‘Industrial Capital has been its own chief progenitor’, wrote T. S. Ashton in 1948. Historiographical opinion has changed little since: in 1972 Crouzet was moved to remark that ‘This fact is so obvious to be almost a cliche and the point is not worth labouring.’ It seems generally agreed that, in England in particular, the role of ploughed-back profits was of overriding importance in industrial expansion but this view prevails despite the absence of reliable data on profitability and reinvestment in different sectors. How did ploughed-back profits compare with finance obtained from other sources? What personal and impersonal forces determined both the level of profitability and the extent to which profits were retained in a business rather than spent or invested elsewhere?

The purpose of this chapter is to study the genesis of profit and reinvestment in the wool textile sector in order to explain both the relative importance and the mechanics of plough-back. Before proceeding, however, it is important to say something about the concept of profit and its measurement at this time.

Profit and its measurement

The small size of fixed compared with circulating capital in most branches of industry before the mid-nineteenth century encouraged industrial entrepreneurs to follow their mercantile predecessors in regarding profitability as a product of business acumen rather than the return on capital employed. A distinction was usually drawn between interest on capital and the profits of the business.