Economic Myths #4 – Profits are Evil!

One of the elements of a capitalist system that induces purple-faced rage amongst statists and progressives is the existence of profit. This residual – the amount left over once an entity has deducted its costs from its revenue – is said to line the pockets of greedy shareholders while exploiting labourers and consumers.

First, it is important to understand what we mean and what we do not mean by “profit”. Here we will be discussing only profits that an entity may earn purely as a result of voluntary trade and free exchange; we do not mean those “accounting” profits that companies may rake in as a result of favourable state regulations, direct subsidy from the state, or any other kind of residual of a trade relationship based upon force. These profits – including bank bailouts and stimulus funding – are rightly to be condemned as unjust and immoral, sustaining the power base of the incompetent, wealthy elite at the expense of everyone else. But such a condemnation must not be allowed to throw out a very precious baby with repulsively filthy bathwater – for profit is one of the most vital elements that gives life to an economic system that relies upon the division of labour. Continue reading

The beauty of entrepreneurship

The beauty of entrepreneurship
By Neil Lock

I thought it might be good to offer something a little bit up-beat for a change.

I’ve been contemplating the so called “labour theory of value.” That is, the idea that the value of an individual’s work depends only on the amount (and, in some interpretations, also the quality) of the labour put into it.

Now I’m no economist, but even I can see that the labour theory of value is a crock. The argument I use is to adapt the well known proverb, “Beauty is in the eye of the beholder.” In my version, this becomes “Value is in the mind of the buyer.” That is to say, what matters isn’t the amount or even the quality of labour the seller has put into the product, but the value to himself which the potential buyer perceives in it. The greater this value, the more the buyer will be willing to pay.

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