Question: Where does profit come from?

[Hannah Bell]

Imagine a world with 2 "owners" & 20 "workers".

Imagine each of the owners has $100 to "invest".

Each buys $25 worth of raw materials from the other ($15 "rent" cost, $10 labor cost).

Then each one pays their 10 workers $75 to produce 20 widgets.

Imagine everyone needs some access to a widget to sustain their life.


So, at the end of the production cycle, we have:

20 workers with $170 dollars.

2 owners with $30 in cash & 40 widgets that cost $200 to produce, that they'll now attempt to sell at a profit.

Where does the profit come from?

Serious question.

[Cleita]

1. When I had a business, that isn't the way I did it.

I figured out what gross profit margin I wanted and that I could I achieve over the wholesale cost of the product I would sell. Then I figured in my overhead that would be deducted from this gross profit margin, that would give me net profit, on which I often had to pay taxes. What was left was mine.

[Hannah Bell]

4. But here's my question: if you look at the bigger picture, the workforce

as a whole is paid less than the pre-profit cost of the goods they make.

They don't even get enough to buy all the goods at cost, let alone with profit tacked on.

So where does the profit come from?

[Cleita]

9. People who can afford to purchase the product.

I mean do you really think workers who build yachts should be able to buy them?

I have to say that the products I sold, first beer and spirits, and then books, were affordable by my employees. Also, in the case of the first, they weren't allowed to drink where they worked, however, I could take a 150% markup on the product. In the latter I gave my employees, the wholesale price plus sales tax (law required it) as a perk, although I could only take a 15% to 20% markup on that product, so that was essentially their discount. I always felt though that employees, not stockholders, should be the beneficiary of profits on the quarterly returns. Of course in the case of loss, I don't know how one could work that out. The loss being that the overhead and taxes exceed the gross profit.

[Hannah Bell]

25. You're missing my point. I'm asking about the whole system, you're looking at your

business in isolation.

Say there's one business that makes $1000 worth of yachts, & they pay their workers $500 in wages.

Then there's another making $2000 worth of houses, they pay their workers $1800 in wages.

another making $3000 of milk, pay their workers $1500.

Ok, so there's now:

$1000 in yachts, $2000 in houses, $3000 in milk worth of goods on the market, $6000 worth of goods on the market.

The workers have $3800 in wages to spend.

They can't buy them all, even at cost. You can repeat the numbers ad infinitum, it still comes out the same.

So where does profit come from?

[Cleita]

29. My business in isolation works the way most businesses do.

I really don't understand your premise because it sort of defies all business and accounting practices as they are done today. It's really easy to project profit if you follow the rules that I set up in my first post. The only thing that will destroy the model is an unforeseen disaster that might ruin the product before you get it to market, or lack of projected sales, which will put a business into arrears.

[Hannah Bell]

36. I don't see why the premise is hard to understand.

Total wages in the system have to be less than the cost of total goods produced in the system.

The pre-profit cost price of goods has to be equal to the cost of investment, which = $ spent on labor + $ spent on resources, plant, equipment, etc.

So there's no $ for profit, unless someone loses.

[dysfunctional press]

43. your closed system with arbitrary numbers is not representative of the real world.

is that clear enough to understand...?

[Hannah Bell]

47. It doesn't matter what numbers you plug in.

Cost price (pre-profit price) = cost of inputs (labor, raw materials, rent, utilities, taxes, equipment, etc.)

That is, cost price = $ invested in production.

Every year, x dollars are invested in production, to produce products with a cost price of x.

The workers are paid less than x.

Profit = x + y.

Where does the y come from, since there's only x dollars in the system as a whole?

[dysfunctional press]

48. you really need to take a class in finance...

and economics, and social studies, and geography...

aw heck- why not just go ahead and get the whole high school-level edumacation while you're at it.

btw- have you ever considered adding banks, interest, and a fed to one of your closed-system examples? :shrug:

[Hannah Bell]

53. Now, I've always had a suspicion that when someone tells you to

"take a class," it's because they can't answer the question.

If you want to explain to me how banks & interest alter the picture, I'm happy to listen.

[dysfunctional press]

74. it's a little more involved than i care to go into on a sunday morning, typing on a message board...

suffice it to say that a real world economy has A LOT more components to it than 2 owners and 20 customers.
your "examples" have absolutely NO representation of the real world. you want simplistic answers to a complex situation- it doesn't work that way.

read a book.

or several.

[Hannah Bell]

95. yeah, cars are complicated too, with lots of parts. but i can explain

how they work in a couple of sentences, & i know if you don't put in energy, they don't move.

it doesn't matter how many players there are, or what numbers you slot in, or what time frame you use. the systemic equation stays the same.

it doesn't matter that you insult me, either. cause i haven't insulted you, so i know your insult is unwarranted.

[dysfunctional press]

96. it matters quite a bit how many players you use, what numbers and the time frame...

the problem is, the real world isn't a systemic equation.

someday you may even live in it, and see that for yourself.

[Hannah Bell]

102. i take it for granted that owners DO make profit. I'm looking to understand

how it happens, in a system where labor cost is necessarily only part of the cost of production.

I have some ideas, but i wanted to see if anyone had better ones.

So far, no one has. They can explain how a producer comes to have surplus goods. They can explain how a trader comes to have surplus money.

But they can't connect the two processes.

You can insult me all you like, doesn't faze me.

[dysfunctional press]

135. it is extremely simple where profit comes from in the real world-

you sell something for more than what it cost you to be in your possession (whether you bought it, stole it, made it, or whatever) the amount you receive above and beyond your own investment in it is your profit.

[B.S. Lewis]

184. Your dismissiveness is pretty dumb.

A person would only treat Hannah Bell as the pinnacle of thinking about the labor theory of value (no offense, HB) if one's predetermined objective was to dismiss it.

http://en.wikipedia.org/wiki/Labor_theory_of_value">Educate yourself.

[Dorian Gray]

233. And credit card debt....

Loans. And everything else people borrow in order to pay for crap.

[lonestarnot]

34. The workers look pretty squeezed don't they?

[dysfunctional press]

35. there are other people besides the owners and the workers who make a specific product.

they are called "customers".
the profit comes from them.

[Hannah Bell]

38. ?

In the example, the workers & the owners are also potential customers.

Who are these other customers you speak of, & where do they get their money, if they neither work or own?

[dysfunctional press]

41. you're the one who said that you want to talk about the 'whole system'.

and in the whole system there are more than two or three products, more than one country and one type of currency, more than just a few owners and a hand full of workers.

[Hannah Bell]

49. It doesn't matter.

Every year, the total $ paid in wages will be less than the cost price of the goods produced, no matter how many different firms, countries, products, workers there are.

It's necessarily so, mathematically.

The pre-profit price/value of a good = the cost of the labor & other inputs (plant, equipment, resources, etc.) it takes to make it.

Therefore the total pre-profit cost of all goods produced within a given time frame = the cost of inputs used to make them.

Which means the total labor cost is always less than the cost of total production.

[dysfunctional press]

50. what about banks, interest on loans, and a government that issues the currency...?

for starters.
shouldn't those things be included in your scenarios?

[Hannah Bell]

54. explain how.

[dysfunctional press]

73. you want someone to explain a semester of finance in one post...?

pay your tuition and take the classes like everyone else.

[MonkeyFunk]

92. salaries are not the only source of money in the real world

As pointed out above, you're creating an artificial closed system that doesnt' reflect the real world.

[Hannah Bell]

103. I understand that. You get money by producing something & having

others buy it, or owning a resource & selling it, or receiving gov't money from taxes assessed on wages & capital, or financial arbitrage, or printing it yourself, or robbing banks, etc.

But ultimately, all that money gets its value either from owning productive resources or from labor, & both are in the example.

[Dorian Gray]

234. But there is also

MUCH MUCH MUCH MUCH money out there that is not earned in wages. It exists in wealthy families. It exists in the coffers of countries and companies and non-profits, all of whom buy crap. The amount earned in wages is not correlative to profits for companies.

[Yupster]

59. Okay I'll bite

the other customers are retired people getting checks from the government (FICA) or retired teachers getting checks from TRS. Then there are governments and people outside the US who buy the products as exports.

Not buying your numbers -- just pointing out the obvious people you're example is missing.

[Hannah Bell]

63. But Social Security $ come from taxes taken from current workers'

checks & owners' capital. It's not just "free money," it's part of the cost of production.

So add to the model:

The owner has $100.
He pays his labor $70 + half their SS tax @ 1% = .70. (I know this % is wrong, but the principle is the same no matter what % you plug in.)
He buys $29.30 worth of raw materials.
The workers produce 20 widgets with $100 of labor & other costs invested in them.

The owner has 20 widgets worth $100 before profit.
Ten workers have $70 - 1% SS tax = $69.30.
A retiree has $1.40.
The raw materials supplier has $29.30.

Total cash in the system = $100.
Cash in the hands of workers & former workers: $70.
The owner of the raw materials has $29.30.
Cost price of the product = $100.

You can multiply this scenario by a million firms & 30 million workers; the relationship between the numbers doesn't change.

[Yupster]

119. I think you're thinking that money is finite

That there are $ 100 that go around to a lot of people.

Actually, the amount of money out there is growing dramatically all the time.

It's not just the money that the government injects into the system, it's also the "value" of stuff. Your house is worth $ 140,000. Is there $ 140,000 of dollars somewhere waiting to purchase it? No - in fact, when it is probably purchased, it will probably be bought with something other than dollars. The buyer will get a loan from a bank which is in turn backed by a government pledge.

It works out okay as long as prices go up. When prices go down and real money is required rather than everyone's guarantees, then you have big problems.

It's an even bigger deal with stocks. If a company dissolves itself and gives the money out to the stockholders, the stockholder will not get $ 40 for his $ 40 of stock. More likely he may get $ 5 if that much.

In short our economy is based on projections of perceived value and perceived dollars of wealth rather than actual dollars running around.

I know that's complicated and probably convuluted too, but it's the best I can do.

[Hannah Bell]

123. "I think you're thinking that money is finite"

Yes, I'm thinking it is, at any given point in time.

I understand that over a period of time, the money supply grows, & that money is created by lending & gov't printing. I was hoping that someone would tell me how this growth puts profit into the hands of producers more specifically.

"It's not just the money that the government injects into the system"

OK, but where does the money come from? Either it's taxed from producers or printed. If taxed from producers (labor & capital), it doesn't put new money into the system. If printed into existence, it devalues existing money, unless its backed by new production.

In the example, there are surplus widgets produced that can't be sold. So the government could print more money, effectively monetizing the cost value of the new production. But if they print enough money to provide a profit, it's still inflationary. Same with a bank loan & the interest on it.


"it's also the "value" of stuff. Your house is worth $ 140,000."

I think that if you trace where that "value" comes from, it's effectively the cost of replacement in the current economy - with some noise thrown in. That's my guess. But sure, the value of the house is part of the money supply, & can be borrowed on. But that's taking money from future production to buy today's goods, if only for the interest.

[SoCalDem]

30. Producers hire people for as little as possible..

desperate workers try to get as much for their labor as possible.. More workers than jobs= less pay/more profit for boss

the cost of making the product and buying the raw materials are more or less constant..

the variable is in how cheap the labor is and how desirable/scarce the end-product is..

everything over what you paid for the raw materials, overhead and labor = profit..

[arcadian]

2. profit = exploitation of labor

n/t

[Lorien]

99. I'm self employed. Am I exploiting myself?

I don't always love what I do for a living, but I don't always hate it, either.

[arcadian]

106. This quote sums it up.

"I would rather earn 1 percent off a 100 people's efforts than 100 percent of my own efforts."
-John D. Rockefeller

[ColbertWatcher]

116. Pics or it didn't happen. n/t

[noamnety]

126. Exploiting others, not yourself, assuming you're getting ahead.

You pay yourself $20 (random number) per hour doing ... eh, let's say work on a computer.

You bought the computer, which was built by people who, indirectly, you paid less than $20 an hour to for their labor.
The people who installed the internet lines, who built the cables, all that, you pay them less than what you pay yourself.

You eat food grown by people whose work you value (indirectly, with your wallet) less than you value your own work.

It's still exploitation of other people's labor in order to put yourself in the position you're in. (As is the case with all of us on DU, I'd wager - that's not to single you out, just saying that we have our lifestyles because we profit from the exploitation of others.)

[Kutjara]

3. Profit results from "noise" in the economic system.

In a simple economic model, where each participant has access to all necessary information about cost and price, where no coercion exists, and where all decisions are made rationally, profit would not exist (beyond that necessary to maintain the factors of production).

Introduce informational imbalances, purchasing/bargaining power imbalances, state and private coercion, and irrational buying behavior ("luxury goods" commanding higher prices than equivalent-quality "generic goods" because of the perception of "cachet" or "exclusivity"), and you have all the ingredients necessary for supernormal profit.

Corporations work hard to maximize the noise in the system, because that's where fortunes are made.

