Jump to content
Objectivism Online Forum

Production = Profit

Rate this topic


Hazmatac
 Share

Recommended Posts

I was reading a section in OPAR that said production is profit. I was wondering what was meant by this, and more specifically by the excerpt (page 391 paragraph 2):

"Production is profit; and profit is production. They are not merely related; they are the same thing. When a man plants potatoes, if he does not get back more than he put in, he has produced nothing.

Basically, I do not understand the link between somebody producing something and having to make a profit in order for it to be called production (If production is indeed profit)

Thank you

~Edited for clarification purposes~

Edited by Hazmatac
Link to comment
Share on other sites

I was reading a section in OPAR that said production is profit. I was wondering what was meant by this, and more specifically by the excerpt (page 391 paragraph 2):

"Production is profit; and profit is production. They are not merely related; they are the same thing. When a man plants potatoes, if he does not get back more than he put in, he has produced nothing.

Thank you

Production = Profit

Economics 101:

Profit = Income - Expenses

or

Profit = What you get back - What you payed

So to put it in a medium of exchange:

If it costs $10000 to execute business plan X, and plan X gives you back $10000, nothing is produced and there is no profit.

If you get back $20000, you have a profit.

If you get back $5000, you have a deficit.

If you do ANYTHING and it costs you more (financially, emotionally, time-wise, in any sense) than it does than you get in return, then you have a deficit. I believe this has to do with the "trader principle".

Edited by NickS
Link to comment
Share on other sites

Production = Profit

Economics 101:

Profit = Income - Expenses

or

Profit = What you get back - What you payed

So, production is just the production of money? I thought production meant goods and services. Therefore, you might take a loss but you still produced something, such as shoes or backpacks.

Edited by Hazmatac
Link to comment
Share on other sites

So, production is just the production of money? I thought production meant goods and services. Therefore, you might take a loss but you still produced something, such as shoes or backpacks.

I edited my post to clarify.

Link to comment
Share on other sites

"If it costs $10000 to execute business plan X, and plan X gives you back $10000, nothing is produced and there is no profit."

But, wasn't there something that was produced? (whatever the product or service was..) Even if you took a loss in the business, you still produced something.

Link to comment
Share on other sites

"If it costs $10000 to execute business plan X, and plan X gives you back $10000, nothing is produced and there is no profit."

But, wasn't there something that was produced? (whatever the product or service was..) Even if you took a loss in the business, you still produced something.

Not if production = profit. If a steel company owns a mass amount of resources and produces nearly no steel, not anywhere enough to make a profit, just a few tons, it's not really production because they used up resources trying to create it.

Link to comment
Share on other sites

"Production is profit; and profit is production. They are not merely related; they are the same thing. When a man plants potatoes, if he does not get back more than he put in, he has produced nothing.

Basically, I do not understand the link between somebody producing something and having to make a profit in order for it to be called production (If production is indeed profit)

Production in this sense means to have created more value than one consumed in the process. The net difference is what you produced. That is, you made a profit in the philosophical objective-valuational sense of the word. Thus as Dr Peikoff notes the two are synonymous, when the context is properly understood.

Things are different if by "profit" you have solely the accountant's perspective in mind without regard to the context of value. There are many activities that lead to a net positive accounting profit that aren't production, such as gambling winnings (I'm assuming there's no third party's entertainment involved). Nevertheless, leaving examples like that aside, making an accounting profit (in either an accruals or cash basis) does also mean having produced, even when the producers themselves don't have a clue what it is they actually produced to make that profit (eg ask stock traders what they have produced and many will give you a blank stare). The key is understanding that the primary concern is the net creation of value, irrespective of whether or not a transformation of material is involved.

"If it costs $10000 to execute business plan X, and plan X gives you back $10000, nothing is produced and there is no profit."

But, wasn't there something that was produced? (whatever the product or service was..) Even if you took a loss in the business, you still produced something.

I see. You're confusing "production" generally with the narrower concepts of "gross production" and "net production."

