Dismiss Notice
Join Physics Forums Today!
The friendliest, high quality science and math community on the planet! Everyone who loves science is here!

The concept of PROFIT

  1. Aug 9, 2004 #1
    Are the social sciences unbound by the physical sciences? Take the laws of Thermodynamics that breaks the universe down to matter and energy. Those laws are predicated upon a closed or virtual closed system. Thus, how can these physical laws not ultimately affect human social existence? I believe that the answer is that the physical laws govern human social existence, however, it is very dependent upon the initial conditions, which makes human social behavior relatively unpredictable.

    However chaotic human behavior may be, it is still bound by universal laws. Again, if one takes the first law of thermodynamics, which essentially states that energy is never lost nor created, but rather a constant. More usable energy cannot be returned than the usable energy put in. The popular statement that summarizes this law is: “you cannot win”. The Second law of thermodynamics deals with the degrading of usable energy (entropy), which essentially says that not only can you not get more usable energy out from what was put in, you actually get less. Thus, you lose.

    In light of this, how does one reconcile the concept of PROFIT, which is essentially getting more out of something than that which was put in? Profit is the pillar motive of the capitalistic economic system. But how is profit created when it essentially defies the laws of nature?

    Profit says that you can win… but how?

    If one takes a snapshot of a point in time, one can see the closed system that exists between, workers, owners and customers, each contributing energies in the form of work, thoughts or stored vouchers from past expenditure of energy (money). Now, it is this triangular closed system that is the most controlling factor in the creation of economic profit. It tantamount to an energy pot luck (A meal at which each guest brings food that is then shared by all), where the one which throws the party gets to have more than he or she supplied. Now, if the one throwing the party gets more than he or she put in, then it logically follows that the other participants are getting less back from the energy that they put in.

    What profit is in reality is nothing more than the reallocation and disproportional redistribution of energy from one or more entities to another. Profit is what motivated slavery. They need the energy of workers, but planters did not want to pay them commiserate with their energy expenditures, because it would have made the system unprofitable for the planters. Thus, they took away the freedom of the people and forced them to work without pay. The planters could not control the customers and force them to buy a product at a certain price. Thus, the controlling factor was labor, which was exploited to maximize profits. Consequently, the profit of planters came as a direct proportional loss to the workers/slaves.

    This is what I term seesaw economics. It manifest via an entity lifting itself up by placing the weight of exploitation upon another entity. There is no net gain to humanity, only the unequal distribution and allocation of the resultant of energy expenditure. This, in turn leads to an unequal distribution of wealth and is the leading cause of the social class dichotomies.

    Capitalism is really a Trojan horse that has exploitation (or the unequal exchanges between humans) at its core. It is the most productive economic system…bar none. However, everything is a trade off and thus capitalism comes with a cost. That cost is those who end up losing as a result of others winning. The fact that people voluntarily enter into these unequal exchanges is what makes the system seem not exploitive. However, when one takes away most other options, then one must volunteer for what’s available, when trying to earn a living and survive.

    Take for example a tribesman living in the Brazilian rainforest. He is not poor. He lives off the forest and land and has all his needs meet by the forest. Then a developer comes and buys the land from the government. The tribesman is now without means of survival. Thus, he must volunteer into the system as a worker to earn income to buy food, clothing and shelter. That becomes his only option and makes him ripe for exploitation by those owners of businesses looking to maximize profit via cheap labor. Once people land is taken and owned, people must volunteer into the system for their survival
    Last edited: Aug 9, 2004
  2. jcsd
  3. Aug 10, 2004 #2
    Rubbish. Thermodynamics has no direct relevance to economics. There is no law of conservation of wealth; wealth and energy are simply not the same thing.

    Wealth and negative entropy aren't the same thing either; besides, we get a lot of the latter from the Sun.
    Last edited: Aug 10, 2004
  4. Aug 10, 2004 #3
    That is like saying that atoms and molecules has nothing to do with how your body works. Matter and Energy are the superset of the universe. Thus, any subset of the universe is governed by the laws of the superset which contains it.