[Hannah Bell]

5. I can see that, partly.

But here's why it doesn't totally satisfy as an explanation:

the workforce as a whole is paid less (has to be paid less) than the pre-profit cost of the goods they make.

They don't even get enough to buy all the goods at cost, let alone with profit tacked on. Even if there's no noise in the system.

So where does the profit come from? , I think.

[Kutjara]

10. If I understand your argument correctly...

...that's where the coercion comes in.

In a society where all participants have equal power and perfect knowledge, everyone would know how much raw materials cost, how much labor goes into the finished widgets, how much it costs to feed, clothe, and house a worker (and an "owner," for that matter), how much it costs to maintain the widget-making factory, how much it costs to distribute the widgets, etc. Everyone would therefore have a clear idea of what a widget should cost, and (being rational) would only pay that amount to buy one. Since, presumably, the owners would be in competition with each other, any attempt by one to raise the widget price above the other would be immediately communicated to all economic participants in the society, whereupon they would rationally decide to buy their widgets from the other guy. The price-hiker would have to drop his price back to the same (or lower), or else quickly go out of business. This downward pressure on prices would continue until the market price of a widget exactly equaled the cost of making it.

A similar situation would exist for the labor force. Wages would be equal for every one, because individuals demanding more would quickly be priced out of the market. Note that this argument ignores the impact of more highly skilled workers being able to command higher wages, because that adds a degree of complexity that isn't helpful here.

So, under this model, every laborer would be paid in accordance with the going, competitively determined, wage rate, would pass on the fruits of their labor at an (effective) price equal to the cost of their inputs plus the cost of their own contribution, which the owner would then sell for a price equal to the cost to him of producing the goods, plus the cost of maintaining the factors of production.

In this very simple model, profit has been arbitraged out of every stage of the production process. Add coercion and other inequalities back in, however, and all bets are off.

[Hannah Bell]

26. No, I'm not saying all that, I'm just asking, since workers in aggregate

are always paid less than the cost price of the goods they produce, package & transport, that necessarily means they can't buy them all back.

Say there's one business that makes $1000 worth of yachts; they pay their workers $500 in wages.

Another makes $2000 worth of houses, pays their workers $1800 in wages.

another makes $3000 of milk, pays their workers $1500.

Ok, so there's now:

$1000 in yachts, $2000 in houses, $3000 in milk worth of goods on the market, $6000 worth of goods on the market. ThAt's pre-profit cost price.

The workers have $3800 in wages to spend.

They can't buy everything, even at cost. You can repeat the numbers ad infinitum, it still comes out the same.

So where does profit come from?

[dysfunctional press]

45. what happened to the world with 2 owners and 20 workers?

you're trying to compare the real world with your closed system(s) of arbitrary numbers.

you should consider taking a class in finance...maybe you'll find the answer you're looking for.

[Hannah Bell]

51. You seem to be missing the point. I used 20 workers for convenience.

But it doesn't matter if there are 20 workers or 2 billion.

The pre-profit price of a good (z) = the cost of producing it (z), which = labor cost (x) + other costs (raw materials, plant, equipment, etc.) (y).

If the world invests 1 trillion dollars in labor & 1 trillion dollars in other costs, the pre-profit cost of the goods produced is 2 trillion dollars.

x + y = z

Profit is x + y = z"+"

Where does this "+" come from?

[dysfunctional press]

52. post #48 should point you in the right direction...

happy hunting.:hi:

[Hannah Bell]

60. as i said, i figure when someone tells me to go back to school, it's because

they can't answer the question, & wish to disguise that fact with insults.

[dysfunctional press]

72. there's no answering your question because your pretend world isn't accurate.

there's MUCH more to an economy than 2 owners and 20 workers.

[muriel_volestrangler]

80. In your example, the difference is the $15 x 2 "rent" cost of raw materials

You said the 2 owners each sold some materials to each other - for $25, after having paid $10 wages for some work on it.

So they obtained those materials somehow - either they owned, by law, the rights to the materials, or they are the only 2 people to realise that some others are willing to do $10 of work on materials available for free to everyone, and then everyone will value the materials at $25.

[Muttocracy]

86. thanks - answers my question earlier about the raw materials advantage. nt

[Hannah Bell]

94. sure, they owned the land where the resources came from.

Or they bought them from someone who did. this is the situation in the real world, someone owns the raw materials & gets paid for supplying them to producers.

& in the real world, the producers make profit.

[dysfunctional press]

101. who is this "someone" from who they bought the land???

you said that the world consisted of only 2 owners and 20 workers- period.
who did the owners buy the land from?

and you never did answer my question(s) so i'll pose it again- who issues the currency in your world? what backs it up? and what is the total value of all currency in circulation in your world? :shrug:

[Hannah Bell]

104. ahem: it's the other owner in the example. who represents the millions

of owners in the world. as the workers in the example represent the billions of workers.

the total value of the currency in circulation in my world = the total value of owned resources & production - as it does in all worlds.

who issues the money? in the real world, the ownership class, so let's say it's the same in my example. or we can add in a banker, or a government.

if you can show me how these additions produce monetized profit, have at it. i'm very willing to learn from someone who's had the benefit of so many finance classes.

[dysfunctional press]

134. ultimately it's EXTREMELY simple where profit comes from-

when you sell an item for less than you paid to produce it- you get profit.

it REALLY IS as simple as that.

btw- i never said that i took any finance classes- i said that YOU should probably take some, seeing as you can't figure out that your scenario in no way represents the real world and can't seem to figure out how profit is generated.

it's not something that i was ever interested in taking classes in.

and btw- governments issue currency, NOT the 'ownership classes'. and the money supply is not static- it can go up or down, depending on whatever the current government policies are. and the values of different currencies against each other also goes up and down. none of that is accounted for/represented in your unrealistic and over-simplistic 2-owner 20-worker scenario.

[Hannah Bell]

140. actually, governments and private entities issue currency & credit,

& both are run by the ownership class.

if you think profit is so simple, then why argue with me? you have an answer that satisfies you, nothing more to say.

[dysfunctional press]

142. private entities might issue credit- but the currency that ultimately comes due is government issue.

and if you see the government as 'the ownership class', that's your problem.

no wonder you have such a hard time understanding a concept as simple as profit.

sheesh...:eyes:

[Hannah Bell]

154. The US Treasury prints money - so that's it, eh?

You know, you really should "take a class" - not only on present arrangements, but the history of banking.

Try Fed Open Market Operations
Federal Funds Rate
First Bank of the US
Second Bank of the US
Andrew Jackson, Nicholas Biddle & the Bank War
"bank note"
for starters...

[dysfunctional press]

159. it really doesn't interest me to any great extent.

if it did, i would have been a finance major back in college.

but at least i know that profit comes from selling something for more than it cost you to come into possession of it.

[Hannah Bell]

163. that's the definition. i had to know that much to ask the question.

but it doesn't explain where it comes from.

[Hannah Bell]

165. if you took a class, though, you'd know govs are almost never the sole money creator.

only under communism.

money creation is the biggest profit center there is.

[dysfunctional press]

166. "money creator" and "currency issuer" are two different things completely.

if you took a class in semantics, you'd know that (well...assuming you did the work)
only the government issues a nation's legal currency.

[Hannah Bell]

168. as i said, check out the history of the us. it's not the case.

[dysfunctional press]

169. it's the case today.

and that's all that really concerns me.

but at least i know where profit comes from.

[Hannah Bell]

172. well, since you know, why are you here?

you've given me your advice on further study, your work is done.

[dysfunctional press]

174. why are any of us here?

:shrug:
that would probably warrant a thread all it's own.

[Hannah Bell]

203. Why are you here, in this thread, insulting me, when I've not insulted you and you're confident

in your knowledge?

[dysfunctional press]

211. just trying to share.

we each have our own perceptions.

[Hannah Bell]

212. Great. If you'd just share your perceptions without personalizing things,

that would be nice.

[dysfunctional press]

214. i see- so you're the only one qualified to mock user names then?

being all holier-than-me and all....

[Hannah Bell]

217. My mocking occurred rather late in the game, after repeated requests for you to

stop with the insults.

It won't happen again.

[dysfunctional press]

220. does that also mean that you're not going to lie about your conduct anymore either?

:shrug:

[dysfunctional press]

216. yes,it pretty much does.

profit comes from selling something for more than was paid to aquire it.

[B.S. Lewis]

188. You just made HB's point for her

ultimately it's EXTREMELY simple where profit comes from-when you sell an item for less than you paid to produce it- you get profit.

No kidding. And labor costs are part (for most products, the largest part) of the cost of production.

If I have enough money to buy a house and you don't, I'm going to lend it to you at interest. If I have the amount of capital necessary for modern production (enough to set up an SUV factory, for example) and you don't, I'm going to employ your labor and I'm going to pay you wages less than the market value of what you produce.

The principle is the same in both cases. Some people might say that interest, and profit from products made by others' labor, are forms of usury. I prefer to think about it in more amoral terms: interest and profit from others' labor are both forms of rewards for prior wealth. As though wealth wasn't a reward in itself!

I'm all in favor of intellectual property rights. They wouldn't look the same in a non-market society as they do in a market one (they couldn't possibly), but I'm in favor of the principle that when you come up with a machine or process that increases the efficiency of production you should be rewarded in proportion to your actual contribution. I'm also in favor of letting the "market" (more or less) determine how much money an entertainer or artist gets for his product. I don't want purely state-planned art...even though some of the best art in history *was* financed through a patronage system.

However, as far as production that is done in a more or less fixed way, with very little or no innovation taking place, why should someone get to skim a profit off the top of this production process solely because they had enough capital to initialize production on the scale required by modern industry? Do we really need to incentivize wealth?

[dysfunctional press]

191. it doesn't always take a lot of capital to initialize production...

just ask the kid down the street with the lemonade stand.

and not all investments are profitable ones- there is also the element of risk. an entrepreneur doesn't "get to skim a profit off the top of this production process solely because they had enough capital to initialize production" -they also have to risk that capital...there is no guarantee that an investment will realize any profit at all.

so i guess my answer would be "yes"

[B.S. Lewis]

196. Sure

I never said that it did always require a massive amount of capital.

Just as I'm sure you are not saying that corner lemonade stands drive our economy.

As for accepting risk, well - how noble. Poor capitalists. A "heavy lies the crown" sort of thing (to quote The Departed)? I'm pretty sure we'd all be willing to accept their horrible burden of risk.

Do you suppose they are doing something altruistic for society--incurring risk to themselves so that we all might benefit? They're playing the odds, in their own rational self-interest. On average they win or they wouldn't be doing it. Meanwhile, there is a large class of people (the majority in fact) who work for wages on other people's capital because they cannot afford their own.

The corporate scheme of partial ownership through stocks makes the analysis more complex, but it doesn't alter the fundamental truth about different relationships to the means of production. There are still people who must work (on another's capital) or starve, and there are still people who don't have to work because they live on other people's labor. The existence of a middle class changes this fact...not at all. There was already a middle class back in Marx's time, and he acknowledged it.

You should check out The Working Class Majority by economist Michael Zweig.

[dysfunctional press]

201. lemonade stands don't drive the economy- but small businesses do.

my father-in-law died a couple months ago- he was 84. his father abandoned his mother with 3 children when he was 12- he was the oldest. on d-day plus 20 he entered the european theatre as a radioman- he got the assignment because of his childhood interest in radios and crystal sets.
he survived the war intact, and after he came home, he worked for awhile in a couple of factory jobs but was never satisfied with it...so he saved his money and kept tinkering. after a couple years he and his brother bought a small appliance store in highland park, and added some of the new 'hi-fi' equpment to the product line. they did well but my father-in-law still wasn't happy with the work- he preferred tinkering with his radios...
so- he left the hi-fi store to his brother to run(he remained a 'silent' partner), and opened a small factory nearby making headphones and headsets- the type worn by football coaches, cameramen, theatre departments, etc.
eventually he was making radio-headphones- and until he died, he kept working on making new products, and making the old ones better.
here's the company website:
http://www.rcolumbia.com/

he didn't make gobs of money- but he made enough to raise his family comfortably. and his factory manager's family. and he provided a number of jobs for people in the community over the years. and he did it HIS way, for instance- he passed on a contract to supply headsets to mcdonald's for their drive-thrus because he would have lost a lot of autonomy over his business. he didn't want his "shop" to get so big that he couldn't just 'tinker' on what he wanted when he wanted.

and yes- every step of the way he took risks- because he had a family, he was careful about them and they mostly ultimately paid off. although not always.
he didn't come from money, he had no rich backers- it was he and his brother, and their initiative.
and that story is repeated in numerous ways for numerous small-businessman all around the country.

[Hannah Bell]

215. Small businesses hire more workers than large ones, but they don't

make the majority of profits.

And they're squeezed constantly by the system.

The percentage of self-employed owner/operators in the population declines every year.

Which is part of what I'm trying to get at with the example.

[dysfunctional press]

218. you obviously have the numbers to back those assertions up, right...?

a link would be nice.

