Profit, in a broader sense, is the gain derived from action; it is the increase in satisfaction (decrease in uneasiness) brought about; it is the difference between the higher value attached to the result attained and the lower value attached to the sacrifices made for its attainment; it, in other words, yield minus costs. To make profit is invariably the aim sought by any action. If an action fails to attain the ends sought, yield either does not exceed costs or lags behind costs. In the latter case the outcome means a loss, a decrease in satisfaction.
Profit and loss in this original sense are psychic phenomena and as such not open to measurement and a mode of expression which could convey to other people precise information concerning their intensity. A man can tell a fellow man that a suits him better than b; but he cannot communicate to another man, except in vague and indistinct terms, how much the satisfaction derived from a exceeds that derived from b.
In the market economy all those things that are bought and sold against money are marked with money prices. In the monetary calculus profit appears as a surplus of money received over money expended and loss as a surplus of money expended over money received. Profit and loss can be expressed in definite amounts of money. It is possible to ascertain in terms of money how much an individual has profited or lost. However, this is not a statement about a social phenomenon, about the individual’s contribution to the societal effort as it is appraised by the other members of society. It does not tell us anything about the individual’s increase or decrease in satisfaction or happiness. It merely reflects his fellow men’s evaluation of his contribution to social cooperation. This evaluation is ultimately determined by the efforts of every member of society to attain the highest possible psychic profit. It is the resultant of the composite effect of all these people’s subjective [p. 290] and personal value judgments as manifested in their conduct on the market. But it must not be confused with these value judgments as such.
We cannot even think of a state of affairs in which people act without the intention of attaining psychic profit and in which their actions result neither in psychic profit nor in psychic loss[19]. In the imaginary construction of an evenly rotating economy there are neither money profits nor money losses. But every individual derives a psychic profit from his actions, or else he would not act at all. The farmer feeds and milks his cows and sells the milk because he values the things he can buy against the money thus earned more highly than the costs expended. The absence of money profits or losses in such an evenly rotating system is due to the fact that, if we disregard the differences brought about by the higher valuation of present goods as compared with future goods, the sum of the prices of all complementary factors needed for production precisely equals the price of the product.
In the changing world of reality differences between the sum of the prices of the complementary factors of production and the prices of the products emerge again and again. It is these differences that bring about money profits and money losses. As far as such changes affect the sellers of labor and those of the original nature-given factors of production and of the capitalists as moneylenders, we will deal with them later. At this point we are dealing with the promoters’ entrepreneurial profit and loss. It is this problem that people have in mind when employing the terms profit and loss in mundane speech.
Like every acting man, the entrepreneur is always a speculator. He deals with the uncertain conditions of the future. His success or failure depends on the correctness of his anticipation of uncertain events. If he fails in his understanding of things to come, he is doomed. The only source from which an entrepreneur’s profits stem is his ability to anticipate better than other people the future demand of the consumers. If everybody is correct in anticipating the future state of the market of a certain commodity, its price and the prices of the complementary factors of production concerned would already today be adjusted to this future state. Neither profit nor loss can emerge for those embarking upon this line of business.
The specific entrepreneurial function consists in determining the [p. 291] employment of the factors of production. The entrepreneur is the man who dedicates them to special purposes. In doing so he is driven solely by the selfish interest in making profits and in acquiring wealth. But he cannot evade the law of the market. He can succeed only by best serving the consumers. His profit depends on the approval of his conduct by the consumers.
One must not confuse entrepreneurial profit and loss with other factors affecting the entrepreneur’s proceeds.
The entrepreneur’s technological ability does not affect the specific entrepreneurial profit or loss. As far as his own technological activities contribute to the returns earned and increase his net income, we are confronted with a compensation for work rendered. It is wages paid to the entrepreneur for his labor. Neither does the fact that not every process of production succeeds technologically in bringing about the product expected, influence the specific entrepreneurial profit or loss. Such failures are either avoidable or unavoidable. In the first case they are due to the technologically inefficient conduct of affairs. then the losses resulting are to be debited to the entrepreneur’s personal insufficiency, i.e., either to his lack of technological ability or to his lack of the ability to hire adequate helpers. In the second case the failures are due to the fact that the present state of technological knowledge prevents us from fully controlling the conditions on which success depends. This deficiency may be caused either by incomplete knowledge concerning the conditions of success or by ignorance of methods for controlling fully some of the known conditions. The price of the factors of production takes into account this unsatisfactory state of our knowledge and technological power. The price of arable land, for instance, takes into full account the fact that there are bad harvests, as it is determined by the anticipated average yield. The fact that the bursting of bottles reduces the output of champagne does not affect entrepreneurial profit and loss. It is merely one of the factors determining the cost of production and the price of champagne[20].
