Let’s deal with profit first of all. This is a surplus paid as a the result of entrepreneurial skill. It is not a return to capital: that’s interest. Profit, then, is the reward in excess of the normal rate of return to capital that results from the successful undertaking of a risky venture. The corollary is loss.
No. Schumpeterian profit is the return to entrepreneurs. Profit is the return to equity, interest the return to debt. This is something that he would have learned if he had paid attention in his economics lectures back at Southampton those decades ago.
reward in excess of the normal rate of return to capital that results from the successful undertaking of a risky venture
No, really, that’s Schumpeterian profit.
And this distinction is extremely important. For as my favourite economics paper ever shows, the portion of the value created by entrepreneurs that is actually captured by the entrepreneurs is only 3%. The rest of it goes to the rest of us in the form of consumer surplus. And please do note, consumer surplus does not show up in GDP.
This point is at the very heart of why this capitalism/free markets mix actually works, why it has made us all so damn stinking rich in the couple of centuries that it’s been in operation. If you’re not going to get this point then you’re not going to grasp why the system works.
As people who didn’t pay attention in their uni economics lectures aren’t of course.