Thursday, November 09, 2017

Why Profit is Necessary

The latest closing of a social do-gooder restaurant sent me on a tirade on my second-latest podcast where I explained that if you don't put profits first, then your company will fail (and you will fail your employees or whatever do-gooder lefty cause you happened to be championing that week).

Many of you on the left may disagree with this and even write it off as capitalist, right-wing propaganda, but the point transcends politics, even economics, and approaches one of physics, even simple logic.  Also, whereas most non-leftists may intuitively know why profit is necessary for a company to survive, one might wonder if the socialists might possibly be right in some obscure philosophical way.  IS there a way for a company to exist without profit?  "I know it sorta seems like profit should be necessary, but I haven't got through and developed an economic proof or theorem that proves it so."  And so let us delve into the boring world of profits and learn a vital economics lesson we all need to learn...that no doubt the leftist ideologues will choose to completely ignore.

The simplest way to understand why profits are necessary is to understand it from a perspective of providing goods and services.  This is an oft forgotten or ignored aspect of economics because everybody seems to focus on MONEY and not the things that actually matter - GOODS AND SERVICES.

I cannot eat a dollar.
A Yen will not provide you surgery.
A pound will not feed your dog.
And a Euro will not fuel your car.

However, these currencies WILL buy us the goods and services that provide ultimate value and utility in life.  A dollar will buy me an apple that I can eat.  A Yen will buy me some gas that will fuel my car.  A Euro will buy a dentist's services to repair your teeth.  And a pound will buy some dental floss after your dentists lectures you for not flossing.  So the whole point and purpose of an economy is to produce the stuff, not the money nor necessarily profits in the process of doing so.

Since it is the stuff that needs producing that ultimately matters you need to ask how stuff gets produced, and the answer is "not charitably."

In order for things to get produced, somebody has to inevitably forfeit some of their time to produce them.  This can be done on an individual level as per subsistence type craphole economies like Africa, or in the awesome 1st world through organizations, namely, corporations and companies.  Large and complex systems organizing capital and labor to produce an amazing plethora of things all on the cheap.  But regardless of the size of the company, it has to ultimately be started.  And since time is ultimately the ONLY resource that matters to humans, any sane and self-respecting human is going to demand he or she be compensated for it.

Thus introducing profit.

This is the problem most people who have a problem with profit face.  They look at it backwards.  The issue isn't whether somebody deserves profit or whether profit should exist.  NOTHING would exist unless it was for profit.  And the insurance industry explains this incredibly well.

NOBODY likes paying for insurance.  It's a necessary evil, and it's so evil illegal aliens often go without it as they ram their cars into us otherwise law abiding, superior people.  But what really irks most people is that insurance companies...GASP!!!!  MAKE A PROFIT! This means they charge us MORE than the damages and payouts they actually have to pay out.  HOW DARE THEY!!!???

But think about it.  If they DIDN'T charge more than they paid out, then why would anybody start an insurance company?  The only reason an individual or a group of investors would start an insurance company would be to make a profit for themselves.  They put their time, money, and risk into the venture, so you're damn right they're going to charge more than they pay out.  But while you may detest that profit, if it wasn't there, then there would be no insurance at all.  And not only insurance, but no

food
gas
video games
cell phones
clothes
housing
dog food
cat food
medicine
surgeries
cars
buses
trucks
and coffee

NOTHING in this world would exist without profit, and a world with nothing being produced (no matter how much money is printed) will look more like Soviet Russia, Venezuela, North Korea, or Zimbabwe (much as those places make leftists wet).

Now let's ignore the fact the track record of socialism and communism is horrendous and makes the nazis look like saints.  Let's ignore the fact that Mugabe of Zimbabwe is begging those evil capitalist white farmers to come back and make food again for his idiot electorate.  Let's ignore Venezuelans eating pets to stay alive.  And let's ignore practically everything about North Korea.

