Economic Myths #4 – Profits are Evil

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One of the elements of any economic system founded upon free exchange that induces a purple-faced rage amongst statists and progressives is the concept of profit. This residual – the amount left over once an entity has deducted its costs from its revenue – is said to line the pockets of greedy shareholders while exploiting labourers and consumers.

First of all it is important to understand what we mean and what we do not mean by profit. Here we will be discussing profits that an entity may earn purely as a result of voluntary trade and free exchange; we do not mean those “accounting” profits that entities may earn as a result of favourable government regulations, direct government subsidy or any kind of residual of a trade relationship based upon force. These profits – including bank bailouts and stimulus funding – are rightly to be condemned as unjust and immoral, sustaining the power base of the incompetent, wealthy elite at the expense of everyone else. But such a condemnation must not be allowed to throw out a very precious baby with repulsively filthy bathwater – for profit is one of the most vital elements that gives life to an economic system that relies upon the division of labour.

For the praxeologist profit is, of course, endemic in any human action and not just those based upon monetary calculation. All actions seek to produce better circumstances than those that would prevail, but for the action. All humans in everything they do therefore seek for a psychic profit – making more money than before is only one of these possible actions. Strictly speaking, therefore, any condemnation of profit would be a performative contradiction as, in the mind of the critic, the satisfaction of achieving condemnation would be a better circumstance than not having done so. Although such a technical and theoretical argument is unlikely to appeal to the mass of lay persons who view profits as evil and unjust, it is important to understand the roots of the concept for here we can see the importance of the profit motive – the stimulus for engaging enterprise in the first place. Without the possibility of earning profit – i.e. a better circumstance than that which prevailed before – no entrepreneur or inventor would ever bother developing and bringing to market all of the wonderful products that make our standard of living so high.

Abandoning for a moment our commitment to wertfrei economics and embracing the belief that anything that benefits the consumer or labourer is “good” and anything that harms him is “bad”, let us examine two or three specific, recurring myths concerning the concept of profit.

First of all, let us deal with the allegation that profits line the pockets of the capitalists at the expense of workers and consumers. Profits are not achieved at the “expense” of anybody. The amount of profit is only ever determinable in retrospect after all of the consumers have purchased their wares and all of the workers have been paid their wages. At the time that the consumers bought the products and the workers negotiated their terms of employment nobody knew what the profit was going to be – or even if there would be a profit at all! If you felt that you were being “fleeced” at the time you purchased a product or sold your labour then why did you enter the transaction? If a firm should be required to divest its profits back to those whom it has cheated and stolen from then what happens when the firm makes a loss? Does it work the other way round too? Did not the customers and the workers cheat the firm in this instance? Should the firm be able to go back to a customer who may have purchased an item six months ago and take more from him to wipe out the deficit? Profits, instead, benefit the consumer by ensuring that scarce productive resources are devoted to their most highly valued ends – industries and production lines where profits are abnormally low will have resources reduced and redirected to areas where they are abnormally high, thus decreasing supply in the former and increasing it in the latter. Ironically, the combined action of entrepreneurs has the ultimate effect of eliminating all profit by balancing resources throughout the economy. It is only because consumers’ tastes and preferences are constantly changing that profit opportunities continue to exist and deployment of resources must be repetitively assessed and altered accordingly. Ultimately, therefore, it is the consumer who is responsible for the existence of profit and not the capitalist-entrepreneur. Furthermore, it is profit that provides entrepreneurs with the resources to further invest in capital equipment and expand the business. This will increase supply and lower prices.

Second, even if the concept of profit for inducing enterprise was accepted, what of the allegation that profits are really used to “extract” money from the industry to pay shareholders – money that would otherwise be invested back in the business to the benefit of consumers? What this overlooks is the fact that if a distribution is made to owners or shareholders it is because the entity has already invested in the business to the extent that is economically viable and any further expansion would be wasteful. While the firm may retain some additional earnings as a buffer in anticipation of a poor performing year or for some other kind of insurance, masses of retained earnings are otherwise wasted by lying in corporate bank accounts. It is better to distribute those funds to the shareholders so that they can be reinvested in other productive enterprises that are still in need of investment. Thus the consumer is benefitted by this fresh investment in other products and services that ensures that the supply of these can also be increased and their price lowered.

