Think of society as one big bank. What you give to society is a deposit. What you take from society is a withdrawal. When you pay others to work for you, you are making a deposit. When you buy production inputs from other people you are also making a deposit. In both cases you are increasing the amount of money that others in society have to spend.
When you sell something you withdraw money from the marketplace and reduce the amount of money that is available for others in society to spend. If the price you charge when you sell to society is equal to the amount of money that you paid to society when producing the item then society’s overall bank account balance stays the same. Deposits and withdrawals match. Money simply moves from one account to another.
But if you add profit and raise your price beyond what you paid out, the account balance of the rest of society goes into overdraft. Not enough money remains to purchase the rest of society’s production and new debt must be created to balance available purchasing power with prices.
If everyone is trying to do the same thing, and every price has a profit added into it, then the social overdraft becomes gigantic and unsustainable. Borrowing costs push prices higher and the extra cost of interest drains even more consumer purchasing power. Welcome to inflation. Welcome to economic instability, bankruptcies and vastly unequal wealth.
If profits accumulating in production chains raise prices by 400 percent, even when half of your personal income comes from profit, your purchasing power would increase if profit was eliminated. Every $1,000 of your current income would drop to $500 but every $1,000 of current prices would drop to just $250, so your purchasing power would actually double.
Now before you tell me that I am wrong, and that profit remains in the marketplace, consider this. Huge amounts of profit are diverted into the fantasy world of financial investment. There are really two distinct economies in society, the productive economy and the financial economy. Profits that are moved into the financial economy drain purchasing power from the real economy and create a need for new social debt. Financial speculation increases profits and triggers account overdrafts in the productive economy. Profits divert the purchasing power of workers and consumers in the real economy into the financial bubble of the fabulously rich. This is why the real purchasing power of wages keeps falling as debt and profit levels accelerate. The overdraft on society’s account is out of control.
Please help dispel the social myth about the benefits of profit.
