Both supporters and opponents of the capitalist market system agree on one point – the\ncentral importance of profit to the way the system operates. So what are profits and why\ndo they get priority? <\/p>\n\n\n\n
Most production for the market is organised nowadays not by private individuals but by\nbusiness enterprises of one sort or another. This represents a change since the times of\nmany of the famous defenders of the market system, such as Adam Smith. The aim of these\nbusinesses, whether large or small, whether owned by shareholders or the state, is to\nmaximise the return on the capital invested in them. <\/p>\n\n\n\n
This “return” is profit<\/em>. At its most basic, this profit is the\ndifference between the money a business obtains from the sale of its products and the\nmoney it has to spend on producing them. The rate of profit<\/em> is the amount of\nprofit made over a given period, normally a year, as a percentage of the monetary value of\nthe assets of the business at the beginning of the period. <\/p>\n\n\n\n Profit-seeking is not a matter of the greed of those running a business but is\nsomething imposed on them from outside by the competitive pressures of the market. All the\nbusinesses in a particular branch of production are in competition with each other to sell\ntheir products. This battle will be won by those firms that can provide an equivalent good\nat the lowest price. <\/p>\n\n\n\n This is largely a matter of having better technology – more performance machines and\nbetter methods of production that allow the same good to be produced at a lower cost. The\nextent to which a business can install such machinery and adopt such methods depends on\nthe amount of profits it makes. In this way the market forces businesses to seek the\nmaximum profits and then to invest as much of them as they can in improving and expanding\ntheir productive capacity. <\/p>\n\n\n\n At the level of the economy as a whole market forces tend to bring about an\nequalization of the rate of profit in all branches of production. If a higher rate is\nbeing made in one branch this will tend to attract more capital into it as a result\nproduction will increase and the extra supply will cause prices to fall – bringing the\nrate of profit back towards the average or ‘normal’ level. If, on the other hand, the rate\nof profit is lower than average somewhere capital will tend to flow out of that branch\nproduction will fall, the lessened supply will drive prices up and the rate of profit will\ntend to rise to the average level. <\/p>\n\n\n\n Author: Adam Buick <\/p>\n\n\n\n Please email your comments about this article to \/mailto:feedback@worldsocialism.org”>feedback@worldsocialism.org<\/a><\/p>\n\n\n\nOngoing Competition<\/strong> <\/h3>\n\n\n\n
Levelling Out<\/strong> <\/h3>\n\n\n\n
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