Finally, it is worth emphasising that which we indicated above – that profits are never certain and the possibility of their corollary – loss – is always present. Capitalist-entrepreneurs do not first of all calculate how much profit they want and then work out how much they will pay for inputs and charge for outputs. Such a calculation may form the motivation to engage in enterprise and it might determine the boundaries of their productive action but they cannot force the outcome to agree to their projections. Rather, they must be prepared to be the highest bidder for inputs and the lowest seller for outputs in order to ensure that they can purchase resources on the one hand and then sell the resulting products on the other. This process is fraught with uncertainty and only at the end is it possible to ascertain if it has been profitable – and, indeed, a certain line of production which may hitherto have been profitable may suddenly find it is loss-making. All it may take is a marginal increase in costs as a result of competing entrepreneurs bidding away resources to other uses, coupled with no corresponding increase in sales in order to completely wipe out any profit. Or may be consumer tastes change and competing products and services become more attractive? Although profit is the motivator of entrepreneurial activity it is never certain and everyone else must be paid in full before it can materialise, if it does at all.

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Myths about Freedom

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Libertarian enthusiasts usually take pride in their theoretical understanding of the ethics of liberty and the evils of statism. It is difficult not to read and be enthralled by the works of distinguished authors such as Murray Rothbard, Hans Hermann Hoppe, Walter Block, and from earlier generations the likes of H L Mencken, Albert Jay Nock and Frank Chodorov, before we even mention Ludwig von Mises and Friedrich von Hayek. Nevertheless, it is not likely to be the detailed theoretical purity of libertarianism that will be of much help in persuading the passive majority of the population that a free society is both the most economically prosperous and the most just. Rather, our main concern will be in overcoming the statist-bias that most people hold, a bias induced as a result of their indoctrination by their state school education, mainstream media and the presentation of any political debate as requiring at least some kind of government response. This bias crystallises in a number of myths that serve to put a mental block from any acceptance of a society without government, or at least a society where government plays a minimal role. This essay will attempt to explore and debunk some of these myths, not only to refute them but to do so in such a way as to cause people to realise just how ridiculous any adherence to them is, and that the truth is not only correct but blindingly obvious. Indeed such a revelation needs to be this powerful as that same statist bias usually results in the outcome of any debate concerning the necessity of government to be distinctly unbalanced. It is not enough for us libertarians to explain how the free market may make society better off in ten or twenty ways; for if the person whom we are trying to persuade finds an eleventh or a twenty-first thing that we cannot categorically demonstrate will be dealt with successfully in a society without government, then never matter how persuasive our previous arguments and never mind how much the balance is stacked in our favour, the one perceived failure is taken as capitulation that government is necessary and any hope of a free society needs to be abandoned. New and radical ideas that challenge what everyone has always held to be true are often met with this type of defence mechanism, permitting them to dismiss the new truth and return to the comfort of the status quo. This, in many ways, is the libertarian’s most formidable enemy, may be more formidable than the state itself. Let us turn, then, to trying to shatter some anti-freedom myths.

No one will Build the Roads!

The first myth is what may be summarised as the “who will build the roads?” problem – that we are so used to government engaging in the monopolistic production of certain goods that we cannot imagine a world where government would be absent from that sphere of production. Under this category is included such questions as “who will take care of the disabled?”; “who will supply the water?”; “without the NHS what will happen to you when you are poor and sick?”; and so on and so forth. Aside from pointing out that everything (including roads) that government runs was first, at some point, invented by the free market and not by government bureaucrats, we might point out that the capitalist-entrepreneurs manage to successfully deliver into our hands some of the most technically complex items with components and expertise delivered from a multitude of countries. Refrigerators, television sets, radios, laptops, smartphones, cars, the list goes on. Having achieved all of this, will the prospect of having to take on something as wildly complex and as technically unnerving as laying down some tarmac from A to B strike the fear of God into budding entrepreneurs? Would those that aspire to the fame and fortune of Bill Gates and Steve Jobs be twisting and turning in their sleep from nightmarish apparitions of such a horror? Can these inferiors only be rescued by the boldness and bravery of the elite government bureaucrats who can master this fiendishly complicated endeavour? Clearly this is utter nonsense and any perpetuation of this myth relies solely on the argument from existence. Yet we can easily counter this by imagining what our thought process would be if government had taken over a lot more than it already does. If government had monopolised the smartphone industry, would you be saying “thank God for government! Without them, who will build the iPhone?!” If government took over the stationery stores would you wonder “who will sell me my pencils and pens?!” if government was to vanish? If you could only get clothes from government department stores, would the sudden loss of this monopoly mean that we would all have to go round stark naked?

