It is necessary for people, most especially politicians and those who campaign for them, to understand that economics is not an optional aspect of our universe. We really do have scarce resources and we really do want to optimise our allocation of those resources. One implication of this is that activities which make losses should not happen. And if an activity starts to make losses then we want that activity to stop happening. This is because a loss is the universe’s method of telling us the alternative uses of those scarce resources would be a better use of those scarce resources.
That is, if we use some thing (whatever, labour, capital, land, buildings, electricity, just whatever) and pay market price for it and then make a profit from selling what we create from using it then we have added value. Profit is the value of the output over and above the value of those inputs in their alternative uses. Losses, equally obviously, mean that we are subtracting value from those inputs. Or, as we can also put this, losses make us all poorer in aggregate, profits make us all richer in aggregate.
For, as it shouldn’t be necessary to point out, that gross domestic product, GDP, that everyone likes to talk about is just the aggregate value added in the economy. Something which profits increase and losses reduce.
Tim Worstall, “Things That Make Losses Are Things That Stop Happening – Aetna Edition”, Forbes.com, 2016-08-17.
June 7, 2018
QotD: Profit and loss
Comments Off on QotD: Profit and loss
No Comments
No comments yet.
RSS feed for comments on this post.
Sorry, the comment form is closed at this time.
