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the gross return minus what is consumed in the process of creating the desired goods.

In the ERE, gross return will always be positive: in order to maintain the same structure of capital every time period, the same resources must be invested into it anew during every such period. Furthermore, the income to land, labor, and capital must equal gross investment each period in order to compensate for the resources invested by the capitalist and enable him to invest them again during the next period. However, the net return to a capitalist in the ERE will always equal zero. If net return were positive, the capitalist would have more funds during the next period to invest than he had previously. He would be able to not only maintain the existing capital structure, but also to expand it, an action contradicting the ERE's assumption of a final state of rest in all markets. If the capitalist's net return were less than zero, he would not have sufficient funds to maintain the existing capital structure during the next period. Hence, the only way for the structure of production to perfectly replicate itself repeatedly is if the capitalist always earns the same gross return from it.

However, the lack of net returns on investment in the ERE does not mean that the capitalists cannot earn interest income. Time continues to pass in the ERE, and all individuals exhibit positive rates of time preference. The capitalists earn an interest income corresponding to their time preference: their willingness to forego present goods in exchange for more future goods. Every period, the capitalists will personally consume the same portion of their income and reinvest the complement of what they consumed.

While capitalists earn interest in the ERE, entrepreneurs do not earn profit. The entrepreneur's function is made possible solely by uncertainty and imperfect information possessed by buyers and sellers on a given market. The entrepreneur discovers an arbitrage opportunity: a mistake in the price structure which gives him the ability to buy a good for a lower price than he can sell it. The entrepreneur's actions gradually come to eliminate the arbitrage opportunity and move the market toward a final state of rest, provided that no new economic disturbances occur. However, in the evenly rotating economy, all markets are already in final states of rest; hence, no arbitrage opportunities exist. All market participants already possess all the information relevant to their economic decisions, thereby rendering mistakes in the price structure impossible. Thus, pure entrepreneurial profit is absent from the ERE.

Learn more about this author, G. Stolyarov II.
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