[dysfunctional press]

235. and btw, as long as you mention it- how does a large business make it's profit...?

just asking...:shrug:

and if small business employs more workers, who in turn are the consumers in the consumer society- that's doing a lot to drive the economy. generally without requiring inaccessible amounts of start-up capital.

[B.S. Lewis]

230. OK

I don't think this discussion is going anywhere if we're going to be using anecdotes.

It is interesting to me that originally you were saying how the economy is so complex (in some ways I agree, although in other ways it is very simple), and now you seem to be inducing the nature of the entire economy from your grandfather's experience.

Looking back I see that I said "your dismissiveness is pretty dumb", which was a poor choice of words and probably set a bad start for the discussion, so sorry about that.

[dysfunctional press]

236. just to add- it's not always lack of capital that keeps people working for wages...

some people are quite happy to do so, because they are satisfied with the life their wages allow them to enjoy.

as for the rest, i'd argue that lack of intellect, creativity, and/or initiative has a more damning effect on upward mobility than does a lack of start-up capital.

as far as "on average they win, or they wouldn't be doing it" i don't believe that's correct, in that the majority of start-up business don't succeed.

[B.S. Lewis]

238. i'm glad you're thinking about these issues

The debate over capitalism is the defining ideological struggle of 20th Century world history. Nobody should take a pro-capitalist or anti-capitalist position for granted, although many people do.

[dysfunctional press]

146. and if you look at the larger picture- where does the profit in the entire system come from...

you also have to factor in that while there are a lot of profitable companies, there are also a lot of companies that wind up showing losses. the airline, automotive, and home-building industries are current good examples of that. over time, some companies are always profitable, and some vacillate between profit and loss- but private companies that always show losses generally don't last too long.

[Hannah Bell]

150. there's one of the answers: they take it from the other fellow's workers.

& put him out of business.

which in the long run = concentration of capital.

[dysfunctional press]

158. they don't "take" it- it's exchanged. money in exchange for goods or services. or labor.

depending on the supply, some goods, services, or labor have/are given more value/demand than others, so more money is required for the exchange.

[Hannah Bell]

164. if you say so.

[dysfunctional press]

167. i do.

[Hannah Bell]

170. "question all", eh?

lol.

[dysfunctional press]

177. it's a name on a message board...

:shrug:

so...when did you start your whole 'glorious communism' phase...? mine started a couple years before college...but by graduation time i had outgrown it.

good luck on yours, tho...comrade :snicker:
let's see how long it lasts when/if you decide to join everyone else in the real world.

[Hannah Bell]

202. I see the problem now. You're reacting to your imagined idea of who I am.

[dysfunctional press]

213. based entirely on how you present yourself.

and how you choose to be perceived.

[Hannah Bell]

219. I haven't presented anything but a problem, and that's how I choose to be perceived.

I wouldn't assume to know so much about someone on a discussion board.

And now, I think we'll stop talking, as you seem to be too personally involved to make it worthwhile.

Bye.

[dysfunctional press]

221. the avatar and your comments on communism/capitalism have nothing to do with how you're presented?

or how you wish to be perceived?

was the avatar just a random choice then?

[Spike89]

206. Secondary markets and services

The reason your simple model doesn't seem to work is that you haven't factored in "bargains". Take your widget example, lets simplify it a bit more and say a new widget costs $20, and the laborer only makes $16, he/she buys a used widget for $12...i.e., the "rich" person that originally bought the widget at full price has taken the loss.
At a macro level, profit is simply excess production. If I work hard enough to cover my expenses and a bit more, I am storing excess production (profit).

[Hannah Bell]

208. I don't see the possibility of bargains unless you sell below cost.

In terms of the system as a whole, it's not possible to sustain that.

[dysfunctional press]

232. selling second-hand.

the original widget buyer decides to upgrade to this year's model, and either throws out the old one, donates it to charity, or sells it on ebay, at a substantial discount, to someone who couldn't otherwise afford to buy one.

[Rabrrrrrr]

112. Oh, for god's sake.

That does not necessarily mean that they can't buy them all back.

Your yacht worker dudes might not be able to buy a yacht with one paycheck, but after a year of working, they certainly can.

Your yacht maker doesn't need to sell one yacht to every human being to make a profit - the maker needs only to sell a few of them. He might very well sell fewer yachts than he has workers (that is, he might have ten employees, and it might take them 100 man-weeks to make a yacht, and so only makes 5.2 yachts a year)

You also utterly fail to include the fact that there is a lag between manufacture and purchase, and, for most items produced, a large inventory of them existing at any given time - for example, the cans of food on the grocery shelves.

You also fail to include that not every person wants to have one of everything produced.

You also fail to include the fact that all the materials to make the yachts, the milk, and the houses were bought from someone else, who more than likely made some profit off those sales.

The "scenarios" you come up with are completely ... well, ludicrous.

[Hannah Bell]

115. "That does not necessarily mean that they can't buy them all back."

"Your yacht worker dudes might not be able to buy a yacht with one paycheck, but after a year of working, they certainly can."

Sure, some individual worker can. But in the whole society, the goods produced in total can't be bought back by labor for profit unless credit is extended. But extending credit just makes the problem worse. Now the workers owe their future wages to the producer, & can't spend as much on the next cycle of new production.


You say "someone else" sold the materials used to make the widgets & realized a profit. Where did that profit come from?

It doesn't answer the question to point vaguely behind the curtain.

[Rabrrrrrr]

128. It's not really worth the effort to explain stuff to you, is it?

All you are looking for is some kind of bizarro argument that profit is impossible.

Fine. Live in your delusional world, if it makes you feel better.

For someone who claims to have studied economics, you sure are clueless. Hell, even without the claim that you studied economics you would still be considered (by me, at least) to be clueless.

I'm happy to explain things and teach people who are actually willing to learn.

You are not, so I'm out of here.

[Hannah Bell]

131. you didn't explain anything. you said: they save. they spend future

income to buy today's production.

that implies a systemic mismatch, & i can show it with the math, but you're not interested.

profit obviously is possible, my question is how, since in any period, the workers make less than the cost price of production. over 1 year, 2 years, 10 years.


My answers are:

1. credit, which just postpones the problem into the future, & leads to bigger & bigger debt overhangs (as we're seeing presently)
2. savings,as you say, but that reduces current demand, making it even harder to turn a profit, since the spending pool is even smaller
3. making the other producer's workers your customers, & so eventually driving him out of business, which concentrates capital & ownership, eventually reducing wages & necessitating more credit (as we're seeing presently)
4. injecting credit or gov't-printed money into the system without productive backing, which = inflation.(as we're seeing presently).


sorry you felt the need to be rude, i wasn't rude to you. i wondered if anyone had better answers than these: so far, not.

[Rabrrrrrr]

132. I, and especially many others, have explained a lot. You refuse to hear it,

and insist on arguing every point brought to you.

You say you aren't rude, but you are rude all over this thread.

It's one thing to say "Okay, if it's that, then how about this?" when learning. You, instead, keep saying, "You are wrong."

And, of course, your presuppositions and hypothetical cases are so far from away from being viable, or even helpful, they're laughable.

If you can show it, then why do you keep asking people to explain it to you? There's only one answer to that question - you aren't interested in learning or in dialogue, but only argument and the smarter-than-thou idiotic posturing of third graders competing about who's dad is stronger.

It's obvious you have the answer, and are just waiting for one of us to offer it so you can go "Finally! Someone understands it!" - so instead of all the obnoxious and narcissistic gameplaying, why don't you just tell us?

[Hannah Bell]

136. only one person has told me something i didn't already know, anything

most people don't already know.

you said "savings/deferred consumption". i agree, but with caveats i explained. sorry you took it as rudeness, imo to outline a thought isn't rude.

your first post started with "oh for christ sake" or something similar. no one forced you to participate, or insulted you, or addressed you in emotionally charged language.

i listed the answers i came up with several times in this thread. i originally posted thinking someone could come up with others, or lay out the reasoning better.

[Rabrrrrrr]

138. Yeah, I figured you already knew the answer, and were just jacking people around.

I'm outta this fucking game.

You are either entirely clueless or without a conscience but with a truly enlarged ego, or if not either of those, then you seriously need some classes in "writing to communicate".

I have a feeling you know how to use language, but that you just like to use it to jack people around. I find that offensive.

Thanks for enlightening all us fucking moron idiots, professor. We're certainly far better human beings now because of your fulfilment of your noblesse oblige.

:puke:


If you'd have just come in here and said "Look, all you fucking moron idiots, here's where profit comes from" instead of couching into a question that makes it look like you were actually interested in answers and peoples' thoughts, at least then you'd have been honest. Now, you don't even have that.

But, gosh, you sure showed your superior economic and progressive intellect. Wow.

[Hannah Bell]

139. i posted in hopes someone would have better answers. the ones i came up with don't explain

the process fully, & create further problems in the present & future.

sorry you're offended. it wasn't my goal. the concept is that by testing your ideas & information against that of others, everyone sharpens their thinking. some seem to think argument is a personal affront. i don't, & am not even offended by your insults. i just don't see why they're necessary. i've not harmed you.

[CANDO]

122. It's called saving your money

Profit comes from production efficiency for manufacturing concerns.

By saving enough of your wages, you can afford said yachts, houses, and milk. You seem to be making the assumption that all these employees are only paid once and never again. You really are torturing yourself with all this stuff. Take an economics class at your local Community College.

[Hannah Bell]

124. savings = investment.

if the workers get $100 but forgo buying something this check to "save" for something next check, that money goes into a savings mechanism to draw interest or dividends.

the reason the savings draw interest is because they're loaned out for investment or purchases - for a profit.

so now we have both the lender & the producers looking to profit on their resources, but the consumers spending less money, because they want to save for a yacht.

less sales this period = less need for workers & for new investment.

why would some borrow the saved money & invest in new production, when sales are already flagging?

alternatively, the workers could just borrow & buy the yacht - but then they're spending their future wages - less to spend later, unless someone keeps lending them money.

"profit comes from production effiency" - this is a mantra which explains nothing about profit.

[CANDO]

144. What the fuck is your problem anyway?

You start this thread and go about shooting down each and every person who responds. Profit comes from producing any product as efficiently as possible. If you produce it for less than what it costs for materials and labor, you turn a profit. Again, what is your problem? Try moving on to solving hunger or something more useful than just god damn arguing with people. Pardon my fucking language!

[Hannah Bell]

149. i opened the thread to explore the idea. no one forced anyone to participate.

i've insulted no one, though a number of people (including you) have insulted me.

if people can't bear "argument," they don't have to respond.

[ColbertWatcher]

151. You can't just make an assertion on the internets, you have to show your work.

BTW, this is one of the most fascinating threads I've seen in a long time and I'm glad she started it.

[CANDO]

171. Here you go.....I'll show my work.......

Profit comes from SQUEEZING A PENNY UNTIL IT SHITS! Now stop being an antagonist by posing a question and then arguing with each and every responder as though you really do know the answer. WWHHHEEEEW! I can't take much more of this shit. Why am I here anyway?

[ColbertWatcher]

227. This is a forum.

It is meant for conversation.

Some threads are abandoned by the OP, while in others the OP responds to replies.

If you disagree with how the thread is going, you can "hide" it so you can no longer see it.

However, for people interested in the topic, we can continue to post.

After all, this is a forum; it is meant for conversation.

[CANDO]

229. I meant it to be exasperating and sarcastic.

I've been around for quite some time now. I know it's a forum. I just don't get it when people go about asking a question and then shoot down anyone and everyone who tries to respond.

[ColbertWatcher]

241. "Shoot down" And you've been around internets forums for a while? Are you sure? n/t

[Name removed]

243. Deleted message

Message removed by moderator. Click here to review the message board rules.

[ColbertWatcher]

244. ?

You say you've been around forums for a long time, yet you're surprised that someone is using one to have a conversation?

And you're surprised to find someone disagrees with you?

Are you sure you've been around forums for a long time?

[CANDO]

247. How long you been here on DU?

Dec 15th 2007! With 6396 posts no less! So you apparently have a lot to say. Not that you really ever say anything of import. You like eating donuts, drinking beer, watching TV, and TRUTHINESS! Wow, truthiness! Now go fuck yourself once again!

[ColbertWatcher]

15. Let's go to the train mess from earlier.

The infrastructure consists of the trains themselves, the tracks, the stations, and all the accouterment associated therewith.

The infrastructure costs a certain amount (whatever that is).

Once the trains get up and running, the company running the system estimates how many people will ride (50% capacity, whatever) and base the price on that estimate. The goal is to break even.

Let's say they expect it will cost $1 million to run 10 trains, making the average $100,000 per train per year. (This does not count the infrastructure, this is just cost to run the damn thing)

If the trains are only expected to run 300 days (allow for free holidays, discount days, days out of service), we will divide $10k by 300 to see what to charge.

$100,000 divided by 300 gives us $333.33 per day. This means each train needs to make $333.33 every day for 300 days every year to break even ($1 million yearly cost).

