Why Profit is Necessary

[BaalChatzaf]

Profit is more than a moral or ethical concern. It has to do with physical practical reality. Here is the long and skinny: physical capital wears out by its very use. To produce goods, one must consume the machinery that produces them. How consumed? By wear and tear and by becoming obsolete. Success in a certain domain of production invites innovation which means advances in technology.

To pay for simple repair/replacement and to pay for replacing old-fashioned machines with newer and better ones, require that some of the revenue stream arising from production and the sale of goods be diverted back into renewal and improvement of productive capital. Also some of the revenue stream must be dedicated to innovation and the improvement of -human capital-, i.e. the skills and wits of people that we need to continue technological progress.

It all goes back to the old adage of seed corn. If we consume all our seed corn now we will starve next year. Some or our corn must not be directly consumed but used for making new corn.

And that is why profit is necessary. What is necessary is a practical requirement and must be morally/ethically approved of since it is part of a social process (producing-investing-trading-buying-selling). If profit is deemed immoral then to be moral we must shortly starve, which is totally insane and absurd. Morality is NOT a suicide pact with stupidity and short-sightedness.

Anyone who argues against profit is arguing against staying alive.

Ba'al Chatzaf

Edited January 13, 2008 by BaalChatzaf

[Chris Grieb]

Baal; The above is a good statement.

When you are right I believe in saying so.

[tjohnson]

Some would argue that 'profit' begins AFTER all those things. If so, that could be argued against. When you invest in a company you expect to earn profit. Corporations have a responsibility to their shareholders to make them money which forces the company to look at the bottom line above all else and so leads to gouging, massive lay-offs, all kinds of problems.

[Brant Gaede]

Some would argue that 'profit' begins AFTER all those things. If so, that could be argued against. When you invest in a company you expect to earn profit. Corporations have a responsibility to their shareholders to make them money which forces the company to look at the bottom line above all else and so leads to gouging, massive lay-offs, all kinds of problems.

WTF!? If you have no understanding or curiosity about classical economics you are simply insulting us with your little socialism lite lecture. You might be up to college speed with your semanticals but this isn't a semanticals site.

--Brant

[BaalChatzaf]

Some would argue that 'profit' begins AFTER all those things. If so, that could be argued against. When you invest in a company you expect to earn profit. Corporations have a responsibility to their shareholders to make them money which forces the company to look at the bottom line above all else and so leads to gouging, massive lay-offs, all kinds of problems.

You have it ass backwards (no surprise). I told you that too much of the Count causes advanced Brain Rot. I told you. But you don't listen.

Ba'al Chatzaf

[Wolf DeVoon]

Some would argue that 'profit' begins AFTER all those things. If so, that could be argued against. When you invest in a company you expect to earn profit. Corporations have a responsibility to their shareholders to make them money which forces the company to look at the bottom line above all else and so leads to gouging, massive lay-offs, all kinds of problems.

Correct. Depreciation and borrowed capital are expensed, just like raw materials, labor, taxes, insurance, advertising, etc.

The deal on net profit is OPPORTUNITY COST of invested shareholder capital. Enterprise A is a utility, very low risk. Enterprise B is a speculative start up, very high risk. B has to yield a higher marginal return than A. Lord Basingstoke was famously quoted as saying that he would never think of investing his hard-earned money in an industrial venture. Why put money at risk when you can lend to governments?

W.

Edited January 13, 2008 by Wolf DeVoon