Mises was confronted with many questions concerning the free market economy. However, amongst his many detailed and sensible answers, one of the most telling responses that he ever provided was to the question of how profit could possibly arise in a free market (considering the fact that every factor of production is paid what it is worth to customers).
“Thus, profit and loss are generated by success or failure in adjusting the course of production activities to the most urgent demand of the consumers…Profit and loss are ever-present features only on account of the fact that ceaseless change in the economic data makes again and again new discrepancies, and consequently the need for new adjustments originates (Mises).”
Simply put, I could not agree more; ignorance is the name of the game. Humans are bound to make errors, but not 100% of the time. These mistakes, (or the lack thereof) are what create profit and loss in the economy. Outside of a free market economy, profit and loss are generated through exploitation (of workers, companies, natural resources, etc.), coercion, and monopolies (subsidies).
Bibliography
Mises, Ludwig Von. “Profit & Loss.” Mises Institute. Mises Institute, n.d. Web. 5 Feb. 2016. <https://mises.org/library/profit-and-loss-0>.
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