Profit and loss

[erudito]

What is profit, really? is one of those hardy economic perennials. But any explanation of profit has to also be an explanation of loss since they are just the positive and negative forms of the same thing. Any analysis of profit that is not also an analysis of loss is analytically pointless - a simple test of whether an analysis of profit is

Comments

[taavi]

"But that rests on a rather bizarre “subsistence” view of production, where only labour is a truly legitimate contribution to production-since it determines its exchange value-so only the satisfying of labour makes production fully legitimate"

Precisely backwards. In Marx' schema labour determines exchange value because it is the contributor of value to production. What you have said is labour contributes value to production because it determines exchange value. You have cause and effect the wrong way around.

This leads on to the question that Marx attempted to answer and that your analysis entirely begs: where does the residuum come from? Everyone has put stuff (capital priced at A, labour priced at B, land priced at C) in, but if the business is not to go out of business the price fetched by the products, D, must be consistently greater than A+B+C, even though those are its inputs. All you have done is rename D-(A+B+C) from "profit" (or loss) to "residuum". This has all the explanatory power of a dormitive virtue. It doesn't

[jordan179]

This analysis does have one useful point, though, as it highlights the question: if profit is not the return to capital as you say, why is it that the capital-contributor is usually the person who receives (or is left holding) the residuum? Why isn't it shared with the other input providers?

What do you imagine to be "wages," "rent" and "cost of input goods and services?" An enterprise pays its laborers wages, the owners of the land rent, and the suppliers of goods and services the prices of those goods and services.

You are, incidentally, assuming the existence of a "residuum." But that is not always the case: it is perfectly possible for an enterprise to show a loss, or even to fail completely.

Rights and decisions

[erudito]

I wasn't claiming that being the residual was explanatory, I was claiming that it was the thing to be explained.

The owner is the person who bears the profit or loss: not quite the same as the contributor of capital -- capital can be borrowed, for example. Having the owner be the receiver of profit or loss conjoins incentive with power. The person making the decisions (including hiring managers) is the person who benefits or loses from them. The other input provides get paid their share, and the net effect of the common activity is born by the person responsible for coordinating said activity (including any delegating of coordinating).

In other words, it is a rights-and-decisions structure, not a factor-of-production structure. (Explaining that has been clarifying for me, thank you.)

Re: Rights and decisions

[taavi]

You're welcome.