An Extraordinary Meaning of Profit
One day a New York City development director found a magic lamp while walking to her office. A genie appeared and offered one wish. She said, “I wish for one million dollars to support my organization.” Done, said the genie, come to your office tomorrow, and it’ll be there.
The next day, the director came to her office, and when she opened her office door, a million slices of pizza, a million junior cheeseburgers from Wendy’s, and five million 4×5 photo prints from Walmart fell down.
“What the hell!” said the director to the genie, “I asked for one million dollars!?!”
Yes, said the genie, but you didn’t specify that it couldn’t be in-kind…
If You Had a Million Dollars
What would you do if you discovered that you were the mystery holder of the winning lottery ticket of one million dollars in the Shamokin store in Pennsylvania? Would you buy a new computer or smart phone? Would you take a sabbatical? Would you “buy furniture for your house, maybe a nice Chesterfield or an ottoman”?
When I ask my Mexican students, a few usually mention travelling, while half or more mention investing in real estate or starting a small company. Like so many other students around the globe, they have been educated into believing that they would be better off investing some rather than spending all; after all, investing leads to growth while spending does not. Successful investing makes for a favorable balance—earning more than spending.
Investing is an answer to an economic puzzle that claims profits cannot really exist, since in any and all cases the aggregate of spendings is going to be equal to the aggregate of earnings. The solution is to call the purchase of stocks and bonds, real estate, and/or gold “investment,” not “spending.” In that case you could actually earn more with the million dollars than you spend since some of the lottery winning is invested, not spent.
The Ordinary Meaning of Profit
Common economic wisdom relates profit to intelligence, enterprise and a certain level of risk-taking. If you want to “turn a profit,” or earn more than you spend, then you will need to be creative and tolerate a bit of uncertainty. If you work for a company and would like to know how things are going, you might speak with the accountant. Typically he or she has access to payments made and payments received, and with this information he or she can inform you about overall costs and overall profits, which are simply a relation between the two types of payments. “To turn a profit” ordinarily means to earn more money than is spent. An accountant’s spreadsheet showing the “bottom line” indicates how things are going. Profits falling is not a good thing for Coca Cola or Apple, for example, since profits are the measure of wellness.
This ordinary meaning of profit is widespread. It is taken for granted by Andrew Ross Sorkin in his June 2, 2014 New York Times article “Do Drug Companies Make Drugs, or Money?” It is implicit in the following course description of “The American Economy,” which is being offered this fall at a U.S. university:
“The course surveys issues of interest in the American economy, including economic measurement, well-being and income distribution, business cycles and recession, the labor and housing markets, saving and wealth, fiscal policy, banking and finance, and topics in central banking. We study historical issues, institutions, measurement, current performance and recent research.”
The ordinary meaning of profit is operative when one asks, for example, “How much profit does Apple, Microsoft, and Google make?” An online, interactive visualization estimates that every ten seconds these three companies make profits of $12,332, $7,279 and $4,067 respectively. The notion of profit is so prevalent in journalism, education, and small, medium, and large businesses that it appears quite daft to even begin to consider profits being something different.
An Extraordinary Meaning of Profit
There are two types of firms. Taking that into account—and into accounting—leads to a science of economics that is to clean up the mess of finances that has destroyed businesses and nations and cultures in the past one hundred years.(1)
Could the oversight of classical, neoclassical, Keynesian, post-Keynesian and Marxian notions of profit be a simple failure to understand the relationship between capital formation and the production and distribution of consumer goods? Are there two types of firms that need to be systematically distinguished and taken into account? If so, does an admixture of sociological, political, and proprietorial dimensions do anything to explain, for example, the properly economic happenings in and around the Fulton Fish Market in New York City? Could such an admixture merely muddle the analysis? Likewise, are textbooks and other learned talk of growth, expansion, and profit that fail to distinguish the aggregate of primary economic rhythms from the aggregate of economic secondary rhythms anything more than erudite, albeit lucrative gossip?
