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The Popular Denunciation of "Profits"

The word profit has remarkably become synonymous with greed, avarice and gluttony per the modern lexicon. Hatred for profits has become so widespread that attendees of the 2012 Democratic National Convention, as one particular video illustrates, even banded together in agreement around the notion of completely banning them.

While it is understandable that so many Americans have become so distressed by the state of affairs in the United States, they are ironically protesting for the advancement of forces that will serve only to make their lives even worse.

Profits and savings are two of the main benefactors that are so popularly maligned in political circles that any shrewd and politically-correct economist will desperately squirm around them when describing the concepts of basic economics in front of a general audience.

A profit basically represents a case in which an individual, or collectively a market of individuals, assigns a value to a good which exceeds the value assigned to it by the producer. 

In general accounting, this tends to mean that the buyer assigns a value to the good in excess of the sum total costs of production. 

The profit, then, represents the value-add of the supplied good, whereby a consumer has voluntarily expressed that the good is worth more to him than it costs to produce. 

When extrapolated to represent markets, this mechanism sets reliable thresholds at which it makes sense to produce the marginal unit, where costs and benefits can be precisely evaluated to make this determination. 

Absent the instrument of profits, the market would be unable to reliably achieve the optimal coordination of resources — land, labor and capital — and it would realistically displace commerce to the informal economy, where economic behavior is simply less efficient. 

Let’s be honest about this hypothetical, though, as we imagine a world without profit, devoid of profit motive

This is analogous to a scientific discussion premised on the notion of a friction-less world. 

Friction is just as much a fixed phenomenon in this world as profit, and the world just simply wouldn’t exist as we know it absent these dynamics. 

People everywhere are motivated by profit, whether financially, emotionally or spiritually: the regular endeavor of the human individual is oriented toward the maximization of perceived advantage. 

In the world of commerce, profit merely represents that enjoyed advantage in usable, numerical form. 

As such, any attempt to eradicate this phenomenon from the world rivals the ridiculous attempt at eliminating friction from the field of physics. 

While friction interferes with ideal mathematical models of physics, it appears that profits serve to interfere with the Utopian’s imagined beliefs about the way the world could or should operate without them. 

Unfortunately, throughout this years-long exercise, the Utopian loses touch with reality and the fixed phenomena of the world, leaving him in a constant conflict against basic laws that he cannot change and does not understand.

It is simply remarkable to witness such basic concepts being ripped apart and so ruthlessly denounced by people who, in their private lives, scarcely hesitate to exploit them. Whether a discount, a promising investment opportunity, a more remunerative career, a leisurely vacation in the Pacific, a luxury handbag, a profitable real estate sale, or even a foregone expense, it is plainly a function of human nature to pursue our own respective advantages. Where these manifest as profits or savings in free enterprise, the reader will ultimately find that they are merely representations of two or more parties consensually operating toward mutual benefit, whereupon consumers — who are obviously suppliers elsewhere in the market — benefit handsomely from regular enjoyment of goods and services costing them measurably less than the total cost of production (borne by the producer) if they were to produce them on their own. 

Consider a basic chicken sandwich, which reportedly cost one man more than $1,500 over six months to make from scratch!

At the macro level, insofar as these exchanges are permitted within a free enterprise system, this amounts to the greatest advancements and savings for the greatest number of people. While this does not completely eliminate the possibility of poverty, it does and it has served to reduce it by the greatest measure, and — even more importantly — it has empowered the greatest many to pursue passions and gainful, consensual work that has driven purpose and utility beyond bare sustenance. In this sense, profits and savings — especially where they are real, not illusory — have long enabled even the most impoverished of a civilization to enjoy an elevated standard of living. Whether by charity or by the mobility afforded by capital formation, these are the factors which have reliably enabled the greatest riches of the world, which have ironically enabled so many to make a living from condemning the very factors which continue to furnish that luxury.

As it turns out, profit is definitionally a signal of time preference, underconsumption and capital savings freed up for alternative or deferred application. Indeed, profit — wherever derived — is precisely the source of all capital formations which have empowered laborers beyond their bare capacity, which have expanded the pie of production and have incidentally driven down the cost of living for the maximization of the greater standard of living. 

In fact, profit is effectively responsible for all paid wages, employment, charity, and end goods, while profit motive is precisely the cause for further explorations and refinements which make them more broadly available, more cost-effective, more useful, and more reliable. 

What's more, profit motive also incidentally serves to inspire the average laborer to achieve more than he even knew was possible, existentially and professionally, while the average consumer is likewise surprised to enjoy splendid fruits that he never imagined as well. 

Ultimately, the sum total of benefits from profits is enjoyed disproportionately by those of the lower-income strata, whose personal capital proves insufficient to organically sustain the lifestyle they imagine, whose lives benefit most bountifully from incremental reductions of price — or, which is the same, real increases of wages and purchasing power

Fortunately, free enterprise enables the incremental introduction of new capital to improve and scale the productivity of low-skilled labor, while improved and scaled forms of productivity increase wages and thereby savings, which serve the individual the same way profit serves the corporation. 

