What are the two important functions that profits and losses perform, according to Ludwig von Mises,...

What are the two important functions that profits and losses perform, according to Ludwig von Mises, which cannot be replicated under socialism?

Expert Solution

We call the economy stationary when per person's wealth and income remains unchanged.That is when consumer spends more on some articles should be equal to he spends less on some articles.The amount of profit earned by one entrepreneur equals the total amount of loss suffered by another entrepreneurs.
A surplus of sum of all the profits generated by in the economy above the sum of all the losses suffered happens only in a capitalist economy.
The enrichment which is generated by additional capital goes to whom who have created by savings.Rest is used for increasing the marginal productivity of the labours and hence increases the wage rate.Also followed by increasing the prices of raw materials and food commodities ,to the owners of land and finally to the entrepreneurs who put this new capital for the economical production process.But as the gain of wage earners and owners of land is permanent ,the profit of owners goes away when this integration is accomplished.

Rahul Sunny answered 8 months ago

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