Gross production is what you have ended up with, without regard to any other consideration.

Gross consumption is what you used up to obtain that gross production.

Net production = gross production less gross consumption = profit.

When philosophers speak of "production", take that to mean "net production" unless the context specifies otherwise.

JJM

Edited by John McVey
Link to comment
Share on other sites

Profit cannot always be measured strictly in terms of making more money. It can be measured in terms of what you get out of doing something. For example, while working on my novel regarding the intrinsicist, the subjectivist, and the rational man, I was able to much better understand how those types of mentalities operate, even though I haven't published my novel nor made a dime from it. My profit is my greater understanding of that issue. Likewise, by posting to oo.net, I increase my understanding of certain issues and certain types of mentalities, by focusing on the issues in the context presented on this board by various posters. And I think I've made a few friends along the way. So, even though I would love to find a way to make an actual monetary living from my work; the profit I get is helping people to understand certain issues as I fight for my future of living in a more rational culture, though that is definitely more of a long-term goal.

I think The Ayn Rand Institute has a similar mindset when it comes to the free books for teachers program, which cannot be measured strictly in terms of making more money for the Institute. Fighting for cultural change does not always result in monetary gains, but it is not self-sacrificial so long as one sees that there is progress being made and so long as one is not sacrificing a greater value to a lesser value.

Writing here is also helping me to make a determination as to how to end my novel. The issue for me is what will it take for someone to finally get it? And I have to understand that before I can finalize the ending of my story. My sense of life determined the ending I have now, but I need to be able to point to facts of reality and how people change their minds or not before I can fully complete it and be able to point to my main character and be able to say without a doubt that one ought to be like him.

Link to comment
Share on other sites

Hazmatac:

Keep in mind that: There Ain't No Such Thing As A Free Lunch (TANSTAAFL).

It is a useful principle that will serve you well in its many applications across manifold fields of endeavor.

In physics it lets you rule out the possibility of a perpetual motion machine.

If an environmentalist tells you that electric cars don't pollute, you realize that the emissions are just being shifted to an electricity generation plant. If they tell you that hydrogen powered vehicles are more efficient or pollute less than gas powered vehicles, you would first have to determine how much energy it takes to produce the hydrogen.

One method used often in science and engineering calculations is to examine the energy used in a process versus the energy produced. One of the supposedly most efficient and cleanest energy sources would be a fusion reactor -- they can make energy with one right now but the lasers used to make it work consume more energy than it produces, thus it produces no energy.

In accounting the debits should equal the credits.

At one point you asked:

So, production is just the production of money? I thought production meant goods and services.

Think of money as a form of exchange, as a place holder for whatever you are producing. So money = goods and services, but also, goods and services = money.

Think of it this way: let's say you can sell 1 watermellon for $1 and you spend $1million to produce 100,000 watermellons. Have you produced anything? No. You can sell those watermellons for $100,000 but it cost you $1million to produce them so you lost $900,000 to say nothing of the time and effort you spent.

Maybe an easier way to visualize it is to convert everything into watermellons instead of dollars. So you spent 1 million watermellons to create 100,000 watermellons, did you create any watermellons? No, you spent or consumed or lost 900,000 watermellons.

Link to comment
Share on other sites

Profit cannot always be measured strictly in terms of making more money. It can be measured in terms of what you get out of doing something.

Such introspective mensuration would allow anything to be profitable, then.

The man who puts 10k into his business, and can only get 10k back, will surely have profited from the experience. Wouldn't this make the venture worthwile?

Link to comment
Share on other sites

The man who puts 10k into his business, and can only get 10k back, will surely have profited from the experience. Wouldn't this make the venture worthwile?

In a strictly monetary sense, no he didn't gain anything; but if he learned from the experience, especially learning how better to run a business, then he profited.

I believe you mentioned in another thread that you are about to graduate from the Objectivist Academic Center. Presumably you had to pay for those courses, and yet I doubt if you made any money from those teachings. Did you profit from your experience?

