Saturday, November 14, 2009

Profit and Ownership

Case 1
Say I have 100 rupees. You come to me and say, hey, Vinod, lend me those hundred rupees. I will go buy potatoes and flour and masalas and make samosas and sell them for a profit. You can take a cut. How about ten percent?

I ask for 20 and we settle down on 15. You take the 100 rupees, make samosas, sell them and make 50 rupees in profit. I get my 100 rupees back. I also get a cut of 7.5 rupees from the profit. And you end up 42.5 rupees richer for your toil. Everyone’s happy.

Case 2
I have 100 rupees. You walk sneakily into my room and take that 100 rupee note. You go buy potatoes and flour and masalas and make samosas. You sell them for profit of 50 rupees. Then you sneak back into my room and replace that 100 rupee note. Since I’m a careless idiot, I never even notice. You end up 50 rupees richer. I don’t even know what hit me but since my 100 is still there, I’m good.

Functionally, nothing changes between these two scenarios. Samosas still get made, customers still get to satisfy their lust for spicy cuisine, and you still make profit. And yet, in onc case I end up richer and in another I do not. Why is that?

The difference, I think, is because in Case 1, I’m able to claim ownership of those 100 rupees. I’m entitled to a share in profits, even though I did not participate in any productive activity, merely by virtue of owning those 100 rupees. In the second case, no such ownership is established and I get no profit.

I’m able to establish ownership because I have control over the money. In Case 1, I most probably keep the money under lock and key so you can’t sneakily ‘borrow’ it. In Case 2, the money is up for anyone to grab. Therefore, no profit.

Put this way, the notion that I should get profit for mere ownership seems a little absurd. I didn’t make the samosas. I didn’t sell them. Then why should I get the profit?

What do you think?

2 comments:

  1. Islamic aversion for interest works on similar lines to your problem. :)

    I think the problem starts with the fact that we start to treat money as good/services itself, when they are really means of exchange.

    I think you picked up the rigth word, entitlement.

    Economics is more complicated, so that people who support Case-2 can have a job :)

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  2. my 2 pennies( which I claim ownership of)- Cases I and II will not make any sense if there was no need of samosas. There is a DEMAND, of a commodity you own, though indirectly. You do not KNOW how to make samosas, but you knew how to have a hundred rupees. People needed that, in case I, you were informed of the need, you supplied and gained profit - which is fair enough.
    In case II, you were UNAWARE of the need and hence did not make profit. It is about the knowledge of demand and the ability to supply that can earn you profit. Otherwise, the other guy gets a 50 which is fair too.
    Money is in knowing. And it is a commodity. Think of the origins of money.

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