losing the principal. What a person expects to gain, who superintends the employment of his own capital, is always more, and generally much more, than this. The rate of profit greatly exceeds the rate of interest. (2.) The surplus is partly compensation for risk. By lending his capital on unexceptionable security he runs little or no risk. But if he embarks in business on his own account, he always exposes his capital to some, and in many cases to very great, danger of partial or total loss. For this danger he must be compensated, otherwise he will not incur it. (3.) He must likewise be remunerated for the devotion of his time and labor. The control of the operations of industry usually belongs to the person who supplies the whole or the greatest part of the funds by which they are carried on, and who, according to the ordinary arrangement, is either alone interested, or is the person most interested (at least directly), in the result. To exercise this control with efficiency, if the concern is large and complicated, requires great assiduity, and often no ordinary skill. This assiduity and skill must be remunerated.
The gross profits from capital, the gains returned to those who supply the funds for production, must suffice for these three purposes; and the three parts into which profit may be considered as resolving itself may be described respectively as interest, insurance, and wages of superintendence.
§ 2. The Minimum of Profits; what produces Variations in the Amount of Profits.
The lowest rate of profit that can permanently exist is that which is barely adequate, at the given place and time, to afford an equivalent for the abstinence, risk, and exertion implied in the employment of capital. From the gross profit has first to be deducted as much as will form a fund sufficient on the average to cover all losses incident to the employment. Next, it must afford such an equivalent to the owner of the capital for forbearing to consume it as is then