Why We Can All Make A Profit At The Same Time.

[Authoritarian]

There's a school of thought that argues that it's mathematically impossible for all of us to make a profit simultaneously, this is due to the money supply. If somebody somewhere is making a profit, somebody else on the other side of the balance sheet has to be funding their profit, and they're getting into debt to do so.

The implication is that profit is detrimental to the overall wellbeing of the economy, which seems like a counter intuitive position.

Classical economic theory explains that profit is the return to capital -things like machines, buildings and so on- which suggests that it is possible for everyone to make a profit at the same time. If a farmer in one field uses spades and ploughs et ceter and subsequently generates a higher yield, this has little bearing on the activites of other farmers. They too can generate profits by utilising capital.

But what about the money debt?

Money doesn't prevent people from making profit; it measures it. A debt based money supply also doesn't mean that every debtor is insolvent, which is much more important indicator of overall financial stability. If I purchase a car from you for £1000 and then I perform £1000 of work the debt has been wiped clean but an asset - the car- still exists. That means the next time I borrow I have an asset which can be used to settle any outstanding debts.

All this stuff is fairly easy to work out, but the money supply issue has the overwhelming tendency to turn peoples brains to slosh.

Edited August 8, 2010 by Chef

[Bloo Loo]

There's a school of thought that argues that it's mathematically impossible for all of us to make a profit simultaneously, this is due to the money supply. If somebody somewhere is making a profit, somebody else on the other side of the balance sheet has to be funding their profit, and they're getting into debt to do so.

The implication is that profit is detrimental to the overall economy, which seems like a counter intuitive position.

Classical economic theory explains that profit is the return to capital -things like machines, buildings and so on- which suggests that it is possible for everyone to make a profit at the same time. If a farmer in one field uses spades and ploughs et ceter and subsequently generates a higher yield, this has little bearing on the activites of other farmers. They too can generate profits by utilising capital.

But what about the money debt?

Money doesn't prevent people from making profit; it measures it. A debt based money supply also doesn't mean that every debtor is insolvent, which is much more important indicator of overall financial stability. If I purchase a car from you for £1000 and then I perform £1000 of work the debt has been wiped clean but an asset - the car- still exists. That means the next time I borrow I have an asset which can be used to settle any outstanding debts.

All this stuff is fairly easy to work out, but the money supply issue has the overwhelming tendency to turn peoples brains to slosh.

Profit is nothing to do with money.

[erat_forte]

Profit is nothing to do with money.

So what do we mean by "profit"?

[Bloo Loo]

So what do we mean by "profit"?

money is a way of realising the profit, but not profit itself, for example... banks, they had plenty of profits in 2007...but no money to realise it.

A busted company can record profits, Pay VAT on same, tax on same, bonuses on same, but one bad debtor can take them out and reveal no profit at all.

[Bloo Loo]

I'm with him.

Although it is important in the context of lending. If you are not making a greater return on the money borrowed than what it cost to borrow, this is 'consumption' (as opposed to borrowing for 'investment') and stores up problems for the future.

If you disagree with this basic premise talk to Adam Smith who knew all about it.

basic business is invoice out more than you receive.

thats profit.

[Bloo Loo]

Im not reading that..theres a typo on line 35...blows all cred.

[Authoritarian]

I'm with him.

Although it is important in the context of lending. If you are not making a greater return on the money borrowed than what it cost to borrow, this is 'consumption' (as opposed to borrowing for 'investment') and stores up problems for the future.

If you disagree with this basic premise talk to Adam Smith who knew all about it.

Economic language has unfortunately problematised basic functions and the upshot is that concepts like 'profit' and 'consumption' get blamed as the cause for systemic breakdown.

I don't think that Smith would have approved.

[AvidFan]

There is no profit.

Just as there is no growth.

A fiat money system pitches human beings against each other. The losers don't know they've lost and the winners only get to hold onto their winnings for the briefest of moments. Progress is made, though not in the understanding of the carrot and stick monetary system that controls us.

[Bloo Loo]

Okay - I'll extract the key point:

"The man who borrows in order to spend will soon be ruined, and he who lends to him will generally have occasion to repent of his folly."

sounds religious.

and I already have that thought in my sig....you even helped me shape it into a pyramid of power.

The COUNTRY who borrows in order to spend will soon be ruined, and he who lends to him will generally have occasion to repent of his folly

[clockslinger]

There is no profit.

Just as there is no growth.

A fiat money system pitches human beings against each other. The losers don't know they've lost and the winners only get to hold onto their winnings for the briefest of moments. Progress is made, though not in the understanding of the carrot and stick monetary system that controls us.

"Unto This Last" by John Ruskin can be thoroghly recommended for anyone that seriously wishes to get a proper grip on the issues prompting the (totally misguided but no doubt sincerely held) belief that started this thread. You will also find you will enjoy the most uplifting read you may have this lifetime! A classic work on economics from the pen of a genius better known as a Victorian art critic, the book is a far more thorough work than any other of the supposed classics by Mill or (God forbid) the modern Chicago school disciples like Friedman. In fact, it puts both in their proper perspective. The fact that this text isn't commonplace core reading on every undergraduate economics degree tells one more than one could ever wish to know about the breadth of those teaching on such courses and our rulers desire to promote critical thought amongst supposedly "educated" citizens. Read it and be amazed!

[Bloo Loo]

That seems a long time ago now.

And yes it struck me instantly regarding the international trading system and the trouble we face having mortgaged ourselves to the hilt to pay for our consumption from China et al.

I wonder if the Chinese on reading Adam Smith's homilies are beginning to worry yet.

EDIT: Time to change your sig?

yes, I need a new prediction. Ill think about it.

[scepticus]

Economic language has unfortunately problematised ...

problematised? What language is that?

