Having so far covered the very basic concepts of money, the market and the pricing mechanism, in the previous episode I first properly introduced the word economy, with its literal origins as ‘household management’, which more broadly could refer to all the resources available to us. But what does it mean when we say the economy ‘is growing’ or a myriad other similar expressions and stockphrases we see thrown about? Let’s explore all this further.
Note again that I’ve written about the core concepts here a couple of times, including in one longread coming up early next month TecC 48, and so while there sure will be conceptual overlap, in those ones they’re part of other topics, whereas here the concepts get exclusive focused treatment.
Let’s meet our fictional friends first.
Steve is in a bit of a mood. He’s not eaten for a good while, there’s a raging storm outdoors so he can’t go out and pick up food. So, Steve is very ‘hangry’. He’s like, I want to eat something dammit, and there’s nothing in the kitchen.
The others are sat by the fire. Irene replies, well Steve there’s flour, the oven is ready to go, why don’t you make yourself some bread? But you know how it is when you’re hangry, Steve is like, why won’t the flour itself become bread, why should I have to do anything, this is not fair!
No Free Lunch
So that’s right, you guessed it, this is about the concept of value creation. (And, when I’ve touched upon this topic before, I’ve used the example of bread then as well. So for variety’s sake so it doesn’t get boring, imagine it is sourdough rye bread in the making this time!)
But connecting this to my serious point, the fact is, all through the story of human existence, there have been resources available to us, there is land, there are forms of energy, there are organic sources. But, and obvious as this may seem, unless we put things together, nothing happens. Even the earliest hunter-gatherers had to, well, hunt and gather. The nuts and grapes did not automagically fall into their mouths with them just lying under a tree or vine with mouths open. (Like there were some sort of a gravity-induced Next-Minute Delivery service, in the Amazon forests no less!)
In a good measure, this is what separates us from the rest of the animal kingdom. We take resources available to us and fashion it to our need using our effort, intelligence and ingenuity. Otherwise we’d have been just another chimp out there hopping from tree to tree, or more likely, we’d have gone extinct. (It was the evolutionary pressures of suddenly being exposed to the elements and predatory dangers in the treeless African Savannah that forced the earliest hominids-to-be to innovate in this way: better resource management compared to our primate cousins.)
(Of course there is the thorny question of impact to the environment, I’ll come back to that complex issue in due course.)
So in summary, the core human reality is that we take resources available to us and by applying our human skills, create value. But how do we measure this value?
The Wealth of Notions
The whole economic process is what I’ve previously called the Production Equation: inputs + processing = output. And here’s the thing, for value creation to happen, the output should be worth more than the cost of the input and the processing. And this is what is the profit.
Yes, that’s all it is, fundamentally. Despite all the modern connotations and associations that have grown around the word ‘profit’.
Profit is in fact the very essence of life, it’s at the very definition of every living organism. For without a living cell taking in resources - sunlight etc, and producing an output with the management of those resources conforming to the above equation, there is no life. If an organism expends more energy than it can consume, it’s not going to live for long. So we may say every single cell in our body is indeed ‘profit-seeking’.
(And yes, even the so called ‘non-profit’ organizations are profit-seeking by definition, it’s just not measured in money, I mean, don’t they want good outcomes for their efforts? - more on this another time as promised!)
And if we are willing to see even beyond, we can see that the concept of ‘profit’ is associated with some of the fundamental forces of the universe, essentially with entropy. For now, to keep it simple, given that any isolated system in the universe tends to evolve to increase entropy, ie, disordered or dispersed energy, consequently just like life, a profitable process leads to low entropy.
Coming back to earth, in fact, ‘profit’ is a net positive from an ecological perspective, for it allows us, if used properly, to measure and ascertain optimal use of resources.
And just as we saw in the discussion of the price signals in the previous episode, the current concept is also based on fundamental economic / mathematical principles. And to work (profitably) on our shared goal of improving the human condition, and protecting the planet, we’d rather not ignore these principles but work with them?
I’m sure we can all agree that we want to be productive, if ‘profit’ is not your word, I’ll offer another one: ‘sustainable’. Without the output being more than the input, we are not in a sustainable venture. And who wants to be unsustainable?
Article written by Ash Stuart
Images, voice narration and some footnotes generated by AI
Nothing in this presentation constitutes as advice - financial, investment or other
Further Reading & Reference
* A Brief History of Intelligence. Max Bennett.
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