What is profit?

Profit ultimately means “Tomorrow will be better than today.”

Dictionary.com uses this to describe profit: "Pecuniary [relating to money] gain resulting from the employment of capital in any transaction." So, profit, in a slightly broader sense means, “you end up with more than you spent to do something.”

Let’s go back to our hunter-gatherer days: The only thing a person needs is enough food so they can go out tomorrow and find more food to last that day. Shelter, clothing, entertainment, everything else is in the “nice to have” category. If you have zero profit, you found/made/killed just enough food to make it through the day. Nothing left over for tomorrow. If you do have profit, then you can start knowing that at least for tomorrow you don’t have to work. Or, you can work on building something to make your life easier and more comfortable. If you can bring in enough extra food (make enough profit) to feed more than just yourself, you can give food to other people who can now stay behind the next day and make a better spear, fishing nets, build a hut, skin a carcass to make clothes and so on. Because you gave them food, they now repay you with that spear/net/hut/etc. All of a sudden you have a barter economy going.

Those tools mean you don’t have to work as hard for the same results. If you invented a basket so someone could collect and bring back to the village twice as much berries/fruit/etc. than before, then you can work half a day gathering food and half a day designing and building a better basket, which allows you to bring back three times as much. Every generational improvement of a tool means more results for the same or less work (more and more profit by either increasing output or decreasing costs).

The tool that really started what we call civilization was the plow. That allowed us to grow food concentrated into a small area. This led to having enough food for next year, which means long-term planning, and everything we have today. All it took was a hunter-gatherer inventing a plow and staying in one spot to grow food, instead of wandering all over the area finding just enough food to make it until morning.

Profit ultimately means “Tomorrow will be better than today.”

Before someone starts doing the “excessive profits” point, let’s nip that in the bud. The term “excessive profit” is both subjective and pejorative. Gross profit is the money left over after the components for a good is paid for. A McDonald’s $4 burger actually costs them a dollar or less. That’s a 75% gross profit. Does that sound excessive? Net profit is what’s left over after all expenses (labor, utilities, building rent, taxes, etc.) have been paid. The net profit of that burger is about 20-30 cents. Does that sound excessive?

And what does the owner do with those profits?

  • First, he uses it as his personal income to live off of. Second, he saves up to open more locations, which creates more jobs and generates more profit.
  • With all of this profit beyond his consumption needs and wants, what else does he do with it? Maybe he does the Shark Tank thing and buys a stakes in startups (very risky). Investing in the stock market falls under this as well. Buys a share of the company, gets a share of the net profits.
  • Starts buying aircraft, megayachts, and mansions, which employs the people in the construction, maintenance and operation of those things. Believe me, they cost a lot of money to maintain, even when you're not using them.
  • Starts becoming a philanthropist like Carnegie and creating jobs building things that benefit all of society
  • Just puts it all in the bank. The bank then loans the money to other people, who can start their own business and hire people, or pay for a car or a house, which employs all the people involved with the production, distribution and retail sale of those products.

I don’t think there is such a thing as “excessive profits,” only jealous people thinking, “You’re making more than I think you should, because it’s way more than me.”

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