“The Economic Way of Thinking”
12th Edition
Chapter 7: Profit and Loss
（利润和损失）
1
Chapter Outline
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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
2
Chapter Outline
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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
3
Chapter Outline
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Appendix:
Varieties of Speculation
Consequences of Entrepreneurial
Speculation
Commodity Speculators and Futures Markets
Prophets（预言家） and Losses
4
Introduction
“Perhaps no term or concept in economic
discussion is used with a more
bewildering variety of well-established
meanings than profit.”
-Frank Knight
5
Introduction

Profit (net revenue，净收益)

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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.
6
Wage, Rent and Interest（工资、租金和
利息）
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
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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.
7
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.
8
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
9
Wage, Rent and Interest

Wage, rent and interest are earned income
（挣得的收入 ） in a market economy.


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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
10
Profit:
Income that can be Positive or Negative

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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
11
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。
12
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.
13
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.
14
Calculating Profit:
What Should be Included in Costs?

What is Profit?

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Opportunity cost of owner’s labor?
Capital?
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Interest?


Produced goods that are used to produce future goods
Buildings
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.
15
Comparing Economic Profit and
Accounting Profit
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
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.
16
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.
17
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.
18
Comparing Economic Profit and
Accounting Profit


Now, suppose Ann quits her job and
becomes her own boss.
She opens a pizzeria（比萨店）.



Uses her own building
Cashes out the $23,000 CD
Borrows $20,000 @ 10%
19
Comparing Economic Profit and
Accounting Profit
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1st year total revenues = $85,000
1st year explicit costs = $45,000
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$43,000 hired labor
$ 2,000 loan interest
Accounting Profit = $40,000
20
Comparing Economic Profit and
Accounting Profit

However, Ann realizes:

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
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
21
Comparing Economic Profit and
Accounting Profit

Thus, her implicit costs are:
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

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$30,000 foregone wages
$ 6,000 foregone rent
$ 2,300 foregone interest
$38,300 total
22
Comparing Economic Profit and
Accounting Profit

Ann’s economic profit is:

$85,000 total revenue



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$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。
23
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。
24
Comparing Economic Profit and
Accounting Profit
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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.
25
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.
26
Uncertainty:
A Necessary Condition for Profit
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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.
27
Uncertainty:
A Necessary Condition for Profit

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The same issues of uncertainty apply to
economic losses.
No one would embark on a business venture
if losses were guaranteed.
28
Uncertainty:
A Necessary Condition for Profit

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
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
uncertainty.
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。
29
The Entrepreneur（企业家）
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Entrepreneurs
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Try to organize things differently
Believe reorganization (change) will result in
revenues in excess of costs
Have confidence in their foresight
Are the residual claimants（剩余索取权人）
30
The Entrepreneur as Residual Claimant

Who gets to be boss?
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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.
31
Where Does the Buck（责任） Stop?

Residual Claimants (Owner)

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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:

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Consider everything relevant to the business.
Predict future events.
Construct a balance of overall gains and losses.
Has the authority to decide.
32
Where Does the Buck Stop?

Example

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“What? I can’t have my money back? I want to
talk to the owner!”
Question

Why talk to the owner?
33
Not-For-Profit Institutions（非盈利组织）
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Questions
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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?
34
Not-For-Profit Institutions
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Question
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Do nonprofit institutions have residual claimants?
Without residual claimants
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Firms do not function effectively.
There is little incentive to reduce waste.
The buck stops nowhere.
35
Entrepreneurship（企业家身份/创业者
身份，创业） and the Market Process

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企业家的活动是市场过程的动力。
企业家活动的三种模式


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arbitrage （套利）
Innovation（创新，革新）
imitation（模仿）
36
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.
37
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。
38
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。
39
Entrepreneurship and the Market Process

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Entrepreneurs also engage in innovation
（创新，革新）.
They are trailblazers（开拓者）.

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
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）。
40
Entrepreneurship and the Market Process

Entrepreneurs also engage in the imitation
（模仿） of previous trailblazing
entrepreneurs.

催生新的产业
41
Mere Luck?（仅仅是运气吗？）

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Not every entrepreneur enjoys economic
profits.
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
entrepreneurship.
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！
42
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。
43
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。

44
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！
45
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。
46
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.
47
Profit and Loss as Coordinating Signals

Mises: (continued):
…… Monetary calculation is the main vehicle of planning and
acting 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.”
48
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.
49
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。
50
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.
51
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。
52
Beware of Experts
Entrepreneurship is …
society’s source of change.
53
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
54
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?
55
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
56
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
57
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
58
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
59
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
60