CCQ 4 Where Does Profit Come From?

Steve asks an oldie but a goodie.

Where Does Profit Come From?

Here’s the Marxist view from Socialist Worker member and UNITE organiser,Joe Carolan, posted on his Blog Anticapitaliste.

“Decades before Marx developed the labour theory of value in Das Kapital, Adam Smith conceded the fact that capitalists, rather than creating wealth, actually took their profits from wealth created by labour. Profits were derived from what Marx would later call the unpaid surplus value that the working class created.”

Whether Adam Smith ever did say that, I don’t know, but if he did, he was wrong.

The arguement turns on your definition of labour.

A miner works 10 hours at the coalface with a pick and knocks out three tons of coal. He’s paid $200. That’s labour. No arguement about that.

A retired schoolteacher phones her stockbroker and asks him to buy her 1000 shares in the same coal mine. Two months later she again phones the stockbroker and asks him to sell the shares. She makes $750 profit and buys 1,000 shares in a bread bakery.

Is the retiree a “labourer”? Has she actually produced anything for her profit?

A Marxist would probably say no to both questions.

As a capitalist I would say yes to both.

To me, any mental or physical activity directed towards the goal of production is labour.The coalminer has applied his “capital”-muscle and knowledge of his trade, to produce some coal. His wages are his profit.

The retiree has applied her “capital”-knowledge of the market, money, a little time, to move resources from one location to another, where they can be better employed to produce more wealth. Her profit is part of the exta net wealth she has helped to produce by applying her “capital”.

What is profit? My definition is the surplus value you derive from producing wealth after deducting expenses.

It is comparitively easy to see how the miner makes his profit.

He works one hour in a coal mine. He expends X amount of mental energy and burns X amount of calories which have to be replaced by a certain value of food. He gets paid $20, he deducts the calorie replacement value, mental energy, travel costs, clothing replacement etc. His profit is maybe $15 per hour worked.

The retiree’s profit is less tangible. She directly expends a small amount of mental energy and a little time and a miniscule number of calories to produce several hunded dollars.

What is less tangible is the time, effort and research she has put in to be able to produce wealth so efficiently.

Efficiency is the key point here. As mankind progresses from caves to condos, he is able to use less brute force and more intelligence to manage material and human resources more efficiently. In other words, material abundance becomes a management rather than a strictly manpower issue.

Compare a knuckledragger who takes all day to plant an acre of wheat, to an executive who can manage the production of 300,000 loaves of bread in the same time.

If profit is your reward for serving or producing for others, who deserves the higher profit?

Which is more value to one’s fellow humans, the ability to sow an acre of wheat, or the ability to organise the production of 300,000 loaves?

Who would you value more?


Author: Admin

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5 thoughts on “CCQ 4 Where Does Profit Come From?

  1. Byron….I suggest you read the brilliant essay “I, Pencil” by Leonard Read as it uses your example of millions of diverse people all over the world contributing to the creation of the simple pencil…or not so simple once you study its creation process.See link..

  2. take software creation as your example. What supposedly finite resources does this use?

    When you think about the big picture software creatation actually uses a lot of resources (I’m not arguing that these are finite however)
    Copper, silicon, silver and other metals that go into a computer, plastic, glass, the labour of the people who mined the metal, the labour of the workers in electronics factories, the labour of the workers who put the electronic componants together for make the computer, the fuel to transport raw materials and parts from one place to another, the (mostly mental) labour of the programmers of course, the food, clothing and shelter for the programmers, factory workers, miners etc.

  3. are you saying that the amount of profit one makes depends on an application intellect based on prior knowledge of an asset/commodity to add value or realise value from that same base commodity/asset?
    Or is it more along the lines of profit is the intrinsic portion of a price which the producer adds into a good/service to better satisfy the end users desire of that good/service?

  4. Let me preempt the people who now want to talk about ‘resources’. The universe is pretty full of it, so I wouldn’t worry too much about running out of it.

    And about wealth creation: if you want to discuss that, I suggest you take software creation as your example. What supposedly finite resources does this use?

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