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“The Economic Way of Thinking”12th Edition

Chapter 7: Profit and Loss

（利润和损失）

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Chapter Outline Wage, Rent and Interest: Incomes

Established in Advance by Contract Profit: Income That can be Positive or

Negative Calculating Profit: What Should be Included

in Costs? Comparing Economic Profit and Accounting

Profit Uncertainty: A Necessary Condition for Profit

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Chapter Outline The Entrepreneur The Entrepreneur as Residual Claimant Where Does the Buck （责任） Stop? Not-For-Profit Institutions Entrepreneurship and the Market Process Mere Luck? Profit and Loss as Coordinating Signals; The

Role of Monetary Calculation Beware of Experts

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Chapter Outline Appendix: Varieties of Speculation Consequences of Entrepreneurial Speculatio

n Commodity Speculators and Futures Markets Prophets （预言家） and Losses

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Introduction

“Perhaps no term or concept in economic discussion is used with a more bewildering variety of well-established meanings than profit.”

-Frank Knight

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Introduction Profit (net revenue ，净收益 )

Total revenue minus total cost To understand the concept of profit, it would

be worthwhile to briefly consider the meaning of wage, rent, and interest.

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Wage, Rent and Interest （工资、租金和利息） Wage is the payment to people for their labor

service. It is typically established by a contractual

agreement between a firm owner and a labor supplier.

The contractual agreement reduces uncertainty.

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Wage, Rent and Interest

Rent represents the payment to landlords and others who lease their property, such as tools and machinery.

Like wage, rent is also contractually established and reduces uncertainty.

No one would consider wage and rent payments as profit.

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Wage, Rent and Interest Interest is NOT:

The price of money Payment for the use of money

Interest IS: Paid when we borrow The price people pay to obtain resources now

rather than to wait until they have earned the purchasing power with which to buy the resources

Ratio between what is paid back and what is obtained now

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Wage, Rent and Interest

Wage, rent and interest are earned income（挣得的收入 ） in a market economy. Wage rate （工资率） = price for labor services Rental rate （租金率） = price for rental property Interest rate （利率） = price for credit

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Profit: Income that can be Positive or Negative Profit = 4th form of income in a market

economy (after wage, rent and interest) Profit = total revenue – total cost Profit is also termed Net Revenue Negative Profit = Loss

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Profit: Income that can be Positive or Negative 利润与其他三种形式的收入（工资、租金和利

息）之间有一重要区别：

工资、租金和利息在名义上不可能是负数，但是利润可能是负的。

追逐利润的企业家不能确定，他们付出的劳动能否得到回报，追逐利润意味着承受更大的不确定性。

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Calculating Profit: What Should be Included in Costs? From the perspective of the profit-seeker,

wages, rent and interest are costs of production.

Remember…Profit is generally defined as total revenue – total cost.

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Calculating Profit: What Should be Included in Costs? Opportunity Cost Perspective

When business owners employ resources they own in their business, they will incur an opportunity cost.

The self employment of these resources does not involve monetary outlays.

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Calculating Profit:What Should be Included in Costs? What is Profit?

Opportunity cost of owner’s labor? Capital?

Produced goods that are used to produce future goods Buildings

Interest? The price people pay to obtain resources now rather

than to wait until they have earned the purchasing power with which to buy the resources

The foregone income from these self-employed resources represent costs, not profits.

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Comparing Economic Profit and Accounting Profit Accountants measure the explicit costs of

production. These costs flow out of the business and are

incurred to produce a good or service. Explicit costs from an economic perspective

do not capture the total costs of production.

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Comparing Economic Profit and Accounting Profit Economic profits （经济利润） 包括生产的显

性成本和隐性成本，也即生产过程中涉及到的所有稀缺资源的价值。

Implicit costs arise when business owners take into account the opportunity costs of using resources they own and commit to their businesses.

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Comparing Economic Profit and Accounting Profit Example.

Consider Ann, who earns $30,000 as a secretary. Suppose she also owns a building that she rents for $6,000 per year, and she has $23,000 in a certificate of deposit that earns 10% ($2,300) per year. These payments represent contracts that Ann has entered. They represent flows of income which reduce uncertainty in her life.

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Comparing Economic Profit and Accounting Profit Now, suppose Ann quits her job and become

s her own boss. She opens a pizzeria （比萨店） .

Uses her own building Cashes out the $23,000 CD Borrows $20,000 @ 10%

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Comparing Economic Profit and Accounting Profit 1st year total revenues = $85,000 1st year explicit costs = $45,000

$43,000 hired labor $ 2,000 loan interest

Accounting Profit = $40,000

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Comparing Economic Profit and Accounting Profit However, Ann realizes:

Her own labor is not a free good as she previously earned $30,000

The building previously earned Ann $6,000 Her CD earned $2,300

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Comparing Economic Profit and Accounting Profit Thus, her implicit costs are:

$30,000 foregone wages $ 6,000 foregone rent $ 2,300 foregone interest $38,300 total

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Comparing Economic Profit and Accounting Profit Ann’s economic profit is:

$85,000 total revenue $45,000 hired labor $38,300 implicit costs

$83,300 total cost $1,700 economic profit 这 $1,700 的经济利润是在 Ann支付了所有资源的市场价值之后剩余的部分，是对 Ann的商业才能的回报，是 Ann作为一个追逐利润和承担风险的企业家得到的回报。

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Comparing Economic Profit and Accounting Profit Example (continued).

