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Today’s post promises to be “profitic.” 🙂 We are exploring the concept of profit. What is profit?  What is its role in business and the economy?

Unlike most economies of the past, most of us earn income by engaging in a narrow range of work that contributes to the production of goods and services. We use our income in exchange for goods and services others provide. Exchange is central to market economies. But let’s look closely at the nature exchange.

I go to the store and pay $3.00 for a gallon of milk. What is really happening? I surrender $3.00 for the milk because I value it more than keeping my $3.00. The store values my $3.00 more than keeping the milk. We both win … we both walk away with something of greater value. When both parties exchange without coercion, they each intend to achieve a benefit from the transaction (though either party can be mistaken due to poor information or deception.) 

Because the store ends up with more money and the buyer ends up with less, some falsely conclude the store has increased its wealth at the buyer’s expense. Wealth is falsely equated with cash. Cash is just a medium of exchange while wealth is the economic value of all the assets we possess … which now includes a gallon of milk. Each party increases their wealth because each party now has something they value more than they offered in exchange. It is a win-win game, not a win-lose game.

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“Love your neighbor as yourself.” This injunction is mentioned once in the Old Testament (Lev. 19:18) and seven times in the New Testament (Matt. 19:19, 22:39; Mark 12:31; Luke 10:27; Rom. 13:9; Gal. 5:14; James 2:8) It is the core Christian ethic for relating to others. The antithesis of loving others is selfishness. A central element of market economies is self-interest. Self-interest was a central component of Adam Smith’s market economics two hundred years ago and has carried forward to today. Therefore, market economics is antithetical to Christian living … or is it?

How “selfish” is “self-interest” in economics?

Look at a modern thesaurus and it will offer “self-interest” as a synonym for “selfishness.” If we look under “self-interest” in a dictionary like Webster’s we read: “Regard for one’s own interest or advantage, especially with disregard for others.” But words and expressions change in connotation over the years. Is selfishness what Smith and later economists have had in mind when they speak of self-interest? Not really.

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This series is by Michael Kruse and it concerns economics — a basics in economics. Most of us, and I include myself, no next to nothing about how economics work and so this series is here for the education of all of us. (Thanks Mike.)

Division of labor, mechanization, and trade has given rise to prosperous societies. Economic prosperity is spreading around the globe. Most people welcome the improving material quality of life. But is this prosperity sustainable? Commodities and natural resources are limited. We are told to reduce consumption so there will be more for others … we should “live simply that others simply may live.” It seems so intuitively obvious. But is it true? Malthusians would be inclined to think so.

Scholar and clergyman Thomas Malthus, published the first edition of his landmark work, An Essay on the Principle of Population, in 1798. Malthus was skeptical of his contemporaries’ optimistic visions for human improvement. His historical analysis showed that agricultural resources grow arithmetically (i.e., 1, 2, 3, 4, 5 …) while populations grow geometrically (i.e., 1, 2, 4, 8, 16 …). Population outgrows the supporting resources. Societies must either expand their territory or experience a check on population size via war, disease, or famine. Greater prosperity tends to follow these checks as population comes back into balance with resources. That leads to new population growth and the cycle repeats itself. This is the Malthusian trap. It is a fairly accurate characterization of the world’s experience prior to the Nineteenth Century.

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