Chapter IV

, are likely to accrue in future to the owners of pre-war factories, as a surplus profit of this kind. But while, as this illustration indicates, the phenomenon of surplus profits becomes of very great importance when we seek to study the distribution of wealth, it need not detain us here. For the surplus element arises only in so far as the costs of a business are lower than the marginal costs; and it is the marginal costs, which, with good reason, we are now endeavoring to analyze. The marginal costs must include a normal profit, i.e. a profit which will cover earnings of management, the reward of risk and enterprise, interest on capital, but nothing further. It remains, then, only to consider this last element of interest.

##