Returns (economics)

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Returns, in economics and political economy, are the distributions or payments awarded vĩ đại the various suppliers of a good or service

Wages[edit]

Wages are the return vĩ đại labor—the return vĩ đại an individual's involvement (mental or physical) in the creation or realization of goods or services. Wages are realized by an individual supplier of labor even if the supplier is the self. A person gathering mushrooms in a national forest for the purpose of personal consumption is realizing wages in the khuông of mushrooms. A payer of wages is paying for a service performed by one or more individuals and sees wages as a cost.

Rent[edit]

In classical economics rent was the return vĩ đại an "owner" of land. In later economic theory this term is expanded as economic rent vĩ đại include other forms of unearned income typically realized from barriers vĩ đại entry. Land ownership is considered vĩ đại be a barrier vĩ đại entry because land owners make no contribution vĩ đại the production process. They simply prevent others from using that which would otherwise be useful.

Interest[edit]

The classical economists referred vĩ đại the fee paid for the use of money or stock as "interest" but declared this vĩ đại be a derivative income. The distinction between interest and profit is murky:

"Whoever derives his revenue from a fund which is his own, must draw it either from his labor, from his stock, or from his land. The revenue derived from labor is called wages. That derived from stock, by the person who manages or employs it, is called profit. That derived from it by the person who does not employ it himself, but lends it vĩ đại another, is called the interest (f)or the use of money (or stock). It is the compensation which the borrower pays vĩ đại the lender, for the profit which he has an opportunity of making by the use of the money (or stock). Part of that profit naturally belongs vĩ đại the borrower, who runs the risk and takes the trouble of employing it; and part vĩ đại the lender, who affords him the opportunity of making this profit. The interest of money is always a derivative revenue, which, if it is not paid from the profit which is made by the use of the money, must be paid from some other source of revenue, unless perhaps the borrower is a spendthrift, who contracts a second debt in order vĩ đại pay the interest of the first." (Smith^[1])

Smith uses the word profit in two different ways here. Is the owner of the money/tractor in his capacity as owner realizing profit or interest? It is certain that the proprietor of the money/tractor is realizing profit as opposed vĩ đại interest. See "Smith on Profits and Interest" below.

Profit[edit]

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In Classical Economics profit is the return vĩ đại the proprietor(s) of capital stocks (machinery, tools, structures). If I lease a backhoe from a tool rental company the amount I pay vĩ đại the backhoe owner it is seen by bầm as "rent". But that same flow as seen by the supplier of the backhoe is "interest" (i.e. the return vĩ đại loaned stock/money).

For the individual who rented the backhoe from the rental company, profit is the wages that would have been required excavating by hand, minus the rent paid for the backhoe, minus the smaller amount of wages required using the backhoe. Gross profit is value of result minus rent or depreciation. Real profit is what remains after I pay for the operation of the backhoe.

In The Wealth of Nations Adam Smith said the following on profits and interest.

The diminution of the capital stock of the society, or of the funds destined for the maintenance of industry, however, as it lowers the wages of labor, sánh it raises the profits of stock, and consequently the interest of money. By the wages of labor being lowered, the owners of what stock remains in the society can bring their goods at less expense vĩ đại market than vãn before, and less stock being employed in supplying the market than vãn before, they can sell them dearer. Their goods cost them less, and they get more for them. Their profits, therefore, being augmented at both ends, can well afford a large interest. The great fortunes sánh suddenly and sánh easily acquired in Bengal and the other British settlements in the East Indies, may satisfy us that, as the wages of labor are very low, sánh the profits of stock are very high in those ruined countries. The interest of money is proportionally sánh. In Bengal, money is frequently lent vĩ đại the farmers at forty, fifty, and sixty per cent and the succeeding crop is mortgaged for the payment. As the profits which can afford such an interest must eat up almost the whole rent of the landlord, sánh such enormous usury must in its turn eat up the greater part of those profits. Before the fall of the Roman republic, an usury of the same kind seems vĩ đại have been common in the provinces, under the ruinous administration of their proconsuls. The virtuous Brutus lent money in Cyprus at eight-and-forty per cent as we learn from the letters of Cicero.^[2]

Neoclassical economics[edit]

In neoclassical economics profit is total investment performance and includes economic rent.

Total investment return[edit]

The total investment return, also called investment performance, includes direct incomes (dividends, interests...) and capital gains (less capital losses) due vĩ đại changes in the asset market value.

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