    All human endeavors requires mental or physical actions, which require ENERGY. Are you trying to suggest that human activity does not require energy? Are you trying to suggest that humans are not matter? Are you trying to suggest that human systems are not dependent upon matter and energy?

    You must have concluded rubbish only after listening to your own reasoning ability.
  5. Aug 10, 2004 #4
    I'm trying to suggest none of this. Obviously humans are matter, all actions require energy, and so on. But for your argument to work, energy has to be the same thing as wealth; or it has to be the case that the total amount of wealth in the universe is proportional to the total amount of energy in the universe. It very obviously isn't.

    Ooooooooooooh! :biggrin:
  6. Aug 10, 2004 #5
    Does not LAND = Matter? Does not matter = ENERGY? Does not land = WEALTH? Does not, therefore, MATTER = WEALTH? If A = B and B = C, then A = C.

    All matter does not = wealth in our economic system. It all depends on the amount of USABLE energy present in the matter, before it translate to WEALTH. That is why these things are called ASSETS and degree of entropy determines is assets appreciate in value or depreciate. The useful energy is reflected by the demand for the asset, thus the law of supply and demand in economics regulates its value.
    Last edited: Aug 10, 2004
  7. Aug 10, 2004 #6
    No; all land is made of matter, but not all matter is land.

    No; land is a form of wealth, but not all wealth is in the form of land.

    If all A is B, and all A is C, it does not follow that all B is C and all C is B.

    This just isn't true. Value isn't proportional to entropy.
  8. Aug 10, 2004 #7
    I see what you are saying. I stand corrected in that fallacy.

    I simply used land as an example to demonstrate a form of matter. So let me correct what I was trying to get at.

    Land is wealth. Land is energy. Land is matter. Thus, wealth is ownership if matter and energy (usable). If A = B and B = C, than A = C.

    When one looks at Land and the resources that are grown from it and converted to other forms of matter/energy, such as Coal, oil, trees, the plants that are grown from the land, that animal life consume for energy in the form of calories, which give animals bodies energies to become active and increase the size of matter…it becomes obvious that ownership useful energy and matter are directly correlated with wealth.

    The depreciation of an asset/matter...is indeed a form of entropy.

    Also, it is no secret that REAL ESTATE has been the number one conduit to becoming rich in America. Also, land ownership was paramount to the creation of nobility in past Europe. Land is the Matter/Energy that is most coveted to create wealth. Land is FINITE. Thus, every GAIN of ownership of LAND results in the LOSS of free land for others. This is the greatest cause of the class strafication. Since wealth is passed down, the descendants of benefit from past actions of wealth ownership and accumlation.

    THis is not rocket science for those who choose to see.
    Last edited: Aug 10, 2004
  9. Aug 10, 2004 #8


    User Avatar
    Science Advisor
    Homework Helper
    Gold Member
    Dearly Missed

    You do have some pertinent remarks concerning the profit/distribution of wealth problematics.
    I would, however, advise you not to draw bad analogies to physics, it will only weaken your credibility.
    Instead, try and build up a cogent argument that only uses facts stripped bare of analogies.
    Last edited: Aug 10, 2004
  10. Aug 10, 2004 #9
    I apologize if it seems that I am trying to draw analogies with Physics, for I am not. I am making a direct statement that the laws of physics and thermodynamics govern human economic construct. I am not worried about the loss of credibility. I am simply concerned about the truth. If someone can demonstrate a truth to me that I cannot see… I have no trouble accepting that truth, because it makes me wiser and stronger. However, simply saying that using analogies that do not map perfectly therefore discredits may be true…but to discredit is not the same as to prove invalid. It simply means that you have given people a reason to question via logical fallacy that says that if one thing is wrong then everything is wrong.

    Thus, I am waiting for the repudiation that gives examples and theories of who humans and economic systems are unconnected to the laws of matter and energy. Oil is a form of matter/energy. Those who own oil are wealthy. Land is a form of matter/energy. Those who own land with usable energy are also wealthy.

