The simplest theory of how the market sets prices seems to assume that the producer can know what kind of sales volume to expect at every price level. He adjusts his level of output to insure that sales will maximize his profit. If he can’t make a profit selling widgets, he just closes up shop and moves on to something else no matter how many customers are clamoring for affordable widgets. It is up to someone else to figure out the cost-savings method that will enable him to profit from the demand for widgets.

The entire premise of this model is that economic transactions only take place when there is a profit to be made, even though the model may be derived from a myth about primitive barter. If one starts with a simple model for direct barter between individuals with differing resources or differing preferences for consumption, it is possible for there to be a mutually beneficial exchange without any profit in the sense of accumulated wealth. Each party satisfies his own consumer desires and neither ends up with a surplus.

Similarly a model based on division of labor has room for mutually beneficial exchanges without profit to either party. I do what I’m good at and you do what you are good at and together we produce just enough to go around.

If you start with an industrious farmer who is capable of producing more than he needs for his own subsistence, why would he do so? If there are a lot of hungry people in his community, he might enjoy the status of being their benefactor or simply share the food out of generosity. If there is a fully developed market, he may sell his surplus to buy tools or toys or save the money for future projects. In other words the profit motive explains nothing without the prior or simultaneous existence of fairly developed markets as well as the ability to produce a surplus.

Even though profits cannot exist without markets, markets could exist and function perfectly well without profits accruing to an individual or to shareholders otherwise uninvolved with the company. The most obvious ways for this to happen is with worker ownership of businesses or by the regulation of prices. Mainstream economics conflates the creation of surplus with the accrual of profits. It falsely assumes there would be no motivation to start businesses or improve production through innovation without an entrepreneur’s desire to accumulate wealth. If a community has widespread unemployment or substandard living conditions, a development agency with the means to start a business would have not problem enlisting workers. Depending on entrepreneurs to drive the economy in this way fosters a culture in which individuals seek money and power at the expense of the welfare of others. This is a disease which infects politics as well as business.

Economies of scale should raise wages or reduce prices, not line the pockets of a few.

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