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3. Capital, Interest, and Profit

  • Economics 101
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Tags Money and BanksAustrian Economics OverviewCapital and Interest TheoryMoney and Banking

03/01/2004Murray N. Rothbard

Profit is total revenue minus total costs. Ours is not just a profit system, it is a profit and loss system. Losses are a sign that you wasted land, labor, or capital, yet those who make profits are criticized.

Entrepreneurship is an art not a course you can learn.

Labor earns wages. Land earns rent. Capital earns interest. Confusingly, the word capital means both the machines used to produce goods and the funds available for investment. Bohm-Bawerk answered the question of where interest rates come from.

Time is the key element in the earning of interest. The capitalist who pays out while he waits for the product to be sold before being paid, performs a vital function of paying for land and labor now. The capitalist is rewarded by being paid a discount on labor and land, discounted by the rate of interest. There are all sorts of rates of time preferences.

The third of eight sessions from Murray Rothbard's Economics 101 series.

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