[Authoritarian]

problematised? What language is that?

The English language.

http://www.google.co.uk/dictionary?q=problematize&langpair=en|en&hl=en&sa=X&ei=qhlfTJHsK5WQ4Qad5pSKCA&ved=0CBYQmwMoAA

[Bloo Loo]

The English language.

http://www.google.co...ved=0CBYQmwMoAA

I readerized that some time ago.

[erat_forte]

basic business is invoice out more than you receive.

thats profit.

I still haven't understandized this. Perhaps you could clearize what you wrote above?

It seems to me that the money system causes confusion, we can see how you can grow beans and end up with more than you started, and also how you can flip a house and pocket £50k pure profit without actually producing anything. Is the latter considered profit but not the former? That would explain the OP's "idea".

[scepticus]

The English language.

http://www.google.co.uk/dictionary?q=problematize&langpair=en|en&hl=en&sa=X&ei=qhlfTJHsK5WQ4Qad5pSKCA&ved=0CBYQmwMoAA

well you learn something everyday on HPC!

[scepticus]

I still haven't understandized this.

lol

[cletus]

yipeee

[scepticus]

yipeee

yes thank god for that. happy days.

[TTID]

There's a school of thought that argues that it's mathematically impossible for all of us to make a profit simultaneously, this is due to the money supply. If somebody somewhere is making a profit, somebody else on the other side of the balance sheet has to be funding their profit, and they're getting into debt to do so.

The fundamental nature of money is in its capacity to be exchanged for stuff. If there is more money, but no more stuff, that's inflation. If there's more stuff, but no more money, that's deflation.

The above argument is founded on the assumption that stuff is a constant, so any gain on one part must imply a loss on another. This ignores the existence of a constantly renewing supply of stuff - human time.

Human time is the fountain from which wealth flows.

I first learned of this in the writings of Taichi Ohno, one of the founders of the Toyota Production System. In this, he observed that mining produces wealth one time only, in the recovery of resources, agriculture produces wealth once per harvest, but manufacturing produces wealth as often as you can produce an item.

Industry converts human time and raw materials into wealth. More money is required to represent that wealth, in order to avoid deflation. The trick is to balance one against the other. The valid creation of more money, to represent this increased wealth, allows for one party to derive profit, without implying a loss on another part.

Human time. We are what it's all about.

[Bloo Loo]

The fundamental nature of money is in its capacity to be exchanged for stuff. If there is more money, but no more stuff, that's inflation. If there's more stuff, but no more money, that's deflation.

The above argument is founded on the assumption that stuff is a constant, so any gain on one part must imply a loss on another. This ignores the existence of a constantly renewing supply of stuff - human time.

Human time is the fountain from which wealth flows.

I first learned of this in the writings of Taichi Ohno, one of the founders of the Toyota Production System. In this, he observed that mining produces wealth one time only, in the recovery of resources, agriculture produces wealth once per harvest, but manufacturing produces wealth as often as you can produce an item.

Industry converts human time and raw materials into wealth. More money is required to represent that wealth, in order to avoid deflation. The trick is to balance one against the other. The valid creation of more money, to represent this increased wealth, allows for one party to derive profit, without implying a loss on another part.

Human time. We are what it's all about.

human time...of course....but Ive been saying this for a long time....WE are the economy. not money..not things..US.

course the proof is obvious...remove us..and nothing happens..no trade, no building, nothing.

course, it could be argued that trade exists in nature.....

[Bloo Loo]

I still haven't understandized this. Perhaps you could clearize what you wrote above?

It seems to me that the money system causes confusion, we can see how you can grow beans and end up with more than you started, and also how you can flip a house and pocket £50k pure profit without actually producing anything. Is the latter considered profit but not the former? That would explain the OP's "idea".

the house example is simply an example of invoiced out more than you invoiced in. that is the profit. In the case of the house, you could and many do invoice out LESS than they were invoiced in for...this is called Negative Equity...or LOSS.

In accountancy terms, you may experience a LOSS on your house if you compare balance sheets, between say, today and last month.

your house you value according to an index and the index happens to drop 1%. You then make an adjustment to your balance sheet of the LOSS.

no trade has occured and therefore no invoice is raised, so it is a refinement to my initial "golden rule". Bankers of course KNOW about a loss of their asset value, but just dont declare it on the balance sheet. They then have a "liquidity crisis" because even though they show the sales on the balance sheet of any assets, they dont match the balance sheet expectations.

An outsider might, therefore, feel cheated when he comes to realise HIS asset with the bank when the bank actually cant repay..MOST banks currently failing in the US are doing exactly this....the balance CHEAT is revealing all when reality strikes.

[hedgefunded]

yes thank god for that. happy days.

I would love to have nailed Jenny Piccolo

[Georgia O'Keeffe]

human time...of course....but Ive been saying this for a long time....WE are the economy. not money..not things..US.

course the proof is obvious...remove us..and nothing happens..no trade, no building, nothing.

course, it could be argued that trade exists in nature.....

The banks are the economy, nothing else, without them humans would generally stand still on the spot, soiling their clothes, dribbling and forgetting todrink and eat until they decayed into a pile of dust on the same spot. Its why its fundamentaly important to keep the banks going, without them humans dont exist in the real sense

Edited August 9, 2010 by Tamara De Lempicka

[Bloo Loo]

The banks are the economy, nothing else, without them humans would generally stand still on the spot, soiling their clothes, dribbling and forgetting todrink and eat until they decayed into a pile of dust on the same spot. Its why its fundamentaly important to keep the banks going, without them humans dont exist in the real sense

Of course, that explains why the wise ones we elect are keeping them going.

My eyes are wide shut...thanks for revealing Oh guru.