Profit?

Profit arises when income exceeds costs. How is this possible however? Two identical companies competing in a true free market if they had surplus wealth would use this to increase wages or lower prices so as to attract better staff or more customers. Surplus wealth would thus always disappear.

Of course it is never a free market and this example illustrates this point most definatively.

In the jobs market a surplus of prospective employees in a particular market reduces wages. That is competition between people to get a job means that they will accept lower and lower wages even to the point of absurdity because being alive but exploited is preferable to being starving. In the case of skilled employment such a glut of individuals would cause people to reskill, but for unskilled labour there is no such escape from competition. A surplus of unskilled staff means that companies will always make profit on wages, and it also encourages companies to reorganise toward unskilled "division of labour" for this reason. This is quite a different explanation of profit from Smith's economies of scale in the famous pin factory.

Imagine pin making was broken down from 1 skilled task into 10 even more skilled tasks, maybe using highly complex machinery. Then while factory output might increase a hundred fold the supply of staff skilled enough to operate the machinery would vanish. They could then charge whatever they liked from the capitalists and the profit would vanish. Any company trying to cut wages would lose its precious staff to competitors.

The situation with prices is simpler. In theory any company with profit could reduce its costs and out compete its competitors. However as far as I can see there two factors which limit market freedom. Copyright and patents mean that capitalists can control production of products, and the odd behaviour of luxury goods where increasing prices can increase sales because the the increase perception of quality.

What happens to profit? As far as I know it is either invested back into the company, gets distributed in bonuses or is used to pay off the capitalist owners. So infact there is no such thing as profit anyway, it only exists because of the way that capitalists like to look at the system of production.

Bonuses aren't really bonuses they are just wages based on performance rather than on contract. It makes sense to me to have all wages based like this. When you work for a company you contribute a share of the labour and you get a share of the income - that is what actually happens, it just gets dressed up in meaningless rhetoric as a labour contract. If the company makes no money then you can't have a wage regardless what the contract says - it is just paper; reality is what we need to look at (seems to be linking into the previous block of posts on rules and laws). Companies then fail in a discrete fashion which is another falasy.

In reality companies ascend and decline gradually - but it is all hidden by creative accounting and the meaningless announcement of "profits" (which I'm arguing don't represent anything) and are unrealistic. It is only when the creative accounting can no longer hide the truth that the company seems to implode. If wages were represented as a share of income then wages would rise and decline (rather than profits) with the fortunes of the company, and companies would naturally shed staff and costs as they declined.

The real crime tho in profits comes from the capitalist skewing of business. The most important people in any company are the "staff" and the "clients". It is the relationship between these two aspects of humanity which determine success and failure. Afterall "staff" can be "clients" and vice versa - the terms denote not individuals but modes by which humans interact (wrt previous posts on participation and the nature of society). I notice a profound misunderstanding by many people on this point - that some people take their "position", "role" and "modus operandi" personally so that it says something about "themselves". (On going enquiry into "self" but I take Buddha's point that it has no reality.)

Material production can be viewed as the servicing of needs. But "needs" are mostly satisfied in all the worlds societies - without this people in these societies would have died out! Production in "developing" societies is not about needs. I've been enquiring privately into what it really is about and formed the current opinion - after much reading - that it is about culture. It is the culture of capitalist societies that people interact through the mode of production. An alternative culture is to interact through the modes of fun, festivals and family (to quote Charles Handy). Capitalist societies have simply adopted the culture of "work". All the rhetoric about progress and development is simply ediface to a culture, like tree spirits ediface to animist rituals.

I see this awkward post is twisting around as it negotiates the point. I'll have to refine these points at later stages...

Staff and clients are not the point of view of capitalists. Instead Returns on Capital are the point. Companies exist and indeed their existence depends upon the attitudes of the capitalists. It is the capitalists who buy a right to sit in on meetings not the people who actually make up the company or even the people who use the services. It is returns on capital around which the whole system is centred.

And, why is this? It is historical. The system in which we live has evolved out of the feudal system and the ancient system of taxation. Previously the people were taxed through land tax (rent). Now they are taxed through capital tax (dividends). It is the evolved inequality by which a very small minority continue to avoid work.

The avoidance of work holds a fascinating place in society and one that I am exploring in my book. Of note is the taboo and moralistic nature of avoiding work. The very people who live on capital income are the ones who preach about the "work shy" - not working is a privilage something that must be earned, and previous one that was given by Royal decree to the highest classes. By contrast Working, in its understanding as a culture that dictates human interaction, is simply a system which prolongs the oldest features of human society that it can't bear to deal with humans as equals and likes the existence of closed groups and heirachies.

A real nexus of ideas here that hopefully will tease out more coherently in the future (or even eventually into a book).