Libertarians are, of course, always at something of a perceived disadvantage in challenging this myth as we are not advocating any strict, one-size fits all plan like other ideologies do. We intend to leave everyone alone to make their own plans peacefully. Hence we do not know precisely who will build the roads, where they will be, what they will look like and how they will be run. Indeed we don’t even know if roads will cease exist and be replaced by some more convenient method of transport. 2015 is the year to which, in the film Back to the Future II, the protagonist finds himself transported, surrounded by cars that fly and roadways and highways that exist not on the ground but in the sky. And yet here we are, one year earlier in 2014, without anything even approaching that level of technology because government forcing us to pay for their roads through taxes stifles any competitive innovation in that area. Indeed, anything that government touches lacks modernisation and development. Roads, schools, the post office, rubbish collection and so on all carry on with the same monotonous methods, procedures and technology while the free market around them innovates. Government is not only unnecessary for building the roads – it is actively preventing us from developing better methods of transport.

Greed and Individualism

The second myth we must tackle is that more freedom encourages greed, selfishness, and an individualistic, atomistic existence in which no one cares for anyone else. Nothing could be further from the truth. Libertarianism is neutral regarding the personal choices that people make so long as those choices are non-violent. Freedom may permit you to make as much money and keep it all for yourself, to shut yourself away from all social contact, to never give anything to charity, or to refuse to help an old lady across the street. But it also permits you to not make as much money as you can, to give as much of it away as you like, and to help as many old ladies across the street as you have time for. It encourages neither type of behaviour. The only reason why freedom and capitalism are accused of encouraging greed and selfishness is because people in free societies have generally chosen the path of increasing productivity, material wealth and the standard of living (ignoring, of course, the fact that while this confers great riches upon the most productive, the living standards of all people are raised far above what they otherwise would be). People who dislike these outcomes attack the system of freedom rather than the choices people make under it because they need to hide the fact that they simply wish to force society away from choosing a path that most people want but that they, the disgruntled, do not want. If they were to acknowledge that nothing about freedom per se encourages greed and selfishness they would reveal that what they are really trying to achieve is to force humanity to conform to their ends rather than what people individually want. It is true that people, as individuals, think and feel pleasure and pain as individuals first, then that of their closest family and friends second, of minor acquiantances third, and for the most part probably do not even care about the billions of remaining people whom they will never meet. Human nature places the individual at the centre of his own life. But not only are humans also sociable and co-operative creatures – the greatest product of this being the division of labour where, as if by magic, the actions of one person, you, could be serving the needs of someone thousands of miles away whom you do not even need to meet let alone care for – it is not the task of political philosophy to correct or otherwise make amends for perceived failures of human nature. Humans are self-interested and act as individuals; it is impossible for it to be otherwise and any political system has to accommodate rather than subvert or alter these facts. It is precisely because freedom is the only political system that does this that free societies have flourished to degrees unobtainable by any other political system. But the greatest irony surely has to be that it is capitalism and freedom that promotes moral fervour, selflessness and care for others, whereas it is any government system attempting to do the same by its usual raison d’être – force and violence – that encourages an individualistic and atomistic existence.   Forced government redistribution of wealth does not cause the donor to become any more moral or selfless; for moral actions require moral choices and if he is simply forced to have his earnings siphoned off into the welfare pot then this demonstrates nothing about his moral character. But further, if anything, having been denied the personal choice to determine which causes are good ones for your money, it is more likely that forced redistribution will instil in you bitterness, resentment and hatred of your fellow humans rather than sympathy, care and a willingness to help. Moreover, it is the existence of generous social safety nets that leads directly to the fracturing of family relationships and friendships and of any need to engage with fellow human beings on a personal and empathetic level. These relationships become most important precisely at your time of need and if the state is there ready to fill your cup in hand on these occasions then cultivating them becomes relatively less important. In a free society however, not only must each person possess a great empathetic skill in order to determine how best to serve everyone else under the division of labour, but the lack of a welfare state means one must rely on one’s friends and family, and they must in turn be able to rely on you. Hence these bonds of mutual care and assurance become stronger under a free society whereas a government-run society all but eradicates them. Finally, the bigger government becomes, the more it leeches from the productive sector, the higher the glittering stack of gold (or paper money, at least) that it steals encourages people to stop producing and to start finding reasons why they should be the beneficiaries of a share of the loot ahead of anyone else. Hence the proliferation of lobbyists, focus groups, think tanks, statisticians, and so on that exist for nothing more than showing why thieved tax revenue should go to one place and not another, and it is hardly astonishing when all manner of alleged societal ills and problems appear seemingly out of nowhere and can be, conveniently, solved by a fat wad of government cash being paid to their sponsors. Big government therefore pits each human against every other in a fight for the loot – it is a contest of who can get everyone else’s money first. If this is not selfish and greedy, then what is?