In the commonly taught economics model, the text books highlight Gross Domestic Product and rates of unemployment, inflation, and growth. The following is the course description of “Intermediate Macroeconomics” at the same U.S. university: “This course covers the determination of output, employment, inflation and interest rates. Topics include economic growth, business cycles, monetary and fiscal policy, consumption and savings and national income accounting.”
What is missing in the course description? There is no inkling of the startling claim that there are two types of firms and therefore there is no inkling of “cultural overhead and the deepening that releases man to leisure and culture [that] are essential parts”(2) of sane economic analysis. The ordinary meaning of profit is taken for granted.
What if there were a flow of income that is neither cost of living, taxation, maintenance of equipment, nor replacement of worn-out equipment? What would or could become of it? What might become of the expenditure that corresponds to income that is derived from the sale of secondary or surplus products—weapons, nets, and boats for fishing and hunting; the ox and plough for increasing the harvest of corn or potatoes; and the hard drive for increasing the harvesting of ideas?
A certain fraction of surplus expenditure could be invested in new capital goods and services to widen and deepen current industry. But this investment would not appear in traditional accounting spreadsheets since they do not take into account the basic distinction between ordinary goods and services, on the one hand, and surplus (extraordinary, secondary, whatever) goods and services, on the other. In the standard model being taught around the world, there is no notion of the “theorem of surplus.” Growth and expansion are named, but deepening is not part of the analysis, nor is there a place for it given the basics of the analysis.
In good time the invested surplus income could raise the standard of living when secondary rhythms deepen and widen primary rhythms. But this can only happen “democratically,” in a radically new and precise meaning of that word as well: the common people (demos) have an inkling of their responsibility to cooperate in accelerating both surplus production (immediately) and basic production (ultimately). They are common folk—school principals and kindergarten teachers, bakery and laundromat owners, taxi drivers and street vendors—who are not interested in maximizing ordinary, bogus profits and want something more than merely adding to their enjoyment, whatever their standard of living might be. They have a decent high school education and so do
not direct [their] main effort to the ordinary final product of standard of living but to the overhead product of cultural implements…the pure deepening that adds to aggregate leisure, to liberate mainly entirely and all increasingly to the field of cultural activities.(3)
In economics’ new standard model, “profit” takes on an extraordinary meaning that derives from the startling claim: “There are two types of firms.” Profit does not mean an excess of selling price over cost price that results from intelligently taking risks, an excess that might then be invested or hidden in the bed mattress. Rather it means local and regional understanding and implementation(4) of a surge in surplus income that is “beyond all cost of living, all taxes and charities, all maintenance and replacement.”(5)
Currently this standard model is not being taught or debated, and so there is no way to conceive of cultural overhead, the release of men and women to leisure and culture. What exists is an uneducated, gullible mass, including the likes of Ben Bernanke and Thomas Piketty, suffering a hundred-year plus cumulatively deteriorated and deteriorating social situation of institutionalized stupidity and greed that accepts “the classical assumption that profits are the measure of soundness”(6) and privately wants to win at playing monopoly, since “sooner or later even the stupidest will realize that the maximum return for their money is through monopoly prices and inelastic demand.”(7)
(1) Philip McShane, Piketty’s Plight and the Global Future (Vancouver: Axial Publishing, 2014), 11.
(2) Bernard Lonergan, For a New Political Economy (Toronto: University of Toronto Press, 1998), CWL 21, page 21. (hereafter CWL 21)
(3) CWL 21, 20.
(4) “Understanding and implementing” is a question of efficiently dividing up academic labor in a post “academic discipline” culture of functional collaboration. See Philip McShane’s post “Seeding Global Collaboration” on this same Blog and his “Economics’ New Standard Model 6” at pages 2-3.
(5) CWL 21, 50.
(6) CWL 21, 82.
(7) CWL 21, 92.