    I will not step away from my initial premise until someone can show me that the activity of humankind is unbound by the laws of matter and energy. I am sorry but I do not accept rubbish, or the fact that I am using analogies with physics (no I am not I am saying humanity is governed by physics), is not a logical repudiation.

    When I said that Land = Matter..Land = Wealth. I was logically repudiated, because it is true that although land = wealth, wealth does not = land. However, that was not what I was trying to say so I corrected my intentions. That is what I consider an honest intellectual argument/debate. So the next time you want to critique, do not do so by saying what is wrong or not credible, do so by demonstrating what is right and what is credible…or you run the risk of discrediting yourself.
  11. Aug 10, 2004 #10


    User Avatar

    Staff: Mentor

    The question here is quite simple and its a discussion we've had before: Is wealth a zero-sum game. Answer: unequivocably no.

    The evidence is two-fold:

    -one, though individual resources may be limited, as a whole, our natural resources are essentially infinite (the most obvious one is the sun, but don't forget, people are a resource too). These resources will continually add wealth to the world economy.

    -two, direct evidence can be seen through the world GDP: its going up. If your hypothesis were correct, it would be stagnant.

    BTW, I generally agree with the idea that the social sciences, as their name implies, are sciences. However, economics isn't thermodynamics any more than astronomy is biology. That said, the 1st law of thermo is one that applies almost universally. If you really want to apply it here, fine: economics does not violate the 1st law of thermo because the closed system that ecomomics works in (at the moment, that's the Earth-sun system) has available resources, though finite, far in excess of our ability to use them. 5 billion years from now when the sun is dying and the earth's resources have been consumed, then maybe wealth will become a zero-sum game - but it isn't today.
    Last edited: Aug 10, 2004
  12. Aug 10, 2004 #11


    User Avatar
    Staff Emeritus
    Science Advisor
    Gold Member

    I think a gent by the name of Karl Marx - born in what is today Germany - developed a set of economic, sociological, and political theories not too dissimilar to the ideas expressed in the first post in this thread (minus the connection to thermodynamics).

    A more appropriate way to look at economics and whether wealth creation is a zero sum game might be to ask how externalities are incorporated. For example, air is 'free' (economically speaking), as is rain, sunlight, clouds, and so on. However, none of these are infinite (although, as Russ said, sunlight is, for all practical purposes today). We are more familiar with this consideration wrt the environment, virgin forests, the ocean, etc.

    Can these externalities be brought into our modern-day economies? Yes, fairly easily. Examples? carbon taxes, tradeable emission quotas; even rampant capitalism gets into the game - how do you save wild African rhinos? Foster eco-tourism! How do you save Nicuraguan rainforest? Have Nature Conservancy buy it!
  13. Aug 10, 2004 #12
    The concept of scarcity is essential to economics. Economics has been defined as the allocation and management of scarce resources. Thus, the concept of scarcity implies finiteness. In capitalism, the law of supply and demand obviously deals with degrees of scarcity. If one increases the supply of anything, relative to its demand, its value and potential ability to wealth decreases. Take for example Engineers. If there is a demand in the economy for engineers, that is greater than the supply, then the value of engineers goes up, along with salaries and the ability to increase wealth. However, if far too many Engineers are supplied, the value of engineers will drop, along with salaries, and the ability to accumulate wealth would be reduced.

    When I use the term wealth, I am talking in degrees and distribution there of. Having zero degree of wealth is not necessarily poverty, because one can have income without wealth. Wealth is the ownership of assets, such as land. Thus, it is not the absolute state of wealth that is the issue, but rather the distribution of it. The distribution of all wealth among humans will always equal 100%. Thus, in the distribution lies the ZERO SUM GAME.

    If wealth is unevenly distributed, the only way that it can be evenly distributed is to subtract from those who have more of it and give to those who have less of it. That would be an analysis for a static pie or distribution. However, in a dynamic distribution, where the pie is increasing, then those with disproportionately less wealth, must acquire more future wealth going forward than those who have current wealth advantage. This will not happen because of wealth advantage as it generally takes money to make money in the system.

