What is Profit?

[gnarlylove]

I wanted to see if people have a robust understanding of profit or if we simply understood it as their means for survival and material acquisition? I implore everyone to respond with fair criticism avoiding personal slander and irrelevant attacks.

Here is a favorite description of profit that one doesn't hear often but is squarely verifiable:

What is profit, anyway? It’s not the same thing as positive benefit; some of the most destructive activity possible today is highly profitable [that is if you believe nature is valuable beyond our benefit like sustaining the biosphere], and even the individuals garnering those profits aren’t necessarily happier or better off from having profited. They’re simply higher up on the treadmill, with more capital to use to make more profit- though of course they’ll lose their position if they relent for a second in the scramble for profit, since capitalism forces everyone and everything into the logic of competition.

And that’s the key to understanding what profit really is – it can only come at the expense of others. It’s a zero-sum game. That’s because to profit means to gain control over a proportionally larger amount of the resources of your society. It’s not just making more money, as if everyone could make more money at the same time and be wealthier; that would just be inflation. The technological advances of the industrial era haven’t resulted in everyone being better off; even if most people in the US have a car now, we’re more socially isolated and working longer hours to fund our auto dependence, not to mention the deforestation and air pollution rendering life less possible by the day. When the drive for profit and market forces set the agenda, everybody loses in the long run.

For more click here.

A society is only as healthy as its weakest link. As long as exorbitant gaps in wealth exist, our society will continue to be sick, literally and figuratively. Surely we wish to end this plight upon America. I think profit is a at the core of engendering an interminable dog-eat-dog-world slogan that cuts to the heart of the zero-sum nature of profit.

We keep seeing record profits at the top (95% of income gains went to 1% since 2009) but larger portions of communities are struggling to make ends meet. It seems this trickle down tuism is occurring at molases pace and the rich have a vacuum cleaner sucking up all the trickles.

This is what is meant when profit is a zero sum game: profit for one group could not exist without the detriment of another; indeed this latter group must be ever increasing to support the ever increasing demands of profit. Thus, as profit exists today, it relies on 2 features: wage labor and private property. Where most private property is owned by an elite group and they own the means to life and production. So many people are dependent on having to continually rent their self out for survival.

So profit depends on wage labor which is the generating surplus for the elite property holders. This enables them to live in extravagance while the worker must accept what wage he is paid regardless of his dismal working conditions because his family will starve otherwise.

So despite infinite growth and rising GDP, the quality of lives of a group necessarily remains low with regards to financial security. So the wealth generated at the top isn't just total profit, it comes at the price of reducing the quality of life for millions of families, nay billions worldwide.

So what does everyone think, is profit purely a positive sum game for everyone? Or can we see it play out in unmistakable zero-sum ways? A high profit margin is the result of surplus generated at a high cost to the workers (since they are compensated less for their work creating the high margin). This graphic helps visually represent my thesis.

 

[DGS49]

Thank you for an illustration of economic "thought" by someone who has not the slightest understanding of money or economics. If you HAVE ever taken a class in economics, please apply for a refund - you didn't learn anything.

But I offer the following illustration of profit, and ask you to explain who the "loser" is, in your view.

Investor Bob is in the business of "flipping" houses. He learns of an old woman in the neighborhood who has a hundred year old house in a state of disrepair (no one has done any work on the house since her husband died, ten years ago), who wants to liquidated the house and move to a retirement community. In her community, houses of the same type in good condition sell for approximately $200k. But after more than six months on the market she has had no interest in her house.

Bob offers her $100k for the house, cash money, and she gladly takes it and moves to "Happy Acres" retirement community. Bob also offers to dispose of all of her unwanted furniture and to move her and her belongings to her new apartment. Nice guy, that Bob.

Bob hires a couple of local handymen on a daily fee basis, and within a month or so, they have repaired everything that needed repairing, replaced everything that needed replacing, and spruced up the house so that it shows spectacularly. The repairs and other work cost him $40k, out of pocket.

Since Bob wants to "flip" the house quickly, he prices it at $180k, and sells it the day after his first and only open house. The buyer is thrilled to have purchased a house in perfect condition at $20k below market.

Allowing for Bob's time, deed transfers and whatnot, he has earned a profit of $30 thousand on the house in about 6 weeks time.

Please identify the person or persons from whose detriment the profit was derived?

 

[DGS49]

Example #2.

The Bubble-Top company is the inventor and manufacturer of a device that revolutionizes the distribution of materials in a blast furnace and allows blast furnaces, if properly operated and maintained, to go for up to 25 years between major re-lines (a $300 million dollar proposition), as compared to the prior technology, which typically allowed a 10-15 year useful life. In economic terms, the Bubble "top" can be valued at $20 million NPV over competing technologies.

