Looking into the discussion from Schumpeter in The Worldly Philosophers beginning on page 294, one sees the discussion of profit origin in the form of adding innovations from the entrepreneur. Forcing the model of capitalism into a static model, that it was never meant to occupy, as the very nature of a capital is dynamic, Schumpeter tries his utmost to determine where profits originate from.
Suggesting that profits come from neither the workers nor the earnings of capital, Schumpeter uses the static model to show that profits appear when the economy does not follow its regular tracks. This derailment comes through the addition of technology and is attributable to neither the worker or the company owners, both of whom are the traditionally chosen producers of capital. This technology, according to Schumpeter, then allows the innovating capitalist to compete at lower costs. This allows for a higher difference between the cost of production and profits, thereby allowing "rent" to be received by the capitalist. This gain can be attributed to the actions and thoughts of the innovator, but will disappear according to Schumpeter as soon as other capitalists catch up. Therefore, instead of rent, Schumpeter labels the origin of this increase as profit, because it is not permanent and is a one time occurrence.
Naming entrepreneurs as the source of profit within the capitalist system, Schumpeter notes that though the entrepreneur is not necessarily the profit receiver, even though they are the profit generator. In this situation the system itself Schumpeter indicates as taking the gains provided from the innovation of the individual.
Observing this loss of gain by the entrepreneur, I again put forth the question that has been asked multiple times over the years. Is it ethical to take from one individual to give to the many? A utilitarian view might consider that the system under which Schumpeter's entrepreneurs operate is ethical and just because it allows for the greater good of all by taking from the innovations that are created. However, this action could impede upon the rights of the entrepreneur because they would not benefit at all from their contributions to society. Is the system ethical in its use of the entrepreneurs, or should it be changed?
I believe the use of entrepreneur is ethical because it is for the good/advancement of mankind. The system in which entrepreneurs operates continually calls for innovation and new technology. These advancements to technology not only allow the entrepreneur to gain a profit, but even when peers/competition catches up and the initial profit is lost for the individual, society as a whole has, presumably, become better or more efficient as the standard have been raised. In this sense I don't find the system unethical, because the standardization of new technology and innovation give a base for the next wave of innovation to be based off of this. In this sense the system in place continually stimulates new technology and innovation which is to the greatest benefit of society, not just a group or individual.
ReplyDeleteThe entrepreneur is a good thing as I would agree with Trent. The redistribution of wealth for seeking cost benefit maximization is very goo for society. Capitalism needs injections of human capital to keep the circular flow model turning. if the injections of new ideas and new products stop, the system will ultimately fail or not be able to reach maximization levels. Competition of smaller competitors nipping at the heels of the bigger more established companies is what capitalism was built on. Profits due to better technology and ideas are valued injections into the economy.
ReplyDelete