Ironically, the individual tends only to exhaust savings in less creative ways by spending primarily on vacations and consumer goods or, secondarily, by investing thoughtlessly in index funds or ETFs, insofar as the average laborer is personally investing at all. 

Meanwhile, corporate profits tend to pay out directly and indirectly to shareholders through dividends or stock appreciation, consumers through lower prices and better products, workers through higher wages, benefits and job security, and other entrepreneurs through efficient supply chains and affordable lines of credit. 

But wait, there's more!

Profits and losses prove whether goods and services are being utilized efficiently. A profit demonstrates a positive use case in a market, whereas a loss illustrates a case in which ends fail to justify costs. This picture signals to the markets how to optimally utilize the limited resources available to us, whether physical or human capital, which prevents a misallocation of both scarce resources and expensive labor. 

Consider price increases during emergency situations like Hurricane Irma back in 2017. Some non-economists prefer to label these increases as price gouging, yet they are simply the market's response to the very factors mentioned above. In effect, they are adjustments to the influx of demand in excess of changing supply. 

In the case of Hurricane Irma, Floridians mobilized to purchase everything they could conceivably need to weather the storm and protect their property. Stories abounded of lines at gas stations, shortages of water at grocery stores, and lack of sand for sandbags. How could this possibly happen? Well, it was all a matter of price.

In imagining the size and scope of industry, the average person tends to assume that supply is virtually unlimited. The consumer arrives at the grocery store to predictably view aisles full of goods. The average shopper probably overlooks the majority of the products as he robotically moseys over to his typical corners of the store, and down his normal aisles, to get his favorite snacks and beverages. For the most part, he assumes that his common purchases will be readily available on their normal shelves, where they have been week after week, year after year. He is understandably lulled into this assumption by the efficiency of the market; however, his budding assumption has misleadingly produced an illusion. Over time, the tested illusion becomes his assumed reality, until the day he desperately scurries over to make last-minute purchases in preparation for that inbound hurricane.

Unfortunately, this is the absolute worst time to begin preparation, as it seems the rest of the world has descended upon Florida's panhandle in a race to buy everything on sale. Oddly enough, the only factor that can spare an untimely shopper during a shortage is a price increase.

Imagine a family who's eager to stock up for the storm. They are at the grocery store, where they approach the section for bottled water and notice that the crates are full of regularly-priced product. The value of that product is nearly always worth this amount to the family, so they would naturally feel comfortable buying as many as they could transport back to their vehicle, knowing that they would eventually use them in the future anyway. However, these bottles of water could have produced far greater marginal utility for the many who haven't yet arrived at the grocery store, whose demand for water far outstripped the market price for those bottles. But before they knew it, the family that made it to the store before them benefitted from proximity and timeliness, in effect causing a misallocation of goods away from their most valued ends toward excess or waste. Had the prices adjusted upward to account for the shortage, the supply would remain available for those most desperate to purchase it. Though this may still strike the average reader as price gouging, one must remember that the effect of prices is not limited exclusively to the purchaser who ultimately pays the cost, but — as illustrated — those prices influence the buying behavior of every shopper who considers the product. In this sense, the price paid reflects the amount required to keep that product on the shelves, available for that final desperate shopper. 

Ultimately, the rising price levels serve to indicate an emerging supply shortage, incidentally signaling a potential profit opportunity for other suppliers who might assume higher costs to mobilize their inventory for greater perceived gains. Those suppliers who ultimately fail to shift their inventory, whose profits would have exceeded costs, will effectively assume a loss against those expected gains. While circumstances don't always bear such visibly stark contrasts, profits and losses naturally tend to illustrate the most nuanced pictures, pinpointing markets with elevated effective demand over others presently lacking it, while simultaneously extirpating superfluous work and failed business practices to, once again, reallocate capital where it can be most efficiently utilized. The greatest feature of this mechanism is that it works without a single central authority, consensually through the participation of all market agents. 

In turn, this enables measured specialization and illustratable comparative advantage between markets in order to procure the most desirable outcome as dictated by dynamic market forces. Just as human proclivities are always changing, as trends and fads are coming and going, profits and losses represent those changes to allow markets to adjust and meet new demands, thus perpetually enhancing the general standard of living.

Again, all of this works without any special attention paid to the complete mechanism, as it is merely the manifest expression of the executed preferences of all market participants.

Ultimately, profit motive enables the pie of production to grow to not only match the growth of population, but to operate ahead of the imaginations of the average consumer who lacks the capital, the acumen and the foresight to coordinate and build what he will one day enjoy. 

Unfortunately, the word profit has become one of the most vilified words in the English language purely for the general misunderstanding of the concept and the unmistakable envy of protesters operating from the convenient misconceptions which conceal their own greed.


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