Bubble-Top produces a "top" for $5 million, and sells them to steel producers for $15 million - a profit of $10 million.

From whose detriment is the profit derived?

 

[gnarlylove]

When you comment "clearly this poster is ignorant" we know this is the best argument we will see for your position. Indeed, you never once addressed a single thought in the original post. I wonder why? Is it because you have nothing to say except two examples and I'm suppose to tell you who is better off--about the most circular attempt at justification I've heard in weeks.

You need to know Economics is at best a discipline among hundreds trying to describe and help us understand reality. No single discipline holds a monopoly on understanding our world. Economics is assumption based narrow description of reality that externalizes many things like ecology, natural resources and the whole biosphere (is the biosphere external to humanity? No, we depend on it). Capitalism requires infinite growth and economics has sought to find ways to keep this inane motor humming--infinite progress is impossible. There are limits and we are [ame="http://www.amazon.com/the-sixth-extinction-unnatural-history/dp/0805092994"]obviously reaching them[/ame]. To use economics to justify economics is akin to use the Bible to justify the Bibly, no offense intended for I too was once a devote Christian and child of capitalism.

So one can either look outside economics into other disciplines like sociology, applied ethics, philosophy, old journalism, many of the sciences and from a human perspective and realize profit is not working since so many people are sick and egocentric due to excessive competition and wage labor. We don't need blistering progress at the expense of billions of sick people. Life is meant to be lived free for all, not on the backs of the people where a select few dominate the game of life! Or you can continue to spin in circles justifying your actions based on profit motives, which is ruining the social fabric and the biosphere. These things are not worth sacrificing so a few people we will never meet can own 40% of the world's wealth.

Either our goal can be inalienable rights for all to pursue life liberty and happiness or it can be endless progress with another mass extinction event where only a few at the top 20% enjoy the fruits of surplus and profit.

 

[DGS49]

Cutting through all the bullshit, your initial post asserts one fundamental point: "...profit is a zero sum game: profit for one group could not exist without the detriment of another."

I gave you two examples of PROFIT - one might even say excessive profit, and asked you to apply your point to those two examples. One party made a profit: who suffered a loss?

It's not complicated. If you cannot identify someone in my examples of profit who suffered as a result of the profit, then your whole thesis is blown out of the water.

Keep it simple. Inquiring minds want to know.

 

[Spiderman]

I made more money this year than last year. More profit.

I did that by rehabbing houses and providing families with safe comfortable places to live.

Who lost in that deal?

 

[Zander]

Anti-Capitalist propaganda doesn't need to be factually accurate- it merely needs to stir the emotions of greed, anger, and jealousy.

 

[gnarlylove]

I made more money this year than last year. More profit.

I did that by rehabbing houses and providing families with safe comfortable places to live.

Who lost in that deal?

I'm not accusing you or anyone of being a bad person. Everyone on USMB seems to take most posts personal. I'm looking for an intelligent dialogue of the system but it gets cluttered with re-direction of the discussion, not that your point isn't valid. I'm mostly referring to what I've generally seen on USMB.

Anyway, to answer your question, where did your building materials come from? Surely you didn't source them yourself, they came from somewhere. Perhaps from a forest in South America. Or maybe it was fabricated stuff made in Taiwain. Cheap labor is used all around the globe to get products made for bottom prices. People are exploited all over for working and being insufficiently compensated so as to struggle to live.

The fossil fuels used to transport your products are damaging the environment. I know there is no other method but profit wants us to have no other choice. To have choices might be to choose life over profit.


The screws you bought may have come from Lowes which is owned by Wal-mart and they are notorious for exploiting American labor and around the globe. The system is so inter-dependent that anything we do involves the efforts of someone to produce surplus. More often than not people are not paid adequate wages. Anyone who works deserves to live without hunger insecurity. However, those who own much of the world's resources continue to exploit these "free" resources and selling them to us even though we don't need them in many cases like disposable plastic crap that fills the shelves.

Capitalism depends on continual growth and as long as we keep chopping down the earth (90% of forests in America have been leveled) we have to choose between slowing the global economy driven by profit in order to keep the biosphere in tact or we can annihilate all of the earth in search for profit so that future generations have nothing but a barren landscape.

Maybe this is too advanced and you think I'm some idiot, faggot, anarchist libturd whatever. If you do, don't waste your time because if we can't respect each other to begin with, how can we have any way to create genuine discussion? I'm glad you made money and were able to support yourself but unlike yourself, most people are making less money and its not just their fault.