Let's go completely theoretical.

Is there a way to replace profit with a socialist model where the government provides the capital or resources and profits are either retained in government coffers or redistributed amongst the workers (which explains why former communist workers are so rich).  Does there need to be the incentive for profit, or can a government company merely be efficient and produce the goods and services in the variations and amounts necessary to sustain (forget satisfy) an entire society?

In this situation a government would merely print off the money, buy the capital and equipment necessary to start a company, produce widgets, and (assuming it's an efficient widget company) all profits would go back to paying single moms to breed more bastards as they get their Masters in Health Administration degrees.  There's just a couple problems that will more or less ensure this leftist-whetting utopia doesn't ever manifest.

First, communists are too nice.  The whole point of communism is to make everything "free."  This not only means charging nothing for the ultimate good or service produced, but overpaying employees because, well we all need a living wage!  This naive (albeit) kindness dooms nearly every communist/government company to being inefficient.  It's why Byte failed, it's why Bartertown failed, it's why the Soviet Union failed.  In making things free (and paying your employees more than they produce) you ensure your companies/system are inefficient forever needing more infusions of cash to balance your books.  Bailing out the occasional pizza store is one thing, but when you're entire economy is government owned and inefficient, you need to print off trillions which only causes hyper-inflation, and ultimately never increases production.

Second, there is no competition.  Without somebody nipping at your heels and threatening to take away your profit, you have no incentive to work harder, better, faster, or stronger.  And communism ensures there are only monopolies, and not competitors.  This results in not so much lazy, but unincentivized people which are a hallmark of government workers.  Government workers have no competition.  They have no hustle.  They are fat, lazy, and slothful creatures that deserve the mockery and ridicule their parasitic asses attract.  But imagine if the incompetent fuckery going on at the DMV....

WAS EVERYWHERE.

It would take 4 hours to get a Big Mac.
It would take 3 hours and $400 to fill your tank with gas.
Have fun shopping at Best Buy as you wait in line to get your government issued computer.
And if you didn't like it, tough cookies, there's no other competitors or companies in town to "take your business elsewhere."  You simply have the "company" store.

Competition, specifically the threat that profits will be earned away by a competitor, is precisely what keeps the entirety of society's producers and entrepreneurs 100% completely focused on making you happy, condemning them to a life of constantly improving and creating new products at cheaper prices till they're dead just for you (ironically delivering on more of communism's promises than communism itself!).  They're practically slaves to the rest of society, and you dare get upset they make "profit" as you leftist sheep line up to buy the iPhone X?

In the end a world without profit is like a woman without a vagina, a man without money, a car without gas, or a plane without wings.  Nobody wants it and it has no value.  You may not like the idea of profit, you may not like the idea of "greed" or "human nature," but like death, disease, mortality, and hipsters, it's just an unfortunately reality of life.  I suggest you accept it instead of trying to futilely fight against it.

Enjoy the decline!

14 comments:

'Reality' Doug said...

"...if you don't put profits first..."

I know you know that profits are not ultimately measured in fiat money but in TIME and in Goods & Services. Therefore, as your obtrusive editor this one occasion:

"...if you don't put *profitability* first..."

Profit - purchasing power in excess of expenses.

Profitability - the quality of affording gain or benefit or profit.

Profit is purchasing power as money, which does not buy everything of high value to decent humans; profitability transcends monetization gone medieval on us peons of the IMF tax farm to include high value that money can only facilitate indirectly as a means for some higher ends, as known only to decent humans, rather than for direct materialist ends, which separates the cultural men from the boyz and things that go bump in the night. It is the comprehension of high culture and its living vessels that are more valuable than money. Money works only if there are such vessels with freedom enough to thrive.

Referring to biology and, gasp, evo psych, organisms strive for full expression, which incidently is why I and any sane person is against freedom for all, but to be more precise, against success for all which is impossible, and to be most precise, against freedom from individually scored failure for all who need it most (whom I hate).