    Most new wealth is the product of growing populations. This human matter converts to usable energy in the form of workers and consumers, thus increasing opportunities for owners of capital to increase profiting. This growing profit from increased population growth thus increases demand for scarce valuable resources, which drives up the value. Thus, wealth can never be evenly distributed when others have inherited advantage. It would be tantamount to entering a Monopoloy game as a new player, after it has been going on for hours. Most of the valuable assets and properties are already in the hands of owners. thus, in order for you to exist, you have to exist on land that is owned, which increases the income of the people who own it. Thus, as the population growth increases the new players to the capitalistic game, it just allows the rich to get richer, more so than anything else. It is no wonder that even as there are more capitalistic democracies in the world today than ever before, the distribution of wealth is stagnant or worse. It is said that less than 20% of the worlds population owns more than 80% of the wealth.

    In essence, it is a truism of nature and closed systems that you cannot ADD something to the system, without SUBTRACTING something else from it. This is why the law of thermodynamics states that Energy is a constant and does not increase or decrease. Rather, it just goes from one form to another. One form is subtracted and another form is added.

    Humans and our systems are also bound to this. People speak of the sun and the suns energy. However, even though the sun is a constant in earth closed system, to convert the sun energy into another form of energy requires human energy to do (ignore the natural ability of life forms to convert the suns energy). The ability or skill to do this will be finite at any given point in time. Thus, those who have the skill will keep it scarce in order to increase profits in a capitalistic system. If it became a common skill then it loses its profit and wealth creating potential through the laws of supply and demand.
    Last edited: Aug 10, 2004
  14. Aug 10, 2004 #13


    User Avatar

    Staff: Mentor

    This is trivially obvious (1+1=2), and not what is implied in your first post:
    As explained, there is a net gain to humanity.

    Applying the trivially obvious 100%-is-a-zero-sum-game thing to the fact that there is a net increase in the quantity of wealth of the world, and you can (and, in fact, do) have a situation where the "gap" between the "rich" and "poor" is getting larger, but at the same time the "poor" are still getting richer. Thus, you are not getting an ever increasing "slave class."

    Aside from that, I agree with Nereid - what you are saying sounds like Marxism. That's not necessarily a bad thing (in theory), but it is somewhat flawed and obsolete.
    Last edited: Aug 10, 2004
  15. Aug 10, 2004 #14
    I expanded on what I said. In actually, human population growth produces more income, but not NEW wealth. Land and the mineral rights to it are FINITE. No matter how much the population grows, land does not increase and land is the CHIEF source of wealth in this world. Remember that the pillars of capitalism are LAND, LABOR and CAPITAL. This is REAL wealth, not artificial. Thus, I can make the argument that the distribution of land and resource ownership is a ZERO SUM GAME. I simply used the increasing pie as an example to account for population growth.

    You must note the difference between real wealth and electronic or false wealth. For example, let us take the concept of money. Money is not backed by anything material, such as Gold, as it used to be. It is simply backed by the government. Thus, one can increase the supply of money without increasing the supply of anything else. For example, If I put 1,000 dollars in the bank and the bank in turn lends out 500 of it, it has multiplied the money supply through what is called CREDIT MONEY. The bank just created 500 dollars out of the thin air. There has not been a corresponding increase in wealth. If all the deposit the bank held was my 1,000, and I came to withdraw it, where does the 500 dollars lent out come from? What is its REAL value?

    If all accounts were to be settled, you will find that there is not as much REAL money being created as you think. If there is a rush on the banking system, the whole thing will collapse because the income is not REAL. Thus, that which will retain its value more in such times are REAL wealth in the form of MATTER/ENERGY. Not electronic wealth or income such as stocks and bonds and money. In such a time those who own the real wealth of land and precious minerals will retain their wealth, or ability to survive, while those with electronic wealth will be broke. Real wealth does not disappear. It is a constant just like matter and energy because real wealth is matter and energy and electronic wealth and most money is not backed by anything tangible.

