Mike -
[[...Increasing productivity is, it is true, the only route to increasing real wealth in an economy through its effects in reducing the cost and effort involved in satisfying existing wants and thus in freeing up resources for further enhancements and innovations. This, in a nutshell, is the basic Austrian-school theory of 'lengthening the productive structure' and is, of course, to be welcomed, but profits, much less profit growth, do not come into the picture. In an economy in dynamic equilibrium, the 'evenly rotating' economy of von Mises, the state to which all free markets tend, though never attain, there is no room for the universal production of profit.
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True, entrepreneurs at an individual level strive to make returns over and above the cost of capital by attempting to gauge future wants more successfully than their fellow men and increasing one's own productivity vis-…-vis one's competitors is, temporarily at least, a way of enhancing the chances of success. However, only some entrepreneurs succeed and reap the rewards of their foresight, while others misjudge the market and fail. It is a matter of first principles, that not all businesses can outperform simultaneously and continuously in this manner. To believe so is to subscribe to the Deep Purple school of thought - after the seventies heavy rock band of that name where the lead singer asks at a sound check whether he can have 'everything louder than everything else!'...]]
[[...The Internet Revolution may be slashing prices in the High Street, by effectively compressing the roles of retailers and wholesalers and extending the just-in-time inventory system down into the consumer sector, but even here there is no guarantee that this will lead to increased profits for any particular enterprise and there are definitively no grounds for believing that the Dot.Coms en masse will benefit...]]
This the best article I've seen supporting my contention that productivity growth, however measured, and even if real, provides no logical basis of support whatsoever for any expectation of future profitability.
Thanks, Don |
