Theories of Profit: A Review and an Extension

Abstract

We consider how profit has been explained and justified. We then build on property rights theory to develop an alternative explanation of profits and conclude that profits can be considered as an implicit payment for access to the assets required for an individual’s labour to be market efficient. The nature of the bargains struck between employees and the firm’s representatives affect the flow of value captured by the firm in the form of profit, rather than these flows being captured by employees in the form of higher salaries, and these bargains are essentially determined by perceptions of reciprocal dependence between the firm’s representatives and the employees.