    Thus, of course GDP is increasing, with the advent of un backed money and electronic wealth through stocks and bonds. All the Federal reserve has to do is increase the money supply and money in and of itself only has face value. It is like smoke and mirrors.

    I do not know anything about Marxism. I am sure that if I live in a Marxist system that I would point out its flaws as well. This has nothing to do with what one is a proponent of. This is simply an analysis of what is.
  16. Aug 10, 2004 #15


    User Avatar
    Staff Emeritus
    Science Advisor
    Gold Member

    There's one aspect of 'wealth' (in the broadest sense) and economics that I'm curious about. (apologies if this is OT)

    Although there are far more people on Earth today than 200 years ago, and although there is still a great deal of poverty and ill-health, the life expectancy at birth of Homo sap. individuals has risen considerably. Further, with some very important exceptions (e.g. Russia, countries with a high incidence of AIDS), it is continuing to rise, and in most nations of the world, will soon be >50.

    Humans are also much healtier than they used to be (on average).

    A measure of the average wealth of each human is (something like) PPP GDP per capita, and as Russ said, it has clearly been on an upward trend in most countries for several decades.

    How can our increased lifespan and health be measured, in economic terms?
  17. Aug 10, 2004 #16
    I think that when one accepts the universal laws of nature, one has to look for the corresponding debit for every credit, for to only way to add to something is to subtract from something else. Thus, in most of the population groups that are wealth or rich have the longest life expectancy. However, they also have the lowest reproductive rates as well. Thus, although they have succeeded in extending life expectancy, that seem to have been offset by reducing their population growth. Ultimately, a stagnant population retards economic growth, because there is no new workers or consumers to fuel it, barring productivity gains that can compensate for it.

    Also, science and advancement has been a credit to life. But that same power that is born from the advancement of knowledge to the human good, will become a threat to humanity in the hands of the bad. One has to remember the real forces of good and evil that exist in humanity. Thus, power created will ultimately be used by both forces, to the detriment of humanity. This is why there is this big fear of WMD. There would be no such fear if it was not created in the firs place. Thus, in nature, everything has it offset.

    Maximizing the present will come at the expense of the future.
  18. Aug 11, 2004 #17


    User Avatar

    Staff: Mentor

    Finite and constant aren't the same thing: like I said before, the amount of available resources may be finite, but as long as we continue to pull oil and gold out of the ground, it will add to the available wealth of the world.

    Labor cancels with population - population increases and therefore the labor available increases. Again, this is a net increase in the amount of available wealth (though not per capita). But there is a caveat I'll get to later....

    And capital is just wealth - its the sum of the other two - and therefore also increasing.
    That's a different issue entirely and completely unrelated to the amount of real wealth available. I agree that money itself is an artificial measure and thus tough to deal with (though inflation mostly takes care of that issue). To be more specific though:
    No, thats not it at all. Once the loan is paid off and you withdraw your money, everything is back where it started - there is no net change there, increase or decrease.

    I think the analogy you were looking for is that when the government prints money, there is suddenly more money available without a change in wealth. But this can easily be factored in by watching inflation: if the government were to overnight double the supply of money, its value would quickly be cut in half by market forces. Thus no net change and not relevant to the conversation.
    The income is plenty real: banks make money by charging more interest on loans than they give you on your savings. Simple as that. But the idea of a bank rush is plenty real too - obviously there is a lag between the money being loaned out and the profit coming in. But as long as everyone keeps their head on straight, it works out fine for everyone.
    Stocks are closer to the point (bonds are just loans to a bigger bank...). Stocks are quite literally ownership of a company. Stocks have both intrinsic and market (intangible) value: If you own stock in Ford, you quite literally own a piece of the land the manufacturing plant is built on. But people recognize that a company is worth more than the sum of its parts (largely due to its employees) and that the market value of the stock. In any case, all investors (and gamblers) realize that money in the marke exists only on paper until you cash in your chips.

