Definitions and Basics

Profits, from the Concise Encyclopedia of Economics

Capitalists earn a return on their efforts by providing three productive inputs. First, they are willing to delay their own personal gratification. Instead of consuming all of their resources today, they save some of today’s income and invest those savings in activities (plant and equipment) that will yield goods and services in the future….

Second, some profits are a return to those who take risks. Some investments make a profit and return what was invested plus a profit, but others don’t.

Third, some profits are a return to organizational ability, enterprise, and entrepreneurial energy.

Michael Munger on Profits, Entrepreneurship, and Storytelling. EconTalk podcast episode, December 2011.

Mike Munger of Duke University talks with EconTalk host Russ Roberts about profit. What is profit’s role in allocating resources? How should we feel about the people who earn profits or who take them in ways that may not be earned? How easy is it to discover profitable opportunities? Munger examines these questions through a series of stories, real and fictional, to illuminate the sometimes puzzling nature of profit….

Michael Munger on Love, Money, Profits, and Non-profits. EconTalk podcast episode, April 2010.

Mike Munger of Duke University talks with EconTalk host Russ Roberts about the world of profit, money, love, gifts, and incentives. What motivates people, self-interest or altruism? Both obviously. But how do these forces interact with each other? Does relying on one always provide a stronger incentive than the other? Do charities, for-profit businesses or government agencies do a better job providing a good or service? Munger and Roberts have a wide-ranging discussion across these issues including a section where they discuss whether Christmas gift-giving and gift-giving in general is inefficient….

In the News and Examples

Optimizing Profit at a shoe factory, at Khan Academy

 

Sometimes profits are gleaned unduly or distributed to business cronies. Cathy O’Neil on Wall St and Occupy Wall Street. EconTalk podcast episode, February 2013.

Cathy O’Neil, data scientist and blogger at mathbabe.org, talks with EconTalk host Russ Roberts about her journey from Wall Street to Occupy Wall Street. She talks about her experiences on Wall Street that ultimately led her to join the Occupy Wall Street movement. Along the way, the conversation includes a look at the reliability of financial modeling, the role financial models played in the crisis, and the potential for shame to limit dishonest behavior in the financial sector and elsewhere….

A Little History: Primary Sources and References

Who wins with tribal casinos? The incentive to claim a stake in the profits: “Indian Givers: Politicians and Tribal Gambling Casinos,” by Fred S. McChesney. Econlib, February 6, 2006.

How did the federal government get involved with Indian casinos? Almost two centuries ago, the Supreme Court defined Indian tribes as “sovereign nations,” independent of the United States and individual states in many respects. But Indian tribal sovereignty vis-à-vis non-Indian governments is an extraordinarily complicated affair. As concerns gambling, states are free to prohibit gambling within their borders, in which case Indian tribes are bound by state law (despite their “sovereignty”). In states banning gambling, such as Utah, there can be no Indian gambling casinos, either….

Although taxing Indian tribes was of little interest in Washington when the tribes and their members had little income/—the IRS initially opined that Congress did not designate Indian tribes as taxable entities—the rise of casinos has changed all that….

Profit and Loss Calculation, at Marginal Revolution University. This video covers the importance of profit and loss calculation in context of the socialist calculation debate.

 

Advanced Resources

Risk, Uncertainty, and Profit,, by Frank H. Knight.

Ross Emmett, A Century of Risk, Uncertainty, and Profit. Econlib Liberty Classic, December 2018.

The role that Risk, Uncertainty and Profit is best known for today is the contribution it made to the teaching of and theorizing about competitive markets.

Introduction to the Competitive Firm, at Marginal Revolution University.

Related Topics

Competition and Market Structures

Producers

Entrepreneurs

Productive Resources

Saving and Investing