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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.

NOTES:

[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).

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