    Now, is that stock market profit real wealth? Absolutely! You can use it to buy a car or house or something real, therefore it is real. Where did it come from? Thin air? No!, it came from the very real, if intangible value of the company the stock was in. How? Now for the labor caveat from above: Is a computer engineer in California worth more than a rice-picker in Malaysia? Absolutely! Why? Education. Thus by educating that rice-picker, you can increase his/her value and increase the amount of wealth available in the world.
    Ok, now you got the Fed's influence via printing money. Again, inflation accounts for that: and even accounting for inflation, the net quantity of wealth availabe (and per capita wealth available - you keep switching between the two, but its ok, both are increasing) is increasing.
    The relevance is simply in the historical success of the various systems.
    Back to net wealth again? Its annoying you keeps switching back and forth, but its ok because you are wrong on both counts. This one is easier though. Tell me: when a penniless settler in California (circa 1850) digs a gold nugget out of the ground, who or what is that wealth subtracted from?
    Last edited: Aug 11, 2004
  19. Aug 11, 2004 #18


    User Avatar

    Staff: Mentor

    I'm not sure I understand, but I'll take a stab at it...

    With increased health and lifespan comes increased ability to do work: thus further increasing the value of a person as a labor resource.

    The catch, which only exists so far in developed countries, is that an 80 year old is no longer working...
  20. Aug 11, 2004 #19


    User Avatar
    Staff Emeritus
    Gold Member
    Dearly Missed

    But 80 year olds do consume. In an economy like the US, consumption spending is a large driver of economic prosperity. The money the old spend
    is partly derived from savings from when they were working and partly from current taxes on everybody.
  21. Aug 11, 2004 #20
    Russ, you have fallen for the propaganda of the system. Ask yourself this question my friend…is there a seller for every buyer? I believe so. Thus, if wealth acquisition requires buying it, then obviously someone else owned it. Thus, in the transactions there was no NEW wealth being created, wealth was simply being transferred from one owner to another and from one form to another.

    I hear people all the time talking about how wealth is infinite, when it is not. There has been very little new wealth created in the USA since all the land and resources have been claimed. This is not to suggest that the value of this wealth has not increased, for it has, but that is quite different from having new wealth. For example, you may own a home for the last 10 years. The value of your home has likely appreciated in value surpassing the rate of inflation. Thus, you are wealthier, but you have no NEW wealth, simply increased value of your asset/home.

    Most of the new money in the economy is CREDIT MONEY. That is money that banks create via the so-called multiplier effect. I do not feel like going into all the detail of economic theory, but credit money is equal debit money for someone else. If you have a basic cursory understanding of accounting, you know that debits offset credits, which results is zero sums. Thus, the fact that our economy and GDP is bloated by credit money means that there is not as much REAL growth as GDP would indicate.

    The truth is that there is very little new wealth being created. Generally new wealth is created via acquiring new territory/land. The discovery of the new world by the Europeans created a lot of new wealth for the Europeans, because they acquired land and resources that they did not have before. However, there gain in wealth was offset by the loss of wealth for the Natives.

    Thus, it is obvious to see from this that capitalism must always seek expansion, in order to create new wealth for the players of its game. This is why the West is always pushing to open up democracies and free markets were they did not previously exist. The primary reason being that western capital clearly has the advantage to take ownership of new land and resources when nations convert to the capitalistic system. There are no domestic players that can afford to outbid them in the free market. Thus, western capital takes ownership and thus increases its assets/wealth, which generally will increase in value as it becomes demanded by the market.

    The primary reason for most wars throughout history has been the quest for power and control over territory, because land is the conduit to all wealth…for everything must exist on land…or nearly everything of economic value.
Know someone interested in this topic? Share this thread via Reddit, Google+, Twitter, or Facebook

Have something to add?

Similar Discussions: The concept of PROFIT
  1. Ethics and profits (Replies: 20)