In Chapter 13, I showed how production and supply
are the source of demand in the sense of purchasing
power--that is, real demand. In Chapter 15, I showed
how saving and productive expenditure are the source of
the great bulk of spending in the economic system. This
conclusion followed from the fact that they not only
make possible the demand for capital goods, which in a
modern economic system almost certainly surpasses the
demand for consumers' goods, but also the payment of
wages by business, out of which comes the great bulk of
consumer spending. ¹ In this chapter, I will make good on
the promise I made in Chapter 15 to show how busi-
ness--taken in the aggregate--is the source not only of
the monetary demand for its own products, but of a
profitable monetary demand for its products. As I prom-
ised, I will show how business "itself generates a mone-
tary demand that is fully sufficient for the profitable sale
of its products . . . in the mere fact of purchasing capital
goods and paying wages and in declaring dividends and
paying interest" and how "in addition, the very increase
in production itself operates to add further to both the real
and the nominal rate of profit." I will show, indeed, how
there are "virtual springs to the restoration of profitabil-
ity" waiting to be unleashed whenever inflation and
credit expansion bring on a financial contraction and
deflation and thereby temporarily impair business prof-
itability or wipe it out altogether. ²

In this chapter, I will explain the determinants both of
the aggregate amount of profit in the economic system
and of the average rate of profit in the economic system.
I will present a theory of profit which will show that in
a society characterized by consistent laissez-faire capi-
talism, and thus free of financial contraction brought on
by a preceding inflation or credit expansion, the average
rate of profit is always determined at a point that is both
high enough to make investment worthwhile and, at the
same time, as low as the security of property and all
rational provision for the future make possible. Thus, I
will show--in contrast to the claims of the Keynesians
and the Marxists--that the rate of profit is neither "too
low" nor "too high" and that neither pretext constitutes
grounds for a policy of government intervention or so-
cialism. ³

The theory of profit I will present in this chapter is the
basis on which I was led to the development both of much
of the material that I have already presented, in previous
chapters, and of much of the material that is yet to come,
in subsequent chapters. It is the basis of my having
arrived at virtually the whole of the analysis I presented
in Chapter 11 and in Chapters 13-15, from the definition
of productive expenditure and consumption expenditure
through the critique of the conceptual framework of the
exploitation theory, the exposition of the philosophy of

-719-