Profit is ruining our social fabric and planet. this is a fact. you can ignore it but someday it will blow up in our faces and will cause unprecedented global suffering that should have been prevented. My aim is a safe and free world for all, not a world where i can score big while my fellow humans suffer in a wake of planetary destruction.

 

[CrusaderFrank]

I can't take "Profits are stolen wages" morons seriously; I have less than no patience for idiots who have absolutely no work experience trying to explain how markets work

 

[gnarlylove]

Cutting through all the bullshit, your initial post asserts one fundamental point: "...profit is a zero sum game: profit for one group could not exist without the detriment of another."

I gave you two examples of PROFIT - one might even say excessive profit, and asked you to apply your point to those two examples. One party made a profit: who suffered a loss?

It's not complicated. If you cannot identify someone in my examples of profit who suffered as a result of the profit, then your whole thesis is blown out of the water.

Keep it simple. Inquiring minds want to know.

I tried to be fair in saying capitalism does indeed generate profit and many are inclined to believe the rising tide of capitalism rises all ships at sea. But the truth is, it is impossible to determine if capitalism is ultimately a zero sum or a non-zero sum. But we can think of instances for either side (or ignore certain variables). So yes you have a point and yes I have a point. This isn't an exclusive result produced by capitalism. My point was simply that capitalism has a downside: some of its games are zero-sum, its evident throughout the globe.

When 85 people own as much as 3.5 billion poor people, we need to wonder if the system itself is not responsible for such master/slave dialectic (I'm referring to Hegel's view of this dialectic).

I don't think because many people can benefit from capitalism that we should continue with it just because they do. What about half the world who are either in poverty or in debt? Should we sacrifice their exploited lives just so many of us can strike it rich? No thanks. Count me out. Life isn't about making it rich, its about sharing in this grand circumstance of consciousness. The problem is, more people prefer to accept the challenge of capitalism and run the rat race because there is no other option in town. Either starve or get with the program. This is not how I was taught life is and having studied these issues academically (Ive had econ 101 and 110 thank you very much) I don't care if you refuse to understand my point. I can assure you there are more becoming aware of this.

Bottom line: you can be right without having to disagree with the issue I am presenting.

 

[CrusaderFrank]

Capitalism made the USA the planet's #1 economy in record time

Any questions?

 

[Spiderman]

If you sell your labor for dollars and you got a raise this year then you too are making more profit.

 

[gnarlylove]

Profit inspired act that leads to degradation of society and standards:
Rat meat sold as mutton: Crackdown sparks dozens of arrests in China - World News

 

[CrusaderFrank]

If only we let government decide what everyone should contribute and earn.

If only

 

[CrusaderFrank]

Profit inspired act that leads to degradation of society and standards:
Rat meat sold as mutton: Crackdown sparks dozens of arrests in China - World News

Yeah, don't focus on China's growing middle class, economy and GDP. Focus on how you need government to feed, clothe and house you

 

[oldfart]

I tried to be fair in saying capitalism does indeed generate profit and many are inclined to believe the rising tide of capitalism rises all ships at sea. But the truth is, it is impossible to determine if capitalism is ultimately a zero sum or a non-zero sum.

A couple of caveats before I lay out my answer: 1) a fair reading of my posts in this forum would indicate that while a pragmatist, my view of political economy is a lot closer to the Fabian Society than the Austrian School of economic thought; and 2) I have some familiarity with the economic literature.

In economic theory there are a few isolated instances where economics is set as a zero sum game. The most obvious is the Walrasian general equilibrium "market period" where nothing is produced, only traded. The quantity of any good brought to market is the same as the quantity of that good taken away from market. This is a stripped down thought experiment, not a model of reality. It's also the starting point of Pareto-optimal welfare theory, which is usually a positive sum game (you bring wine to the party and I bring cheese; we go halvsies and both are better off).

Now outside this extremely narrow sense, whether economic activity is a zero sum situation, where the sum of all individual gains must equal the sum of all individual losses is a question of fact. It clearly is true of commodity markets which must clear when contracts come due with physical delivery. Open-ended markets such as equities are more problematical. In general, most people who trade in equities lose money.

Now growth theory accepts as an axiom that economic growth is a positive sum game ("a rising tide raises all boats"). An increase in productivity resulting from improved technology, for example is presumed to help at least one person or firm and leave everyone else at least as well off (Pareto optimality). A bit more broadly, if some are less well off, the gains are sufficient to allow those who benefit to compensate those who lose sufficiently to gain their consent. But the mechanism is not a market process; it often is a political one.

