People Before Profits – Foundation for Economic Education – Working for a free and prosperous world

Now go read “Person or Principle” over on Sarah Hoyt’s blog.

 

Source: People Before Profits – Foundation for Economic Education – Working for a free and prosperous world

Whether it’s Nation of Islam Minister Louis Farrakhan leading the Million-Man March, anti-WTO (World Trade Organization) protesters, or AIDS activists, we’re frequently treated to the chant demanding “People Before Profits.” Since profit demagoguery is a deceptively appealing tool used by scoundrels everywhere, let’s demystify the concept of profits.

Let’s first get its definition out of the way. Profits represent the residual claim earned by entrepreneurs. It’s what’s left after all other costs—wages, rent, interest—have been paid. The entrepreneur is generally seen as the person who takes risks, innovates, and makes decisions. It’s important to recognize that profits are a cost of business just as are payments to labor, land, and capital. If wages, rent, and interest are not paid, labor, land, and capital will not be offered; similarly, if profit is not paid, entrepreneurs won’t be seen either.

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Here’s Williams’s law: whenever the profit incentive is missing, the probability that people’s wants can be safely ignored is the greatest.