Bus 1050 1st Edition Lecture 22Outline of Last Lecture I. Aquinas, Of the Sin of Usury from The Summa TheologicaA. Second Article B. Third Article C. Fourth Article II.Francis Bacon, of Usury from The EssaysA. Advantages B. DisadvantagesOutline of Current Lecture III. John Stuart Mill, Of Profits from The Principle of Political EconomyIV.Charles Mackey, The Tulipomania from Extraordinary Popular Delusions and the Madness of CrowdsCurrent LectureJohn Stuart Mill (Of Profits)This piece is an examination of the subject of profits. When we talk about profits we think that’srevenue minus costs. These are called income statements. Profits are also known as contribution products.What are the economic factors that go into the determination of profits? Perhaps charging is a natural economic phenomenon because if you give use of your capital, they have the right to use it, but you don’t and one should be compensated for this.If I’m abstaining from the use of my capital, shouldn’t I be compensated for that? Interest component will be the same at any time and given place for everyone. Where can you make a risk free loan (the least risky)? The government. The U.S. government has never defaulted on a loan. You may loan your money to the U.S. government and get a 2% interest for abstaining from using it. These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.There is also compensation for the risk that you’re taking and this is known as insurance. There are various types of risks. Business risk = the nature of the business. The return on your invest must be greater than 2% ort else one would just loan to the government. The risks are higher for making gunpowder than they are for making soap. Political or Geopolitical risk = Depending on where you do your business. The riskier the country, the higher the compensation. Third component is management of the company, called wages of superintendents. This will vary. The wages of manners are simply a sharing of the profits according to Mill. Insurance = compensation of risks. If you buy insurance you’re giving all or most of the risk component to the insurance company. It’s not simply the way that you’re paid that determines whether or not you make a profit! You don’t have to sell anything to make a profit. When you sell a good it’s a transfer of resources. Capitalist deserve to be compensated for their risk and their labor.The workers create the value of the thing sold. One is entitled to a portion of what the companyproduces because one makes it. The profit does not arrive from the instance of exchange, but the very process of producing something creates the value. If there were no division of employment is the same as the division of labor. This would take place if one were providing for all of one’s necessities.If the value is greater than the cost, even if you don’t sell a thing, you’ve still made a profit. Leisure time is a measure of value. If one can create the same necessities with less effort, or lesstime, than one’s profits go up. The more productive the labor of a society is, the more prosperous the society is. Diamonds are a sustainable bubble (one company owns 80% and this is very uncommon). Greed leads people to buy the commodity and fear leads them to sell. This is all psychological. Charles Mackay (Tulipomania)Story of a man eating the ball because he thought it was an onion and then the story of the botanist who pealed the leaves. 1636 One could buy stock certificates and the underlying value was tulips.Stock holders wanted to cause fluctuations in prices because they if they didn’t they wouldn’t have made a profit. They don’t want certainty because it’s uncertainty that leads to profits. When the prices are low you buy and when they are high you sell.In today’s day it’s illegal to manipulate a market in order to cause fluctuations. Stock –jobbers are middle-men. Trust gives commodities their value and fear takes it away because people lost their confidence and everyone starts selling. Debts contracted in gambling are not contracted in