Category Archives: Macroeconomic policy

By Philip Pilkington, a journalist and writer living in Dublin, Ireland

The engine that drives enterprise is not thrift, but profit – John Maynard Keynes

Profits are without doubt the key driving force in a capitalist economy. No respectable entrepreneur would try to sell goods or services were they not to make some sort of profit out of it. And yet profits are spoken of surprisingly little in mainstream neoclassical economics. For the neoclassicals there is, in fact, a deafening silence surrounding the role that profits play in the functioning of our economies; economies that are, of course, founded on the profit motive.

For example, if we turn to a fairly standard mainstream textbook – in this case Samuelson and Nordhaus’ ‘Economics: Fifteenth Edition’ – we find just how little neoclassical economics concerns itself with profits (some will say that Samuelson is a Keynesian, indeed he would probably have said so himself, but Samuelson is not really a Keynesian, his ‘neoclassical synthesis’ was just a grafting of a vulgarised Keynes onto the neoclassical edifice). This 800-odd page book devotes all of three pages to the topic. And even in this short space the authors are vague and fuzzy. We are told that profits come from ‘a hodgepodge of different elements’; that they are earned as a ‘reward for bearing risk’ and that occasionally they take the shape of ‘monopoly returns’. At no point do the authors even dare to suggest where profits come from.

This must appear to anyone with even a cursory interest in how our economies work as a rather unusual evasion. And it should. Usually when people are evasive on such important issues it is because – whether they know it or not – they are hiding something. In this case the authors are – again, whether they know it or not – hiding something extremely important; namely: the origin, source and function of profits in a capitalist economy.