first place, the enterpriser often furnishes a part or all of the capital which is employed in the business. But the economist calls the returns which go to the owner of the capital, because of the part which capital plays in production, interest. And he calls it interest whether the capitalist lets out capital to some one else or uses it himself in his own business. Interest, therefore, on the capital which the enterpriser has invested in his business and which belongs to himself will have to be deducted from profits in the broader sense before we have profits in the sense in which the economist understands the term.

The economist calls the income which goes to the landowner for the use of the land, rent. If the enterpriser secures the use of the land from some one else, he pays the rent as one of the expenses of production. If he uses his own land, rent must be subtracted from the gross profits before we have profits as the economist understands the term. And where the enterpriser's machinery or other capital is breaking down or wearing out, a depreciation fund must be set aside for the replacement of the capital before profits can be counted.

After the above deductions are made from gross profits there is left for the enterpriser his marginal product as explained in the preceding chapter together with an income which is due to price fluctuations. Where the enterpriser is a monopolist there is also a part of his income due to his ability to raise the price of his product through a restriction of output. These three elements of the enterpriser's income may be called respectively wages of management, competitive profits, and monopoly profits.