I’ve been busy getting settled in to my new job in a new place lately, so sorry to anybody who’s been wondering why I haven’t been posting. I feel like I’m finally getting caught up, so I wanted to tackle one of the topics on my list. Let’s try and talk about what profits are, and whether they should be considered good or bad.
First, what is the definition of profit? Our good friend Google defines it as follows:
a financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.
Many people see those words “financial gain” and often assume that it must have come from the financial loss of someone else. But that’s not true. Value is not a static commodity. It can be created or destroyed. As an example, if I buy lumber and build a house with it. If I am then able to sell that house for more than the lumber cost me, I have created value, and am able to make a profit. If I can’t sell the house for more, I must have destroyed value, and therefore incur a loss instead.
Also, value is subjective. Someone who already owns a house they are happy with will not value a new house as much as someone who is just unhappy with his current house, who will not value it as much as someone who has no house. So I will be able to create the most value if I build and sell a house to someone who does not already own house, and thus be able to earn higher profits.
These are the principles that allow entrepreneurs and business people to make decisions about the types of activities in which to engage. They must determine how they can create the most value, by producing those goods and services needed most in the most efficient way possible. In this sense profits show that time and resources are being utilized effectively, for the good of everyone.
Since none of the previously described activities would violate our Liberty Framework, we should consider profits a good thing.
There is unfortunately another side. A thief may be able to incur no cost, but can receive a financial gain. By the above definition, we could consider this a profit, and since such activity would be in clear violation of our Liberty Framework we would consider profits to be a bad thing.
Since profits cannot be good and bad, they must be neither good or bad. It is only the method by which those profits are obtained that is good or bad. So the next time somebody implies that someone or some corporation must be evil because they are only concerned with profits, remember that those profits could be an indicator that they are creating a lot of value, and why would they consider that a bad thing?