This is a single-author theoretical essay, first published for accountants but addressed to economic theory. Shackle’s thesis is that profit cannot be treated as one simple magnitude. It names both a distributive category in classical theory and a forward-looking object of entrepreneurial conjecture.
The word ‘profit’ occurs in economic theory in two quite distinct contexts.
The essay begins from production as a commitment of resources through time. A good sold today embodies earlier decisions, but the crucial point is that resources become specialized before the future market is known. Neither contracts nor central planning can abolish the fact that a product may later prove well or badly fitted to circumstances.
In all production, because it takes time, there is an ineradicable uncertainty.
From this premise Shackle defines the enterpriser as both decision-maker and uncertainty-bearer. Contractual participants may secure known money payments; the enterpriser accepts the unknown residual between those payments and the future value of the product. Before the event, this “profit” is not one number but a set of rival hypotheses about possible gain and loss.
Shackle then criticizes two orthodox reductions of uncertainty. The rough “best guess” is conceptually obscure, while mathematical expectation applies only where events form repeatable classes. Frequency-ratios may describe a series of ventures, but not a singular investment decision whose failure may exhaust the decision-maker’s resources.
About each one of these considered separately as a unique individual case, frequency-ratios can tell us nothing.
His alternative is the concept of “potential surprise.” Rather than assigning positive probabilities to incompatible futures, Shackle argues that evidence often works by excluding the implausible and leaving several outcomes equally credible. The enterpriser attends to the most arresting possible gain and the most arresting possible loss.
Thus I was led to turn upside down the orthodox approach, in which we think of the various hypotheses as claiming various degrees of belief, or confidence, or probability, and to think instead in terms of disbelief.
This yields a psychological theory of business choice. Ventures are compared not by a single expected profit but by paired focus-gains and focus-losses, interpreted through the temperament of the particular enterpriser. Hence the standard maximization formula is displaced.
When the outcomes of alternative ventures are uncertain (that is, are felt by the particular individual to be unknown to him) we can no longer say that the enterpriser will seek to ‘maximize profit’.
The final section turns against timeless equilibrium theory. Shackle defends abstraction, but argues that Walrasian general equilibrium excludes time, imagination, adjustment, and novelty—the conditions under which profit becomes intelligible. Monopoly, innovation, reputation, and product individuality matter because business people try to alter their environment, not merely adapt to it.
Profit depends on the radical and inherent unpredictability of human affairs; on men’s power and ambition to alter their economic environment and not be content merely to respond to it; and on the fact that all economic adjustments to changed governing circumstances take time.
The essay’s relevance lies in its sharp distinction between accounting profit and expected profit. Recorded profit supplies evidence for expectations, but it is not the same phenomenon as the uncertain inducement that governs action before results are known.
But realized and recorded profit is only one ingredient, perhaps not even the most important one, out of which expectations of profit are cooked up.
Overall, Shackle’s conceptual move is to relocate profit from a static theory of shares into a theory of irreversible choice under uncertainty. Profit is not merely a remainder in accounts; it is the form taken by judgment when resources are committed toward an unknowable future.
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