The Firm and Its Profits

What sets the firm apart from other producers is the commercial nature of its operations. The firm produces for the market and only for the market. It produces goods and buys them not in order to consume them but in order to sell them or their products. While economic agents other than the firm sell commodities, the sale of commodities is not the end of their exchange transactions. They "sell in order to buy" instead of "buying in order to sell." Workers engage in exchange to acquire "necessities," landlords do so to get "luxuries," and "factor" owners exchange their goods to get ones that have a higher utility than their endowments.

Exchanging for the purpose of selling is exchanging for the purpose of money making. Money acquisition, although necessary for the purchase of goods, is not the same as goods acquisition. Instead of giving one goods, money gives one the power of purchasing them, a title to a certain portion of society’s wealth. In striving for profit, the firm strives to extend its claim over the wealth of nations. Firms want not to consume this wealth but to own it; to acquire it, not use it. The firm’s profit end is the end of wealth acquisition.

Firms differ from other economic agents not only in the way they relate to the wealth of nations but also in the way they obtain it. Others get a part of this wealth by contributing to its production. Their incomes are "earned," the market values ("measures") of productive services. Profit, in contrast, while a component of price, is not itself a price, or the market worth of any good or service; it is the "unearned" component of the nation’s income and is viewed as such in all traditions of economic thought.

Insofar as profit is not a "reward," profit-seeking activities are not necessary for production. But if they are not necessary for production, if "entrepeneurship" is not one of production’s "factors," then what are they necessary for? What is the firm’s role in the economy? Does what it does with its profits, or how it makes them, justify their receipt? How does the accumulation of wealth further the economic ends of society and enhance the wealth of nations?

Working Paper No. 2(1.98 MB)