I think we would all agree that making a profit is the incentive to take risk through investments. Moreover, it takes investments to stimulate innovation. But innovation creates productivity gains, which in turn eat into profit. For example, a tractor that costs as much as the labor cost for 150 workers, but which can do only do the work of 100 workers, is not worth the investment. If the tractor costs only as much as 50 workers but can do the work of 100 workers, you might be inclined to simply say it would create a profit equal to the cost of 50 workers.
However, you would be wrong, since the use of the tractor would cause an increase in overall productivity. The increase in productivity shared with others would put downward pressure on the margin created by the reduction in the cost of 50 workers displaced by the tractor. Soon prices would reach an equilibrium, and represent about the same profit as before the introduction of the tractor. The real winner is the consumer that benefited from lower costs, and of course the manufacturer of the tractor, who established a new product line. However, the increased productivity caused by the tractor displaced the work of 50 workers who must find new employment.
In the end, profit is the incentive to take a risk, but profit is kept in check by competition. The real winner with any innovation is the consumer, who benefited from increased productivity that translated into lower costs. The next time you look at an investor, see that while he may have gotten an economic boost from his successful investments, you the consumer truly reaped the biggest reward for the risk the investor undertook.
Isn’t it time to thank the investors that have made your overall quality of life so much better? Do your plans include becoming an investor for the good of all mankind?
