Sunday, July 8, 2012

What's So Bad About Profits?

Originally published at Renew America on April 13, 2012.

Much of anti-capitalistic rhetoric finds its genesis in the supposed wrongheadedness of the profit motive. The basis for this rhetoric is that all of society is endangered by the free market, which is corrupted because it places profit above all else. This line of thought — criticizing the market economy on moral grounds — according to H.B. Acton, [1] was advanced by such notable collectivists as Carlyle, Tawney, Ruskin, and Engels.

Suppose, for a moment, that it is granted that the free market is a corrupted and damnable place. Why do these critics then fear for all of society? Because they mistakenly believe the market and society to be identical to one another. But clearly they are not.

The market comprises only a part of society, and not the whole of it. Society members participate in the market with some goal in mind. These critics acknowledge that the desire for men to provide for themselves and their families is, or may be, the impetus for their market dealings, but they dismiss the possibility that these same men may intend what their market dealings yield to provide for other, disinterested concerns. The great hole in the contention that trading for a profit harms the whole of society is that profits have the potential to be put to use to promote religious, patriotic, social, charitable, and philanthropic causes and, therefore, cannot be judged as immoral in principle.

But does the free market system in fact breed corruption?

Aristotle offered one of the most significant criticisms along these lines. He posited that, in the competitive free market, the desire for the producer to satisfy the consumer's needs is supplanted by his desire to accumulate more and more money. Aristotle pointed out that, where the satisfaction of needs has a definite limit, money can be collected ad infinitum. His criticism, then, is that the tendency of producers in an economy where goods and services are sold for profit is to pursue an end which is quite insatiable.

However, if this criticism was aimed solely at free market economies, then it missed its mark because any force it has
applies not only to competitive markets but to any economy in which money is used. It is money values that can be conceived as being added to indefinitely, and these could be the gross national product of a socialist economy as well as the profits made in a competitive market economy. [2]
In any event, the leveling processes of the market ensure that the profits between, for example, any two firms A and B are confined to what the competition between them will allow. A's desire for the infinite is checked by the mere presence in the marketplace of B, which will prevent A from, say, charging whatever it would like for what it sells.

"Even more fundamental than this is the claim that... men are necessarily dominated by avarice," and so they compete with others in the market only to selfishly pursue their material goals. [3] There are two entirely separate answers to this criticism.

Firstly, there is an implication here that doing as well as possible for oneself and one's family is never good or right, and that therefore the free market system must be evil or wrong. But if this implication is true, then it must not only apply to producers and merchants, but to all self-interested market participants as well. This includes the laborer who makes an advantageous wage bargain and, of course, the ultimate consumer whose aim is to get the best deal for what it is that he buys. This criticism indicts every worker who believes their accepted wage to be beneficial and every shopper who has taken advantage of bargains or coupons. Thus, the profit motive should not be morally thought of as dissimilar to the advantages sought by all market participants — from those who wish to gain for themselves by selling to those who wish to do the same by purchasing or working for a wage.

Secondly, if men are selfish and consumed by avarice, why should society trust them in their regulation of the free market? The very thing that is present in the free market and is the cause of all its supposed failings is also present in markets that are not free: human nature. As Bastiat has offered:
[If] the natural tendencies of mankind are so bad that it is not safe to allow them liberty, how comes (sic) it to pass that the tendencies of organizers are always good? Do not the legislators and their agents form a part of the human race....? They say that society, when left to itself, rushes to inevitable destruction, because its instincts are perverse. They presume to stop it in its downward course, and to give it a better direction.... They would be our shepherds, and we are to be their flock. This arrangement presupposes in them a natural superiority, the right to which we are fully justified in calling upon them to prove.
If members of the marketplace are to entrust their social organizers, price-setters, and government planners with the authority to arbitrarily infringe upon their free and private dealings — and to redistribute their private property — then these planners, Bastiat suggested, ought to demonstrate, foremost, that they
are formed of a different clay from other mortals; that they in their turn will not be acted upon by the fatal principle of self-interest; and that... their judgments will be exempt from error, their hands from rapacity, and their hearts from covetousness.
For fear of hypocrisy, officials of the state would do well to refrain from attempting to bind the hands of those in the marketplace on the shaky grounds of the shortcomings of human nature. Unless, of course, it is the case that these fine specimens do not at all populate the realm of humanity, but instead are angels sent from above and charged with organizing society for mankind.

