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The Law, by Bastiat
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"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."

--- Cicero


Lesson 70 - Fundamentals of Economics Part II Print E-mail

 

It is interesting to note that while all of the other costs involved in production can be largely pre-determined (wages, replacement costs, raw materials, insurance premiums, tax rates, etc.), the "cost of using tools" is NOT.

The investor is not able to obtain a promise in advance for any fixed return on his investment.  If he does, he is no longer considered an "investor", but is now considered a "creditor" (bond-holder, etc).

To suppose, as do the Marxists and as do many otherwise mainstream economists, that there can really be any such thing as “excess profits”  is an utter absurdity a fallacy.

Excess over what?  If an individual voluntarily agrees to work for $12.00 and is paid instead $15.00 an hour, we can speak of him as having received an “excess” over the amount previously agreed upon.

But what of an individual who has made an investment without an agreed-upon rate of return, or even a guarantee or assurance that his investment will BE returned?

If the enterprise in which such an individual has invested fails to produce sufficient profit as to pay all of the costs of production, then this individual will receive nothing, and his investment will be demonstrated to be an economic failure.

On the other hand, if sufficient demand is realized from the venture such that not only are all of the costs of production paid in full and the original amount of his investment returned to him, the individual might receive a return on his investment several times over the amount originally invested.

He might also earn any sum in between.  There is no guarantee.  At what point can it be held or demonstrated that an amount of profit is “excess”? 

And who is it that shall be empowered to make such a determination?  And what will become of the so-called “excess” profit, if it is not retained by the investor as payment for the risk involved in his original investment, which he stood to lose in its entirety?



 
 

Fundamentals of Liberty