Wednesday, March 8, 2017

Profit as a Byproduct of Value

If it is maintained that “the love of money is the root of all kinds of evil,” then the pursuit of profit for it’s own sake is the cause of a myriad of dysfunctions of the commercial system.   And there is ample support for that premise: the misconduct and abuse that occurs on a grand scale is invariably the result of a singular focus on profit (increased revenue and decreased expenses) to the exclusion of all other concerns.

Put in its proper perspective, money is simply a tool used to store and transfer value, and this it follows that the creation of profit is merely a byproduct of creating more value than was consumed in the act of creation, and this in turn becomes the premise for a healthier and more productive outcome, and one which was at the onset the purpose of most commercial undertakings.

Wealth, a temporary incarnation that is derived from profit, is then a representation of the creation of value: those who have wealth have earned it by contributing value for which they have been compensated by the beneficiaries of their undertaking.   And in this sense, wealth is not dysfunctional, nor detrimental in the societal sense.  It is, in smaller words, an indication of having done good, and of having created more benefit for others than one has consumed for oneself.

In this sense, profit is a byproduct of the value that has been created: the firm does not generate a profit by doing nothing else, but finds itself profitable by virtue of the value-creating operations it has established and perpetuated.

Or at least, this is a possible route to wealth, the alternate being to take value without providing greater value in return, which can only be successful in the short term because it depends on other stakeholders to voluntarily participate in an exchange that is to their detriment.   But once such an operation has exhausted the supply of ignorance that would lead another party to agree to such an exchange, it cannot perpetuate.

And it’s in this sense that an individual or organization that seeks profit for the sake of profit is generally successful for a short amount of time – unless it accidentally ends up creating greater value than it consumes, which is possible though highly unlikely.

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