Profit should not be (but often is) confused with gain from effort. There is an informal or metaphorical sense of the word "profit" which is synonymous with this, but they are not really the same thing.
The existence of profit requires:
- borrowing: an assurance that loaning resources to another entity entitles the loaner to receive those resources back after a length of time (usually specified in advance) has passed
- investment: an assurance that loaning resources to another entity entitles the loaner to be repaid with additional resources (approximately proportional to the risk of not being repaid) on top of the original loan
- ownership: social acceptance of the idea that entities are entitled to maintain exclusive control of resources even if they are not being used and even when someone else has a legitimate need for them
Particular types of profit include:
- temporal: formal profit over a given time period that is in excess of what is needed to sustain regular operations
- disbursed: formal profit that is transferred to the owners of a business entity (typically a corporation) rather than being reinvested or held for other purposes
The Profit Motive
When unexploited resources are plentiful, the profit motive works for the common good by providing an incentive to invest the necessary wealth into developing those resources for the common good.
When unexploited resources are scarce and wealth is plentiful, the profit motive works against the common good because those with wealth will have both the means and the incentive to redirect existing wealth to themselves rather than developing new resources for the good of all.
Capitalist theory tends to look at profit solely in terms of a specific type of entity, i.e. businesses. Individual capitalists are primarily concerned with businesses in which they have a financial stake, which means that those businesses will tend to be (a) for-profit corporations (b) large enough to provide substantial revenue for many owners.
Capitalists consider the larger system of the society in which those businesses exist, which they refer to as "the economy", to be of secondary importance; it is only significant insofar as it has an effect on the profitability of particular businesses in which the observing capitalist has some sort of financial stake.
At their most broad-minded, capitalists will recognize that the profitability of all businesses (including their own interests) are to some extent related, and that therefore it is good even when businesses in which they have no stake are doing well -- as long as this is a reflection of generally profitable conditions in "the economy" rather than a competitor who is taking away potential profit.
Capitalists do not, however, have any interest in the profitability of a business's employees, nor do they recognize the importance of gain to society as a whole. Certain varieties of capitalist even go so far as to claim that "there is no such thing as society", a claim most famously made by Margaret Thatcher in 1987 (and an especially bizarre one, given that there could be no profit without society).
This belief typically leads capitalists to:
- favor policies (such as reducing the effectiveness of environmental or safety regulations) that can be amazingly destructive to society -- or even to a company's employees -- as long as they are even slightly profitable to the capitalist's business(es).
- oppose expenditures whose benefit is primarily to society -- improving conditions in general and thereby leading to more profitable circumstances for everyone -- rather than to a business or particular subset of businesses; indeed, they may honestly believe that such projects are a waste of money since the gain cannot be measured in terms of profit to any particular business.
Or, to put it another way:
The more problems there are, the better the economy, generally speaking. In this system, it is inherently GOOD for cars to break down, it is GOOD for people to get cancer, it is GOOD for computers to become quickly obsolete. Why? More money!
Change, Abundance, Sustainability are the enemies of profit.
Progressive advancements in science and technology, which can resolve problems of inefficiency and scarcity once and for all are, in effect, making the prior establishment's servicing of those problems obsolete. Therefore, in a monetary system, corporations are not only in competition with other corporations they are actually in competition with progress itself.
This is why it is so difficult to have any form of change in a monetary system. You simply can not have a social convention where money is made off of inefficiency and scarcity and misery and expect a quick incorporation of new advents that can relieve these problems.
Capitalist principles will ultimately lead to the destruction of society if they are allowed to control its course, as they do not provide any check upon the motive for localized profit at the expense of general degradation.
Profit and democracy are so contrary that there is no scope for comment. The aim of democracy is to leave people free to decide how they live and to make any political choices concerning them. Making a profit is a disease in our society, based on specific organizations. A decent, ethical society would pay only marginal attention to profits. Take my university department [at the Massachusetts Institute of Technology]: a few scientists work very hard to earn lots of money, but they are considered a little odd and slightly deranged, almost pathological cases. Most of the academic community is more concerned about trying to break new ground, out of intellectual interest and for the general good.
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