Front Page Titles (by Subject) Book VI, Chapter II: The Profit of Capitalist Undertaking. Principles of Explanation. - The Positive Theory of Capital
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Book VI, Chapter II: The Profit of Capitalist Undertaking. Principles of Explanation. - Eugen von Böhm-Bawerk, The Positive Theory of Capital 
The Positive Theory of Capital, trans. William A. Smart (London: Macmillan and Co., 1891).
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Book VI, Chapter II
The Profit of Capitalist Undertaking. Principles of Explanation.
We come now to the principal form assumed by the interest problem. Among the phenomena of interest it is the one which has, practically, been of most importance. Usually, indeed, it passes for the spring and source from which all the others are derived. And it has chiefly been the attempt to explain this form of interest that has led to the terribly involved war of opinions which gave only too ample material for my Capital and Interest.
A word or two will indicate generally the peculiar kind of activity which the undertakers exert, and from which they draw their profit. They buy goods of remoter rank, such as raw materials, tools, machines, the use of land, and, above all, labour, and, by the various processes of production, transform them into goods of first rank, finished products ready for consumption. In doing so they obtain—independently of compensation for their own personal co-operation in the work of production as leaders of industry, head-workers, etc.—a gain approximately proportioned to the amount of capital invested in their business. This gain is called by some "Natural Interest on Capital" or "Profit," and, by others, "Surplus Value." How is this gain to be explained?
I must introduce the explanation by establishing one important fact. Goods of remoter rank, although, materially, present commodities, are, economically future commodities. As present commodities they are incapable of satisfying human want; they require first to be changed into consumption goods; and since this process, naturally, takes time, they can only render their services to the wants of a future period,—at the earliest, that period distant by the time which the productive process necessarily takes to change them into consumption goods. A group of productive instruments, such as Seed, Manure, Agricultural Implements, Labour, etc., which cannot be transformed into the finished product Grain under a year's process, can only serve for the satisfaction of next year's subsistence wants. In this respect, then, goods of remoter rank available in the present (present productive goods) are similar to future consumption goods; their utility is a future utility; they are "future commodities."
It is evident that this fact cannot be without some far-reaching influence on the value which such goods obtain. As we know, we value goods of remoter rank, in general, according to the marginal utility and value of their finished and final products. The group of productive instruments from which we get one hundred bushels of corn, has exactly the same importance for the satisfaction of our wants as the hundred bushels of corn into which it is transformed. But these hundred bushels, the value of which is the standard for the value of the productive group, are still, for the time, a hundred future bushels, and, as we saw in previous chapters, future goods are worth less than present goods. A hundred future bushels are, therefore, worth, we may say, only as much as ninety-five present ones. From this it follows that Means of Production also, if estimated against present goods, are found of less value than the amount of finished and final products which can be made out of them. Our group of productive instruments which, in a year's time, will furnish us one hundred quarters of grain, is equal in value to one hundred quarters of next year's grain; but, like that grain, is equal to, say, only ninety-five quarters of this year's grain. Or, if we translate the whole matter into terms of money economy, and assume that, next year, the quarter of corn will be worth twenty shillings, then our group of productive materials, wherewith we hold in our hands the condition of our obtaining a money return of £100 next year, is equal in value to £100 next year, but to no more than £95 now. If, then, we buy or exchange these means of production now, the purchase price, naturally, is measured in present money, and we buy them for a smaller number of pounds sterling than they will bring their owner in the future.
Knowing now that the undertaker buys the future commodity, "Means of Production," for a smaller number of pieces of present goods than the number of pieces which will compose their future product, we ask, How does he come by his profit? The answer is very simple. From his "cheap" purchase, indeed, he does not get any result; for, estimated by its present value, the commodity is dear.13 The profit comes first into existence in his hand. It is during the progress of production that the future commodity ripens gradually into the present commodity, and grows at the same time to the full value of the present commodity. Time elapses; what was next year becomes this year; and on the great changing stage of life everything—man himself, his wants and wishes, and with them the standard by which he measures his goods—shifts one scene forward. The wants which, last year, were future wants, and little thought of as such, attain their full strength and their full right of present wants; and a similar advance attends the goods which supply these wants. A year ago they were goods of the future, and had to be content with the lower value that attached to them as such; to-day they are present goods, ripe for consumption, and enjoy the full value of such goods. A year ago it was to their prejudice that they were measured in the, then, "present" goods. To-day that standard has sunk into the past, and if the men of to-day measure them again in "present" goods, they stand equal with them in the first and chiefest rank, and suffer nothing by the comparison. In short, as time passes it cancels the causes by reason of which the then future commodity suffered a shrinkage of value, and brings it up to the full value of the present good. The increment of value is the profit of capital.
This is not to say, of course, that, to make present goods out of future goods, it is sufficient that time should elapse and the future become the present. The goods themselves must not remain stationary. On their part they must bridge over the gap which divides them from the present, and this they do through the production which changes them from goods of remote rank into finished and final products. If there is no production process, if the capital is left dead, the means of production always remain undervalued future goods. In the year 1888, a group of means of production which can be changed into a finished product in a year's process,—that is to say, by 1889,—is one year away from satisfying the wants of the present. If this group is left unused till 1889, its product, of course, cannot now be obtained till 1890 at the earliest, and it remains, as before, one year away from satisfying the wants of the present; its value has no opportunity to expand, and suffers the common fate of "dead capital"; it bears no surplus value, and no interest.
This is the truth about Undertakers' Profit, and I trust it will be found simple enough. The Socialists are fond of calling this profit "surplus value." The name is more applicable than they have any idea of. It is, literally, a profit from the increment of value of the future commodity transmuted, in the hand of the undertakers, into a finished present good.
[13.]Of course it may happen in individual cases, that, outside of the reasons for apparently cheap buying discussed in the text, there may be other reasons for really abnormal cheap buying; as, e.g., skilful utilising of favourable conjunctures, usurious oppression of the seller, and, in particular, of the labourer. The emergence of such factors in this case results in a still further limitation of the purchase price, and in the obtaining of an extra profit. This extra profit is to be distinguished from normal profit on capital in every respect: in its nature—for it is not a true profit on capital but strictly a profit of the undertaker; in its theoretical explanation—for it owes its origin to other and quite special causes: and, finally, in the social and political judgment we must form of it. I need scarcely say in so many words that what is said in the text has only to do with profit on capital pure and simple.