Profit Motive

 In economics, possibly microeconomics, whatever, you will be taught that "Profits are maximised when..."

MR = MC

That formula means that 'marginal revenue' equals 'marginal cost' and I want you to just swill around your mouth for a bit, whether this feels intuitive to you at all. Whether it makes immediate sense, because likely in some capacity, you are a business person of some kind.

Now an explainer - in some senses this formula is a truism. Like if you were buying bananas to make banana splits, and each banana cost you a dollar and each banana split you sold brought in two dollars, and your banana stand attracted 50 customers, then if you purchase 49 bananas your profit isn't maximised, because you are leaving a $2 sale on the table for the 50th customer. 

At 51 bananas your profits aren't maximised because you have a banana that cost you a $1 going to waste with no customer to buy it. So in this really simple business model profits are maximised when the marginal revenue $50 is equal to the marginal cost $50, one banana either side gives you $48 for $49 and $50 for $51.

In Practice

I have it on good authority, that any time researches have actually gone to a business and investigated how businesses maximise their profits they find most businesses set their prices using a formula:

P = C + Markup

Which is to say if they get their bananas for a dollar a finger, they whack on a 100% markup to cover their expenses and give them a little profit margin. This is how most businesses operate.

For a more complicated business say a retail business, this model compounds - the supplier has the cost of manufacturing a good, that they wholesale to a retailer doing this "Price = Cost + Markup" and then the retailer does the same thing.

We do however get situations where someone's markup or margin or whatever is squeezed. Like in Australia primary producers like farmers dependent on our supermarket chain duopoly who despite small competition from independent grocers and a strong entrant like Aldi, still have market saturation pretty much, and that means farmers margin may be effectively squeezed down to near zero, having a "Duopsony" in only two buyers of their produce, and then the consumer gets squeezed on the duopoly side of only two providers of grocery produce. So the supermarket can have HUUUUGE margins which you know, they maximise their profit not through a MR = MC but just a 'fuck you what you going to do about it" margin or markup.

In...tuition

Then comes the really garbage person, who has the more intuitive approach to maximising profits.

Profit is maximised when C = 0.

This is an extremely logical conclusion, what you want to do is sell something that costs 0 for infinite money.

While it may seem like an impossible ideal, the pursuit of this crops up in places. One of my least favorite people impressed upon me literally picking up copyrighted material, or even cc material, and instructing me to "use this" by which they meant, just copy it wholesale and present it to the customer is though it were our own IP and charge big money for it.

I was given a research assignment to find out what the 'state of the art' was regarding some process, and I found examples on no less a source than one of the countries biggest job-advertising websites. Again I was instructed to just use that, for a high billing contract for a client.

I talk about this because by the point this was happening I was already in the process of quitting. What I have to concede is that such shady practices are profitable, but what I'd impress upon you is that they are also unstable. The moment a client discovers that we bill them for thousands of dollars for what is in effect a google search. Just a google search or 'reply all' or other data breach away, all future revenue from that client is gone.

What I've been noticing acutely however, in a wide variety of organisations, is an aspect of this "pay for nothing, charge for everything" kind of profit maximisation intuition. Obviously this is reductive, but having recently read and in the process of reconciling my schema with the compelling case from 'the meritocracy trap' is that part of the way meritocracy functions as a kind of gruelling form of alt-aristocracy being that employers increasingly want skilled and talented employees, however, they do not want to pay for that education and training.

Instead it is incumbent upon the individual to train and educate themselves, for many middle-class precariate, this is done via debt instruments and then undeniably credentials can put you into less-competitive job markets and command you a wage and working condition premium.

But consider the fry cook that was once able to found 'hamburger university' and become CEO of McDonalds all within the organisation. The wages they received did not finance the education and training they received from the organisation. 

Worse though, is the extent to which there is such a reluctance to invest in employees skills and training by employers, that they simply don't. This is worse because it is stupid. There are obvious returns on investment to pay a veteran to sit in the passenger seat on the new recruit or newly promoted person's first drive.

I am seeing organisations burn $1000 to save not $100, but like $40. Like this intuition that profits can only be maximised if you avoid costs at any cost, a literal paradox, has become a prevailing common-nonsense accellerating the decline of institutions.

The Moral

Fucking invest. Like it is at this point, literally fucking crazy that on the big picture, the macro-scale we have governments around the world having to finance the public sector through debt instruments - selling bonds that pay interest. This is how governments now bankroll themselves, and they sell those bonds to the very class of people who refuse to pay taxes.

So when it's like "oh the rich don't pay taxes" it's even worse, they actually lend money to the government for profit. Yet they demand infrastructure and skilled workforces and law and order to enforce contracts and property rights.

In which case, it's not just a matter of investing in your employees, in your goods and services, but in your country by investing in government through paying taxes, instead of indenturing the government by buying elections and bonds.

So many fucking 1%ers are Marxists, because they are making Marx right through a parasitical profit maximising accumen.