Psychology Dictionary of ArgumentsHome
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| Profit: Profit in economics is the difference between total revenue and total costs. It reflects the financial gain from business activities, rewarding entrepreneurs for taking risks and innovating. Profit is a key indicator of economic performance and drives investment and economic growth. See also Rate of profit._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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David Ricardo on Profit - Dictionary of Arguments
Kurz I 282 Profit/rent/Ricardo/Kurz: In Ricardo's view the distinction between profits and rent is crucial, because as capital accumulates and the population grows the two component parts of the social surplus are typically affected differently: „This is a distinction of great importance, in an enquiry concerning rent and profits; for it is found, that the laws which regulate the progress of rent, are widely different from those which regulate the progress of profits, and se/dom operate in the same direction. In all improved countries, that which is annually paid to the landlord, partaking of both characters, rent and profit, is sometimes kept stationary by the effects of opposing causes; at other times advances or recedes, as one or the other of these causes preponderates. In the future pages of this work, then, whenever I speak of the rent of land, I wish to be understood as speaking of that compensation, which is paid to the owner of land for the use of its original and indestructible powers.“ (Ricardo 1951:68-9(1)) RicardoVsSmith, Adam: Hence what Smith called 'rent' of coal mines or stone quarries is to Ricardo profits and not rent. >Royalties, >Economic rent. Kurz I 283 What we call 'royalties', Ricardo actually calls 'profits'. Ricardo's use of the concept of profits for 'the compensation paid for the liberty of removing and selling the timber' is not surprising: timber can be sown and grown again, it is clearly not an exhaustible resource, but a reproducible good, and to the extent to which it is used as a produced means of production it is capital. But the use of the word profits for the compensation paid for the liberty of removing and selling coal or stones may be surprising; coal cannot be reproduced by men, neither can stones. However, new coal pits can always be expected to be discovered and the cost of the search is equal to the value of the mine, a value that decreases with the amount of the resource that has been removed. In other words, Ricardo did not need the word royalties since the minerals and ores, etc., as such were not considered to be fully exhaustible in the foreseeable future. 1. Ricardo, D. (1951 [1817]) On the Principles of Political Economy and Taxation, in P. Sraffa (ed.) with the collaboration Of M.H. Dobb, The Works and Correspondence of David Ricardo, Vol. I, Cambridge: Cambridge University Press. (P/b edn 2004, Indianapolis, IN: Liberty Fund.) Kurz, Heinz D. and Salvadori, Neri. „Ricardo on exhaustible resources, and the Hotelling Rule.“ In: Kurz, Heinz; Salvadori, Neri 2015. Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). London, UK: Routledge. - - - Rothbard II 87 Profit/Ricardo/Rothbard: (…) Ricardo may be pardoned for dismissing the profit-rate part of cost as of trivial importance. And, since all profit rates are assumed to be uniform, and, as we shall see, Ricardo had a cost theory of value or price, he could easily dismiss the uniform and small proportion, profit, as of no account in explaining relative prices. It is, of course, peculiar to consider profits, even profits as long-run interest, as part of the ‘costs’ of production. Again, this usage stems from eliminating any consideration of entrepreneurial profits and losses, and focusing on interest as a long-run ‘cost’ of inducing savings and the accumulation of capital. If profits for Ricardo are always uniform, how is this uniform profit determined? Curiously, profits are in no way related to savings or capital accumulation; for Ricardo, they are only a residual left over after paying wages. In short, to hark back to our original equation of Ricardian distribution: total output (or income) = rent + profits + wages. >Economy/Ricardo. Remarkably, Ricardo has attempted to determine all the variables with only one variable explicitly determined. Output, as we have seen, was assumed as mysteriously given, from outside the Ricardian system. Wages (‘the’ uniform wage throughout the economy) is the only explicitly determined variable, determined completely to equal the cost of subsistence, embodied in the cost of producing corn. But that leaves two residuals, rents and profits, to be determined. Rothbard II 88 The way Ricardo tries to get around that problem is to dispose of rents. Rents are the differential between the lands in cultivation and the least productive, zero-rent, land in use. The cost of producing corn is equal to the quantity of labour hours embodied in its production. >Economic rent/Ricardo. Since rents are zero at the margin, they do not enter into costs, and are passively determined; at the no-rent margin, labour and capital's shares exhaust output. And since wages are supposedly determined by the cost of raising corn, this means that profit can only be a truistic residual of wages, otherwise the variable would be overdetermined, and the system would evidently collapse._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
EconRic I David Ricardo On the principles of political economy and taxation Indianapolis 2004 Kurz I Heinz D. Kurz Neri Salvadori Revisiting Classical Economics: Studies in Long-Period Analysis (Routledge Studies in the History of Economics). Routledge. London 2015 Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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