CHAPTER 17

PROFTT

17.1. Dfferent Theories of Profit

theories regarding
Different economists have advanced different
In these theories it is argued
the origin and the nature of profit.
that the entrepreneur gets the
profit for the functions performed
entrepreneur performs different functions and which
by him. The
a controversy. According
function gives rise to profit is matter of
entrepreneur
to Prof. Hawley risk bearing is the main function of the
earns the profit.
and it is for risk bearing that the entrepreneur
According to Prof. Knight the main function of the
entreprencur
is to bear uncertainty and profit is the reward for
bearing this
ability
uncertainty.Acccording to Taussig profit is the reward for the
innovation of
of the entrepreneur. According to Prof. Schumpeter
a new product or a new process of production is the main function
of the entrepreneur and innovation gives rise to profit. According
to Prof. Walker profit is one kind of rent and it arises because
of differences in ability of different entrepreneurs. In the Marxian
theory profit is the result of exploitation of labour. The
wage received
by labour is less than the value created by him and this is the
source
of the origin of profit. According to Prof. Clark profit arises only
in a dynamic society. In this way there are different theories of
profit and no theory is satisfactory. We shall now discuss these
different theories one by one.

17.2. Risk Bearing Theory

According to Hawley the entrepreneur earns profit for the risks
undertaken by him. Prof. Marshal also supported the risk bearing
theory. According to this theory the entrepreneur earns the profit
as a reward for risk taking. The entrepreneur does not know what
willbe the nature of the demand for the product to be produced
by him. There may also be change in consumers' tastes and
preferences and this may affect demand. If the entrepreneur cannot
sell the products produced by him he will have to suffer a loss.
Thus there is a risk associated with the undertaking of the production