Problem of the origin of profit

Problem of the origin of profit

Let's imagine theoretically a world, where there is only one employer, that owns a single factory, and only one employee.

Now the employee can only work at that specific factory, since that's the only employment that exists, and the employee can purchase goods only produced by that same factory, for the same reason of cause- since there are no other goods that exist. For the experiment sake, let's just say that the factory manufactures only one type of product, and it's all that needed for the worker to get by in his daily life. The employer also pays the employee a weekly salary, with which the employee purchases factory's products. The labor costs is the only expenditure that the employer has.

Since the only monetary income that the employee has is his salary, that is the only amount he can spend on factory's goods.

In this situation the employer will never be able to make any monetary profit, because his income will never exceed his expenditure.

Let's say the factory produces 10 units of goods each week, and the employee's weekly salary is 10 dollars. That makes the labor cost of each unit at 1 dollar each.

Now whatever the price that the employer sets when selling the goods, he only can retrieve 10 dollars in income. The employer has to set a price of 1 dollar at least per unit only to break even, and after that the higher the price- the lesser goods the employee can purchase. At a price 2 dollars per unit the employee will be able to purchase only 5 units, at 3 dollars the employee will be able to purchase only 3 units and so on.

So the only profit that the employer can gain is in a form of excessive goods that the employee is unable to purchase, but no monetary profit is possible. This employer will never make profit. It's a closed cycle, where the same amount of money goes back and forth, with only excessive goods created in the process.

Of cause in the real world the economies are much more complicated, with numerous manufacturers and different products with different prices, but still the math supposed to be the same. The price for each existing product out there has to be above the labor cost that was spent in order to produce it. So the total amount of prices in economy will always be above the total amount of labor costs, in order for profit to be possible.

The economic theory teaches us that there are firms and there are households, and that households are employed by the firms, and later households purchase goods from the firms.

But since total labor costs equal total households income, and total prices amount is higher than total households income, therefore the households will never be able to purchase all the goods that are being produced. Same pattern occurs, a closed monetary cycle where no monetary profit is possible for the firms.

The only way to some firms to make a profit, is only if other firms won't be able to sell their products and their employees spend their salaries purchasing other goods than theirs. In this case though those failing firms will eventually run out of money and go bankrupt, and the economy will reach a 'closed cycle' stage again where no profit is possible. The firms that succeeded in selling their products simply will suck all the money out of the circulation in form of profit, and then the closed cycle will return, of the same amount of money going back and forth between firms and households, with excessive goods created in the process but with no one having any money to buy them.

Therefore as we see, a continuous injection of newly created money into the cycle is needed in order for any profit based economy to exist. In our reality it's the government role. One way for example to inject new money, is by having a budget with a deficit, and then cover that deficit with newly created money. Therefore deficit in government's budget is not just not bad, but on the contrary it's essential for the economy to exist as we know it.

Of cause the government doesn't have to use its budget deficit as a condition to inject newly created money into the economy, but it seems as a very effective way. It is estimated that firms on average have an annual 7 percent profit from their income, but it doesn't mean that the government should inject new money worth of 7 percent of gdp, it should be a bit less... Why? Let me show you another example:
Lets say we have a closed economy with a company that grows tomatoes and sells it to a factory for 10 percent profit, then the factory processes the tomatoes and put them into cans, and sells them to retail stores for 7 percent profit. Then retail stores sell it for 4 percent profit to the public. Once again lets say that the only expenditure companies have is the cost of labour. Lets say the cost of labour for tomatoes company is 100$, for the canning factory 50$ and for retail store 30$. Therefore the tomatoes company sells tomatoes to the factory for 110$ (10 percent profit), the factory after processing the tomatoes sells them to the retail stores for 171.2$ (7 percent profit after paying 110$ to the tomatoes company and 50$ for its own labour). Now the canned tomatoes arrive to their final destination- the retail stores. The retail stores spend 30 dollars on labour, and now they have a product worth of 201.2$, and they try to sell it for 209.25$ in order to make that 4 percent profit... But here is the problem, the public only has 201.2$ to spend. The tomatoes factory people received 110$, the canning factory people received 61.2$, the retail workers received 30$, that sums up to 201.2$ in total, that all the money there is to spend. As you see the government needs to intervene and inject another 8.05$ in order for this cycle to be complete and that the retail stores can make profit.
Now as you see even though the average profit is still 7 percent ((10+7+4)/3=7), but the amount of new money that is needed to be injected is nearly 4 percent of gdp (209.25/201.2=1.04).

Therefore the government should have a yearly budget deficit worth roughly 4 percent of the national GDP, and cover that deficit with newly created money.

So my conclusion is that in order for any profit based economy to exist, there have to be a continuous and regular injection of newly created money into the circulation. In fact we can have an equation 'all and only possible firms profits in the economy'='all newly created money by the government'. No new money= no profit possible.

What I'm bewildered about, is why this notion of 'any possible profit equals newly created money' is not known in the economics studies. I tried to find some theories connecting profits and newly created money, and found nothing. I personally think that if it's correct, then this notion supposed to be the very backbone of any economic theory out there, every student or scholar should know this.

P. S. If you going to argue that in real world my example doesn't work since the firms have many other expenditures besides labour costs, like rent or taxes, let me just say it's still the same, you still have that problem of lack of money for profit to be possible.