Accidents affecting the process of production, the means of production, or the products while they are still in the hands of the entrepreneur are an item in the bill of production costs. Experience, which conveys to the businessman all other technological knowledge, provides [p. 292] him also with information about the average reduction in the quantity of physical output which such accidents are likely to bring about. By opening contingency reserves, he converts their effects into regular costs of production. With regard to contingencies the expected incidence of which is too rare and too irregular to be dealt with in this way by individual firms of normal size, concerted action on the part of sufficiently large groups of firms take care of the matter. The individual firms cooperate under the principle of insurance against damage caused by fire, flood, or other similar contingencies. Then an insurance premium is substituted for an appropriation to a contingency reserve. At any rate, the risks incurred by accidents do not introduce uncertainty into the conduct of the technological processes[21]. If an entrepreneur neglects to deal with them duly, he gives proof of his technical insufficiency. The losses thus incurred are to be debited to bad techniques applied, not to his entrepreneurial function.
The elimination of those entrepreneurs who fail to give to their enterprises the adequate degree of technological efficiency or whose technological ignorance vitiates their cost calculation is effected on the market in the same way in which those deficient in the performance of the specific entrepreneurial functions are eliminated. It may happen that an entrepreneur is so successful in his specific entrepreneurial function that he can compensate losses caused by his technological failure. It may also happen that an entrepreneur can counterbalance losses due to failure in his entrepreneurial function by the advantages derived from his technological superiority or from the differential rent yielded by the higher productivity of the factors of production he employs. But one must not confuse the various functions which are combined in the conduct of a business unit. The technologically more efficient entrepreneur earns higher wage rates or quasi-wage rates than the less efficient in the same wy in which the more efficient worker earns more than the less efficient. The more efficient machine and the more fertile soil produce higher physical returns per unit of costs expended; they yield a differential rent when compared with the less efficient machine and the less fertile soil. The higher wage rates and the higher rent are, ceteris paribus, the corollary of higher physical output. But the specific entrepreneurial profits and loses are not produced by the quantity of physical output. The depend on the adjustment of output to the most urgent wants of the consumers. What produces them is the extent to which [p. 293] the entrepreneur has succeeded or failed in anticipating the future–necessarily uncertain–state of the market.
The entrepreneur is also jeopardized by political dangers. Government policies, revolutions, and wars can damage or annihilate his enterprise. Such events do not affect him alone; they affect the market economy as such and all individuals, although not all of them to the same extent. For the individual entrepreneur they are data which he cannot alter. If he is efficient, he will anticipate them in time. But it is not always possible for him to adjust his operations in such a way as to avoid damage. If the dangers expected concern only a part of the territory which is accessible to his entrepreneurial activities, he can avoid operating in the menaced areas and can prefer countries in which the danger is less imminent. But if he cannot emigrate, he must stay where he is. If all entrepreneurs were fully convinced that the total victory of Bolshevism was impending, they would nevertheless not abandon their entrepreneurial activities. The expectation of imminent expropriation will impel the capitalists to consume their funds. The entrepreneurs will be forced to adjust their plans to the market situation created by such capital consumption and the threatened nationalization of their shops and plants. But they will not stop operating. If some entrepreneurs go out of business, others will take their place–newcomers or old entrepreneurs expanding the size of their enterprises. In the market economy there will always be entrepreneurs. Policies hostile to capitalism may deprive the consumers of the greater part of the benefits they would have reaped from unhampered entrepreneurial activities. But they cannot eliminate the entrepreneurs as such if they do not entirely destroy the market economy.
The ultimate source from which entrepreneurial profit and loss are derived is the uncertainty of the future constellation of demand and supply.
If all entrepreneurs were to anticipate correctly the future state of the market, there would be neither profits nor losses. The prices of all the factors of production would already today be fully adjusted to tomorrow’s prices of the products. In buying the factors of production the entrepreneur would have to expend (with due allowance for the difference between the prices of present goods and future goods) no less an amount than the buyers will pay him later for the product. An entrepreneur can make a profit only if he anticipates future conditions more correctly than other entrepreneurs. Then he buys the complementary factors of production at prices the sum of [p. 294] which, including allowance for the time difference, is smaller than the price at which he sells the product.
If we want to construct the image of changing economic conditions in which there are neither profits nor losses, we must resort to an unrealizable assumption: perfect foresight of all future events on the part of all individuals. If those primitive hunters and fishermen to whom it is customary to ascribe the first accumulation of produced factors of production had known in advance all the future vicissitudes of human affairs, and if they and all their descendants until the last day of judgment, equipped with the same omniscience, had appraised all factors of production accordingly, entrepreneurial profits and losses would never have emerged. Entrepreneurial profits and losses are created through the discrepancy between the expected prices and the prices later really fixed on the markets. It is possible to confiscate profits and to transfer them from the individuals to whom they have accrued to other people. But neither profits nor losses can ever disappear from a changing world not populated solely with omniscient people.
