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Profit is not compensation for risk. Risk is a limiting factor in chasing after profits, sure, but you can take unprofitable risks, and if you have a particular

Profit is not compensation for risk. Risk is a limiting factor in chasing after profits, sure, but you can take unprofitable risks, and if you have a particularly privileged position or information, you can make a profit with little to no risk. Hugh Grosvenor, 7th Duke of Westminster doesn't exactly take a lot of risk for his rents.

missedthecue 7y ago
My point isn't that "all profit that ever occurs in this universe happens only because an equivalent level of risk was assumed". This isn't thermodynamics. My point is that profit as a concept exists because without it, there would be no reason to assume risk in the first place. Therefore, profit is compensation for risk.
- barrkel 7y ago
  Under an ideal, efficient free market, profit exists to be squeezed out of existence. Profit incentivizes more supply, so that existing producers have their profit margin squeezed to zero. The mentality that you seem to have is more like a moral justification, or excuse, for profit. "X took risks, and got rewards, and it is therefore good and right", to paraphrase. But there's no direct causation between taking a risk and getting a reward; in fact many rewards come from being well connected, having the right background, skin colour, social bearing and milieu, and many other structural advantages, and taking risks without these advantages leads to big fat losses. Reducing the justification for profit to risk is a massive apology for the inequality in society which stems from far more than mere intolerance for risk. I don't think there's much difference in risk tolerance of young men right across the income distribution spectrum; you see it in boy racers, in the jousting on a Saturday night, in thrill seekers, in criminals, in all sorts. But only a few have the privileged position to be able to put significant capital at risk for reward, rather than their own bodies. Saying that it's justified that people profit from this, because of "risk", is just wrong, it's blinkered in a way which benefits the luckiest in our society.
- effie 7y ago
  The idea about "all profit is due to risk" is a little one-dimensional. People/groups of people can profit for many reasons. For example, owner of a company can profit by selling or even bankrupting his company. There is often little to no risk connected to that. On the other hand, if somebody else takes on some substantial risk and invests in a company, he may not profit at all - if the owner makes it bankrupt.
pxue 7y ago
I’m not sure your last part is completely true. All parts of land development and land owning must be securely insured. there are hoops to jump through.
johnchristopher 7y ago
> Profit is not compensation for risk. That's not really how the entrepreneur thing is framed. But isn't it a moral position then ?
- barrkel 7y ago
  I believe the concept of risk as a justification for profit is a moral justification, yes; a faulty, unbalanced one, one that, if widely believed, enables the perpetuation of structural inequalities. A lot of people are incentivized to encourage other people to believe it.
EvenThisAcronym 7y ago
> Profit is not compensation for risk. Yes it is. The primary reason anyone takes on risk is because there is profit in it.
- barrkel 7y ago
  You have it backwards. You make it sound like we want people to take risks, and therefore we make it profitable. Risk is a limiting factor on chasing profit. The risk isn't the other side of a coin with profit. There are lots of different limiting factors on chasing profit; more supply may simply be unavailable, there may be barriers to entry, natural monopolies, regulation, etc. Risk (capital and human time) is one among many.

missedthecue 7y ago

My point isn't that "all profit that ever occurs in this universe happens only because an equivalent level of risk was assumed". This isn't thermodynamics. My point is that profit as a concept exists because without it, there would be no reason to assume risk in the first place. Therefore, profit is compensation for risk.

barrkel 7y ago
Under an ideal, efficient free market, profit exists to be squeezed out of existence. Profit incentivizes more supply, so that existing producers have their profit margin squeezed to zero. The mentality that you seem to have is more like a moral justification, or excuse, for profit. "X took risks, and got rewards, and it is therefore good and right", to paraphrase. But there's no direct causation between taking a risk and getting a reward; in fact many rewards come from being well connected, having the right background, skin colour, social bearing and milieu, and many other structural advantages, and taking risks without these advantages leads to big fat losses. Reducing the justification for profit to risk is a massive apology for the inequality in society which stems from far more than mere intolerance for risk. I don't think there's much difference in risk tolerance of young men right across the income distribution spectrum; you see it in boy racers, in the jousting on a Saturday night, in thrill seekers, in criminals, in all sorts. But only a few have the privileged position to be able to put significant capital at risk for reward, rather than their own bodies. Saying that it's justified that people profit from this, because of "risk", is just wrong, it's blinkered in a way which benefits the luckiest in our society.
effie 7y ago
The idea about "all profit is due to risk" is a little one-dimensional. People/groups of people can profit for many reasons. For example, owner of a company can profit by selling or even bankrupting his company. There is often little to no risk connected to that. On the other hand, if somebody else takes on some substantial risk and invests in a company, he may not profit at all - if the owner makes it bankrupt.

pxue 7y ago

I’m not sure your last part is completely true. All parts of land development and land owning must be securely insured. there are hoops to jump through.

johnchristopher 7y ago

> Profit is not compensation for risk. That's not really how the entrepreneur thing is framed. But isn't it a moral position then ?

barrkel 7y ago
I believe the concept of risk as a justification for profit is a moral justification, yes; a faulty, unbalanced one, one that, if widely believed, enables the perpetuation of structural inequalities. A lot of people are incentivized to encourage other people to believe it.

EvenThisAcronym 7y ago

> Profit is not compensation for risk. Yes it is. The primary reason anyone takes on risk is because there is profit in it.

barrkel 7y ago
You have it backwards. You make it sound like we want people to take risks, and therefore we make it profitable. Risk is a limiting factor on chasing profit. The risk isn't the other side of a coin with profit. There are lots of different limiting factors on chasing profit; more supply may simply be unavailable, there may be barriers to entry, natural monopolies, regulation, etc. Risk (capital and human time) is one among many.