The Firm and its Profits

What sets the firm apart from other producers is the commercial nature of its operations. The firm produces for the market and only for the market. It produces goods and buys them not in order to consume them but in order to sell them or their products. While economic agents other than the firm sell commodities, the sale of commodities is not the end of their exchange transactions. They "sell in order to buy" instead of "buying in order to sell." Workers engage in exchange to acquire "necessities," landlords do so to get "luxuries," and "factor" owners exchange their goods to get ones that have a higher utility than their endowments. Exchanging for the purpose of selling is exchanging for the purpose of money making. For, as Marx emphasized, buying in order to sell is rational, benefits those that do it, only if commodities can be purchased for less money than can be made through their sale or the sale of goods which can be produced with them. The difference between the money spent on their purchase and the money made through their sale or that of their products is the profit from the transaction, and this profit or monetary gain is the objective of the firm's operations. Money acquisition, although necessary for the purchase of goods, is not the same as goods acquisition. Instead of giving one goods, money gives one the power of purchasing them, a title to a certain portion of society's wealth. In striving for profit the firm strives to extend its claim over the wealth of nations. Firms want not to consume this wealth but to own it, to acquire it not use it. The firm's profit end is the end of wealth acquisition. Firms differ from other economic agents not only in the way they relate to the wealth of nations, but, also, in the way they obtain it. Others get a part of this wealth by contributing to its production. Their incomes are "earned," the market values ("measures") of productive services. Profit, in contrast, while a component of price, is not itself a price, the market worth of any good or service; It is the "unearned" component of the nation's income and is viewed as such in all traditions of economic thought. The unearned nature of profit income stems from its roots in purchase and sale transactions. These transactions result in a monetary gain only when 1) goods are sold (bought) for a price greater (less) than their market value or 2) goods are sold for a price higher than their cost of production. The first case is the mercantilist one of profit through goods "alienation," through cheating in exchange. Profit comes at the expense of others, of those who bought goods for more than their worth or sold them for less than their value. In the second case, the one traditionally dealt with in income distribution theories profit is the surplus of the product's value over that of its inputs. Profit, here, is the "residual" income from sales proceeds, the income which remains after paying for all the factor services which contributed to the product's production. In neither case is profit "earned," received in return for a service rendered, for goods supplied or any "effort or sacrifice" incurred in their production Insofar as profit is not a "reward," the price of any productive contribution, profit seeking activities are not necessary for production. But if they are not necessary for production, if "entrepeneurship" is not one of production's "factors," then what are they necessary for? What is the firm's role in the economy and does what it does with its profits or how it makes them justify their receipt? How does the accumulation of wealth further the economic ends of society, enhance the wealth of nations? The following turns to economic thought for an answer to these questions. It examines the arguments for the firm and explanations of its profit.