[19]. If an action neither improves nor impairs the state of satisfaction, it still involves a psychic loss because of the uselessness of the expended psychic effort. The individual concerned would have been better off if he had inertly enjoyed life.
[20]. Cf. Mangoldt, Die Lehre vom Unternehmergewinn (Leipzig, 1855), p. 82. The fact that out of 100 liters of plain wine one cannot produce 100 liters of champagne, but a smaller quantity, has the same significance as the fact that 100 kilograms of sugar beet do not yield 100 kilograms of sugar but a smaller quantity.
[21]. Cf. Knight, Risk, Uncertainty and Profit (Boston, 1921), pp. 211-213.
@ERO, And?
In this scenario, I clearly stand to gain more in personal purchasing power by killing a few Africans and taking their diamonds (provided there can be no negative legal consequences) than I could by letting them live, therefore it is rational and reasonable to kill them and take their diamonds.
I mean really, what is there for me to lose in this scenario? Nothing.
I guess the point was that you are ignorant of economics. Anyhow, that is fine that you claim to not value human life. You can’t however reasonably object when someone tracks you down and punishes you for your murders. Believe it or not, there are other people on Earth striving after thing just like you. You must be delusional to think you have nothing to lose when we are talking about real life and not some pathological hypo where you know you will get off for murder.
“Lol @ psychic profit, sounds like a bunch of mysticism to me.”
That’s funny because to me it sounds like Austrian Economics !!
Human Action. 97, 204-05, 289-90
…
"The fourth–and by far the least fundamental–postulate for a theory of the market is the one which Professors Hutchison and Machlup consider crucial–that firms always aim at maximization of their money profits. As will become clearer when I treat the Fundamental Axiom below, this assumption is by no means a necessary part of economic theory.
From our Axiom is derived this absolute truth: that every firm aims always at maximizing its psychic profit. This may or may not involve maximizing its money profit. Often it may not, and no praxeologist would deny this fact. When an entrepreneur deliberately accepts lower money profits in order to give a good job to a ne’er-do-well nephew, the praxeologist is not confounded. The entrepreneur simply has chosen to take a certain cut in monetary profit in order to satisfy his consumption–satisfaction of seeing his nephew well provided. The assumption that firms aim at maximizing their money profits is simply a convenience of analysis; it permits the elaboration of a framework of catallactics (economics of the market) which could not otherwise be developed. The praxeologist always has in mind the proviso that where this subsidiary postulate does not apply–as in the case of the ne’er-do-well–his deduced theories will not be applicable. He simply believes that enough entrepreneurs follow monetary aims enough of the time to make his theory highly useful in explaining the real market.5" - MNR
…
“Another case is a profit-making business firm where the owner or owners decide to accept a lesser monetary profit on behalf of some other goals of the owners: for example, because a certain line of product is considered immoral by the owners or because the owner wishes to hire incompetent relatives in order to keep peace in the family. Here once again, these are two sets of consumers—the buyers of the product, and the producers or owners themselves. Because of his own values as a “consumer,” the owner decides to forego monetary profit because of his own moral principles or because he holds keeping peace in the family high on his value scale. In either case, the owner is foregoing some monetary profit in order to achieve psychic profit. Which motive will dominate depends on the facts of each particular case. Since the market is generally characterized by a division of labor between producers and consumers, however, the general tendency will be for monetary profit, or service to nonowning consumers, to dominate the decisions of business firms.10” - Myth of Neutral Taxation - MNR
…
“We have stressed many times that the pursuit of monetary return (the consequence of consumer demand) is engaged in by each individual only to the extent that other things are equal. These other things are the individual producer’s psychic valuations, and they may counteract monetary influences. An example is a laborer or other factor-owner engaged in a certain line of work at less monetary return than elsewhere. He does this because of his enjoyment of the particular line of work and product and/or his distaste for other alternatives. Rather than “consumers’ sovereignty,” it would be more accurate to state that in the free market there is sovereignty of the individual: the individual is sovereign over his own person and actions and over his own property.[2] This may be termed individual self-sovereignty. To earn a monetary return, the individual producer must satisfy consumer demand, but the extent to which he obeys this expected monetary return, and the extent to which he pursues other, nonmonetary factors, is entirely a matter of his own free choice.” - Read more: Chapter 10—Monopoly and Competition
etc etc…
As always bloom, schooling you has been a pleasure.
