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TheDC: In your book you write, “Profits may be the most misconceived subject in economics.” What are the primary misconceptions about profits and why are profits important? Why are they so demonized in our current culture?TS: Wow. Gee. Do you have a couple of hours? It is true, and I think part of it is sheer repetition and I think sheer repetition carries a big weight, as Joseph Goebbels understood back in the Nazi era. Over and beyond that, there are certain misconceptions. One misconception is that profits are fundamentally different from other kinds of income. I’m always fascinated by people who say, you know, “this came from a non-profit organization,” as if it is an organization that is unbiased. No, just because one person’s income is called profits and other’s is called something else does not change anything fundamental.The amount of profits that a business makes, that is the percent return on investment, is — when people are asked what they think it is they almost always grossly overestimate — usually it fluctuates around 10 percent, usually much lower than that. The profit that really affects the price is the profit on sales and that is really small — just pennies on the dollar. A supermarket for example can prosper by making one penny profit on each dollar sale because they have those cash registers going all the time. It adds up to a nice return on investments.Read more: http://dailycaller.com/2011/01/24/thomas-sowell-speaks-to-thedc-about-the-financial-crisis-health-care-and-his-ideological-transformation-from-marxism-to-conservatism/#ixzz1Kxn7t18W
TheDC: In your book you write, “Profits may be the most misconceived subject in economics.” What are the primary misconceptions about profits and why are profits important? Why are they so demonized in our current culture?
TS: Wow. Gee. Do you have a couple of hours? It is true, and I think part of it is sheer repetition and I think sheer repetition carries a big weight, as Joseph Goebbels understood back in the Nazi era. Over and beyond that, there are certain misconceptions. One misconception is that profits are fundamentally different from other kinds of income. I’m always fascinated by people who say, you know, “this came from a non-profit organization,” as if it is an organization that is unbiased. No, just because one person’s income is called profits and other’s is called something else does not change anything fundamental.
The amount of profits that a business makes, that is the percent return on investment, is — when people are asked what they think it is they almost always grossly overestimate — usually it fluctuates around 10 percent, usually much lower than that. The profit that really affects the price is the profit on sales and that is really small — just pennies on the dollar. A supermarket for example can prosper by making one penny profit on each dollar sale because they have those cash registers going all the time. It adds up to a nice return on investments.
Read more: http://dailycaller.com/2011/01/24/thomas-sowell-speaks-to-thedc-about-the-financial-crisis-health-care-and-his-ideological-transformation-from-marxism-to-conservatism/#ixzz1Kxn7t18W
