Profit

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Description

From the Wikipedia [1]:

"Profit generally is the making of gain in business activity for the benefit of the owners of the business. The word comes from Latin meaning "to make progress," and is defined in two different ways, one for economics and one for accounting."


Discussion

Natural vs. Artificial Profit

Paul Fernhout:

"As things are now, I don't have a problem with profit-seeking in our current system so much as rent-seeking. Profit-seeking may be an issue sometimes, even many times, but it is not the biggest issue IMHO, except as far as unpaid external negative costs.

For example, the unfairest thing about most medical pills is not that drug companies make profits. It is that most basic research in medicine is paid for by taxpayer dollars. Then drug companies come along at the end, pick the successes (as if paying for failures in exploring was not part of the total cost) and then engage in rent-seeking on the successes, something facilitated by the US legal system and the Bayh-Dole Act which is intended to turn post-scarcity tax dollars supporting post-scarcity research back into artificial scarcity (private revenue for specific researchers and universities). One can also talk about problems with patent and copyright monopolies in relation to medical devices, but that is not directly an issue of profit.

Humans often want to get more out of something than they put in ("profit"). There is nothing wrong with that if the rest of the system makes sense. When I install Ubuntu on a laptop, I'm making a private profit of getting thousands (even millions?) of person years of work for an hour or whatever of my time installing the software (plus time spent learning it and time spent giving stuff back). No matter how long I work in my life even directly on Ubuntu or Debian or whatever, I can never repay those thousands or millions of person years that I personally profit from in that transaction. Should I not install Ubuntu then because it is profitable to me in terms of time?

so I think it is best to distinguish between profits that are natural and those that are artificial. Profits can be natural in the sense that you participate and you get something out of the effort of more value to you then what you put in (like you bring a food dish to a potluck and have a good time and a diversity of food, so a personal profit in enjoyment and variety). Profits can be artificial if you earn your profits by getting others to pay external costs (example: coal plants producing mercury pollution that harms people downwind) or you make profits by rent-seeking involving creating indefinite artificial scarcities of things that would otherwise be naturally abundant (like by using indefinite copyright to make scarce books that are more than twenty years old or whatever length would be reasonable, if any length of copyright is reasonable today).

Ask yourself, what things did you do yesterday because you got more out of them than you put in? Even breathing is profitable in that sense, producing more energy for your body than it takes. :-) Seeking profit in terms of calories or bulk material is in that sense a fundamental aspect to every living and growing thing. And even things that cease growing still have to get back at least what they put out in balance in terms of calories expended or matter ejected if they are not to shrink and wither.

It is not gain that is evil in this view, so much as ill-gotten gain (where illness is ideologically defined based on some notion of fairness or sustainability). It is not money that is evil (money is just essentially a control system using Kanban tokens), but "the love of money" (where people lose sight of the physical and moral world that money is used as a tool to restructure). It would be clearer to focus on "the love of profit" distorting our society, where people become "financially obese" out of mental dysfunction as a sort of addiction to cope with some other stress or imbalance in their lives, so they stop using money as a tool to heal the world (a shovel used to dig a latrine to preserve clean water elsewhere), and just use it as an end in itself (like using a shovel to pile up shovels for no sensible end).

Another issue which is worthwhile to address is who gets the profits? (A guaranteed basic income is one alternative there, supported by taxation, monetary expansion, or other means). Another issue is, by what right do people make claims of copyright (when all new things build on old things)? Another is by what right do people make claims on land and what is on it or under it (when all land is owned either based on finders-keepers or military conquest)? Another is by what right do some childless people in the society claim profits as exclusively there when some poor parents are struggling to raise the next generation of humanity? So, there are certainly deep questions of social equity one can explore surrounding who gets profits. Charles Fourier had some idea of splitting profits between "labor", "talent", and "capital". I'm not suggesting that as ideal, but it is something to think about.

Here is another way of looking at it -- if people take some resources and produce a product that nobody wants, who should get the losses? The individuals involved? The society? One of the evil things about the current system is that Wall Street traders got the profits of speculation, but then the rest of us paid the losses in terms of trillions of dollars of bailouts. So, the gains are privatized but the risks and losses are socialized. Very convenient for the privateers. That is an issue of social equity. But it is also fundamentally an acknowledgment that all ventures entail risk, so who should get the profits if it succeeds, and who should get the losses if it fails? And who should get to decide what risks are worth taking, or how to balance monetary risks (a biotech startup goes bankrupt) versus non-monetary risks (the cure for some cancer is not invented)?

One may talk about profits as if every venture was guaranteed successful -- but many ventures, even most, are not, both because of competition with other ventures and with misjudging what people with money are really willing to pay for. Now, maybe the monetary system of defining demand and producing for it is problematical for lots of reasons (money as debt, business cycles, unfair distribution of money, etc.) but that's a different issue than accounting for risk and willingness to take on risk with profits and losses. One may well argue that somehow society should take the risk, but then we need some methods for managing risk in our society, which is an interesting topic, but still may come back to some form of voting or currency or bureaucracy and so on, each system which might have its own issues.

So, anyway, that's why I think the overall issue is more complex than "profits", which really just means gains. The bigger issue is how gains (or losses) are divided in a society (social justice and equity), and what are fair and foul means to create gains and losses of various sorts in a society (regulation, accountability, competition and cooperation, war and peace), and who gets to decide what risks are worth taking in our society?

Of course, if we are talking "monetary" profits instead of "physical" profits (more stuff gets made than wears out in the making of it), then one can also talk about problems with various money-based control systems for production. That's an aspect of open manufacturing I am really interested in, and it involves thinking about things like tool wear in the course of making more tools, or figuring out how long a steel bridge may last that lets people transport coal and iron to the steel plants.

