[PEN-L:10378] Fw: Normal Profits: was FWD: Re: Baker on IP

Craven, Jim jcraven at SPAMclark.edu
Wed Aug 25 13:18:27 MDT 1999

Whenever I step into the neoclassical world, I am reminded of the comment
from Karl Meninger: A neurotic is someone who builds castles in the sky and
the psychotic is the one who moves in; and the shrink collects the rent.

In the neoclassical world, "normal" profit is a cost of capital, a return to
the entrepreneur reflecting opprtunity cost of employing inputs to produce
output in one given endeavor as opposed to supposedly the next best
alternative. Thus, according to the neoclassicals, as a result of "freedom
of entry and exiit and producing homogenous output, the price taking
producer, government by broad amorphous market forces of supply and demand
over which he/she has no control and therefore becomes a price taker, "free
competition" drives prices down to the point where MC=P=AR=ATC such that
"economic profit" is no longer earned in the "long-run" and only "normal
profit" (built into the cost curves as an implicit or opportunity cost of
employing "capital") is being earned.

Bottom line: Again one of the many "monstrous tautologies" [Samir Amin] of
the neoclassical fantasy Weltanschauung: perfect competition long-run is
when only "normal" profits [as opposed the economic profits or quasi rents]
are being earned; "normal" profits are those obtained under perfect
competition long-run.

And then there is the fantasy of opportunity cost itself: opportunity cost
of project A is the value of the next-best alternative to project A forgone
as a result of employing resources in project A and not the next-best
alternative. This implies knowing the full-spectrum of alternatives to know
the "next-best" alternative.

Hope you are well Frank.

Jim C

James Craven
Clark College, 1800 E. McLoughlin Blvd.
Vancouver, WA. 98663
(360) 992-2283; Fax: (360) 992-2863
blkfoot5 at earthlink.net
*My Employer Has No Association With My Private/Protected Opinion*

-----Original Message-----
From: Frank Durgin [mailto:fdurgin1 at maine.rr.com]
Sent: Wednesday, August 25, 1999 8:24 AM
To: pen-1
Subject: [PEN-L:10378] Fw: Normal Profits: was FWD: Re: Baker on IP

I always thought that a normal proofit was defined as a profit just large
enought to get an item produced.
E.g.  If I can make a two dollar profit producing it I will do it.   For a
one dollar profit I will not. One dollar is a normal profit. Thus,  in an
economic, but not accouting, sense, normal profits are counted as part of

It is also, as Michael asserts, the level to which profits will be driven
in a perfectly competitive market

Was I teaching it wong all those years? Or have I missread something here.


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