Sunday, November 15, 2009

The profit conundrum

First of all, what is profit?

Economics defines it as money which accrues to the entrepreneur (or owner) after all costs of production have been paid, or, more simply: that portion of revenue he can keep for himself once he's paid all his bills. Nowadays, with corporations and the Universe's most complicated tax code, this simplified picture is rarely observable in the real world, but I think it suffices for my purposes here.

The definition implies need. It gives rise to the question of amount: how much is good? how much is enough? Of course, the more profits we earn, the richer we become, all things being equal. (That's one of my favourite weasel-expressions of all time: "all things being equal" -- all things have never been, and will never be equal.) Ultimately though, no one really needs to be rich, and therefore profits are unnecessary as soon as their amount exceeds that which the entrepreneur needs to live her life. And yes, how much an entrepreneur actually needs is also open to debate, a debate that can have no conclusion.

As I understand it, economics resolves this little conundrum by reference to the market, and a particularly heavenly form of market place where "perfect competition" reigns. In a perfectly competitive market all participants are rational and perfectly informed about price and, for example, what's going on over there at Joe's Emporium, who's trading gold over at Sarah's at what quantities, what new products are coming out next week, which are the best products, etc. etc. etc. In this beautiful world profits are kept to a bare minimum because the competition is just so damned fierce. No one can monopolize anything; the other market participants, being perfectly informed, would be on to it in a shot! Imagine that, a market of total transparency. So, excessive profits simply cannot last much longer than a couple of units of perfected time, aka two shakes of a lamb's tail. Why oh why can we not establish such a wonderful system? Well, because people are not rational, and cannot possibly be perfectly informed. It follows therefore that profits are a problem.

Why? Because money is power, or a lever to power. As I discussed earlier, monetary systems depend on money (duh!), so those who have the most money can, should they choose to do so, use it for power and shaping things to their continuing advantage. We call this corruption. Corruption and money, like scarcity and money, are inseparable. You can't have one without the other. So, because there can be no such thing as perfect competition, profits must by definition become excessive, and the system inherently vulnerable to corruption at levels of intensity that lead to cyclical and systemic collapse. I imagine this sounds familiar.

For me, a human being concerned with the ramifications of transitioning to a resource-based economy, this presents a problem. Not only do I not believe in prohibition, I believe the healthiest socioeconomic systems are those which allow their members the maximum possible freedom. Since transition away from money requires money, there will be profits; no perfect competition is possible. Therefore corruption remains a serious problem during transition, lowering the chance of success considerably.

At the moment the only suggestion I have is the redesign of money, combined with a conscious decision to set up a societal infrastructure for making money slowly redundant, is the way to address this problem. We would need a money that cannot be accrued, that "expires" in some way, as it did in the Wörgel system of pre-war Austria. But this is a very delicate problem indeed, whose solution is beyond my humble powers. It needs thorough discussion.

1 comment:

Martin said...

The Aztecs used cocoa beans. Those don't last forever. At some point you'll have to make something to eat or drink out of them.
Of course we have to be careful, cocoa bean money may lead to sacrificing people to the hummingbird god.