This analysis has a number of weaknesses. First, it does not take account of benefits and costs which are shifted to others in the process of production ("externalities") such as pollution or herd immunity. These market distortions can result in the extreme case of markets encouraging production that on balance creates a negative sum situation where everyone is worse off. Think nuclear weapons and global warming.

Second, markets characterized by excessive concentration (monopoly and monopsonistic power) usually produce results inferior to Pareto-optimal solutions. Thirdly, factors such as asymmetrical information and other market imperfections also reduce the size and maldistribute the economic "pie".

So I would agree with you that whether or not capitalism is a zero-sum game is a question of fact upon which there can be differences of opinion. That said, over longer stretches of time it seems IMHO that the trend in economic history has been for rising standards of living for most people. But this has not been true in America over the last 30+ years for the bottom 98% of income recipients.

But we can think of instances for either side (or ignore certain variables). So yes you have a point and yes I have a point. This isn't an exclusive result produced by capitalism. My point was simply that capitalism has a downside: some of its games are zero-sum, its evident throughout the globe.

When 85 people own as much as 3.5 billion poor people, we need to wonder if the system itself is not responsible for such master/slave dialectic (I'm referring to Hegel's view of this dialectic).

We are in agreement.

I don't think because many people can benefit from capitalism that we should continue with it just because they do. What about half the world who are either in poverty or in debt? Should we sacrifice their exploited lives just so many of us can strike it rich? No thanks. Count me out. Life isn't about making it rich, its about sharing in this grand circumstance of consciousness. The problem is, more people prefer to accept the challenge of capitalism and run the rat race because there is no other option in town. Either starve or get with the program. This is not how I was taught life is and having studied these issues academically (Ive had econ 101 and 110 thank you very much) I don't care if you refuse to understand my point. I can assure you there are more becoming aware of this.

This is a value judgment with which I agree. It's outside the realm of economics, and on the edge of political economy. People who believe that power creates its own justification for wealth are never going to see themselves as not "entitled" to it. They never see that justification based on raw power justifies others in taking wealth and power away from them by any means successful equally as it justifies their possession of that wealth and power in the first place. Some day I hope that self-serving defense of wealth will be regarded as equally obnoxious as the divine right of kings which it so much resembles.

 

[jasonnfree]

I made more money this year than last year. More profit.

I did that by rehabbing houses and providing families with safe comfortable places to live.

Who lost in that deal?

We did. This left you left time to post on the forum.

 

[Toro]

I wanted to see if people have a robust understanding of profit or if we simply understood it as their means for survival and material acquisition? I implore everyone to respond with fair criticism avoiding personal slander and irrelevant attacks.

Here is a favorite description of profit that one doesn't hear often but is squarely verifiable:

What is profit, anyway? It’s not the same thing as positive benefit; some of the most destructive activity possible today is highly profitable [that is if you believe nature is valuable beyond our benefit like sustaining the biosphere], and even the individuals garnering those profits aren’t necessarily happier or better off from having profited. They’re simply higher up on the treadmill, with more capital to use to make more profit- though of course they’ll lose their position if they relent for a second in the scramble for profit, since capitalism forces everyone and everything into the logic of competition.

And that’s the key to understanding what profit really is – it can only come at the expense of others. It’s a zero-sum game. That’s because to profit means to gain control over a proportionally larger amount of the resources of your society. It’s not just making more money, as if everyone could make more money at the same time and be wealthier; that would just be inflation. The technological advances of the industrial era haven’t resulted in everyone being better off; even if most people in the US have a car now, we’re more socially isolated and working longer hours to fund our auto dependence, not to mention the deforestation and air pollution rendering life less possible by the day. When the drive for profit and market forces set the agenda, everybody loses in the long run.

For more click here.

Profit is not a zero sum game. That philosophy is based on a fallacy. Nor is it verifiable.

The facts backing up your argument are also wrong. We are not working longer hours. We are working shorter hours. By some measures, there is less pollution today that there was even 30 years ago.

"Not everyone is better off" due to the technological advances of the industrial era? Surely you jest. What exactly do you deem as the "industrial era?" The Industrial Revolution began in the middle of the 18th century. Certainly, no one serious can argue that most people today don't have it better off than 250 years ago. There are just too many examples of why this is wrong, from health statistics to any measure of consumption.

And yes, everyone making more money is everyone becoming wealthier. Economic wealth is created by producing either more with the same inputs, or the same amount with less inputs. The benefits are spread out through society. Sometimes it is spread unevenly, but most people are better off than they were 100, 50 or 20 years ago.

No offense, I don't think you have a robust understanding of profit. Quite the opposite, IMO.

