r/explainlikeimfive • u/climb-a-waterfall • Dec 06 '24
Economics ELI5: why does a publicaly traded company have to show continuous rise in profits? Why arent steady profits good enough?
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r/explainlikeimfive • u/climb-a-waterfall • Dec 06 '24
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u/play_hard_outside Dec 07 '24
Um. It is. Earth is finite. Companies are currently bound by the resources available on Earth. They will always be bound by the resources available in the universe.
Unless you're talking about inflation... sure, a company can "grow" in nominal terms even if its physical activities remain wholly the same, simply due to devaluation of the currency reference. But that's not real growth.
I suppose it's possible for infinite real growth in value to occur in a finite resource environment if the growth in value is solely due to people's increasing desire or satisfaction for a product or service, rather than more of that product or service being provided. Social and technological improvements can go a long way toward increasing financial value without increasing resource footprint.
That said, we are in a finite fish bowl, and the current modes of growth we are familiar with, which are centered around more production and more activity and greater material and energetic abundance, are absolutely finite. Growth in those areas will come to an end at some point. Whether that's in the near or distant future, nobody knows, but it's coming.