Likewise, did Dagny profit by joining the strike, even though she gave up every material value?

However, if we are going to use the term "profit" to mean only material gain; then in your example, he didn't make a profit. But is that the only valid definition of the term "profit"? Or would you say something like profiting from this discussion is an equivocation?

Link to comment
Share on other sites

Such introspective mensuration would allow anything to be profitable, then.

Ultimately, yes, so long as one measures rationally. If you are better off after taking action than you would have been without taking that action, then you have produced value and profited by it. Indeed, look in OPAR p206 to see what Dr Peikoff says about three fundamental questions that set the tone for the whole of the field of ethics (emphasis mine):

According to Objectivism, such a code must deal with three basic, interrelated questions. For what end should a man live? By what fundamental principle should he act in order to achieve this end? Who should profit from his actions? The answers to these questions define the ultimate value, the primary virtue, and the particular beneficiary upheld by an ethical code and reveal thereby its essence.

That theme is taken up again in the section dedicated to the third question, pp229-242, and elsewhere besides.

However, that's at the broadest philosophical level, not the economic context Dr Peikoff has in chapter 11 as Haz asked about. His (or, more exactly, Isabel Paterson's) particular context is marketable value, which is a subset of value generally. Yet even so, your example can be an economically-identifiable profit-making venture as well as an introspective philosophical one:

The man who puts 10k into his business, and can only get 10k back, will surely have profited from the experience. Wouldn't this make the venture worthwile?

Yup. Both philosophically and economically, he has indeed profited if by rational evaluation we can see that value was produced.

First, to the extent the value was a consumer value, such as him just wanting something interesting to do for a while, he consumed it at the same time as he produced it. Even without reference to owner-drawings that he spends as income, his net production was the ability to gain certain experiences that were more valuable than what he gave up to produce them, and consumed them by partaking them. The trick is separating the consumption of the experiences (eg enjoying the time spent working rather than at home) from consumption of what it took to enable having them (eg settling accounts payable or doing the books).

And, to the extent the value was a producer good, such as an improvement in his trading or business acumen, the market value of the work he can do has increased. Rational employers are interested to know what people have learned from their past actions, including any mistakes - and yes, rational Personnel Dept staff and recruitment agents can and do put dollar values on that. His benefit is thus effectively having a mix of capitalisation of some of the spending he made plus unrealised capital gain, where in this analogy the capital item in question is himself. The profit is measured in terms of total marketable value possessed being higher than what one started out with, not just the cash outlay.

I still go back to the "Ultimately, yes" here, because the narrow economic concept of profit is only a particular application of the broader philosophic concept of profit. Rational economic theory requires rational value theory at a level all the way down to even just prior to any ethical theory whatever. That's why I spent so much effort looking at the philosophical meaning of value as a precursor to discussing economic value in the chapter on value in my personal economic grimoire :thumbsup:

JJM

Link to comment
Share on other sites

This issue of whether or not the concept of profit necessarily includes a material gain can be clarified by researching the etymology of the term. I wrote a short paper on a very similar subject several months ago. The following excerpt is relevant here:

The etymon of the word “profit” is the Latin word prōfectus, meaning “benefit, progress, or gain.” Prōfectus is the singular form of the passive perfect participle of the Latin verb prōfíciō. The prefix prō means “forth or forward” and is common in modern English (e.g. produce, proficient, profound, program). The root of fíciō is the verb faciō; meaning, “to do or to make.” Those who are familiar with the Romance languages may recognize the similarities: in Portuguese, the verb “to do or to make” is fazer; in Spanish, hacer; in French, faire; in Italian, fare. It follows that the Latin word prōfíciō, which is the root of the English word profit, plainly translates as “to do or to make, forward.” In better words, “to do or to make progress or advancement.”
Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
 Share

  • Recently Browsing   0 members

    • No registered users viewing this page.
×
×
  • Create New...