A society is only as healthy as its weakest link. As long as exorbitant gaps in wealth exist, our society will continue to be sick, literally and figuratively. Surely we wish to end this plight upon America.

We've always had exorbitant gaps in wealth. They've always existed. The only difference is degree. Does that mean society has been sick forever?

This is what is meant when profit is a zero sum game: profit for one group could not exist without the detriment of another; indeed this latter group must be ever increasing to support the ever increasing demands of profit. Thus, as profit exists today, it relies on 2 features: wage labor and private property. Where most private property is owned by an elite group and they own the means to life and production. So many people are dependent on having to continually rent their self out for survival.

Or, you can go into the woods, buy yourself a piece of land, and live on your own, disconnected from society. It's your choice. Two-thirds of American households own their own home. You can own your own piece of land and survive without being exploited by anyone else.

So profit depends on wage labor which is the generating surplus for the elite property holders. This enables them to live in extravagance while the worker must accept what wage he is paid regardless of his dismal working conditions because his family will starve otherwise.

Marx's theory of surplus value? Do they still teach that in the 21st century? Did they in the 20th century?

So despite infinite growth and rising GDP, the quality of lives of a group necessarily remains low with regards to financial security. So the wealth generated at the top isn't just total profit, it comes at the price of reducing the quality of life for millions of families, nay billions worldwide.

Statistics show that hundreds of millions have been pulled out of abject poverty over the past 20 years.

 

[gnarlylove]

By some measures, there is less pollution today that there was even 30 years ago.

I refer you to my follow up post on this thread in case you didn't read it. It might help answer some of your early complaints.

But when you say "by some measure" and assert that kind of logic, then we simply cannot talk. There is no authenticity behind your statement. It's just a gaffe in thinking that I cannot bridge for you on this forum. I'm sure youre intelligent but your views on the biosphere are not respectable..

 

[gnarlylove]

A couple of caveats before I lay out my answer: 1) a fair reading of my posts in this forum would indicate that while a pragmatist, my view of political economy is a lot closer to the Fabian Society than the Austrian School of economic thought; and 2) I have some familiarity with the economic literature.

In economic theory there are a few isolated instances where economics is set as a zero sum game. The most obvious is the Walrasian general equilibrium "market period" where nothing is produced, only traded. The quantity of any good brought to market is the same as the quantity of that good taken away from market. This is a stripped down thought experiment, not a model of reality. It's also the starting point of Pareto-optimal welfare theory, which is usually a positive sum game (you bring wine to the party and I bring cheese; we go halvsies and both are better off).

Now outside this extremely narrow sense, whether economic activity is a zero sum situation, where the sum of all individual gains must equal the sum of all individual losses is a question of fact. It clearly is true of commodity markets which must clear when contracts come due with physical delivery. Open-ended markets such as equities are more problematical. In general, most people who trade in equities lose money.

Now growth theory accepts as an axiom that economic growth is a positive sum game ("a rising tide raises all boats"). An increase in productivity resulting from improved technology, for example is presumed to help at least one person or firm and leave everyone else at least as well off (Pareto optimality). A bit more broadly, if some are less well off, the gains are sufficient to allow those who benefit to compensate those who lose sufficiently to gain their consent. But the mechanism is not a market process; it often is a political one.

This analysis has a number of weaknesses. First, it does not take account of benefits and costs which are shifted to others in the process of production ("externalities") such as pollution or herd immunity. These market distortions can result in the extreme case of markets encouraging production that on balance creates a negative sum situation where everyone is worse off. Think nuclear weapons and global warming.

Second, markets characterized by excessive concentration (monopoly and monopsonistic power) usually produce results inferior to Pareto-optimal solutions. Thirdly, factors such as asymmetrical information and other market imperfections also reduce the size and maldistribute the economic "pie".

So I would agree with you that whether or not capitalism is a zero-sum game is a question of fact upon which there can be differences of opinion. That said, over longer stretches of time it seems IMHO that the trend in economic history has been for rising standards of living for most people. But this has not been true in America over the last 30+ years for the bottom 98% of income recipients.

Appreciate the fair and frank discussion with some juicy terms. I had to back track after appearing to have claimed capitalism is only zero sum. There are instances of both but given my value judgments and prescriptive norms I'd suggest capitalism as it operates (as well as who operates it) regularly defies the spirit of humanity, indeed the spirit of existence and liberty. Any non-ego centric view will lend itself to this belief. As long as one is all filled up with ego, one has no room, no tolerance for recognizing what capitalism has done wrong--only to parade what it has done right (which is indeed a great many things) but cheap things don't necessarily better our lives in meaningful ways.