Economics Dictionary of ArgumentsHome
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| Gains and losses: In economics, "gain" refers to the benefit or profit derived from economic transactions or investments, often measured in terms of increased wealth, utility, or satisfaction. "Loss" indicates a reduction in economic value or utility, typically resulting from unfavorable business activities, market conditions, or inefficient resource allocation. These concepts are central to assessing financial performance and decision-making in economic activities. See also Decision-making processes._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Gain and Loss - Dictionary of Arguments
Rothbard III 511 Gain and Loss/Rothbard: A grave error is made by a host of writers and economists in considering only profits in the economy. Almost no account is taken of losses. The economy should not be characterized as a “profit economy,” but as a “profit and loss economy.”(1) Losses: A loss occurs when an entrepreneur has made a poor estimate of his future selling prices and revenues. He bought factors, say, for 1,000 ounces, developed them into a product, and then sold it for 900 ounces. >Entrepreneurship/Rothbard. Speculation: He erred in not realizing that the factors were overpriced and overcapitalized on the market in relation to their discounted marginal value products, i.e., to the prices of his output. >Production factors/Rothbard. Profit: Every entrepreneur, therefore, invests in a process because he expects to make a profit, i.e., because he believes that the market has underpriced and undercapitalized the factors in relation to their future rents. If his belief is justified, he makes a profit. If his belief is unjustified, and the market, for example, has really overpriced the factors, he will suffer losses. The nature of loss has to be carefully defined. Suppose an entrepreneur, the market rate of interest being 5 percent, buys factors at 1,000 and sells their product for 1,020 one year later. Has he suffered a “loss” or made a “profit”? Rothbard III 512 At first, it might seem that he has not taken a loss. After all, he gained back the principal plus an extra 20 ounces, for a 2-percent net return or gain. However, closer inspection reveals that he could have made a 5-percent net return anywhere on his capital, since this is the going interest return. >Interest rate. He could have made it, say, investing in any other enterprise or in lending money to consumer-borrowers. In this venture he did not even earn the interest gain. Costs: The “cost” of his investment, therefore, was not simply his expenses on factors—1,000—but also his forgone opportunity of earning interest at 5 percent, i.e., an additional 50. He therefore suffered a loss of 30 ounces. Rothbard III 514 Def profit/Rothbard: (…) profits are an index that maladjustments are being met and combatted by the profit-making entrepreneurs. These maladjustments are the inevitable concomitants of the real world of change. Entrepreneur: A man earns profits only if he has, by superior foresight and judgment, uncovered a maladjustment - specifically an undervaluation of certain factors by the market. By stepping into this situation and gaining the profit, he calls everyone’s attention to that maladjustment and sets forces into motion that eventually eliminate it. If we must condemn anyone, it should not be the profit-making entrepreneur, but the one that has suffered losses. For losses are a sign that he has added further to a maladjustment (…) Rothbard III 515 Market: The market is no respecter of past laurels, however large. Moreover, the size of a man’s investment is no guarantee whatever of a large profit or against grievous losses. Capital does not “beget” profit. >Entrepreneurship/Mises. Rothbard III 812 Gains and losses/Rothbard: When a change in the money relation causes prices to rise, the man whose selling price rises before his buying prices gains, and the man whose buying prices rise first, loses. The one who gains the most from the transition period is the one whose selling price rises first and buying prices last. Conversely, when prices fall, the man whose buying prices fall before his selling price gains, and the man whose selling price falls before his buying prices, loses. >Money market/Rothbard, >Money supply/Rothbard, >Demand for money/Rothbard. Causation/gains and losses: (…) there is nothing about rising prices that causes gains or about falling prices that causes losses. In either situation, some people gain and some people lose from the change, the gainers being the ones with the greatest and lengthiest positive differential between their selling and their buying prices, and the losers the ones with the greatest and longest negative differential in these movements. Which people gain and which lose from any given change is an empirical question, dependent on the location of changes in elements of the money relation, institutional conditions, anticipations, speeds of reaction, etc. >Buying price/Rothbard, >Selling price/Rothbard, >Price/Rothbard, >Purchasing power/Rothbard. 1. “One thing I miss . . . in discussion generally in the field, is any use of words recognizing that profit means profit or loss and is in fact as likely to be a loss as a gain.” Frank H. Knight, “An Appraisal of Economic Change: Discussion,” American Economic Review, Papers and Proceedings, May, 1954, p. 63. Professor Knight’s great contributions to profit theory are in sharp contrast to his errors in capital and interest theory. See his famous work, Risk, Uncertainty, and Profit (3rd ed.; London: London School of Economics, 1940). Perhaps the best presentation presentation of profit theory is in Ludwig von Mises, “Profit and Loss” in Planning for Freedom (South Holland, Ill.: Libertarian Press, 1952), pp. 108–51._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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> Counter arguments against Rothbard
> Counter arguments in relation to Gain and Loss
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