Profit

Capitalists earn a return on their efforts by providing three productive inputs. First, they are willing to delay their own personal gratification.Put bluntly, the capitalist provides capital by not consuming. Without capital much less production could occur. As a result, some profits are effectively the “wages” paid to those who are willing to delay their own personal gratification.

Second, some profits are a return to those who take risks. Some investments make a profit and return what was invested plus a profit; others do not.

Third, some profits are a return to organizational ability, enterprise, and entrepreneurial energy. The entrepreneur, by inventing a new product or process, or by organizing the better delivery of an old product, generates profits.

Economists use the word “interest” to mean the payment for delayed gratification, and use the word “profits” to mean only the earnings that result from risk taking and from entrepreneurship.

Although some monopoly profits exist in any economy, they are a very small portion of total profits in any rich society. In rich societies, most consumption consists of either luxuries or products that have close substitutes.

“Market imperfections” provide a second source of profits. Information problem.