Reply To: Slavery and Austrian Economics


There is a basic rate of return (i.e., the pure rate of interest) that tends to be the same in all production processes. It is the return to time preference. If it were 10% in one line and 5% in another, then investors would abandon the lower rate line and flood the higher rate line causing the former to rise and the latter to fall. This arbitrage would cease when the rates were roughly the same.

Profit is not a return, but a residual that is earned by entrepreneurs for their superior foresight. Entrepreneurs who anticipate more accurately the demands of consumers will earn profit and those who anticipate them less accurately will not.

The Net Income earned by an enterprise has four sources:

1. Interest from the investment by capitalists
2. Profit from the foresight of entrepreneurs
3. Wages from the labor of entrepreneurs
4. Quasi-wages from the leadership of entrepreneurs

So some lines of production earn more net income than other lines of production, but all lines tend to earn the same rate of return, i.e., pure rate of interest.

Take a look at the lectures on Economic Calculation and the Time Market for more details.