Maximizing Profit a good thing?

First, before I get started, we are now a mere 9 days away from the end of the world.  Now on to more pertinant things.

A frequent cry from anti capitalists, leftists, and even many in the emergent church movement refers to how terrible it is that all corporations exist to make a profit. On the surface, this does sound like a bad thing. If all companies do is try to make a profit, they will charge exorbatant prices and pay workers little or nothing for the work that they do. Because of this, the government needs to step in and tell the businesses what to pay their workers or they need to tax profits that some person arbitrarily determines are “immoral”.

Time out for a second. I just saw a TV commercial that told me if I don’t do anything about global warming, a little girl will get hit by a speeding train. Ok, time in.

Sure, the claims of those anticapitalists sound valid, but when one looks at the science of how prices and wages are determined, it becomes increasingly obvious that profit maximization works for the good of all.

First, wages and prices are set by something that economists call “supply and demand”. In regards to wages, what an employee is paid is determined by several factors. The person who is the most qualified, does the best job, and will work for the lowest wage, will get the job. Depending on the number of skilled or unskilled workers in an area, wages go up or down. If you own a business, and you are in charge of hiring a receptionist and there is high unemployment in the area and low economic growth, you will have many high skilled laborers looking for work. Because the demand for your receptionist position is high (because many people are out of work) you will pay the least amount of money that a person with the correct skills will take. On the contrary, if there are few unemployed and you need a receptionist for your booming business, you will offer a higher wage in order to lure in the best employee.

The same occurs with the prices of goods. If there is low demand for a good or service, I will charge whatever price occurs where the supply and demand curves meet. Where they meet is the place at which your profit is maximized, but it is also the place where you have neither a surplus of goods or a shortage. In cases where disaster strikes, supply and demand actually brings the goods that are needed into areas where they are needed the most because of higher profits. Where as a tree trimmer isn’t in high demand in Kentucky for the most part, when a hurricane hits the gulf coast, the demand for services is high, which raises prices until the profit incentive brings enough tree trimmers in so that competition can happen and prices once again go down. Profits actually help resources be distributed in the most efficient manner. The places where goods are desired most is where the goods will go because profits bring in more goods.

Just the same, where profit is maximized is not an exorbatant price. If I have a truckload of watermelons, and I try to sell them for 40 bucks a melon, I will sell few if any watermelons. We’ll say, for example, that I have 100 melons. If I sell 2 melons at 40 bucks, then I have 80 dollars and a bunch of wasted watermelons. If I lower my price to 5 dollars a water melon, I can sell all one hundred melons, but at 6 dollars a melon I can only sell 80. If I try and sell water melons for 1 dollar each, I will sell all of them, but many people who want watermelons don’t get any because I have run out.

Basically, if you read any basic economics textbooks, you’ll get this information.  I think its important that people understand basic economic concepts because misinformation leads to flawed governmental economic policies which actually end up hurting the poor. And few if any people wish more hardship on those in need among us.

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7 responses to “Maximizing Profit a good thing?

  1. Thank Milton Friedman. This all sounds good in theory, but I think it all fall apart in practice. Look at gas prices. It is obvious that the President and Veep are in a conspiracy with the oil companies to charge so much for gas. Look at their profit$$!!! And all the profit is money that the real workers don’t get. If Jesus were here, he would strike down all CEOs everywhere. They are evil. Who’s with me?

  2. but Ben… if that were the case, why would the evil oil companies and president and vice ever lower gas prices? Gas has gone down almost ten cents a gallon in these parts in the last week, why would prices ever go down? Or better yet, why does anyone in this country make more than minimum wage if corporations are just trying to screw everyone?

  3. Yes, we are all taught how private pirms maximize their profits at that point where marginal cost = marginal revenue (PM=MC=MR) The theoretical constructs sound fine, the devil is in the details. Firms do NOT pay costs that should always be the firm’s to pay. Firms do not pay these costs (called “externalities”) primarily due to their political clout. (Political whores reward their benefactors and double-dip, joining profit enterprises with their benefactors) Firms pay low wages, refuse to provide health care, ensure a dangerous work environment, etc. in the name of controlling costs and maximizing profits under our formula. Here’s the deal: These firms have stockholders who move into gilded, gated communities up on the hill. Their workers work near penury to put and keep them there. Thus does Isaiah say–what do you mean grinding the face of the poor? Or, again, Your households are filled with the plunder of the poor. NO, sir, the profit maximization formula is absolutely wicked. You can continue to advocate for it as a person or as a firm but you cannot do so and survive Judgment. The Day of the Lord approaches–better get out of those firms if you own them, take care of the poor in your midst like never before, or you will hear, when I was thirsty, you refused me cool water, when hungry, you refused me food to eat, when I was homeless, you refused me shelter, when I was naked, you refused to cover me (now U.S. neofascists make them sex offenders–isaiah hmself would be required to register as a sex offender in many states for doing what the Lord God commanded him to do), when I was in jail (through wicked laws or wicked system of things) you did not visit me. Our “profit” system has become a vile cesspool of wickedness.

  4. I was joking. I’m thinking fujita was not. My only rebuttal to fujita is that the amount of conveniences like cell phones and washing machines that average poor own today far exceed the dreams of anyone 25 years ago. This is the result of profit maximization. Profit maximization makes everyone wealthier, even the poorest in society.

  5. hmmmm…very interesting!
    Thanks google

  6. Hi all. Cool site zawermash Google
    Thank.

  7. Mine, albeit belated, to Ben: Not so.

    “WASHINGTON (Reuters) – The World Bank said on Tuesday more people are living in extreme poverty in developing countries than previously thought as it adjusted the recognized yardstick for measuring global poverty to $1.25 a day from $1.”

    “The poverty-fighting institution said there were 1.4 billion people — a quarter of the developing world — living in extreme poverty on less than $1.25 a day in 2005. Last year, the World Bank said there were 1 billion people living under the previous $1 a day poverty mark.”

    We will see far and away greater tragedies right here in the United States. The “invisible hand” of Adam Smith is Satan’s. Those who fancy its benefits to them are his children. Let them enjoy theirs as their reward in full now. (Matthew 6:2)

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