Another great paragraph from Turgot:
It is this advance and this continual return of capitals which constitute what one must call the circulation of money — that useful and fruitful circulation which gives life to all the labors of society, which maintains movement and life in the body politic, and which is with great reason compared to the circulation of blood in the animal body. For if, by any disorder whatsoever in the sequence of expenditures on the part of the different classes of society, the undertakers [entrepreneurs] cease to get back their advances with the profit they have a right to expect from them, it is evident that they will be obliged to reduce their undertakings; that the amount of labor, the amount of consumption of the fruits of the earth, the amount of production, and the amount of revenue will be reduced in like measure; that poverty will take the place of wealth; and that the common workmen, ceasing to find employment, will fall into the extremest destitution. (Reflections on the Formation and Distribution of Wealth)
(See also “Economics in 2 Paragraphs.”)
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My thought for the week is that libertarians should have their own salutation. Instead of ‘Good luck’, how about ‘Pure Profit!’
Divine Microeconomy Consulting
Tuesday, June 23, 2009
Understanding Profit Is Pretty Basic!
Following logic similar to that of Turgot: The purpose of production is profit so that the fruits of production can be purchased and consumed!
What could be more basic? Who is opposed to consumption, and if so, they will perish from starvation soon and no longer will there be any to say that they are opposed to consumption?
To consume requires acquisition of consumption goods which requires a productive endeavor yielding an income. Productive endeavor yielding an income is profit!
In contrast, a productive endeavor that fails to yield an income is loss. This will not be chosen again or emulated by anyone who is trying to live prosperously.
Profitable endeavors will be the ones pursued and these will yield fruits of production that will enrich society and thereby increase prosperity.
Not a great paragraph in my opinion. Basically, he claims that if profit diminishes, production diminishes. That’s true.
Yet, there’s more to the paragraph… there’s metaphor of money circulation as being fruitful like blood, then there’s the suggestion that a reduction in expenditure is bad as it will disrupt this flow and reduce labor.
This isn’t the main point, but this is largely conveyed by the paragraph. One could very well make a Keynesian reading of this.
ditto A.B. sounds like poverty is linked to disruption in expenses, aka a Keynesianism, no?
The fault lies in the assumed “right” being infringed upon in the case some “cease to get back their advances with the profit they have a right to expect from them” however where is it written that a case exists where others are obliged to satisfy your expectations? Moral hazard and all that, no? Each is obliged to take care of their own property with due dilligence. Losses are as important as profits in teaching prudence!
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