I was reading in Chapter 8 of Murray’s “Man Economy and State,” and I noticed that Murray’s definition of “profit” is only that income above and beyond the rate of income that could be gotten from the market rate of interest (if I have understood him correctly). However, this seems a bit strange to me, because under this definition, if the market rate of interest is 5%, and a particular individual has a very low time preference that only necessitates a 2% interest return in order for that individual to feel that he has benefited, and he ends up getting a 4% return, by Murray’s definition, this man would have taken a 1% loss. But by receiving something he values more than what he would have gotten by not investing in that line, has not the individual profited (by a 2% margin)? Why must an individual’s profit be defined by how much higher the revenue is over the market rate of interest? Shouldn’t real “profit” be defined in reference to the individual’s own rate of time preference?
Opportunity cost.
generally speaking profit has two broad meanings; psychological profit, and an ‘accounting’ type profits measured in definite units.
Reisman seems quite happy to use the accounting style excess of sales receipts over costs, which seems the most natural to me, as it doesnt involve a fudge between the two meanings. Seems that invoking opportunity cost in money terms is, as Reisman says, an imagined cost, so one has to be very careful to be explicit abouts its psychological nature when using a meaning of profit that is such a blend.
Are you talking about actual accounting or the kind of accounting where the government allows you to only deduct half your entertainment costs?