We are remarking that you do not suffer psychic loss from murder. Do you think other people would suffer psychic loss? What %?
I value my life ERO, not everyone else’s. I have to respect their lives so they’ll respect mine. But if that incentive were removed, I would have no reason to care anymore.
I could reasonably object if what I did were legal and they weren’t legally allowed to kill me. They’d still have to be stopped with force but I’d be legally justified in killing them for trying to kill me. It really all depends on what the law says.
Like I said, the diamonds wouldn’t even be there when I got there because someone would have killed all the Africans already.
Look, I didn’t make up the hypothetical, blame him, not me. He said I was guaranteed no negative consequences.
I meant no external consequences like other people finding out. You can still have negative internal consequences.
You haven’t schooled anyone Conza, you’ve failed to show how I would stand to lose more than I would gain in this scenario.
The internal consequences are mine to deal with but I feel confident in my mental fortitude I think I’d lose some sleep but get over it when I bought a nice new Bentley.
If you actually understood what was going on, you’d understand that I didn’t fail.
Your ignorance of economics is what fails, that is clear enough - for all too see.
You’ve failed because you cannot show me how GIVEN THE PARAMETERS OF THE HYPOTHETICAL SNOWFLAKE CREATED I would stand to lose more than gain. He said there would be no legal consequences. I didn’t make that up.
You want a different response? Create a different hypothetical.
No no no he gets it. He just literally doesn’t feel sorry for other people to the point where he’s willing to mass murder if its a net material gain for him.
I value my life ERO, not everyone else’s. I have to respect their lives so they’ll respect mine. But if that incentive were removed, I would have no reason to care anymore.
I could reasonably object if what I did were legal and they weren’t legally allowed to kill me. They’d still have to be stopped with force but I’d be legally justified in killing them for trying to kill me. It really all depends on what the law says.
Like I said, the diamonds wouldn’t even be there when I got there because someone would have killed all the Africans already.
Look, I didn’t make up the hypothetical, blame him, not me. He said I was guaranteed no negative consequences.
I agreed with you, except the hypo is pointless since it doesn’t conform with reality at all. Naive legal positivism is not rational, no matter how many times you assert it. I really don’t know what else to say to you except that this is off topic and has been already gone over in another thread. Seek treatment bro.
ERO, I didn’t bring this up and I didn’t derail this thread. My first comments were totally in line with the thread’s main topic.
All I said was that they have the legal high ground (which they do) and that we can’t win this fight right now because people’s values are not in line with libertarian values.
Then somehow this all got thrown back on me as if I’d said something otherworldly. But if you look at how the Republican party has responded to this, it’s exactly as I said they would, they’re distancing themselves from it. Probably because they know it’s a losing fight.
I think you guys are the ones that need treatment tbh. You’re so far out of touch with reality that you attack anyone who simply tries to tell it as it is.
Killing innocent people for personal gain is almost universally accepted as immoral. No one would follow thru with the hypothetical, except the .6% of people who are psychopaths, which is untreatable.
Again, by ‘real world’ you mean mechanical. But people suffer extreme psychic loss from mass murder. That’s telling it how it is.
I don’t care if people say they think it’s immoral. You set up a scenario, you set up the rules and you ask me what I’d do. I see no reason not to kill. You can label me a psychopath all you want but your stupid scenario is at fault, not me.
You’ve also managed to totally derail the thread trying to character assassinate me like it’s going to make a difference. I know you want me banned, but you’re going to have to try harder.
“No no no he gets it.”
No, no, no - he didn’t…
“Lol @ psychic profit, sounds like a bunch of mysticism to me. Alright, well last time I checked I couldn’t use psychic dollars to pay my psychic bills.”
The ignorance is clear as day. Links to pgs in Human Action, clear that up. As well as others from MNR.
“He just literally doesn’t feel sorry for other people to the point where he’s willing to mass murder if its a net material gain for him.”
Huh? Wtf is this? You don’t think I know that? lmao…
Me previously to bloom: “For those with no conscience… sure. Fortunately, that crosses out about 96% of the population.”
And if you want to label me a psychopath, whatever.
The point still remains that you can’t show how I stand to lose more than gain in your silly scenario.
Can I go to the car dealership and say “Oh, I have these psychic goodness tokens will you give me a Merc for them?” Lol no.
He’s not addressing it because he thinks your framework doesn’t change anything. It merely categorizes him as someone who doesn’t suffer psychic loss, which is what he knew all along.
But you’re correct. He misrepresented it, at least initially. I just think there’s nothing you can say to psychopaths. They are literally untreatable. The best you can get them to do is blend in more seamlessly with the rest of us.
No, the point was for you to agree that you would kill everyone, demonstrating to everyone else on this thread that you are unreformable.