War of All Against All

Related to the last myth is the allegation that without government every human being would forever be robbing, stealing from and murdering everyone else, reducing humanity to the level of brutal savages and putting an end to civilisation as we know it. This myth suggests that it is an inherent part of human nature to oppose to the death every other human being in a fight for what is a fixed pool of resources, much like animals do in the jungle. If you can’t struggle your way to the top of the food chain in this “society” you will die at the hands of someone else. The first question to ask any advocate of this position is if, in the event that government and its monopoly of security, protection against crime and law enforcement, was completely abolished in a flash, would that person immediately go out and start looting, maiming and killing? In other words, is the only thing keeping you from putting a gun to someone else’s head the fact that government will detect and imprison you? Do you have no conscience whatsoever and are utterly dependent upon government to stop you from turning into a predatory animal? Furthermore, is government the only reason you go to work every day to co-operate with your fellow employees, greet your neighbours a good morning, have coffee with friends, walk your kids back from school, and sit down to a family meal in the evening where you will talk, laugh and joke with other human beings? Will you stop doing all of these sociable activities and engaging co-operatively with other human beings if government vanished? If you meet a friend for lunch is government the only thing stopping you from shooting him and pinching his dessert? The answer is of course no, an answer that is necessitated by the government advocate’s recognition of this behaviour as immoral. Humans possess consciences, moral fervour, and the ability to distinguish between right and wrong. If he concedes that there are some acts that he would not carry out even if there would be no sanction whatsoever, is it not reasonable for our government supporter to expect this of other people as well? At the very least he has every reason to expect the same of every other person with whom he engages in these sociable activities. Indeed, can he name anyone he knows who, absent government, would transform into a criminal, and if he can, do those people form a majority of his friends and acquaintances? Humans not only possess a moral fervour that prevents them from acting wrongfully in the absence of retribution, but they also transcend their recognition of strict moral duty and are, additionally, an inherently sociable and co-operative species. Not only do we form bonds of friendship and kinship far more powerful than any government gun, but, as we mentioned when tackling the previous myth, we have developed a system of co-operation – the division of labour – in which you do not even have to know, meet, like, love, respect or admire any other human being whose needs you serve. Indeed, you may positively hate that person and yet you can still achieve gain through co-operation within the boundaries of voluntary trade – a gain that is mutual and not just for you, where both parties come off better, all in spite of the fact that you do not care a bit about each other. Government was not necessary for this creation – it was truly a “spontaneous” order, spontaneous in the sense that it was the product of human purpose but not of any human’s design. Only a handful of sociopaths and nutcases – a bare of minority of the population – require deterrence in order to prevent them from committing crimes. In addition to private security forces being able to deal with these individuals, there will certainly not be any overnight, societal collapse. Rather, it is government that pits each human against his fellow. Government achieves all of its ends through violence and force – someone gains at the expense of someone else. If you can tap into that mechanism then you can pinch, plunder and pillage from anyone whom you like. But it gets worse than that for government overlays this regime of violence with a veneer of democratic legitimacy, thus weakening people’s sharp, moral distinctions and ennobling anything you do against another human being, however evil and immoral, all OK as long as it was done through democratically elected government. It is worth emphasising this point – not only is government permitting this behaviour but is effectively saying that it is a good thing. It is no small wonder that with such encouragement the war of all against all not only exists under government but becomes prolific.