When people go on about profit being bad, is what they really mean the problems with those other things?

Things like:

  • an equitable division of profits (where "what is fair' is a slippery subject),
  • how profits are earned (perhaps through creating negative externalities or artificial scarcities, which can be hard to quantify or track), or
  • how a currency-system based on fiat-dollars created through debt has serious problems, whether economic cycles of periodic collapse, too much power going to those who control the money supply, or misleading us to focus on numbers of dollars instead of real physical good done for the world.

Incidentally, non-profits in the USA are corporations formed (supposedly) for reasons other than profit. So, yes, there can be corporations in a society formed for reasons other than profit. They still won't stay in business long if they lose money consistently, because that's how a money-based system works. And they won't grow in ability to carry out their mission unless they bring in more money than they spend (again, because that's how the current money based system works). Still, if you consider something like Debian GNU/Linux, sheltered under a non-profit (Software in the Public Interest) http://www.spi-inc.org/ they have grown a lot without handling that much money (since volunteers do most of the work). So, there are a lot of possibilities as we transition to a post-scarcity economy where gift-giving is a bigger part of the economy again. So, focusing on a gift-economy and volunteering is another way to move beyond the situation where one has to think about gaining or losing money.

Anyway, I'm not trying to defend "the love of money" here. I am trying to be a little pedantic about what terms we are using and what we mean by them or what aspects of them we object to." (via email, July 2009)


Profit in User Owned Theory

User Owned theory describes Profit as Price Above Cost.

Profit = Price - Cost

But profit is confusingly often equated with the word Value as though it should be a goal of production.

Profit is the difference between Consumer price and Owner costs - where Wages are one of those costs. It describes a consumer's dependence on those current owners.

Profit is not needed by society. It only appears to be needed for development because we ignorantly leave Funding to a group of investors that expect to be paid from that pool.

But if consumers would group together to buy the material Means of Production with Product being their reward instead (you could think of it as a pre payment plan where they become full legal co-owners), then we would finally be in full control and would also receive those goods and services at a price equal to cost since profit is undefined when the end users have sufficient* ownership in the Means of Production.

Profit is an inverse measure of consumer development and can be balanced (to solidify an economy) by treating it as an investment from the consumer who paid it toward more Physical Sources needed for future production as outlined in the GNU General Public Law.

(*) "Sufficient ownership" means the consumer owns enough of (for example) Cow-Shares that purchasing milk is not needed - for they would own the milk as a 'side effect' of their ownership in the cattle. In that case the consumer must pay for the daily operations of the dairy, but does not buy milk from anyone since it is already their property.

All consumers lacking "Sufficient ownership" would need to buy milk, and at that point they would be subject to the current owners possibly charging a Price Above Cost.

A User Owned dairy would allow current owners to sell any extra milk they may have to new consumers with the Terms of Operation enforced stipulation that all Price Above Cost be treated as that payer's investment in more cattle and supporting sources (barns, water rights, tools, feed, etc.). The investment would become (after a vesting period) the real property of that new consumer so that, incrementally and in a self-correcting manner, the organization would continue to be User Owned even as it grows to cover the earth with the abundance that those adherents would have no reason to fight against.

See also: http://patware.FreeShell.org/profit.htm



Profit cannot be the primary economic motive

Donald P. Goodman III, expressing the social doctrine of the Catholic Church:

"Another conclusion we can draw from our traditional principles on the nature of the state is also very important: free competition is not the only sensible, or even the best, way to organize an economic system. Capitalists, a species of individualists, have long argued that free competition of individuals is the only reasonable way to run an economy. However, the organic nature of the state as a single entity tending toward a single end makes that position untenable:

- Just as the unity of human society cannot be founded on an opposition of classes, so also the right ordering of economic life cannot be left to a free competition of forces. For from this source, as from a poisoned spring, have originated and spread all the errors of individualist economic teaching.

Catholic social teaching, aware of the true nature of the state, has long taught that although free competition is “justified and certainly useful provided it is kept within certain limits, [it] clearly cannot direct economic life.”38 While an “economic dictatorship”39 is clearly not the answer, a social order permeated with “social justice and social charity” must be in place to direct all parts of the body politic to the body’s end.

Another conclusion hateful to economic individualism which we can draw from our knowledge of the true nature of that state is that the profit motive is not a good primary director of economic action. Capitalism holds that men should pursue their own personal profits, because acting in this way—to maximize their own profits and minimize their own losses—will end up benefiting society. In other words, being greedy for one’s own gain will benefit everyone else, too.

...

Catholic social teaching holds that “men must consider in this matter not only their own advantage but also the common good.” In fact, man has duties beyond his own profit to consider when using his property; and “[t]o define these duties in detail when necessity requires and the natural law has not done so, is the function of those in charge of the State.”46 Men must act economically just as they must act politically: for the common good, not for their own personal gain. Arguing that greed is really charity in disguise simply misses the point. Profit should not be man’s primary motive in economic life; the common good should be. And since the end of the state is to promote virtue and discourage vice in its members, in pursuit of the common good, the state which encourages greed in the hope of getting public benefit, even if that hope is correct, is fundamentally failing in its duty.

Clearly, a proper understanding of the state, its origins, and its ends drastically alters which economic positions are credible and which are not. Yet the nature of the state and its ends are perfectly clear when Catholic social teaching is consulted and submitted to." (http://distributistreview.com/mag/2010/07/individualism-and-the-state-part-ii/)

Debates