There is a lot to talk about in your post, so I'm just going to comment on some things that stood out to me instead of trying to make a comprehensive reply, and hopefully the discussion can continue from there, since I think you raise a lot of interesting questions.
It's interesting that you say, "if the farm is profitable, the owner will reinvest that profit into a bigger and bigger farm, as big as he can manage," because I feel like already we see kind of a divide between a permaculture mindset and a conventional ag mindset. I think the key phrase is "as big as he can manage," because good management from a permaculture perspective and good management from a conventional perspective are two very different beasts. Permaculture values human-scale solutions and permanent, more-or-less self-perpetuating systems, whereas in conventional agriculture, if the endeavor is profitable and the land is not so degraded as to preclude farming it altogether, it is almost by definition "well-managed." So yes, a successful permaculture farmer may want to invest in additional land up to a point (although I think it's equally likely he or she might want to invest in debt repayment if any was taken on to purchase the property, investing for financial independence, educational outreach in the community, infrastructure, restoration projects, etc.), but permaculture properties are almost inevitably going to average out to be smaller than conventional ag properties, which I think is all to the good.
Another point on good management and labor and profitability: Right now, many permaculture projects, especially large ones, depend on
volunteer labor and/or PDCs and workshops to generate income and provide necessary labor. There is nothing wrong with this, to my eyes, but I think it gives somewhat of a false sense of what's a manageable scale for a permaculture property when you're mentally comparing it against conventionally managed properties in which labor is hired or performed by the owner. The educational component of a permaculture site often sort of "subsidizes" the actual "farm" part of the endeavor, if the
project even has market farming as one of its goals (which, again, is not a criticism, just an observation). And of course, in permaculture mechanized labor doesn't have as much of a role to play as in conventional ag, so labor costs are going to be a limiting factor. Now, good design can eliminate a lot of unnecessary labor, but in my
experience labor is going to be the wall you run up against in terms of expansion in a way that it just isn't in factory farming or conventional mechanized operations.
Side note: I am not the world's biggest fan of
Joel Salatin, but for numbers crunching and a focus on profitability doing something that resembles permaculture in some ways, he's probably the best source I know of who has tracked everything and made it public.
Advantages of permaculture in terms of profitability:
Reduced inputs. Annual seed, fertilizer, herbicides, fuel, purchased food for animals, mechanized equipment, etc. can all be very costly. If you reduce outlays, you can have lower yields and/or lower sale prices while still maintaining or even increasing profit.
Resilience. You mention this toward the end of your post. A diverse operation with good design is far more resistant to crop failures because of drought, climate change, pests, etc. and so much less potential financial loss and instability. A personal example here: I live on a conventional family-owned and -managed
cattle ranch. When I was young, we ran about 350 head of cattle on our 550 acres. Now, after many years of drought and the accompanying degradation of our pasture, we run about 70 head on the same area, mostly on the bottom 250 because the top 300 is so marginal that it can barely support 10 cows with calves. Holistic management using permaculture could have addressed water issues, prevented overgrazing and pasture degradation, and increased our stocking rates.
Premium prices. Some people will be willing to pay more for food they view as ethical, environmentally friendly, more nutritious, more humane,
local, etc. although you may not be able to command too much of a premium on top of that already present for organic products (vs. conventional)
Greater ability to grow on marginal land, which is cheaper to purchase
Higher total yields per acre than with conventional farming
Less waste than with mechanical harvesting, so more makes it to market to be sold
Reduced cost of living. Assuming one lives on the farm, one can provide many/most of one's own energy,
shelter, and food needs using permaculture. Growing a
polyculture enables one to eat largely from the farm, versus growing only rice or corn or cattle or whatever, which leaves one in a position of purchasing most of one's food from off farm even if a massive surplus of calories are produced. This means that one needn't make as much money to live at a similar level of comfort, and/or that what money one does make can be reinvested in farming or other things rather than being diverted to maintaining the family and household
Disadvantages:
Human labor costs if operation is large or limitations to expansion (and thus profits) if operation is small enough to be managed by owners or with a small amount of hired labor
Lower yields per acre of any given crop than with monoculture (despite higher total yields), which can mean the loss of economies of scale, reduced viability of certain specialized equipment that could save on labor or time or otherwise be useful, etc., and which can make marketing more expensive and/or difficult
Reduced access (direct or indirect) to some forms of subsidies, reduced access to financing (banks tend to view permaculture with dubiety) and subjection to policies which favor conventional operations
That's most of what I can think of, although I'm sure I've barely skimmed the tip of the ice berg
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