Thursday, January 18, 2018

Why Do We Need Profit?

Zach B. emails:
In my engineering class (grades 9-11), I was showing them how to calculate CPU so we could determine if their process was profitable.

Some students were asking why profit is needed and if there ever would be a scenario where profit wouldn't be necessary.

I explained it (because we live in a world of uncertainty), but I was hoping you know of an engaging video that presents this from an Austrian perspective.

Any help is appreciated.

 RW response:

This is not perfect, but very good.


  1. I like this one on Prices but it only briefly touches on profit.

  2. When people talk about profit, they always think of financial profits or accounting profits, without thinking of why profit is desirable in the first place. Because of this latent ignorance, some (or many, depending on your circle of friends) place a negative moral significance to profit seeking compared to altruistic or self-sacrificial behavior. But profit-seeking is actually the motivatpr for everything we decide to do. Profit is the psychic gain each of us believes obtains from an action. All actions, by the way, are trades: each of us trade the limited time we have on this good earth for those activities we think will bring us an advantage, a gain. The rational decisions we make result in this gain, in this advantage, whatever it may be. This is not going to be different when we trade goods and services or produce goods and services for trade. Each of us want to get more from **those** activities compared to other and competing activities. It's a fact that thanks to money we can now take account of these gains, but the economic and psychological phenomenon does not change.

    So the answer is: profit is not only necessary, it explains why we do the things we do, instead of monkeying around in the African savannas and eating worms we dug from the very earth with our bare hands.

    1. Leave it to the left to make "profit" a bad word. Maybe we should use the term "reward" or something "non-triggering" (yuch).