Companies will Poison our Food!

Our final myth is the notion that private companies, in seeking to maximise their profits, will put poisonous chemicals in our food, will cut corners with safety, our buildings will collapse, our cars will crash, our lives will be at the mercy of these profit-hungry merchants of greed! The obvious retort to this ridiculous assertion is that if a company is expecting people to buy its goods, if it is expecting to outwit its competition, and if it is expecting to make profits, then just why on Earth would it do these things? What advantage is there in creating a product that is going to kill your customers ahead of one that will not and will keep them coming back to you time and time again to keep on purchasing your products with loyalty? As soon as it is realised just how dangerous the goods you are selling are, won’t a competitor leap in with safer products and drive you out of business? At the base of this misunderstanding is the idea that, in the absence of government, regulation will simply vanish and companies will have a free hand to do whatever they like without restriction. But regulation is itself a market activity – not only does it consume scarce resources just like any other but it aims for an end that consumers desire. At the heart of regulation is not the desire to forcibly stop a company from producing in a certain way or from carrying out a certain activity. Rather it is to furnish information to customers so their choices are more informed. Indeed, free market regulators are dealers in the market for information and they need to decide precisely which information is of the most benefit to consumers. Although there exists consumer groups and watchdogs to which people subscribe in order to gain more information about the companies from which they buy, most regulation will take effect as independent certifications of standards which companies will have to achieve. If the standard, in quality, safety, or whatever is achieved then the company will be licensed to advertise the fact that its products have met this standard. Underwriters Laboratories, which regulates product safety, is an example of this arrangement. The regulator too has to judge precisely which standards consumers are willing to pay for. If consumers do not care to know whether a product has achieved a certain standard then companies will not seek certification or accreditation. If the standard is too high then products will become too expensive and the regulator will cease to receive custom from companies and will go out of business. If, on the other hand, the standard is too low then the certification is meaningless as customers are demanding knowledge of a level of quality that the regulator is not setting out to detect. Free market regulation is therefore alive and thriving and it is tied to precisely how much of it consumers demand. If people will not buy your goods because they do not achieve the level that is demanded by private regulators then you will find yourself going out of business.

Related to this notion is the myth that profit seeking will cause a relentless quest by greedy businessmen to deplete the resources of the Earth and after an extravagant party everything will be used up and the world will be left as a barren wasteland. This idea overlooks the fact that profits are determined not only by revenue but also by costs. Just as companies seek to maximise their revenues in order to be profitable so too must they decrease their costs. They are under constant pressure to achieve more output with less input. There is, therefore, an inbuilt incentive towards conservation in a free market – using less, and not more. If resources become depleted then their cost begins to increase so companies have to pay more to use them as inputs, squeezing profit margins and encouraging the switch to less scarce materials. Thus not only is the endangered resource preserved for only those ends which need it most desperately but the increased price induces the production of substitutes or fresh discoveries of the virgin material that were previously unprofitable to harness. As we have explained in detail elsewhere, the very resources that are in danger of depletion today are precisely those where the pricing, profit and loss system has been restricted and replaced by government licensing. Rainforests, fish stocks, and endangered animals are all examples of where ownership has been overridden by government fiat. As they are ownerless the use of these resources is not regulated by the cost of their depletion so there is every incentive to consume them now until they waste away. If this should be doubted then why are elephants, tigers and whales in danger of extinction whereas dairy cows, chickens, and sheep are not? How come the evil profit-seeking capitalists have not, quite literally, driven lambs to the slaughter until there are none left?