What doth it profit a man to permit the freedom of his injury and demise on two legs? Libtard parasites know that answer well and live by it from the locus of their respective interests with grotesque immediacy. What doth it profit a man to make more money and never spend his time well? Damn libtards.

I don't think entrepreneurs in an entrepreneurial society are necessarily slaves to competition. It goes against your whole argument of incentive, but makes for facetious hyperbole. If consumers are limited to their value as producers and if producers improve at production, then the supply of wealth increases and the price of wealth goes down (because parasite can't feed), and critical non-wealth intangibles like TIME, affection, and good will become more affordable, except for the corruption it affords (see my previous point regarding letting nature dole out freedom and failure, political policy matters). Western medical care is the DMV somewhere else.

commoncents said...

UP 25% in one year! The Trump Bump shown in a YUGE Graph

http://commoncts.blogspot.com/2017/11/up-25-in-one-year-trump-bump-shown-in.html

ps. would you consider adding CC to your blogroll?

Whistling_Dixie said...
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Whistling_Dixie said...

Love watching the hippy stores in Melbourne open with a focus on "socially conscious" products and like staffing policies, only to run out of business in 18 months. Rinse and repeat.

minuteman said...
This comment has been removed by the author.
minuteman said...

It's even easier to explain than your well written essay. Not making a profit is "unsustainable", to use a word the left loves. A farmer makes a profit every time he plants a seed of corn and reaps four ears of corn. The four ears of corn are profit. Planting one seed of corn and reaping one seed of corn would be "not for profit farming". It would be totally pointless. Every time a "not for profit operation" expends more resources than it reaps, the shortfall has to come from someone else's surplus resources, and the surplus resources are someone else's profit.

Faithless Cynic said...

Excellent article Cappy - I have been a landlord for 16 years. Tenants ALWAYS resent paying rent because they KNOW, JUST KNOW, THAT SOMEHOW YOU ARE SCREWING THEM BY MAKING A PROFIT. This mood has worsened considerably after the last election.

I had a 10 year tenant whose rent had increased from $800 to $845 per month over ten years. This " Bernie Sanders with a vagina " just knew I was screwing her by raising the rent. " Bernie Vagina " started sending me insulting emails that the place was not worth the rent charged. She also started referring to me as a " one percenter " who "takes advantage of little people" I make about 50K per year and will never be in that bracket.

This shit continued until she cussed me out for asking for the late fee when the rent was paid late. I gave her 30 days notice to move, which is legal on a month to month lease. Bernie left the place filthy beyond imagining and whined that she could only afford a 2 bedroom instead of my 4 bedroom for $845 per month :-) I was scraping strips of hardened urine off the tile around the toilet with a putty knife, thinking that there had to be a better way.

My rental is now handled by a property manager. They charge $1050 per month rent and keep $105 per month to deal with tenant insults and filing for eviction to force payment. My current tenant HATES the landlord because he filed for eviction 6 times last year when she did not pay the rent :-) The tenant knows me as " the little gray haired maintenance man " who fixes stuff, not, the EVIL LANDLORD.

Vader999 said...

This whole thing boils down to one factor:
"You need a stick and a carrot to drive a mule."

Moving, working, or doing anything requires time, effort, and calories.......that selfish Darwinian creatures would rather not spend. To motivate them to work, move, or do anything that they don't want to do themselves, you have to pay them. And you have to pay them enough so that they consider the time they spent working for you or moving things for you as "productive".

This is why socialism doesn't work. I met a bunch of socialists, and they wanted to tax doctors 90% of their earnings. They have no fucking idea how much work comes to being a doctor, dealing with patients every day, diagnosing problems, let alone how much time and effort it takes before one can graduate from med school to become a doctor. Even that last part is practically a fucking war for the student. And these socialist hobos who don't even want to bother paying for or going to med school want those that went there, those who struggled to be doctors and nurses, to pay 90% of their income to the state? They are crazy. In the most literal sense of the word. That kind of tax would kill the medical industry. NOBODY would bother trying to become doctors anymore. And yet they think that "wanting to help" is enough? Good God, help us. We are literally surrounded by morons!