If each train has 50 seats (each train has 2 cars, with 25 seats each), but only half of them are expected to be filled on average, we divide the $333.33 by 25 to see how much to charge.

$333.33 divided by 25 is $13.33 per ticket, for one run. If the train makes 2 trips, the cost is cut in half, making the tickets $6.67 each. The more runs the train makes, the lower the price can be.

Let's say the train makes a run once on the hour, every hour, between 9 and 5, each train makes 9 runs. Multiply that by 25 passengers, we get 225 tickets sold for each train. Divide the $333.33 by 225 and we get $1.48.

However, if the average ridership goes up, the amount the service receives also goes up, but the amount of time to pay everything off goes down.

If the service times are extended to 7 am to 8 pm, giving us 14 runs per train, and the trains are now running at nearly 3/4 capacity (37 passengers per trip), we can expect each train to make $766.64 per day (14 x 37 x $1.48).

Hell, since we're playing, add another car to each train, giving us 25 more seats we could fill. Of course it will cost more to drag the damn things all over town, but, since I have no way to know how much that would be, let's just see how much each train could make with the new parameters.

14 runs, 50% capacity (for 75 seats=37 passengers), ticket price=$1.48 times 300 days gives us: $229,992 per year per train, multiply that by 10, we can make $2,299,920. More than double the expected $1 million.

That's where the "profit" comes from. Increase any of the numbers and you can pay off the original investment for the infrastructure faster, and maybe expand too.

----------------------------------------------------------
(ON EDIT) Maybe the estimate should be $1 million to run each train.

[Muttocracy]

11. helpful post - thanks. nt

[muriel_volestrangler]

6. There may not be any profit

After all, there are only 22 people described, in this world. So the owners may be stuck with 18 excess widgets between them - even if everyone wants 1 widget between them, and can't share them. With a possible excess supply of widgets, who knows what price they'll be able to sell them at?

[Captain Angry]

7. Do the widgets deteriorate?

If there is no differentiation in the product, it would not have been wise to enter the market as an owner since there is no way to sell the unit at a profit in this situation unless you reduce costs by reducing pay for labor or rent.

In your situation, the units appear to be identical and would sell for $5.00+ a unit. There would be more units on the market than buyers.

So the owner would have to differentiate (NEW!! widget with new hat!), reduce labor costs by reducing pay or using less labor to produce fewer units. Reducing supply to the point that it matches demand would increase the price a consumer was willing to pay since they couldn't substitute.

Obviously, if both owners decided to not sell a unit for less than $6.00, they would profit by $1.00 per unit sold with inventory left over for future buyers.

[Hannah Bell]

39. But the problem is, the demand is created because the workers

are getting wages.

If you reduce the # of widgets you produce with the same number of workers, each widget winds up costing more - which further reduces demand.

If you fire workers & produce fewer widgets, demand still drops - because fewer people have $.

[Captain Angry]

62. Demand doesn't fall if they need access to the widget.

In your terms in the original post, you said that they needed access, which eliminates these widgets as being discretionary and therefore price driven sales.

[Hannah Bell]

64. If they don't have $ to buy the product, there's no cash demand.

[Captain Angry]

66. They would each have $8.50

If unit sales were at cost, $5.00, they'd have money. If they were marked up 20% to $6.00, they'd still have money.

[Hannah Bell]

69. Sure, the workers can buy 34 widgets @ cost price, for their $170.

That leaves the producers with the $200 they invested, + 6 widgets they can't sell.

Or the workers could buy 20 widgets @ $8.50. Now the producers have $200, & 20 widgets they can't sell.

No problem, except the producers haven't made any money profit in either case, & it's no use selling to each other.


So the suggestion was, they should make fewer, so demand = supply.

OK, everyone needs 1 widget. Make 22, 1 for each worker & producer.

To make it simple:

Producers each buy $30 in materials, $70 in labor: Total system investment = $200

They each produce 11 widgets, 22 in total: Production cost = $9.09 each.


The 20 workers earned $140, but they can only buy 15.5 widgets.
The producers get their $200 back, + 6.5 widgets they can't sell.

You can jigger the numbers of workers, change the wages, whatever. It won't ever come out even, & it will never turn into a situation of profit.


The profit *is* the surplus of goods the workers turn out - Mr. Apple had that right.

What I'm trying to figure out is how that surplus is monetized into the pocket of the producer.

I think the answers are:

1. consumer credit
2. consumer savings (as cash & property)
3. bankrupting the other producer by taking his workers as customers

But all the possibilities seem to involve making someone else poorer.

Time *may* play into it, as one poster said. But it seems to me the main function of time & multiple producers & workers is to disguise the sleight of hand that concentrates the wealth.

Same thing with the financial arbitrage mentioned by one poster, & the government transfers mentioned by another. When it comes down to it, that money is ultimately derived from the surplus production.

[Muttocracy]

8. How did they get the raw materials to sell at first? does that factor in? nt

[ColbertWatcher]

18. I think that's where the theft comes from. n/t

[Muttocracy]

19. or at least the unequal starting point. nt

[ColbertWatcher]

20. True enough.

Who was it that said "Behind every great fortune is a great crime"? I mean, besides Chris Rock?

[Hannah Bell]

56. In the example, both producers own some raw materials which the other

has to buy from them.

[joshcryer]

12. Theft. Proudhon explained it well enough.

;)

[rwenos]

13. Injected Surplus Value

If what you're trolling for is Karl Marx' theory of "injected surplus value," I think I can explain it. It's the only one of Marx's many theories that holds a drop of water, in my book -- but it also explains the wage economy in a particularly gruesome way.

The answer to your question is that the capitalist realizes the profit when he sells the widgets to the market at $200. You correctly point out that aggregated cost of the raw materials, labor and general administrative costs are less than what the capitalist figures as his cost of goods sold.

Marx correctly observed, in volume 1 of Das Kapital ("Capital" in English)that, in a capitalist system, the workers can NEVER be paid wages which would make the cost of goods sold equal to the cost of producing the widgets and selling them at retail. If that ever happened, the capitalist does not make any profit.

Thus, workers can never be paid wages equal to the true value they create, when they manufacture goods. The capitalist, to make profit, must ALWAYS keep the price of labor lower than the "cost of goods sold" he carries on his books.

In other words, people who work for wages get screwed. Always and forever. Including me, a self-confessed wage slave.

[Hannah Bell]

28. No, I understand the general principle, but what I'm looking for is something

more concrete.

If I'm a producer, & I buy $100 worth of labor & $100 worth of raw materials, the pre-profit cost price of the goods produced is $200.

Now imagine there are 100 producers just like me.

$20,000 cost price worth of goods.

$10,000 in the hands of workers to spend.

$10,000 in the hands of owners of raw materials.

None in mine.

In this system, where does the profit come from?

There's only enough cash in everyone's pockets to buy up the goods at cost.

The workers in aggregate can't buy them all, the owners can't either.

Yet it happens.

[napi21]

32. Not all those workers want YOUR widget! Some want a different one.

Each company's profit comes from the people who want THEIRS and the company who makes the widgits nobody wants fails.

[Lyric]

14. Profit is not possible without exploitation,

Whether exploitation of your own workers or exploitation of someone else's workers, it is only possible to make an honest, exploitation-free profit if you're selling something that YOU, PERSONALLY created.

How many people do that?

[rwenos]

16. Only Creative Artists and Certain Professionals

But even both of those usually use support staff also. You're right, it ain't likely to happen in our lifetimes . . .

[malaise]

17. Read Marx n/t

[readmoreoften]

21. Marx: profit is the difference between what workers earn and the value of what they produce

Let's say the working class and poor disappear overnight leaving only capitalists. Capitalists can only circulate all the world's remaining products, investing in this and that, guessing what will go up and down in value; while a few fools will make bad choices and lose all their money, for the most part all the capitalists would break about even with one another.

Capitalists earn money from the commodity of human labor by paying the worker less than he or she is worth. The capitalist hires someone to create a widget that costs 3 dollars in materials and factory costs. The consumer is willing to pay 20 dollars for the widget. The capitalist pays one worker $0.10 to make the widget, another $1.00 to promote the widget, and another $2.00 to manage the workers so that the capitalist himself can live on the beach. For every widget made, the capitalist now extracts $13.90 in perpetuity.

Where did the capitalist get the money to buy the factory and fire everyone? According to American folklore, the worker saves his $0.10 a widget until he has enough money to invest in a company of his own. This is not possible as he will never earn enough to own the means of production. Every now and then--a one in a million chance--a $2 manager gets lucky and strikes it rich. The manager also never "earns" enough to buy the means of production because the capitalist would never pay him enough to allow him to become a competitor. After all, the manager knows everything about the business, whereas the capitalist only knows about laying around on beaches and shmoozing with the upper class. Sometimes the $2 manager worked his way up to this position from a $0.10 worker, but this is also rare. The world needs far more toilers than controllers-of-toilers and the manager's son, who never had to toil himself, went to college to learn how to keep the toilers in line. So why would the capitalist hire a worker to keep workers in line?

"Where did the ORIGINAL capital come from though?," you might ask Mr. Marx. The answer according to American folklore is that somebody way back when in the family line of the capitalist worked very very hard and struck it rich. Marx's answer is the opposite: since the beginning of time Kings and clergy conspired to use brute force to take the goods from those who toiled, keeping them in line with the idea of a divine hierarchy. During the bourgeois revolution during the Renaissance, merchants--those who were above peasants but below the manor born and the Royals-- were able to exchange goods over long distances due to the Moors' retreat from Europe and new construction and shipping technologies that led to the rise of cities. The manor born were as lazy as the Royals were, so the merchant class of the 14th and 15th centuries brought the Royals interesting new products and started making money off them. The manor born started to decline in power and the Bourgeoisie took their place. The Royals stayed Royal and the peasants stayed peasants. The clergy were used by the Royals to keep the Royals in power.

The US was the first real bourgeois revolution where the merchant class said "Fuck the Royals, we're outta here. We don't need you." We'll just take us some indentured servants and slaves and make our own world. Marx said that this was the first Revolution--although the Royals and the clergy are right where they always were. (Many of the manor born became destitute, however.) Of course the next revolution would be the workers tapping the bourgeoisie on the shoulder to say: oh by the way, you know how you didn't need to the manor born or the Royals? We don't need you either.

This is a broad overview.

[Hannah Bell]

70. Thanks, I get it. But what I'm trying to figure out is how the systemic surplus production

gets monetized into the pocket of the owners as "profit", when the workers don't have enough money to buy back the product.

[readmoreoften]

87. When the workers don't have enough money?

It can be monetized as pay for workers (bonus widget for every 100 sales) but, yeah, Marx wasn't working with a consumer economy and there hasn't been a mass failure of the consumer economy yet so it's still unexplored territory. My guess is that it doesn't get monetized, that it's a loss. I assume that in the future capitalists will steer towards making products for other capitalists or their upper management... or produce low quality crap for workers at huge profit per item so they can make unsold surplus irrelevant, pushing workers wages way down: instead of $0.10 per $20 item, $.01 per $20 item for labor. This is my guess. :shrug:

It could be this is where capitalism collapses as a total system. Maybe 20 years from now when people talk about "investing" and "privatization" as a solution, everyone will cut them off and say "Yeah! But capitalism doesn't work! It's just dreaming!"

[Hannah Bell]

107. that was one of the solutions i came up with, e.g.:

if the producers stratify wages, so the top half of workers get most of the wages, e.g. total wages = $170, top half of workers gets 70%, then you have:

Firm A

Top 5 workers: $59.50

Bottom 5 workers: 25.50


Firm B

Top 5 workers: $59.50

Bottom 5 workers: 25.50


One of the producers can profit by selling marked-up goods to only 8.5 workers.

Problem is the repetion of the strategy winds up bankrupting one of the capitalists & driving down wages, pretty much according to km also.

sure seems similar to what's been happening in the real world.

[mudesi]

22. Your numbers are all over the place - But here is your answer

I'm going to explain this to you with my own numbers, since yours are inconsistent.

Banapples are made from two raw materials, Apples and Bananas.

Mr. Apple owns all the Apples and Mrs. Banana owns all the Bananas. Each have 9 workers employed to produce Banapples, a food necessary for these people to live. They need to eat at least one Banapple a day or else they'll die.

Let's only look at Mr. Apple, who has 100 dollars.

He buys 28 dollars worth of Bananas because he needs them to produce his Banapples. He then pays each of his 9 workers 8 dollars to produce the Banapples. 10 Banapples are produced on day 1.

There are a total of 20 people in this society. Each and every one of them needs to eat one Banapple today. Mr. Apple is going to sell 9 of his Banapples to Mrs. Banana's 9 workers. He will charge 8 dollars per Banapple. (Which is just how much Mrs. Banana's workers are going to earn in wages today after they produce their Banapples).

Mr. Apple has therefore taken in 72 dollars from the sale of 9 Banapples. Mr. Apple also plans to sell some apples to Mrs. Banana, for a price of 28 dollars, so she can use his Apples to produce her own Banapples to be sold to Mr. Apple's workers.

