Monday 29 June 2009

Quote of the day: Paterson on profits

After being startled to discover that even economists don’t understand the difference between production and consumption (one might say “especially economists”) I resolved to write a short piece explaining the difference. 

My problem is making it short.  So in the meantime, here’s Isabel Paterson on the connection between profits and production:

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.”

Simple, huh.  Leonard Peikoff expands the point:

The amount of a businessman’s profit indicates how much his customers value his product over the factors constituting his input to the enterprise. Profit thus measures exactly the creation of wealth by the profit-maker. Loss indicates people’s lower evaluation of the output than the input; loss thus measures the destruction of wealth.

Consumption might be equated with loss.  We produce for the sake of consumption – that’s undoubtedly true – but for all that consumption does drives wealth creation, it is no less a destruction of wealth for that.  Perhaps the best short statement connecting the concepts of production and consumption is this: “Don't eat your seed corn.”

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