Anonymous said...

Sure, but not profit at the expense of your employees and customers. Which is happening now, everywhere. Employees should profit well too from their labor. Not be reduced to cogs, everyone paid the same, while the owner of the business rakes in the money, and screws over customers and clients as well by raising prices. And makes employees sign a non-compete to make sure you can never make money in your field. Houston, we have a problem!

Wandering man said...

👏

David Reynolds said...

If anyone wants a reminder as to why communism/socialism was and still is a total failure need to look no further than the East German (DDR) Trabant. This car is far and away the biggest piece of shit ever produced. It made the 1974 Ford Pinto look like a Lexus.

To give you the run down as to why the Trabant was the biggest piece of shit on 4 wheels:

1) The body was made of a steel frame with the body made of plastic and cotton waste.
2) The engine under the hood is a 2-stroke that only produced 26 HP.
3) Because it had a 2 stroke engine, one had to add an oil mixture into the gas tank since it didn't have an oil pump.
4) The car wasn't much more powerful than your lawnmower. It took the Trabant 21 seconds to go from 0-60 mph.
5)Because you had to add oil into the gas tank, the engine was very polluting with its smokey exhaust.
6) It only came in two original colors: White and grey.
7) The body style and specs of the car didn't change much from the time it was first produced in the 50's until the fall of the Berlin Wall.
8) If you were unfortunate to live in East Germany at that time, you had to wait in line 10 years to own one of these "beauties"
9) Because it took so long for one to get a new Trabant, a used one bought off someone was naturally worth more than waiting for a new one.
10) A Trabant was very small and only weighed 1000 lbs. That is 3-4 times the weight of your average NFL linebacker.

If an American, Japanese or European car maker were to produce shit like the Trabbi, they wouldn't be in business for more than 18 months.

Anonymous said...

I often wonder how the socialist countries are still alive even though their ideology should have made their country extinct along time ago. Maybe they do bring American imports and businesses to keep them alive. They have great tourist sites that they can ironically make "profit" out of people. Europe is still around because it has beautiful, historical and cultural landmarks as well as tourist sites for example Eifel Tower in Paris, Big Ben in London, Coliseum in Rome, and Gandola rides in Venice. Otherwise Europe would be taken over by their muslim immigrants destroying their continent. Africa, South America, Middle East, and parts of Asia are crapholes because it is land of resources foreign countries take. The utter frustration from living in poor countries probably push the 3rd world citizens to go make a fortune or "profit" in western countries ala United States. Why don't the liberals move to those countries if United States is a country full of greedy and evil corporate profit-driven "scumbags"? Those scumbags want you to work and not take your stuff. I hate the other foreign countries are not developing into profit-making powerhouses and their people head to United States and Europe to leech off the government, using our taxpaying money to be parasites. In uganda, people will poison you if you show any sign of monetary success. Living in those countries will not help your liberal ideological view. That's my two cents.

Faithless Cynic said...

Ahh the Ford Pinto. What an awesome little car. The 2000 CC engine was very responsive to simple modifications like different carb jetting and headers. A buddy had a hopped up 1973 model. We got that fucker up to 125 MPH on US 1 late one night. We were 20 years old and had no concept of death and no knowledge of the nifty " self igniting " feature of the Ford " Zippo "

If we had crashed at that speed, the Medical Examiner would have had about 2 pounds of very well cooked hamburger to divide between two families. :-)

Sometimes doing really stupid shit provides the best memories.

Moritz Krämer said...

Don't sign the non-compete, start your own gig, and put that owner out of business. If he's screwing both his staff and his customers, you shouldn't have too much of a hard time.