Mr. Apple has spent 100 dollars to create 10 Banapples. He has generated 72 dollars from the sale of 9 Banapples at 8 dollars each, and 28 dollars from the sale of his Apples, for a total of 100 dollars.

And he has one Banapple left for himself to consume. There is his profit. That extra Banapple's value is 8 dollars. Mr. Apple has therefore made a profit of 8 dollars. He didn't make the Banapple himself, but he has one anyway. He made 8 dollars in profit and bought it from himself. (If you want, you can also say he sells the tenth Banapple to Mrs. Banana for 8 dollars, and she sells hers to him for 8 dollars).

Looking at things from Mrs. Banana's perspective produces a symmetrical result.

I hope this helped.

[Hannah Bell]

24. Well, it doesn't, really, if I understand you right.

You say Mr. A had $100 & some apples, then bought $28 worth of bananas & sold $28 worth of apples & paid the workers $72 to produce 10 banapples, which I guess are made from bananas + apples.

But you haven't monetized the apples he used to make his banapples. Here's your equation:

$100 in cash + $28 in apples - $28 for bananas + $28 for sale of apples =
$100 + $28 worth of bananas + "free" apples.


As I see it, it should be:

$100 cash + $56 worth of apples - $28 for bananas + $28 for sale of 1/2 apples =
$156 initial value in cash & materials.

Mrs. B. has the same: $100 cash, $56 worth of fruit.


They both pay 9 workers $100 to produce 10 banapples.
Total production cost for 10 banapples =
Wages @ $100 + fruit @ $56, or $156 pre-profit.

After production, Mr. A & Mrs. B both have 10 banapples which cost $15.60 each to produce.

Together, they have $312 worth of banapples.

The 18 workers have $200 dollars.

Total monetized worth of goods in the system = $312.

Total cash in the system = $200.

This means the 18 workers can buy 12.8 banapples.

Mr. A & Mrs. B have 7.2 banapples & no money.

They can each eat a banapple to stay alive, but they can't use the banapples to reinvest to make more banapples, or to grow more fruit, or hire more than 5.2 workers.

Furthermore, 5.2 of the workers couldn't initially buy a banapple, & are now dead.

Profit is usually taken in dollars, not banapples.

Where's the monetized profit?

[muriel_volestrangler]

81. No, not really

In a sense, you can say that Mr. A and Mrs. B start the day with $100 and $56 worth of fruit; but note that the fruit can only be used to make banapples, so valuing it that way only makes sense in terms of a banapple-producing economy.

They each pay $72 in wages (not $100). They each get $28 for the raw fruit they sell. They each pay $28 for fruit. They each receive $72 for the banapples they sell.

So, production cost for 10 banapples = $72 + $56 = $128 (or $256 for 20)

Now, Mr. A and Mrs. B each have to keep back 1 banapple for themselves, to stay alive. So they offer the remaining banapples for sale, and the workers, also wanting to stay alive, spend their wages on them. So Mr. A (and similarly Mrs. B) gets $72 from sales.

Cash flow: $100 at the start of the day - $72 wages - $28 for bananas + $28 for apples + $72 for banapples = $100 at the end of the day

The net result is that Mr. A ends up with the $100 he started the day with; and, rather than 20 apples (assuming the raw ingredients for a banapple is 1 apple and 1 banana), he has 1 banapple. Since this banapple keeps him alive, where 20 apples alone wouldn't have, it's a good deal for him. Same for Mrs. B. The thing is, the 20 apples may have had a book value of $56, but the only market for them was Mrs. B - and she only wanted 10 of them.

You say Mr. A and Mrs. B have (with correct arithmetic) $256 worth of banapples. They're only worth that if people will pay that for them - which they won't. But Mr. A and Mrs. B realise that producing banapples is what allows their daily harvest of 20 pieces of fruit to have a value at all. In fact, the "$28 for 10 pieces of fruit" is completely arbitrary - because A & B exchange the money. They could name any amount they like in that double transaction, and it wouldn't affect either of them. Say it was $4 instead. Then the production cost for 10 banapples would be

$72 + $4 + $4 = $80.

Mr. A would still sell 9 banapples at $8 each, and keep one to eat. This probably looks 'fairer' - Mr. A and Mrs. B each exchange $8 worth of fruit - a day's wage - for a life-sustaining banapple. And, in practice, this would be what a more complex economy, involving other people and goods and services, would end up setting the market price of bananas and apples at. Mr. A can obtain the raw materials which enable 9 workers to make a product than sustains 10 people (but without which those workers wouldn't be able to produce anything). So Mr. A's input - the apples - are valued at the wage of an extra worker.

[mudesi]

121. I should've thought of that

Exchanging 8 dollars worth of fruit would've probably made a little more sense logically. I was just looking for a nice round number to divide by 9 for the example.

The problem with the OP is that she is using inconsistent numbers in the model, hence the confusion. Every single number in the model is completely arbitrary, from the 100 dollars to the number of people, but they still have to be consistent in order for the model to make any sense whatsoever.

The OP is also forgetting that the only thing with any value whatsoever is a Banapple, since it is the only good demanded by the population. The raw materials are not produced nor are they demanded - They simply exist to be employed by their owners to produce that which is demanded.

[Hannah Bell]

125. put in any numbers you like. there's no profit in the system, & no

way the workers can buy up the product.

you say the materials "exist". but in real life, they have owners & a production cost, & if someone tries to produce things without incorporating the cost of the materials, they'll quickly go broke.

[mudesi]

127. You might want to take an economics class

They "exist" in your simplified model, which is actually not a bad model to introduce these concepts to a beginning economics student. If you want to make a more complicated model, that's fine, but the end result will still be the same.

In your example economy, where the only good demanded is a Banapple ("widget, if you want), that extra Banapple produced is the profit. Now, we can add a banking sector to the model if you want, we can add another good to be produced and sold, we can add all sorts of things to make the model more realistic, but that doesn't change anything except to add more details.

[Hannah Bell]

130. i'm really getting tired of folks telling me to take a class. the banapple

is the profit - in goods. i already knew, as most people do, that lot of folks working together can produce more goods than they need, or than one working alone.

how do the surplus goods get translated into money profit, was the question.

only a few folks have given any serious answer.

most just point vaguely behind the magic curtain & say "reality is more complicated".

well, duh. that's why economists use models.

[muriel_volestrangler]

129. That's because that's a system with daily production and consumption, and nothing permanent

Its only concern is how to obtain something to eat for that day; the only inputs are the daily crop of fruit, and people's daily labour. No-one is trying to produce more food than is needed for that day, or to produce anything else.

Profit, ie excess production that can be accumulated and then exchanged at a later date, comes into it when you produce things that aren't ephemeral (eg a permanent shelter, or if you produce an excess of food, but store some, and then don't produce food at a later date, but do something else with your time).

In your OP, this would be like actually thinking about how some people have obtained access to to raw materials while other haven't (perhaps they're older, and worked to get the access; or perhaps they seized it by force).

[Hannah Bell]

133. i take your point about the difference in owning the resource & selling

labor. the initial starting condition is what makes it impossible for labor to receive wages which will allow them to buy a proportional share of production.

but there's no way to eliminate that without eliminating ownership of productive assets.

& it seems to me the initial starting conditions guarantee further concentration of assets, through the mechanism of profit.

[muriel_volestrangler]

141. So can we say that your question has been answered?

Profit comes when a surplus is produced, either in the forms of storable goods, or as an agreement for a future exchange, like money.

"the initial starting condition is what makes it impossible for labor to receive wages which will allow them to buy a proportional share of production."

Labour alone doesn't produce the goods; what is the proportional share is a matter of negotiation.

"it seems to me the initial starting conditions guarantee further concentration of assets, through the mechanism of profit"

Not 'guarantee', I'd say. Profit isn't guaranteed; the person trying to use their assets to produce profit must make something for which there is a market in which the production can be made profitably, and run the business efficiently. Meanwhile, it's possible the employees are able to save from their wages - maybe faster than the employer can make profit. As an example, the highest paid employees of Chelsea Football Club are saving millions each year, while the owner appears to be making a loss on the club.

[Hannah Bell]

156. Seems some folks don't like "argument," & if you're one of them, read no further.

I posted this thread to wrestle with the idea of profit, it interests me because there's a contradiction at the core of it. If you're not up for discussion, just ignore what follows...


My thoughts on your post:

Agree resources + labor can = storable surplus; we can call it "profit."


<<what is the proportional share is a matter of negotiation>>

To a point: but the higher the proportion of land, resources, tools, & plant owned by the owners in the system, the less bargaining power the non-owning labor has in most cases.

What's certain, though, is that if *anything* is owned, the workers can't buy everything they produce with their wages, unless the owner is willing to forgo all payment for what he owns & lose money.


If the Chelsea Club is losing money, it means the owner has lots to lose, maybe spending income from other ventures, or savings - tranferring part of his past/present income stream to his workers. I don't see new profit in the system as a whole from this transfer.

{A sporting event is kind of an odd business too - doesn't produce a storable material product, & mostly labor cost...I'm not seeing the surplus this business produces...it's kind of like you put the workers on the production line & watch them run it, but they don't make material product...thinking out loud...}


The starting conditions, where some own resources & others don't, is why those that don't are willing to work for those who do. & though profit isn't guaranteed for every owner in the system, I think it's *guaranteed* in the system as a whole for owners as a group, under most conditions:

In my original example, 2 firms invest $100 each, 40 widgets @ $5 cost, workers have $170:

ALL the widgets can't be sold, & BOTH the owners can't make a profit. But ONE of the owners can, if most of the workers buy HIS widgets, i.e. $101 worth.


If you got this far, thanks for taking the question seriously, hope you don't mind the *argument*. To my mind, it's discussion, not argument, but since I've been repeatedly chastised...

[ColbertWatcher]

27. The only disagreement I would have with your example is...

...the cost of the materials.

I don't think the numbers you gave are good estimates.

Profit comes from receiving more money that what was estimated (usually a result of an increase in volume).

I'm going to see if I can work out an example.

[dysfunctional press]

37. mr. apple doesn't have very good business sense, does he..?

if he spends 100 dollars to create 10 banapples, he'd be foolish to sell them for 8 dollars each.

[ColbertWatcher]

40. LOL! Mr. Apple is an ass.

Everyone at the farmer's market know they can take him for every thing!

LOL!

[ColbertWatcher]

57. Here is another fruit-based example...

Let's start with a farmer who has a wife, two kids a goat, three chickens and 16 acres of land and decides to grow some sort of magical fruit that grows all year long and takes one month to ripen.




Each of those boxes represents a 2 acre by 2 acre plot of land for a total of 16 acres. The farmer and his family and the goat and chickens live on one of the plots of land, the other three can be used for the orchard to grow the magical fruit.


SEASON ONE

For the first season, he employs himself, his wife and forces his two kids to work as well.

The family plants 100 trees on one four-acre plot and at the end of the month, each tree yields 50 pieces of fruit.




Prior to the ripening of the magical fruit, the family subsists on goat cheese and eggs. Once the fruit is harvested, they are able to sell 70% of the crop for $1 a piece (again to simplify), preserving the other 30%.

At the end of the first month, the farmer and his wife sit down at the kitchen table to figure how much they made.

The total yield was 5,000 pieces of magical fruit (100 trees x 50 pieces). They only sold 70% (or 3,500 pieces) at $1 a pop, they got $3,500 at market.

Subtracting expenses (again, everything is simplified):

overhead (rent on land and living expenses, which includes feeding and housing the goat and chickens along with the family) $1,000/month

cost to run trucks to market (one truckload carries 1,500 pieces of fruit and includes the cost of one driver, gas and rental) $200/truckload to market

growing materials (seeds, manure, scarecrows, etc) $500 for every four acre plot

water (4 gallons of water per tree per month) $1/gallon

For a total of 1,000 + 600 + 500 + 400 = $2,500, leaving the family with $1,000 for next month's crop.

With this $1,000 the farmer can buy another goat, grow a second plot of land for next month's crop, or save up for the month after that and hire others to help.

Let's do a "season three" Season two is a repeat of season one, and yields the exact same numbers, the farmer and family now have $2,000 cash and 3,000 preserved pieces of magical fruit (supposing they don't eat any of them or sell them over the internets).

SEASON THREE

Two plots of land are now being used to grow the magical fruit.




The farming family work to the bone to plant the trees themselves, but know they will need help come harvest time.

They are expecting to yield 10,000 pieces of magical fruit.

If they expect to only sell 70% like the last two seasons, they will need 4 full truck loads and one partial load.

If all 70% is sold, they can expect to get $7,000. Subtracting expenses...

overhead (rent on land and living expenses, which includes feeding and housing the goat and chickens along with the family) $1,000/month

cost to run trucks to market (one truckload carries 1,500 pieces of fruit and includes the cost of one driver, gas and rental) $200 (x 5)

growing materials (seeds, manure, scarecrows, etc) $500 for every four acre plot (x 2)

water (4 gallons of water per tree per month) $1/gallon (x 2)

For a total of 1,000 + 1,000 + 1,000 + 800 = $3,800.

