profit

instinctively, i start to scoff at the concept of a business not being run for the purpose of making a profit.  of course it needs a profit, that is why it exists, that defines whether it is adding value or destroying value.

but that train of thought is just a product of the capitalist society in which i was brought up, effectively that we have all been indoctrinated in from an early age.  in my case, it has been reinforced by studying finance, banking, and accounting.  does it have to be that way?

looking at the physical capital - the assets of the company - even if the company starts making losses, even goes bankrupt, those assets are still there.  physically nothing has changed.  all that has changed is in the minds of humans - the rules of the human game commerce dictate these assets must now be sold at fire-sale prices so that creditors can get back a portion of what they are owed.

underlying those assets in a capitalist society, is how those assets are funded.  a mix of debt and equity, debt increases the risk due to the contractual commitments associated with the debt (ie it must be paid back within a fixed timeframe, often with additional expenses in the form of interest / charges).  making a profit results in an increase in assets / decrease in liabilities, with a corresponding increase in equity.  in a simple business, as customers pay, the difference between the price of the product and the cost to produce accumulates in cash, resulting in ever increasing cash and equity.

in making a loss, the company pays out more cash than it receives from customers (keeping it simple, assuming that cash is equal to the expense), resulting in lower cash, lower equity, until such time as there is no cash, the company can't pay its debts / purchase more goods to sell, and so is wound-up.

as mentioned before - cash isn't real, it has no intrinsic value.  only if two parties to a transaction agree that it does - so the value is once again just in the human mind.  so accumulation of cash has no inherent value, although in a capitalist society the value provided by cash is future control of resources (because other parties agree that the cash has the value to purchase real resources).

debt is the same - it doesn't exist except in the human mind.  entities that provide debt have successfully accumulated capital allowing them to lend it out and charge interest, but they aren't providing anything real, they are providing an idea, a concept.

looking at the bigger picture, society converts raw materials into useful products or services.  the associated conceptual constructs by which we do this - you could even call it the capitalist mythology - is actually irrelevant.  just human-made rules for a human-game that we play.  companies, laws, money, debt, contracts, ownership and profit - all just the currently accepted mythology.  but if none of it existed, there would still be raw materials, humans could still convert those raw materials into useful goods and services.

profit does communicate useful information, that value (as measured in the inflated currency of choice) is being added, and that only entities that add value should be able to stay in business.  that is useful information, but i have two qualifications.  first, profit should not be the goal, it should just be a message (of course, in a capitalist system, where profit means wealth can be greedily accumulated, profit is the logical goal).

second, something can be profitable today, but not profitable tomorrow.  if the price of wheat collapses, exactly the same human activity as was being performed yesterday, but suddenly it's not profitable.  of course the collapse in the price is the market saying too much is being produced / suddenly less is needed, assuming the market is operating efficiently.  but it could just mean - real demand for wheat has remained constant, same number of mouths to feed, most days a few more even.  perhaps demand for wheat by entities with the capital / capacity to pay money has suddenly dropped.

capital / money - a human concept, existing only in human minds, and yet dictating who can get wheat, how much wheat is produced.

so profit is useful - but it shouldn't dictate life and death...