Monday, June 01, 2009

Why Are Anti-Capitalists Against Profit?

It all stems from a misunderstanding of usury. Usury was maligned as ‘unproductive’ but that was because of economic ignorance and the same economic ignorance continues today.

Usury, or the charging of interest, is nothing more than an exchange of a present good for a future good. Which do you prefer: $100 now or $105 a year from now? How much would you be willing to accept one year from now instead of $100 today? The point is: all humans have a time preference, they prefer things now over the same thing in the future.

So to be on equal ground, to be able to compare values, the present value of future goods needs to be compared to the value of the present good. Charging interest is simply the cost associated with paying the lender back in full sometime in the future.

Capital as a resource is nothing more than borrowing what is needed to hire the productive resources now even though it will be sometime in the future before there is any revenue. The profit is the equivalent of full compensation for all of the resources needed in the production process, including the human resources of the entrepreneur and the ones who provide the capital. Without the entrepreneur and the capitalist none of the other factors (land and labor) would have received their incomes.

Profit is maligned and capital is maligned and usury has been maligned all because of economic ignorance. It is this ignorance that underlies socialism.

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