Salaries will come from the expected $3,200 (7,000-3,800).

The last two seasons, farmer and wife (and two minors) were able to harvest 100 trees in 2 days. This season, however, they have 200 trees to harvest in two days.

This season, they decide to split the work up differently: Farmer's wife will supervise the loading of the trucks and the making of the preserves (expected to be 3,000 pieces).

The farmer will harvest the trees with five other men, who will take the place of the wife and the two kids and pick up the 100 more trees.

If he expects to plant another 2 plots of land next month, he will need to keep $1,000 for the materials (to get ahead). Using the numbers above, he can spare $2,200 for salaries.

He expects to pack 280 boxes in the five truck loads (7,000 yield, 25 per box), if he divides his $2,200 by 280, that would be $7.86/box.

If each of the five men pick an equal amount (280 divided by 5) they can each expect to pick 56 boxes over the two day harvest.

56 boxes at $7.86 per box, gives us $440.16 per man for the two days work.

If these numbers are used as a base to work from, you can see where the "profit" comes from.

To make even more of a profit, the farmer can plant more than 100 trees in the 4 acres, they can start selling those damn preservatives that are piling up.

They can own a truck instead of renting one. And they have that other plot of land they can grow on.

Many things can happen after the first few months.

Plus if he buys a few more goats, they can hire one of those guys full time to make and sell goat cheese and eggs (or chickens) and preservatives.

Just as long as Cargill or ConAgra Foods doesn't come along and buy their asses up first.

I think I was able to keep the numbers straight, and hope this helps.

[Hannah Bell]

65. Except you don't say anything about who's buying the stuff, &

where the buyers get THEIR money.

The point of the first example was to describe both sides of the equation & the mystery of profit.

[ColbertWatcher]

67. Well, there are the people who sell the seeds...

...the manure, the goats, chickens, scarecrows not to mention the truck driver.

And that's just in the immediate community that exists in the story.

[dysfunctional press]

78. there is no "mystery" to profit- you sell something for more than it costs you to produce it...

voila- "profit"!

[frylock]

23. according to the underpants gnomes..

1. Collect underpants

2. ???

3. Profits

[Fire Walk With Me]

109. Beat me to it

:)

[baby_mouse]

31. The same place socks go when they disappear.

[mitchum]

33. When one sells the product of the labor and the materials for more...

than one paid for the labor and materials

[Hannah Bell]

44. which is my question, how is this possible?

say in one year in one country, $100 is invested & $100 worth of goods are produced.

$30 of the production cost goes for materials, & $70 for labor.

So there's $100 worth of goods & $100 worth of cash in the system.

Where's the extra money for profit?

[dysfunctional press]

46. a $100 investment is going to have to produce more than $100 worth of goods, for one thing.

nt

[JANdad]

85. Your basic flaw in your thinking is this:

If I invest $100 in a widget and I produce 10 of them (30% for materials and 70% for lavor(a grossly overstated number btw)) I will not have $100 nworth of material, but I will have $200 dollars worth of inventory that I will sell on installment plans...

[Hannah Bell]

105. OK, that's one of the answers I came up with: consumer credit.

The workers take their wages & buy a widget on credit; the producer can profit, & keep producing, the workers can keep working...

But in the next production cycle, they have to do the same.

So at some point, the workers are so indebted that they can't make the payments, & the structure collapses, was my thought.

[JANdad]

148. Bingo!

We have a winner!

I think that maybe you were trying to get at this thought..."What is a REASONABLE profit"?

[Hannah Bell]

153. Well, I don't see that there IS any monetized profit in the system, without

taking it from the future, or making someone else poorer - but maybe i'm missing something.

[Boojatta]

175. "So there's $100 worth of goods & $100 worth of cash in the system."

Can you write a statement that means the same thing as "there's $100 worth of goods", but without using the word "worth"? If you need to use the word "worth" there, then can you disclose all of your assumptions about the concept of "worth"?

Regarding "$100 worth of cash", if the cash consists of dollars, then one can simply find the total. Do you mention the worth of cash because, with some exceptions such as coin collectors, cash is worth something to people because they can exchange it for things that they want? Of course, different retailers may offer essentially the same goods for sale at different prices.

If some of the cash is Euros then how can you convert all cash into dollars? What would happen to the Euros?

[Hannah Bell]

246. The owners paid $100 for the labor & materials.

No implication of absolute "worth" intended, just that they "invested" $100 to produce the goods.

[dysfunctional press]

42. who does the "rent" money go to..?

if there are only 2 owners and 20 workers- why would the owners pay rent to each other, instead of just using their own facilities? :shrug:

[Hannah Bell]

55. "rent" = "economic rent", not like renting an apartment.

Since both owners have raw materials, They're just trading at par, so it's a wash, was what I meant.

[dysfunctional press]

76. huh?

"Each buys $25 worth of raw materials from the other ($15 "rent" cost, $10 labor cost)".

you don't "rent" raw materials for manufacturing- you "purchase" them. what exactly does the word "rent" mean in your scenario...? the fact that your "scenarios" bear absolutely no resemblence to a real world situation is where your problem is.

[Hannah Bell]

88. "economic rent" is a classical economics term.

it's the theoretical cost entailed in keeping a productive factor like land in use for extraction or growth of raw materials, rather than something else - like tract housing or factory real estate.

david ricardo.

i was attempting to account for this cost in my example, & say it was a wash.

[dysfunctional press]

91. where does the money in your little closed society come from...?

the one with 2 owners and 20 workers- who issues the currency that they use? what is it backed up by to give it it's value? :shrug:

also- what is the total amount of currency that exists in this 22-person, 1-product world?

serious questions.

[AdHocSolver]

58. Your example and all the responses left out the most important element - TIME.

All the examples were wrong because everyone left out the TIME factor.

An example that is relevant is a loan. A person borrows $12,000 at 12 percent (APY) interest to be paid back in 12 monthly installments. I am making this very simplistic as trying to follow the examples presented here made me "dizzy".

The first month, the borrower pays $1120 to the lender. The second month he pays back another $1120 for a total of $2240. The lender doesn't receive his $1440 in profit until the twelfth month.

Meanwhile the borrower invests part of his money in pork belly futures and the rest in oil futures. He unloads the pork bellies and the oil futures during the 12 months. He makes even more profit than his cost of borrowing so he is happy.

Both made profit, but the profit that each made occurred at different times. Economic activity occurs over time and involves the "circulation" of money, goods, and services.

It is late and I don't care to get any more deeply into this discussion. Either you get it or you don't.

[ColbertWatcher]

61. It makes perfect sense.

From just an investment standpoint (money only, no work).

[Hannah Bell]

68. He borrows $12,000 & pays back 13,440 over 12 months.

He buy futures & resells them for more than $13,440 - say for $14,000.

This is "profit," in monetized terms. But it eliminates the questions of investment, production & wages I asked about.

At the end of the exchange, there's $2000 in "profit" for the lender & borrower - but where did it come from?

Well - from the person who bought the pork futures: from "someone else".

But this begs the question I'm asking, which is about the system as a whole, not one transaction within it.

In the system as a whole, profit can't be sustained by trading the same stuff back & forth.

[dysfunctional press]

75. she don't.

:banghead:

[Hannah Bell]

89. i understand it just fine, & did before i asked my question.

but it doesn't answer my question.

i fear it's you who doesn't understand my question.

[readmoreoften]

178. Profit is never pure idea. The circulation of profit merely marks the distribution, not its origin.

The engineer-worker had to design a way to get the oil out of the ground. The factory-worker had to build it the rig. The rig-worker had to extract the oil. The profit is still made when you subtract the cost of the labor from the oil--minus the cost of the materials (steel, coal, water) used to build the rigs.

Yes profit can be manipulated from there on out (expanded and manipulated through banking) but its origin is still labor.

[Princess Turandot]

71. I think the 'manufacturing' example is what is confusing you..

because most of the history of commerce has nothing to do with unit costs. An underlying problem with your example is that you set up a constraint where both factories produce only the number of widgets which they need to exist. There appears to be no reason for them even to be selling them to each other. Over the course of time, worth has been assigned to actions/objects, not by virtue of what they literally cost to make but rather by how much of something exists, how much someone wants it and what someone who wants it, will pay for it. Income is also created from other money as much as anything else. In your manufacturing example, there will also be allocated overhead added to the cost of the widget, which is the amortized cost of the widget plant itself. That was paid for from existing wealth, be it the owner's or a bank, before a single widget could be produced. There also is a substantial segment of society whose activity earns 'money' doing things which are not dependent on underlying material components, i.e. the service industry.

A very simple example.

In Aville, they grow peaches.
In Bville, they grow plums.

In Year 1, Aville's tree is a very healthy one, and produces 120 peaches, 20 more than they need. Bville's tree produces 100 plums.

In Bville, there is a guy who starts making statues by whacking away at rocks he finds, after his orchard duties are done for the day. Someone from Aville sees the carved rocks and thinks one would look really good in front of their peach tree. He asks Sculptor for one of them. Sculptor, not raised to be no fool, asks him what he will get in return for the statue he made.

Aville offers B-Sculptor 5 of the extra peaches for the statue, since they don't really need them. He accepts the peaches, but rather than eat them, he dries them for future use. A month later, he decides one day that he doesn't feel like going to the orchard that day. But the work must be done, or else he won't be entitled to his Bville plum.

He gets a bright idea. He tells his brother that if he does his work as well that day, he will give him one of his peaches. He can now stay home and sculpt.

Meanwhile, back in Aville, someone from Cville shows up. In Cville, they grow apples, many more than they need. She really likes the sculpture in their orchard. After haggling, she agrees to pay Aville 6 apples for the statue. Aville now has 1 more extra piece of fruit than it did before.

Aville goes back to the sculptor, and offers him 5 apples for another statue. Wise to what they're doing, he says 'no', then travels to Cville, where he sells another sculpture to them for 6 apples. He has now created his own wealth where none existed before. He can now pay someone else to go fetch his rocks for him, at the rate of one apple per rock. He can use the extra time to travel to Eville, to offer them a sculpture, for which he will get more than one of whatever their life-sustaining fruit. Moreover, he can now use his accumulated fruit to purchase the peach he needs, giving him more time to whack at his rocks.

Multiply endless examples of the above across several thousand years, combined with the discoveries of natural resources and human ingenuity, and you'll get to where we are today, sort of.

[dysfunctional press]

77. where does the money in your world come from...?

if there are only two owners and 20 workers- who issues the currency? and what backs it up, and gives it it's value?

:shrug:

[Cronus Protagonist]

197. Ding Ding Ding

He who prints money is the one getting the most out of the deal, for almost nothing.

[cayuga]

79. Sell the widgets for $1000 to the military n/t

[ColbertWatcher]

93. LOL! Winner! Thread over! n/t

[Hannah Bell]

111. sure, but where does the gov get its $? either they tax the owners

a/or the workers, or they print new money.

under the first option, the gov takes money from everyone to give it to the weapons makers as profit.

under the second option, they devalue everyone elses dollars to give the weapons makers profit.

then they blow up the weapons. now there's money circulating in the economy without material wealth backing it.

more inflation.

so in this case, the answer would be: the weapons makers profit comes by making the rest of society poorer.

[dysfunctional press]

161. "the weapons makers profit comes by making the rest of society poorer"

what if the weapons are used by civil engineers to aid in the construction of large dams to provide hydroelectric power? or in the building of canals that allows ships to circumnavigate the globe(or less) without having to travel around large continents...? does that make society poorer as well?

[Hannah Bell]

205. doesn't matter what they do with it. the profit came by making other folks poorer.

& possibly killing them.

[dysfunctional press]

222. the workers who were paid for their labor aren't any poorer...

the people who benefit from hydro-electric power aren't any poorer...

who are the people who are poorer, in what way, and by what quantitative amount...? :shrug:

just saying "they're poorer" doesn't really say anything- especially when the workers have presumably been well paid for their labor.

[Trillo]

82. I guess this is why they call it The Dismal Science.

Your example is vexing. I cannot answer your question in any positive fashion.

The workers are underpaid as a result of the basic structure of the system. By working for the employer to make widgets for him or her, we cannot afford to buy enough widgets. Perhaps we'd be better off making widgets for ourselves, but one problem is the owners have control of the raw materials.

Perhaps our ultimate challenge is to find a way to survive without widgets? If the choice is working hard and doing what you're told only to end up with less than enough to survive; versus not working, doing only what you want to do, for the similar outcome of not enough to survive; then which is the better choice?

In either case, the outcome is less than is needed to survive.

[Pavulon]

83. Dated Model..Here is a simple example

I borrow the following from any bank (or family, or earn it at McD's):

10,000 - 50,000 startup cap at 9% plus

2000 for 2 computers
1500 commercial internet links
1000 for financial news wires

Now I open an account. We'll assume I do not trade on margin, just stock transactions.