There are only a limited number of ways for one in need or in want of scarce resources to attain them when they are in the possession of others. He may simply take these resources by force, or deploy an intermediary to do so on his behalf, which is the system espoused by the collectivist wherein private property has no place or, in any event, is in no manner secure. This is the system of spoliation or piracy, and it is no less a system of theft simply because it is the government which plays the intermediary role in acquiring and distributing to others what does not belong to them. One may ask others for these resources, appealing to the ideal of hospitality to furnish his wants. But then, as a beggar, he has no say in precisely what, when, or in what manner he obtains them. According to H.B. Acton, not only is making a gift of resources, or selling them below their market price, an unintelligent and reckless way of demonstrating generosity, but "in a society of casual benevolent donations little progress is likely to be made in the arts of production." [4] The final possibility of attaining these sought after scare resources is to offer something in exchange for them. This is the system of the free market. This is the system wherein each party of an exchange, in order to profit himself, must profit the other, or, somewhat differently phrased, in profiting the other, profits himself as well.


[1] Acton, H.B. The Morals of Markets and Related Essays. Indianapolis: Liberty Fund. 1993. (p. 37-38). Many of the arguments contained in this article derive from this book.

[2] Ibid. (pp. 36-37).

[3] Ibid. (p. 39).

[4] Ibid. (p. 17).

Tuesday, April 3, 2012

Rules by Which a Great Republic May be Reduced to a Broken One

Originally published at Renew America on December 17, 2011.

"An ancient Sage valued himself upon this... he knew how to make a great City of a little one. The Science that I, a modern Simpleton, am about to communicate is the very reverse." — Benjamin Franklin, Rules by Which a Great Empire May Be Reduced to a Small One

The following is addressed to those in the United States Government who, rightfully or not, wield the most influence and are, as a result of their positions, most apt to affect, by the careful enactment of the following recommendations, the transformation of this land of opportunity into one of hindrance.

I. To begin with, please take into consideration that a great republic, like a great family, is most effectively broken at its pocketbook. Act then upon the finances of the citizenry — that as you place command first over this front, others may submit in procession.

II. The most useful of contrivances through which your end may be happily attained is the establishment of a centralized banking institution that might, if you so allow it, multiply the existing supply of paper money. First, however, the people must be led to believe in fiction rather than in fact. You are therefore to use whatever means to convince them that money is the symbol of wealth, and that an expansion of the symbol is an expansion of that which is symbolized. This will illicit the proper effect. The people, everywhere surrounded by the results of an increased money supply, will begin to realize that these symbols, of which they are now in bountiful possession, represent something quite the opposite of what they had supposed them to, and that the central bank which was to be their benefactor foments not fortune, but destitution. If the invasive actions of this institution should happen to manifest a discoordination in the economy, a disruption of market processes, or rampant malinvestment — all the better. Time will certainly demonstrate that your encroachment into this area will have left in disarray what was, before, in order.

III. Knowing that the patriot is never more apt to shrink from conviction than when he is forced to choose between reverence for his country and food for his family, you are to levy a broad and crippling corporate tax. This tax is to be onerous enough so as to have your nation's good and responsible businessmen relocate to countries abroad solely so that they may seek the reasonable comfort of profiting from the services that they provide to others. This undertaking would prove fruitless, however, if, after effectively banishing them, you did not portray these citizens as enemies of national labor, traitors, or capitalists. After exiling all but the privileged producers, it is advisable for you to punish the consumers. Have them pay a fair amount for imported goods. Nothing will serve better your aim of disassembling the republic than to protect the right of a number of your nation's producers to have the whole of its consumers pay more for goods where they might otherwise have paid less.