Ann 也可能会遭遇经济损失（ economic loss ）。例如，如果第一年的收益为 $50,000, 那么她的会计利润就只有

$50,000 -$45,000 =$5,000 。 而她的经济利润（损失）则是 $50,000 -$83,300= -$33,300.

尽管账面上会显示有 $5,000 的利润，但她作为企业所有者实际上是遭到了惩罚。这会促使 Ann 认真考虑是否需要改变策略。

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Comparing Economic Profit and Accounting Profit Economists claim that the accounting

measure does not fully capture all the opportunity costs of production.

People should consider the opportunity costs of their choices.

Only economic profits (and losses) matter.

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Uncertainty: A Necessary Condition for Profit Business decisions are influenced by the

presence or absence of economic profit. If economic profit were guaranteed, the

competition would increase and profit would be reduced to zero.

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Uncertainty: A Necessary Condition for Profit 真实世界中，充满了不确定性，利润确实存在，

而且会一直存在，不会被竞争降低至零。 如果没有不确定性，与获利有关的一切事情最

终会人尽皆知，所有的获利机会都会被用光，所有地方的利润都会等于零。

Uncertainty is needed to sustain the possibility of profit.

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Uncertainty: A Necessary Condition for Profit The same issues of uncertainty apply to

economic losses. No one would embark on a business venture

if losses were guaranteed.

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Uncertainty: A Necessary Condition for Profit 在没有不确定性的世界上不存在利润或损失，

所以， Profit (or loss) is the consequence of un

certainty. 利润不是为了获得某种资源而要支付给别人的

报酬。 利润是剩余物，是用收益弥补了所有成本之后

剩余的部分，是由于比别人更好地预测了未来并依此行动的结果。

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The Entrepreneur （企业家）

Entrepreneurs Try to organize things differently Believe reorganization (change) will result in reve

nues in excess of costs Have confidence in their foresight Are the residual claimants （剩余索取权人）

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The Entrepreneur as Residual Claimant Who gets to be boss?

The residual claimant is the boss. They purchase the consent of everyone else on

their team. They make a deal with them by meeting their

terms. The entrepreneur must offer credible guarantees.

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Where Does the Buck （责任） Stop? Residual Claimants (Owner)

The only party with an incentive to take into account everything relevant to costs and revenues.

The “owner” （所有者） has an incentive to: Consider everything relevant to the business. Predict future events. Construct a balance of overall gains and losses. Has the authority to decide.

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Where Does the Buck Stop?

Example “What? I can’t have my money back? I want to

talk to the owner!” Question

Why talk to the owner?

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Not-For-Profit Institutions （非盈利组织） Questions

What effect does standing in a line have on quantity demanded?

Why? When would the seller be motivated to reduce the

length of the line? Where are the lines longer, at the post office or

the grocery store?

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Not-For-Profit Institutions

Question Do nonprofit institutions have residual claimants?

Without residual claimants Firms do not function effectively. There is little incentive to reduce waste. The buck stops nowhere.

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Entrepreneurship（企业家身份 /创业者身份，创业） and the Market Process 企业家的活动是市场过程的动力。 企业家活动的三种模式

arbitrage （套利） Innovation （创新，革新） imitation （模仿）

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Entrepreneurship and the Market Process Entrepreneurs engage in arbitrage.

They seek profit opportunities by attempting to buy goods at a low price and sell them at a higher price.

Profit is the intended consequence of entrepreneurship.

What are the unintended consequences of entrepreneurship.

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Entrepreneurship and the Market Process The unintended consequences

Entrepreneurship tends to correct for errors in the market place.

企业家的套利活动无意中为市场提供了新的信息，促进了人们协调各自的计划。

产品倾向于从低价值的用途转移到高价值的用途上。

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Entrepreneurship and the Market Process 投机（ Speculation ）可以看作是一种特殊的

企业家套利行为

投机者在当下买进其认为便宜的东西，等到将来涨价了再卖掉。

行为（ action ）总具有投机的性质，人人都是投机者。

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Entrepreneurship and the Market Process Entrepreneurs also engage in innovation

（创新，革新） . They are trailblazers （开拓者） .

采用新技术； 采取新的组织战略； 发现新的成本结构（用更有效的方式生产和分配稀

缺商品或服务）。

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Entrepreneurship and the Market Process Entrepreneurs also engage in the imitation

（模仿） of previous trailblazing entrepreneurs. 催生新的产业

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Mere Luck? （仅仅是运气吗？） Not every entrepreneur enjoys economic profi

ts. Frank Knight ：企业家作为一个群体，其利润

是负的！ 套利者和模仿者面临巨大的不确定性。 A loss is the unintended consequence of entrepre

neurship. 市场经济是关于利润和损失的经济，利润和损

失只有在充满不确定性的世界里才会出现！

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Mere Luck?

