ABSTRACT
The driving force behind the competitive process is often referred to as “the profit motive.” Although every first-year student of economics knows that “profits are the difference between revenues and costs,” many do not understand why such residuals exist, and why the competitive process tends to drive them to zero. Since we shall devote considerable attention to the workings of the competitive process in a modern capitalist economy, it is useful to pause briefly at this juncture to examine the peculiar characteristics of profits. Our discussion draws heavily on the ideas of one of the great Chicago economists Frank Knight.
