Is there sufficient profit?
Joseph Schumpeter‘s “innovator,” which his “creative destruction,” is the only theory so far to explain why there is something we call “profit.” The classical economists very well knew that their theory did not give any rationale for profit. Indeed, in the equilibrium economics of a closed economic system, there is no place for profit, no justification for it, no explanation of it. If profit is, however, a genuine cost, and especially if profit is the only way to maintain jobs and to create new ones, then capitalism becomes again a moral system.
The weakness on moral grounds of the profit incentive enabled Karl Marx at once to condemn the capitalist as wicked and immoral and assert “scientifically” that he serves no function. As soon, however, as one shifts from the axiom of an unchanging, self-contained, closed economy, what is called profit is no longer immoral. It becomes a moral imperative. Indeed the question then is no longer: “How can the economy be structured to minimize the bribe of the functionless surplus called profit that has to be handed over to the capitalist to keep the economy going?” The question in Schumpeter’s economics is always: “Is there sufficient profit?” Is there adequate capital formation to provide for the costs of the future, the costs of staying in business, the costs of “creative destruction”?
ACTION POINT: Check to see if you are earning enough profit to cover the cost of capital and provide for innovation. If not, what are you going to do about it?
The Ecological Vision
* Source: The Daily Drucker by Peter F. Drucker