I read and use my BRAIN to decide how to balance risk and return.

I earn 30% (after paying my taxes and commission) on money I borrowed, or earned, thus paying back my principal and retaining PROFIT.

I did this with no office, no employees, nothing. Once you learn how to earn money you can continue to do so over time.

TIME is what is valuable.

I trade my time for money at my job and trade time and risk to earn additional money in market trading.

[readmoreoften]

180. That's no more the creation of profit than gambling is.

The companies that you're betting on and the profits you hope to extract from your educated gambling still originates with labor: the gap between the raw materials/labor (including creative labor) and cost (pay).

That is only a way to attract the money to you. It doesn't create profit.

[Trillo]

84. I would guess the PROFIT comes from one of two places,

or from both:

1) undervaluing LABOR to manufacture widgets

2) overvaluing the cost of RAW MATERIALS, what you seem to have termed "rent".

Both seem highly familiar to us in our more complex REAL WORLD.

[Greyhound]

90. Your scenario is too simple and makes no provision for the extraction of profit with

no production. The simple model you almost provided could be the basis for an economy as most people understand it, but bears little resemblance to what exists.
:kick:

[Th1onein]

97. Profit comes from unpaid labor.

Period.

[dysfunctional press]

98. r-i-i-i-i-ght...

:eyes:

[readmoreoften]

181. Brilliant answer. You post more eyerolls than actual language.

[readmoreoften]

182. Exactly.

Both living and dead.

[hfojvt]

100. all of the real wealth probably comes from agriculture

which is the only thing we really need to survive. We put x dollars of effort into plowing and seeding and watering and weeding and get out y dollars of produce where y > x. Since we produce more than we need to survive, we also have stores of food that has been preserved.

As for the monetary system, there's all kinds of money circulating around. It seems like it must be a zero sum game, that one person's gain comes from another person's loss, but because actual wealth is produced through agriculture, it is a positive sum game, and that positive sum is the real profit margin that gets divvied up.

I used to do that thought-experiment in my macroeconomics classes. "Imagine the entire economy was one company, where does the profit come from?" To have a profit your sales must be greater than the wages you pay, and since all of your customers are also your workers, the only place they get money from is the wages they earn. Now, they can borrow, but that means future losses, or they can spend savings, but that means past losses.

[Hannah Bell]

113. yep.

"To have a profit your sales must be greater than the wages you pay, and since all of your customers are also your workers, the only place they get money from is the wages they earn. Now, they can borrow, but that means future losses, or they can spend savings, but that means past losses."

the borrow/spend savings was one of the answers I came up with too, along with taking the other firm's customers & bankrupting him.

i can see where the ag surplus is the origin of other wealth. i'm not quite sure on this, though: "positive sum game, and that positive sum is the real profit margin that gets divvied up"

it seems to me the goods are positive sum, but not the money or ownership of resources. that would seem to concentrate in this model.

[Boojatta]

225. "agriculture which is the only thing we really need to survive"

You could have warned the people of France back in 2003 before they had agriculture. Thousands of people in France died from lack of agriculture. Of course, there's a hoax out there about a heat wave killing people, but we know that's nonsense.

[Vinca]

108. Did I miss the price of the widgets?

All costs plus whatever percentage the owners want as profit = price of the widgits. In today's world of low paid, foreign manufacturing, it should be fairly easy to make a profit.

[Hippo_Tron]

110. Some of the workers take out loans to buy more widgets

[Trillo]

114. At least one thing seems very inefficient in your example.

The owners pay workers to make something to sell back to workers, but there's not enough money in workers' pockets to buy all of them back.

If workers make all of these widgets, wouldn't they be better off keeping what they make? (presumably they only need money to buy the widget) Then the problem becomes how to convince the owners to part with the raw materials. Perhaps a few completed widgets could be given to the owners in exchange for the materials and, the owners would still have their hundred dollars each.

Inefficient as it may be, since the owners own the widgets made by the workers (because they paid the workers to make them), your example seems a system designed to unnecessarily increase the number of times the widget changes hands. The widget goes from the worker, to the owner, then back to the worker.

Who benefits from such inefficiency?

[Hannah Bell]

117. "Who benefits from such inefficiency?"

I think the owners do, & it does seem inefficiency increases with more transactions. But the more transactions, the more skimmed off & the more the origin of the profit in the system is disguised.

[burythehatchet]

118. Yes. It is indeed a zero sum game, and profit is the result of exploitation

either of labor or resources or both.

on edit - most people ignore resource exploitation, and the true cost of a process often ignores costs which end up being socialized.

[kentuck]

120. labor creates all wealth.

Without labor, there would be no capital. If labor was paid it's actual worth, there would be no "excess" capital.

[BlooInBloo]

137. If this isn't simply an I-hate-profit- because-profit-is-evil screed....

There are a variety of economic-conceptual-foundations ideas about the concept of profit. The one I like best is basically that profit is a measure of opportunity cost.

[Wizard777]

143. The Stork brings it.

Unless you're Halliburton. Then a Barracuda named Dick Cheney brings it.

[OxQQme]

145. Pyramid scheme

that must collapse.

[guardian]

147. I think the answer to your question

is that the same dollar gets passed around repeatedly. That's where the money for the profit comes from.

I can't make heads or tails of your example as the numbers don't add up.

[Hannah Bell]

152. Yes, & when the music stops - someone is holding $0.

ps: the #'s do add up, but try this:

2 firms, each spend $75 in labor cost, $25 in other costs, to make 40 widgets total.

$200 invested, 40 widgets at a production cost of $5 each.

The workers receive $150 in wages.

The owners each have the $25 they paid each other for "other costs".

Where's the profit?

[dysfunctional press]

160. they don't realize the profit until they sell the widgets. msrp- $10.

if they choose to sell the widgets at a price that doesn't provide them any profit, they won't attract any investment and will ultimately go out of business when the owners die of starvation.

[Trillo]

176. The owners won't "die of starvation" under this type of government.

The only money in Hannah's model is what the workers and owners have.

In the real world, the owners will Whine Whine Whine for Corporate Welfare, and they'll get it from a bought and paid for Congress. The Treasury will print money, and the workers dollars, i.e., wages paid, will be further devalued by the increase in money supply, so their $150-170 (in aggregate) will buy even less than they did before the corporate welfare.

The owners will have surplus widgets and corporate subsidies if for no other reason than the "jobs" they produced, and the illusion that these jobs will allow the workers to thrive and "get ahead".

The basic flow of money in this system is unsustainable. Everything else to manage the system are merely delaying tactics that create obfuscation to the basic illusion. That seemed to be Hannah's point.

It also seems Hannah struck a chord of cognitive dissonance in a number of other Duers.

Hannah taught me something valuable, though how to change this basic owner/worker parasitism seems hopeless with all the propaganda and deceit taught to college graduates. The leaders are fooled by buisness PhDs who themselves are foolish, and the leaders in turn fool everyone else. And when someone like Hannah points the foolishness out, they're repeatedly insulted.

[dysfunctional press]

179. hannah's not concerned with real world money supplies.

she seems more tied to theory than reality, god bless'er heart...

with the proper regulation, the system is just as sustainable as any other.

the ultimate problem is the finite nature of ALL resources- except perhaps the sun and the wind. by the time the sun stops shining, it will be long past being a moot point for civilization.

oh yeah- and the tide...the tide will be there too.

[Hannah Bell]

207. The basic flow of money in this system is unsustainable.

Yeah, that's kind of my thought.

The game leads to total concentration of wealth unless something is done to slow the process - injection of newly created money, welfare, charity - but that's inflationary - or conquest of new territory/resources w/o payment - but that's evil - or credit - but that just puts off the problem into the future -

And even with injection of new money/resources, at some point the wheels freeze up - as they're doing now in the world economy - & folks are in for a shitload of hurt, as they find out they don't own their jobs, their homes, their cars, their businesses, etc.

The "winners" buy up the assets that have gone bad for less than they were supposedly worth - that re-equalizes money & "wealth," & the game goes on - except everybody's poorer & more dependent than when they started, in real terms - except the "winners".

Talk about inefficiency. What a cruel game.

[Trillo]

239. It seems to be set up to maintain "control".

That's the only reason I can conceive for such a systematically instable system requiring regular infusions of new capital.

We know that money "trickles up", not down. Therefore, it seems the capital infusions should occur by granting the poorest monetary assistance, rather than the already wealthy. By so doing, the poorest would take their infusion and spend it on needed 'widgets', and it would trickle up through various channels, including the owner who, by selling his widgets, could still make a profit. But by granting the capital assistance to already wealthy entities (corporate welfare), one speeds up the concentration of capital, which leads to exhaustion of capital for the masses.

Thank you for this discussion Hannah Bell.

[OmahaBlueDog]

155. Profit comes from the addition of value over and above the cost of production & sale

Value is solely in the perception of the buyer.

Value can be added objectively (I use my labor to improve the widget in a measurable way -- I make it faster, smaller, more durable, etc.)

Value can be added subjectively (I change the color of the widget, add pinstriping)

Value can be added by changing nothing about the widget, but changing your perception of the widget (I can create advertising where nubile young women hold the widget and coo over it, I can train salespeople to use powerful, tested language to describe the features of the widget in ways that make it seem indispensible)

To make any sale, one needs to create some combination of excitement,value, and ugency in the buyer. The amount of each will vary depending on the product and the situation; but, in any event, if the agreed upon value is greater than my cost (which includes oth the cost of production and the cost of sale), then a profit is created.

[Hannah Bell]

157. That's a post-hoc definition, & assumes the existence of $ to pay for the profit.

A simpler example:

There's a country, Slobbenia.

3000 owner/producers, 300,000 workers.

In 1989, the producers invested $100,000,000 in production: $80,000,000 in labor cost & $20,000,000 in other, non-labor costs.

200,000,000 units of goods were produced, at an average production cost of $2 per unit, total production cost = $100,000,000 (the amount of the investment).

The workers have $80,000,000 to spend, the owners have $20,000,000 to spend (the "other costs" were them transferring cost back & forth.)

Where's the profit?

[Rabrrrrrr]

173. I think what you need is not so much an economics class as a math class.

200,000,000 units at $2 per unit is a $400,000,000 production cost, not $100,000,000.

Also, the owners don't have $20,000,000 to spend - if they've been buying and selling from each other (assuming, perhaps, they're buying material with which to make the widgets), all that money is now tied up in capital and inventory, except whatever portion of that $20,000,000 was actual profit, that was then not spent again, for any particular owner during the course of those transactions.

Your numbers don't add very well in your other examples, either.

And by the way - there is no profit until something is sold. If those workers decide to just hold on to their $80,000,000 and not buy any widgets, then the workers have made a $80,000,000 profit and the owners are sitting on a lot of unsold widgets, and make no profit (not profit in real dollars, anyway; it's still potential profit).

[OmahaBlueDog]

194. Hannah, next time tell everyone you don't want post-hoc definitions

... and use a calculator

[Hannah Bell]

204. I have no problem admitting when I make a calculation error.

Doesn't destroy the validity of the problem.

A definition: profit = more money than you paid - doesn't explain where the extra $ comes from - in the system as a whole.

[OmahaBlueDog]

237. Incorrect: profit is not hetting more money than you paid

Although that can be a definition, this is where your problem keeps coming up short.

Money is an artifice. We invented money to make bartering more convenient. The origin of our paper money comes comes from European noblemen who left gold in the hands of goldsmiths in exchange for (essentially) IOUs. They came to find far more convenient to trade IOUs than to actually trade gold physically.

Profit is a value proposition -- not a money proposition. Currently, we define value in terms of Dollars, Euros, etc. However, if ypu envision trade without crrency -- if you simply envision bartering goods and services -- that is where the profit comes in. It is creating a situation in which a buyer perceives more value -- and hence trades more goods or services -- than the value of the good or service you are trading.

[Hannah Bell]

245. sure there's a "profit" in the goods - & the owners own the goods.

But they take their profit in artificial tokens of value, not goods.

[jakefrep]

162. Profit comes from the Seventh Circle of Hell....

...the way some here seem to think.

[kentuck]

183. If you have a barrel full of brand new $100 dollar bills...

Unless you pay someone to create something with their labor, that barrel full of money will dry up and turn to dust. It is labor that creates all capital. If you pay someone to build a large warehouse down the street, you pay carpenters, construction workers, roofers, steelworkers, electricians, etc and then you see the building for a "profit". If not for the labor of others, there is no "profit". Someone may have the quote by Abraham Lincoln about labor and capital??

[dysfunctional press]

187. why can't i profit from my own labor?

why does it always have to be the labor of others? :shrug:

[kentuck]

189. You can.

many people do. You grow an acre of corn. You sell it. You profit.

[dysfunctional press]

193. exactly.

i was going to use the example of a grow room full of weed...but corn works too(if you can keep it lit).

[mainegreen]

185. In the end? The sun. Seriously.

Money is energy. Money is work. Profit comes from somehow getting energy from somewhere else to do work for you without you having to expend an equal amount of energy. Everything else is dressing it up with symantics and window dressing.