Is it good luck or bad luck that will be determinate of profit or loss? Some may be due to chance But orderly market processes would not appear if

only luck ruled. 现实世界中，我们确实观察到市场过程在时间和空

间两方面变得更协调。

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Profit and Loss as Coordinating Signals 市场出清的倾向依靠的是比运气和偶然性更基

本的东西！

市场创造（价格）信息！ 在市场中经济主体受到市场过程中出现的价格信号的指引，并从中进行学习。

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Profit and Loss as Coordinating Signals 企业家基于市场价格来判断他们经营活动的预期成本和预期收益。

对于评估某一商业行为使用资源的方式是否比以前更有效率、更有利可图这件事来说，市场价格是关键！

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Profit and Loss as Coordinating Signals 成功的企业家善于从这些价格差异中发现获利

机会（以低价买进，高价卖出），他们在这方面具有比较优势。

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Profit and Loss as Coordinating Signals 制度和游戏规则是关键！

只有在产权私有、存在市场交换和使用货币的制度下才能进行经济计算！

Mises （ Human Action, pp.230-231. ） :

“The system of economic calculation in monetary terms is conditioned by certain social institutions. It can operate only in an institutional setting of the division of labor and private ownership of the means of production in which goods and services of all orders are bought and sold against a generally used medium of exchange, i.e., money.

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Profit and Loss as Coordinating Signals Mises: (continued): …… Monetary calculation is the main vehicle of planning and actin

g in the social setting of a society of free enterprise directed and controlled by the market and its prices. It developed in this frame and was gradually perfected with the improvement of the market mechanism and with the expansion of the scope of things which are negotiated on markets against money. It was economic calculation that assigned to measurement, number, and reckoning （账目） the role they play in our quantitative and computing civilization. The measurements of physics and chemistry make sense for practical action only because there is economic calculation. It is monetary calculation that made arithmetic a tool in the struggle for a better life. It provides a mode of using the achievements of laboratory experiments for the most efficacious removal of uneasiness.”

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Profit and Loss as Coordinating Signals The entrepreneur’s calculation of expected

profits provides the information to decide to engage in arbitrage or launch a new enterprise.

The entrepreneur’s realized profits or loss will further inform about the accuracy of entrepreneurial foresight.

The expectation of enjoying the residual --the economic profits -- provide the incentive to act entrepreneurially.

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Profit and Loss as Coordinating Signals 财富的再分配和资源的重新配置：

成功的企业家通过占有利润获得了更多的财富。

同样重要的是，那些由于对潜在利润机会判断失误而蒙受损失的企业家，其财富得以消减。

失败的企业家由于使用资源的方式不当，受到惩罚；这些资源将流向那些相信自己能为这些资源找到更有效、更有利可图的利用方式的人。

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Beware of Experts

The key to a robust and efficient market process is: Open entry and exit for those who think that they

have a comparative advantage in entrepreneurial activity

If their judgment is correct, they will earn economic profits

If not, they face economic losses.

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Beware of Experts 比较优势可以，而且确实会随时间变化。

没有人有特权指定某人将来会成为成功的企业家，或者某个当下成功的企业家将来还会成功。

商业社会中，公开的市场过程提供了这类信息，其形式为预期以及实际的利润或损失，其结果是个人财富的增减。

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Beware of Experts

Entrepreneurship is …

society’s source of change.

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Beware of Experts

Closed Markets Stifle competition Limit knowledge Decisions as to market issues by lawmakers and

bureaucrats Beware of experts who have no risk

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Appendix: Varieties of Speculation Speculation is trading in the hope of profit

from changes in the market price. There are many types of speculators:

Wall Street “Bear” Commodity Trader Students – buying education for future gain Motorists – timing of fuel purchases

Do speculators / profiteers take advantage?

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Appendix: Consequences of Entrepreneurial Speculation Commodity Markets – well organized

Facilitates buying or selling for futures Speculators even out the flow of commodities

Thus, diminishing price fluctuations And, in turn, reducing risk to others

Purchasing risk in hopes of profit This is the speculator’s comparative advantage Hedgers – sell to reduce their own risk

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Appendix: Commodity Speculators and Futures Markets Futures Markets allow people to:

Allocate their risks Deal with uncertainty Risk avoiders – hedgers Risk takers – speculators

Accept risk (at an agreed price) that hedgers avoid Must respect their risk and pay close attention to the

market conditions Speculators are the distant early warning system

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Appendix: Prophets and Losses Speculators provide information for all Middlemen coordinate market exchanges

across regions Speculators coordinate market exchanges

through time Tend to bring quantity supplied closer to quantity

demanded

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Once Over Lightly

Profit = TR – TC Accounting Profit uses explicit costs Economic Profit uses implicit costs Profit arises from uncertainty Economic Profit encourages Entrepreneurs Entrepreneurship – arbitrage; innovation and

limitation

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Once Over Lightly

Uncertainty is a fact of life Everyone is a Speculator in a world of

uncertainty Professional Speculators coordinate markets

through time Futures Markets allocate risk exposures