How Profits Created The Prosperity We Enjoy Today

The profit motive produced vacuum cleaners, dishwashers, automobiles, air conditioners, TVs, personal computers, cell phones, and countless other luxuries we enjoy today.

Practically every item we engage with daily (our car, cell phone, food, clothes, tooth brush, etc.) was produced by people seeking profit.

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Our jobs and paychecks are also based on the profit motive. Even government and non-profit organizations are made possible by the profit from private companies and the wages of their workers.

What is Profit?

In the free world, most of our wants and needs are made possible by profit. It is not an exaggeration to say that profit makes the world go ’round! So, what is profit? Perhaps this question is best answered in the words of the economist Walter E. Williams:

“Prior to capitalism, the way people amassed great wealth was by looting, plundering and enslaving their fellow man. With the rise of capitalism, it became possible to amass great wealth by serving and pleasing your fellow man.”

“Profit” in a free economy is the financial surplus that remains for a business from the amount charged to a consumer for a desired product or service after accounting/paying for all related costs. Producers earn sustained profits through customer satisfaction and loyalty. Profits are an indicator of how well a business is serving customers within the tax and regulatory climate they compete in.

Profitable companies grow by serving their customers and finding new ways to fill a need at a competitive price. As a rule, profit-seekers must never forget that competitors — actual and potential — are a threat to take their profits. The profit-seeker also must keep mistakes to a minimum or the consumer will take their business elsewhere. This is known as “consumer sovereignty.”

In a truly free market, the consumer is “royalty” and the producer a “servant.” If the servant serves competently the consumer will bestow profit and help determine the success of a company. If producers do not satisfy consumers, profits will turn into losses, as customers choose to buy elsewhere and “not settle.” Profits are precarious when the “customer is king.”

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