Quote from: dinofelis on March 27, 2015, 05:54:46 PM

Quote from: tee-rex on March 27, 2015, 04:30:28 PM

So, as I understood your reasoning, you still consider as losses anything which the producer gets above the inflation rate but below inflation plus lenders interest, i.e. nominal interest? Even if he is not borrowing, right?

Yes, because you should consider that he's borrowing. The point is that you have two investment options:
1) doing your thing USING the money
2) lending out the money (which comes down to putting it on a savings account, say).

If you get more by putting the money on a savings account rather than doing your thing with it, doing your thing is a losing affair.

Do you understand that by saying this you are losing touch with reality (and simple reason at that)?

First, if you put your money into a savings account, you won't be able to get nominal interest rate (NIR) in return, since it is the rate you borrow money at. Strictly following your logic, you can put the money on a savings account only at the rate of inflation (you see where I lead you to?), since lenders happen to be the same ones who take money from you, but, as you said, the NIR is a sum of inflation plus real interest earned by lenders (not you), i.e. their profit margin. This is where your logic fails.

Second, a business that works on its own capital only, appears to be always less profitable (since you subtract the cost of (non)borrowed capital from its revenue, and thus profit) than a business that actually borrows capital and earns more revenue. But in reality the former may get more money in profit (since they don't have to pay interest on borrowed capital) than the latter. This is where reason ultimately leaves you.

Third, if you, nevertheless, insist that we should necessarily compare a profit margin earned by a non-borrowing business to that of money lenders (to see if it is profitable), why not then compare them to a profit margin of, say, drug dealers? In this case, both enterprise and money lenders (which are just another business) will be conspicuously unprofitable, right? This is the point where your idea becomes evidently absurd.