At least that's how I see it.

So in simple terms profit rains down on earth from the Sun. All other activity reduces the value of that energy. The best you can hope for is to expend energy in such a way that it allows you to harness larger quantities of energy to do what you want.

Edited to add: The system as a whole is winding down. Eventually the universe runs out of energy. It's a not for profit you see.

[dysfunctional press]

186. it's even more dire than that...

the universe is not just not-for-profit...financially, (and in every other way) in the long run it's just a black hole.

[mainegreen]

190. One big initial investment.

No interest, and steady payouts with no return.

;)

[Hannah Bell]

210. You can use/transfer energy, but not create it. Ergo, no profit in the system as a whole.

Individuals may profit - but only at the expense of others.

In your metaphor, that is.

[mainegreen]

228. Of course.

In the end, everything taken as a whole, there is no universal profit anywhere to be had. Only localized profit.
Everything ends up at a grand sum of zero (except that in the end, nothing truly may be all that is left!)

[Heddi]

192. What about workers who are paid more than the ones in your scenario?

I am a nurse, so I don't produce anything. My salary is not dependent upon widgets, or patients, or illness, or wellness. I get paid for working a set amount of hours per week regardless of whether the hospital has 10 patients or 10,000.

The worker who is making the widget might not be able to afford the widget they are helping produce in one paycheck, but they may be able to afford it in one and a half paychecks (I don't wish to look back up at number 1 in an ever increasing series of ridiculous analogies that are rife with mathematical and basic economic principle errors). Maybe the widget is something they can "go in halves" on with another worker, something they can share.

Maybe the workers are part of a household with more than one income---where the individual worker may not be able to afford the widget, but individual worker + spouse can afford the widget.

Then you have to figure in the people who don't work making anything. I don't "make" anything but a wage. I could afford the widget, if I wanted it, by virtue of the fact that I may make more than the widget maker, or maybe I need it more than the widget maker, or maybe the person who made it doesn't need/want it at all.

I make profit all the time by selling items online:

I have $20 in my hand which I earned in 1/2 hour at my job as a nurse.

I go to a yard sale and I buy 4 books for $5 each. THat is the price that the yard-seller is selling them for, and they are valued at a cost that *I* find acceptable. I would not buy them if they were $20 a piece or even $7 a piece.

I then go to ebay and list the books for $7 each. Shipping is $3. The total price for a $5 is now $10 because that is what people on ebay value them as being worth. They would not buy them for $10 for the book and $3 for shipping, or $7 for the book and $10 for shipping.

So someone buys the book for $7 (net profit of $2 on the book itself). I buy my packing supplies in bulk, so the real cost of shipping is $1.50 plus $.75 in packing materials. That's $2.25 for shipping (.75 profit from shipping).

For each book I sold and shipped, I made $2.75 profit above what I paid for the book, the shipping costs, and the packing materials.

The person that I bought the books from made a profit because perhaps when the books were new they cost $20 a peice, but now they are old, they have creases, and they're unwanted. They may have been left by an old roommate so the seller actually paid nothing for the books and they were pure profit just by their being left. So the book seller has made $5 a book for a book that may have cost them nothing, or whose cost is so old as to be meaningless.

---

People will pay what they think things are worth (for the most part). There are people who will buy a $20,000 car, and people who will spend $200,000 on the car. Look at the Dutch Tulip Craze in the 1600's, where bulbs that were worthless one week were going for astronomical prices the next just because someone felt their worth had increased, even though the methods used to produce the bulbs had not increased equally dramatically as the price had in that period of time.

Beanie Babies were a craze in the 1990's. People were paying hundreds of dollars for stuffed animals that cost less than a nickel to make. Now you can't GIVE the damn things away. Their value had increased, then decreased, solely because of consumer demand.

The Widget your company is selling for $5 today may be worth $2 tomorrow or $40 next week. Values change. Very few commodities are fixed in price. Not everyone makes the same wage. Some people make more, some people make less. Some people will value your widget as being better, or more important than widget being sold by the guy down the street. People think your widget is so much better, you're able to figure out that they're willing to spend $2 more on your widget now than they were a week ago because your widget has proven the test of time.

People in this insanely long thread (that I only participate in because I cannot sleep) have suggested that you take a basic course in economics, finance, etc. I think you should. Your answer will be found within the first 2 weeks of a class. Hell, email a professor---just go to your local university website adn find the email of an econ or finance professor and email them and get an answer.

Your examples are too fixed, too unrealistic, and do not reflect the reality of a consumer or market-driven economy. Hell, I took economics in high school and have a pretty basic, yet good understanding of basic economic concepts. I am afraid you do not, or if you do, you're not explaining yourself very well and you switch from example to example to example, none of which in any way mirror reality.

In your situation, there can NEVER be profit, but in real life there is profit, and it has been explained to you many times how this occurs. I'm sorry you're having such a hard time understanding this.

[Hannah Bell]

248. "I am a nurse, so I don't produce anything. I get paid for working a set amount of hours"

The $ for your salary come from:
1. Gov't transfers (Medicare, Medicaid, etc.
2. Insurance taken off the top of workers' checks (also at a profit)
3. Savings ultimately derived from work or from ownership of resources.

The first two fund the majority of healthcare expenses.

Dollars represent the existing wealth of a society. If people stopped producing new wealth, in the form of food & supplies to at least replenish what is used, everyone would die. Healthcare & other jobs which don't produce a material product are ultimately funded from the surplus created by productive work.


"I make profit all the time by selling items online"

You make a profit as an individual, but there's no profit to the system as a whole.


"The Widget your company is selling for $5 today may be worth $2 tomorrow or $40 next week. Values change."

When values change, costs also change. There's no free lunch.


"In your situation, there can NEVER be profit, but in real life there is profit"

There's monetized profit to some individuals, & in increased production. My question is how to connect those 2 different kinds of profit.

[mia]

195. Ask "the man behind the iron curtain".

http://www.youtube.com/watch?v=DxW0FFP91Uo&feature=related

[Cynical1999]

198. This is easier to explain that some think...

I went and read all of the posts on this thread and tried to find someone with an actual answer, but everyone (except a few) kind of went off on rabbit-trails and didn't really show any kind of example. I read that some said it is too complex to explain on a chat board. It really isn't, it is just simple math- addition & subtraction, multiplication, and division. No need for complex algebra or trigonometry. I have no education past high school, and I have never taken any financial courses. It is all logic and basic math. No special training or teaching needed.

So, to answer the OP's question, here is an example.

You want to open a cheeseburger stand. Just cheeseburgers-nothing more, and nothing fancy, & we'll keep it simple and assume everyone wants their cheeseburger with ketchup. Also, these numbers are assuming that you don't need or have start-up capital or any kind of pre-existing funds to start up. This isn't realistic, but the original poster asked where profit comes from, and this is just an example without getting that complicated.

First you need to see what your labor market is. The local fast food place is hiring high school and college kids PT for $7.10/hour, the minimum wage. You want to attract workers, so you offer $7.50/hour for PT work. That equals about $9000/year gross pay for 25 hours/week, including paid holidays off equivalent to one shift. You will need at least 3 workers to prepare, assemble, and serve/cashier. So, labor alone will cost $27,000 minimum.

Then you'll need lot rent/building rent. A small place that used to be a cafe seems fitting. That rent is $2000/month, and includes insurance.

Utilities will keep your business IN business, and that will run you $1000/month.

So far at this point your minimum yearly expenses are $63,000. This does NOT include your salary. Which is next.

You are a single person with no kids or spouse, and you are wanting your business venture to grow first before worrying about making a profit, so you take a total of your personal costs and find that you need at least $24,000 gross salary to survive on the bare essentials.

So now, your salary plus your other costs are now at $87,000/year.

So, now lets figure out the base cost of your product:

Wholesale case of 100 1/4lb hamburger patties= $50
Wholesale cost of 100 buns=$45
Wholesale cost of 100 slices of cheese=$8
Wholesale cost of 100 ounces of ketchup=$5

So, if you divide all costs by 100 burgers, you get a base unit cost of $1.08 per burger. This does not cover your yearly labor & facility costs, which is next.

So, since you have $87,000 in labor & facility costs, and you are open 360 days per year, divide $87,000/360, where you get $241.67 as the amount you need to bring in per day JUST to cover those costs. Well, your burgers are pretty good, better than the fast food ones some have said. You have no budget for promotionals, so you are relying on word of mouth and your decent location. So, you believe that you can easily sell at least 100 burgers per day. You need to make up your labor & facility costs with those sales, so you divide $241.67 by 100, and you get $2.4167 per burger. So between that and your unit cost of $1.08, you need to charge at LEAST $3.50 (rounded up) per burger, just to cover base expenses.

Let's just say you sell your goal, but nothing more. You have NOT made a profit, you have broken even. All of this is riding on the assumption that you don't have any equipment break down or you don't lose employees, or your store isn't vandalized or broken into, etc.

The only way to make a profit, is to cut expenses somewhere (such as finding a cheaper distributor of beef or buns) or raise the price of your final product. If you raise the price, some repeat customers may go elsewhere. If you find a cheaper distributor of ingredients, the quality may not be there and that will also lose customers. MOST businesses are in business to make a profit. That is what they are out there to do unless they are specifically labeled a charity or non-profit. When they make a profit, most times, that profit is invested right back into the business and/or employees, by upgrading and/or repairing essential equipment, giving out bonuses, promotional items, employee gifts, etc.

There's nothing wrong with making a profit, as long as it is done legally.

[Yavin4]

199. The Answer Is....

In your world, there is no profit. There would be deflation. The prices and wages would deflate to a level that the workers could afford to buy it. As a consequence, their wages would deflate as well.

Thus, your entire economy would collapse. No profit for anyone.

[Trillo]

200. Undoubtedly one of the reasons the Federal Reserve moves fast

when it sees the evil "deflation" on the horizon, 'The owners are in trouble, better move fast!'

But the polar opposite, inflation, seems just fine to our aggregate "owners". The Gov keeps printing those Corporate Bailout Dollars..., and keeps lying about inflation statistics.

[Hannah Bell]

209. Yep. & in our world, it inflates. For obvious reasons, I think.

But today it's deflating. Cause at some point, the balloon pops.

[mia]

223. In the beginning profit comes from risk, sacrifice, and hard work.

It takes years, if not generations to realize a profit and live comfortably. Both my father and ex-husband started out as small business owners. They worked many long hours to make it happen. My father still goes to work every day at the age of 84. It was hard on my family growing up and my marriage didn't survive it.

Doing the work of 3 employees is another way to make a profit. Twenty-five years ago I started a child care center for in a church and worked from 5:30AM to 9:30PM every day and spent weekends planning and shopping for the school. Once a church member complained about the profits that I must have been taking in. She had no idea that "the profits" came from my willingness to be the director, accountant, cleaning service, cook, and substitute teacher putting in 3 times the hours for what was then twice the minimum wage. The preschool is still thriving and I can look back on a good experience.

Too many people negate the efforts that go into starting and maintaining a business. It's not easy.

[Hannah Bell]

224. no one's negated anything, or insulted small business owners,

or mentioned them at all.

[mia]

226. Profit comes from sweat equity in my experience.

I'm enjoying your thread and wasn't insulted.

[Boojatta]

231. Profit comes from widgets. Profit can take the form of having a servant.

An owner can offer widgets as an incentive for someone to work as a personal servant who will cook and clean for the owner. The servant needs widgets anyway. Being paid in widgets is convenient for the servant, who won't have to make a trip to a store that sells widgets or wait in line at such a store.

[slutticus]

240. It's simple really.

[Leopolds Ghost]

242. The answer is a LOT easier than most people think...

Value itself is a zero sum game. It's all relative -- you have
a pool of goods that society owns -- the wealth of the richest
individual exists only relative to the poorest. You don't
actualize the value of the owner's profit until he uses the money
to pay, say, his nanny, or someone else for doing something that
has nothing to do with manufacturing widgets that are the source
of his wealth. The nanny needs to buy widgets too.
Thus, more buyers than workers for any given manufacturer.

Where does the money come from to pay the extra buyers? Old profits
redistributed to wealth-dependent creative class and trades workers
in return for, well, stuff that depreciates -- useless trappings of
wealth. If the money just sits there in a vault and is not reinvested
in something that pays creative class workers to do useless things,
you get a depression and no extra consumers, just widget makers.

Profit is redistributed into wealth-dependent service economy.
Surplus consumers mean surplus labor.

When an entire economy becomes wealth-dependent and stops
manufacturing goods, like the US, the overall profit becomes
a zero sum game, or at best a Ponzi scheme based on increasing
the size of the next generation of immigrants, because the amount
of wealth in society increases only with the creation of surplus
goods and surplus people to buy them (as Greenspan called them),
which is then monetized as profit but is really just IOUs
to promise to pay as-yet unborn immigrant nannies to buy
your grandson's widgets that are produced overseas.