In the 5th (1962) edition when discussing so-called “perfect competition” Samuelson does talk of “any positive profits (in excess of a ‘normal return’ on capital and labor invested) will in the long-run equilibrium be competed away” (p. 542) and of “the most perfect competition (where pure profit is zero)” (p.660). Perhaps this inconsistent distinction between “interest” and “profit” reflects a confusion in the minds of academic apologists for capitalism as to the best way to defend the income of the capitalist class.If they want to call profit “interest”, fair enough. But, in the present situation, where banks and “interest” have become a dirty word they may have backed a loser. Expect another change of emphasis in future editions of Samuelson’s Economics.I think this distinction goes back further than the “marginalist revolution in economics”. It’s also in Henry George’s Progress and Poverty (that I’ve been re-reading after getting into an argument with a Georgeist at Occupy St Pauls) which was first published in 1880. Here’s how he summarised the conclusion of Chapter 10 on “the laws of distribution”:
Quote:
Land, labor, and capital are the factors of production. Land includes all natural opportunities or forces. Labor includes all human exertion. Capital includes all wealth used to produce more wealth.The output is distributed in returns to these three factors. Rent is that part that goes to owners of land as payment for the use of natural opportunities. Wages are that part that constitutes the reward for human exertion. Interest is that part that constitutes the return for the use of capital.
In Chapter 13 entitled “False Interest” (but in the book edition I have “Of spurious capital and of profits often mistaken for Interest”) he says:
Quote:
Profits properly due to the elements of risk are also frequently mislabeled interest. Some people acquire wealth by taking chances in ventures where most suffer losses. There are many such forms of speculation, especially that method of gambling known as the stock market. Nerve, judgment, and possession of capital give an advantage. Also, those skills known as the arts of the confidence man. But, just as at a gaming table, whatever one person gains someone else must lose.Everyone knows the tyranny and greed with which capital, when concentrated in large amounts, is frequently wielded to corrupt, rob, and destroy. What I wish to call the reader’s attention to here is this:These profits should not be confused with the legitimate returns of capital as an agent of production. Any analysis will show that much of what is commonly confused with interest is really the result of the power of concentrated capital. For the most part, this should be attributed to bad legislation, blind adherence to ancient customs, and superstitious reverence for legal technicalities.Examine the great fortunes said to exemplify the accumulative power of capital: the Rothschilds, the Vanderbilts, the Astors. They have been built up, to a greater or lesser degree, by the means we have been reviewing — not by interest.
In other words, precisely the arguments employed by Steele, though George placed himself on the left, seeing “profits” as bad and arguing in the preface to the first edition that “laissez-faire (in its full true meaning) opens the way to a realisation of the noble dreams of socialism” !
