Bus 1050 1st Edition Lecture 22 Outline of Last Lecture I Aquinas Of the Sin of Usury from The Summa Theologica A Second Article B Third Article C Fourth Article II Francis Bacon of Usury from The Essays A Advantages B Disadvantages Outline of Current Lecture III John Stuart Mill Of Profits from The Principle of Political Economy IV Charles Mackey The Tulipomania from Extraordinary Popular Delusions and the Madness of Crowds Current Lecture John Stuart Mill Of Profits This piece is an examination of the subject of profits When we talk about profits we think that s revenue 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 company produces 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 less time 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 law