What is the Dynamic Theory of Profit

Clark's Dynamic Theory of Profit And Its Criticism

The Dynamic Theory of Profit is associated with the name of an American Economist, J. B. Clark. In the world of reality, according to J. B. Clark, profit arises only in a dynamic economy.


An economy is said to be dynamic when there is a change in population growth or change in the method of production or a change in the consumer’s wants, etc. A society which is without these changes is called a static society. In a static society, only monopoly profits continue to exist. All other economic profits are gradually eliminated by competition.


In a dynamic society, an entrepreneur is always confronted with continuous unpredictable changes in demand for his product. The variation in demand may take place due to changes in fashions, tastes, the standard of living, distribution of income, population, new inventions, international repercussions, technological advances, etc. A prudent entrepreneur will always keep an eye on future demand for his products. If he succeeds in increasing his sales by lowering the cost of production or by adopting an innovation, then he can secure profits. 


Thus, we find that profits are the reward of progress. Schumpeter calls it the reward of innovation. In a dynamic economy, if an entrepreneur produces a new thing and creates a demand for his products, then he is likely to obtain big profits. But profits of the entrepreneur can not continue to exist for a long period. The other entrepreneurs also adopt innovation and produce similar products. As total output increases, the profits gradually come down. Thus, we find that perpetual profits are the result of perpetual successful innovations.


Criticism


Professor Knight has criticized the Clarkian theory of profit on the grounds that it is wrong to attribute all profits to dynamic changes. According to him, there are certain changes that are of a recurring and calculable nature. They can be anticipated and the output can be adjusted according to that. The profits do not arise on those regular changes but on those which are unforeseen or unpredictable. He thus observes that “It is not dynamic changes, not only changes as such which cause profits but the divergence of actual conditions from those which have been expected and on the basis of which business arrangements have been made.”


Advantages


  • The dynamic theory of profit is more realistic than the static theory of profit. This is because it considers the fact that economies are constantly changing and evolving.


  • The dynamic theory of profit can help to explain why some businesses are more successful than others. This is because it considers the role of innovation, entrepreneurship, and risk-taking in economic growth.


  • The dynamic theory of profit can help to guide economic policy. This is because it can help policymakers to understand the factors that contribute to economic growth and how to promote these factors.


Disadvantages


  • The dynamic theory of profit is more complex than the static theory of profit. This can make it difficult to understand and apply.


  • The dynamic theory of profit is based on several assumptions that may not be accurate. For example, it assumes that businesses are always willing to take risks and innovate.


  • The dynamic theory of profit does not consider all the factors that can affect economic growth. For example, it does not consider the role of government policy or the natural environment.


Overall, the dynamic theory of profit is a more realistic and comprehensive theory of profit than the static theory of profit. However, it is also more complex and difficult to understand.

Comments

Post a Comment

Popular posts from this blog

Compare the anatomy of Bifacial and Isobilateral leaves

BIFACIAL LEAF: It is also called dorsiventral leaf. This leaf is more strongly illuminated on upper surface than on lower surface. This unequal illumination induces a difference in the internal structure between upper and lower sides. Its internal structure shows: (1)        Upper Epidermis This is single layer of cells with thick cuticle which checks excessive evaporation of water from the surface. It does not contains chloroplasts, stomata are also absent. (2)        Lower Epidermis This is also single layer but with a thin cuticle. It bears many stomata, two guard cells of which contain some chloroplast, none are present in the epidermal cells. Internal to each stomata is large cavity called respiratory cavity. Lower epidermis of leaf is meant for exchange of gases (oxygen and carbon dioxide) between the atmosphere and the plant body. Excess water also evaporates from lower epidermis. (3)        Mesophyll The ground tissue lying between upper epidermis and th
Read more

osmoregulation in terrestrial and aquatic animals

Mechanism of osmoregulation is very important for all groups of animals whether inhibting land or water. Unlike plant cells, animal cells when placed in hypotonic solution burst due to the continuous absorption of water. On the contrary they would shrink and die if constantly placed in hypertonic solution. Normally uptake and loss of water are in balance for proper survival of cell. (1)        Osmoregulation in terrestrial animals: Terrestrial animals are more likely to loose water by evaporation through their permeable surfaces exposed to amsophere. Among various animal groups only Arthropods and vertebrates became the most successful land dwellers. They have developed number of strategies to maintain osmoregulation of their body fluid. (a) Water proof external coverings: To prevent water loss through external surfaces, vertebrates like reptiles, birds and mammals have water proof keratinized epidermis. Similarly the insects have developed external water proof layer called
Read more