Action attempts to exchange a less desirable condition for a more desirable one, and costs are incurred to achieve a goal. The difference between the value of the costs and of the goal is called profit.[1]
Loss[]
Sometimes, action does not achieve its end. The result may still be an improvement, although inferior to the end aimed at - then there is still a profit, although a smaller one than that expected. But it can happen that the action produces a less desirable state of affairs. Then the difference between the valuation of the result and the costs incurred is called loss.[1]
The subjective nature of profit[]
The difference between the value of the price paid (the costs incurred) and that of the goal attained is called gain or profit or net yield. Profit in this primary sense is purely subjective, it is an increase in the acting man's happiness, it is a psychical phenomenon that can be neither measured nor weighed. There is a more and a less in the removal of uneasiness felt; but how much one satisfaction surpasses another one can only be felt; it cannot be established and determined in an objective way. A judgment of value does not measure, it arranges in a scale of degrees, it grades.
Calculation is possible only with cardinal numbers. The difference between the valuation of two states of affairs is entirely psychical and personal. It is not open to any projection into the external world. It can be sensed only by the individual.[1]
Profit and Consumers[]
Profit is an indication that both producers and consumers have improved their well-being.
In short, by investing a given amount of money, producers have secured a greater amount of money. This, in turn, enables them to secure a greater amount of goods and services, which in turn promotes their lives and well-being. Likewise, consumers, by exchanging their money for goods that are on their highest-priority lists, have raised their living standards.[2]
References[]
- ↑ 1.0 1.1 1.2 Ludwig von Mises. "4. Action as an Exchange", Human Action, online edition, Chapter IV. A first analysis of the category of Action, Mises Institute. Referenced 2009-05-14}.
- ↑ Frank Shostak. "The Limits of Supply and Demand", Mises Institute, posted on 2002-09-04, referenced 2009-05-14.
External links[]
- Entrepreneurial Profit and Loss, Murray Rothbard's Man, Economy, and State, Chapter 8.
- Lester C. Thurow Profits, The Concise Encyclopdia of Economics.
- Profit on Wikipedia