What are Profits and What Function Do They Serve?

Full transcript in the author’s blog post. (via blog.mises.org)

This video describes the instrumental role of profits and losses as a signal to coordinate activity in society, and the government interferences on that signal.

Profits and losses exist in a system of private ownership and solve crucial knowledge and economic calculation problems in society: how do entreprenurs know what to produce and in what amounts to satisfy the greatest needs, how should different usages of resource be prioritized, which projects are wasteful and should be cancelled or made more efficient?

Overall, prices and the profit/loss system allow large scale coordination of activity and generate systematic feedback for adapting the production structure to best fulfill the demand of consumers in ever-changing and complex conditions.


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