Mises contends that entrepreneurial profits and losses are inherently a disequilibrium phenomenon. What does this mean? That nobody would make any profit in a completely free market? Or that some would make a profit while others make a loss, but there is no net profit on average? Furthermore, profit is caused by the introduction of new economic conditions to which entrepreneurs must adjust. The adjustment process is always temporary and any given profit opportunity tends to diminish as the adjustment gets underway. So you can't keep making profit if you keep selling the same old product that people want, say, bread? This seems very odd, I must be missing something. Could you explain?
>>Mises contends that entrepreneurial profits and losses are inherently a disequilibrium phenomenon.
correct, he contrasts this with originary interest, which is a permanent feature due to time preference.
>>That nobody would make any profit in a completely free market?
no since 'completely' free markets do not result in acheivement of a permanent equilibrium (an impossibilty in the real world)
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
Profits result from factors being underpriced and/or undercapitalized in relation to their highest DMVP. In the uncertain world not everything will be known and consequently entrepreneurs will not have put all factors to their highest uses.An entrepreneur estimates that he is able to take factors that cost $30, and sell a consumer good he is able to create with them for $50. If he estimates the societal interest rate to be around 5% (looks at various interest rates/estimations), then he would be willing to pay up to $47.60 for those factors. (50/1.05). If he is able to pay $30 for the factors and sell the product for $50, he earns a handsome profit of 61%! (66%-5%) Over time other entrepreneurs will enter the field and bid up the factor prices as well as increasing the supply of the consumer good on the market-resulting in decreasing returns, until all entrepreneurs earn just the interest rate. This "elimination of profits" occurs only in the ERE, which will never happen.
Thanks for the replies! Hmm... so capitalism actually eliminates profits, while socialism keeps them alive? I'll be damned!
No, capitalism only solely eliminates profits in the unrealistic and unrealizable conditions of market data becoming permanently frozen. Capitalism in the real world of changing data constantly creates profit opportunities just as much as it eliminates them.
And socialism does not keep profits alive. There can be no profits where there are no price spreads; there can be no price spreads where there are no prices; there can be no prices where there is no exchange in the means of production; and there can be no exchange in the means of production where there is no private ownership of the means of production.
No, capitalism only solely eliminates profits in the unrealistic and unrealizable conditions of market data becoming permanently frozen. Capitalism in the real world of changing data constantly creates profit opportunities just as much as it eliminates them. And socialism does not keep profits alive. There can be no profits where there are no price spreads; there can be no price spreads where there are no prices; there can be no prices where there is no exchange in the means of production; and there can be no exchange in the means of production where there is no private ownership of the means of production.
What I meant was that more free markets have less disequilibrium that cause profits, compared to a more interventionist economy. Correct? And thus free markets can be said to reduce profits. By socialism I meant interventionism (all socialism is really just interventionism because actual state ownership of the means of production is impossible because everyone would starve). State intervention maintains disequilibrium and thus raises profits. Yes?