Maximization
Encyclopedia
The profit motive is the concept in economics
that refers to individuals being provided incentive to relinquish something (e.g. capital, expertise, labour) for deployment to a productive purpose. If humans are rational and self-interested (see Homo economicus
), then they should only divert some of their personal resource toward production for others in society (i.e. invest) if there is some payback for their self-sacrifice and risk. If there was no profit motive then the rational actor would merely conserve their resource for personal use and no investment would occur. The concept of profit motive was first raised by Adam Smith
to explain why rational actors should invest their personal resources and why they needed to be provided a rent for use of that capital. Adam Smith also explained why the profit motive was an intrinsic enabler of the efficient utilisation of an economy's resources toward society's overall benefit.
Economies that are utilising their economic resource for maximum sustainable societal benefit need to be both profit efficient
and productivity
efficient (including labour efficiency, resource efficiency and sustainability). The profit motive must be sufficiently high to incentivise owners of capital to deploy their capital, but not so high as to extract too much rent from the productive capacity of the economy.
The theory proposed now by most modern economist
s is that goal of an economy is the maximization of growth and therefore profit
(see Milton Friedman
). This being the key difference between classical economists like Smith and modern economists. As a result, in modern economics, profit has been elevated from being merely a key plank in optimising societal benefit (the goal of classical economists), to becoming the sole purpose of economies.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
that refers to individuals being provided incentive to relinquish something (e.g. capital, expertise, labour) for deployment to a productive purpose. If humans are rational and self-interested (see Homo economicus
Homo economicus
Homo economicus, or Economic human, is the concept in some economic theories of humans as rational and narrowly self-interested actors who have the ability to make judgments toward their subjectively defined ends...
), then they should only divert some of their personal resource toward production for others in society (i.e. invest) if there is some payback for their self-sacrifice and risk. If there was no profit motive then the rational actor would merely conserve their resource for personal use and no investment would occur. The concept of profit motive was first raised by Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
to explain why rational actors should invest their personal resources and why they needed to be provided a rent for use of that capital. Adam Smith also explained why the profit motive was an intrinsic enabler of the efficient utilisation of an economy's resources toward society's overall benefit.
Economies that are utilising their economic resource for maximum sustainable societal benefit need to be both profit efficient
Profit efficiency
Profit efficiency is a macro-economic concept used in assessing whether an economy, industry or supply chain is expending an optimally balanced level of rent for the use of capital....
and productivity
Productivity
Productivity is a measure of the efficiency of production. Productivity is a ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output divided by the total input...
efficient (including labour efficiency, resource efficiency and sustainability). The profit motive must be sufficiently high to incentivise owners of capital to deploy their capital, but not so high as to extract too much rent from the productive capacity of the economy.
The theory proposed now by most modern economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
s is that goal of an economy is the maximization of growth and therefore profit
Profit (economics)
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...
(see Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
). This being the key difference between classical economists like Smith and modern economists. As a result, in modern economics, profit has been elevated from being merely a key plank in optimising societal benefit (the goal of classical economists), to becoming the sole purpose of economies.