IV. Of your actions that might have the republic attached less firmly to its foundations, none affect as much as ably as making public that property which is private. To this end, it is recommended that you coercively withhold the income of your citizens — granting them access to the fruits of their own labor only after having first relegated their property to the satisfaction of your ends. In this way an atmosphere of resentment, adequate to secure your goal, may have occasion to develop among the people.

V. That such agitation may be extended, ensure next that these laws of taxation are, to a substantial extent, applied inconsistently; that they affect, however arbitrarily, some subjects more severely than they do others. This will elicit the worthiest of results. By regarding supposedly equal citizens in a fashion so openly unfair, you will (to keep the simile of the family) behave as a partial mother, favoring one child over another. By this means, the desired degree of rivalry might then breed among the social classes so as to drive what was once in harmony toward disunion.

VI. It would indeed be a sorry consequence if the nature of your republic has had the unfortunate effect of causing you, the wise masters, to be valued as something short of royalty. If such is the case, it may be appropriate for you to proceed as though your government of representatives is nothing more than a factory of regulations. Behave in a manner so as to suggest that the measure of your emoluments and terms of office ought to be extended in proportion to the degree to which your orders, laws, decisions, and rules constrain the lesser citizens and deplete both the nation's treasury and its promise.

VII. Justly appointed judges and administrators — having not simply received the consent of the people, but also their esteem — may work with integrity to empower the nation entire. Officials of this type are therefore to incur your disaffection. If you can find inexperienced academics, recommend them for justices; for they will be keen to rid the bench of any standard of prestige. Activists too are desirable, as they would have the high court reformed from a hall of justice into one of passions; the very impulses responsible for its empathy, responsible also for its wrath. For supervisors and cabinet directors, the chief executive is to appoint only ideologues, awash in favors and expert solely in partisanship, to serve at his pleasure. If these appointees are radicals, or are otherwise corrupted — even in the fields which they have been assigned to oversee — so much the better. Such officials, managing their great and growing dominions, are indeed fit for a republic whose bureaucracy would have it frustrated into dissolution.

VIII. In order to make certain that you are provoking your republic toward division, it may become necessary to closely monitor and manipulate the behavior of its people. Forget that they have any reasonable expectation of autonomy, privacy, or due process of law. Involve yourself in their personal communications. Suppose their presumption of fair and equal treatment to be baseless, and claim of this presumption that it is trivial or, otherwise, idealistic — that it derives not from right, but from your sole and arbitrary discretion. Adherence to such a method, effectively, will have you assuming the role of parent and treating the people as though they were children. Experience attests to the suitability of this strategy — as children tend to tire of supervision, as it becomes more and more invasive, so too might a people grow weary of the actions of their government.

IX. To safely guarantee this outcome, and further its impression, wherever there exists poverty, hunger, or homelessness you are to profess the product of your meddling as the only just remedy. A number of your citizens will most likely complain to your legislature that it is government intervention in these matters that is sustaining their prevalence and that, if only they were not so heavily taxed, these citizens, through expressions of fellowship and voluntary donation, might be capable of better addressing these ailments. It will become necessary, then, for you to label such citizens as haters of the poor, and to trivialize their unbidden contributions. Such a program, it is hoped, will serve to impede not simply the people's ability, but also their willingness to charitably give.

X. If the people are wise they will have beforehand established a contract through which they might foresee and counter the reach and whimsy of your encroachments. It may be necessary — in order to properly attend to your purpose — to, by all resources available, diminish the significance of this contract. Its provisions are therefore to be dismissed as mere process, and its scope as insufficient. If, in any way, this contract or its amendments should serve to draw the boundaries of your authority, you are to deem these boundaries limitless. If its framework should happen to narrow the functions of your government, you are to have these functions at length extended. In this manner and with hope, an environment will surely arise in which the contract is, by you, disregarded and, by the people, in want of renegotiation.

It is likely, if you have observed these few excellent rules, that all of the constituent states of the republic, and its people, will, at last and for all time, rid you of the trouble of governing them, and free you from the burden of further attending to any destructive and abusive actions that would have them longing for safety, security, and reorganization.