Conclusion

These are just some of the main myths which libertarians might encounter when trying to promote their vision of a free society. No doubt there will many more of them that crop up as a result of the statist bias that is inherent in most individuals. Libertarians face an uphill struggle in this regard, but hopefully what we have determined above goes some way to showing how ridiculous clinging to government really is.

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The Limits of Libertarianism

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A distinct disadvantage of advocating a libertarian society as opposed to some sort of collective is that libertarians seldom win the emotional battle when pitted against competing ideologies. Democratic socialists and redistributionists can effectively wear their bleeding hearts on their sleeves, forever waxing lyrical about their concern for the poor, the sick, the elderly, and which ever other group appears to be in need of pitiful platitudes at this particular time. Libertarians, on the other hand, in calling for the right of every person to own his/her income, appear to advocate nothing more than greed and selfishness, the slippery slope to the disintegration of society as we each ferret ourselves away in an increasingly atomised existence.

This is a misunderstanding that is common not only among the opponents of libertarianism but also among libertarians themselves and it is high time that the latter stood up for themselves and realised how to counter these straw man attacks. Libertarianism is not and never has pretended to be a complete philosophy of how a given person should live his or her life. It is only states that each person should be given the freedom to choose what he does with his person or property. It does not mean that because an individual should have such a choice that he should keep his person and property for himself. One of the options is that he could, for example, give some of his money to the poor. It is, therefore, quite open to and consistent for the libertarian to state that a person should do X, Y or Z but that such a person should not be forced to do so. Simply because a person cannot be forced to do something does not mean that libertarians do not, individually, believe that people are subject to other moral obligations; it’s just that libertarianism itself stops short of discussing them. So as long as these obligations are not violently enforced then they are compatible with libertarianism, but do not form part of it.

Collectivism, however, is markedly different. For when collectives posit a certain forced redistribution of wealth and income amongst society this is usually based on an all-encompassing moral and political theory. So, for example, a collectivist might state not only that a person should donate a portion of his income to the poor but that also he should be forced to do so. It is this aspect that makes collectivists look more “caring” and “sensitive” to the needy – the fact that they are prepared to “enforce” their moral outlook seems to show they mean business. Libertarians, in contrast, come across as cold and uncaring, relying only on a vaguely defined notion of voluntary charity to take care of society’s ills.

There are three possible ways in which this may be countered. The first is to admit that libertarians are somewhat guilty of contributing to this view as few have developed an additional moral philosophy on top of their libertarian beliefs (although we can perhaps excuse ourselves given that the weight of government violence and intervention in today’s world is more than enough to be getting on with). But we must either turn our attention to developing our own, private, moral philosophies on which our passion for liberty forms the core, or, at the very least, we must be prepared to acknowledge the problem and explain the compatibility of any moral philosophy with libertarianism as long as it permits the individual to choose.

Secondly, contrary to popular opinion, the history of ideas has seldom been one of “liberty” vs. “collectivism”; rather it has been that of one version of collectivism versus another. As Mises pointed out, everyone has their own idea as to how they think goods and resources should be distributed throughout society: “In the eyes of Stalin, the Mensheviks and the Trotskyites are not socialists but traitors, and vice versa. The Marxians call the Nazis supporters of capitalism; the Nazis call the Marxians suporters of Jewish capital. If a man says socialism, or planning, he always has in view his own brand of socialism, his own plan. This planning does not in fact mean preparedness to coöperate peacefully. It means conflict”. (Omnipotent Government, p. 253). By pointing out this fact libertarians can demonstrate how, in a free world, everyone can pursue, in harmony, the ends that he believes are morally right with his own person and property, whereas to do so violently would just mean endless conflict with everyone else who happens not to share your view.

Thirdly, if a collectivist claims to care about the needy in society then we are entitled to ask why he favours a system that is almost guaranteed to make them worse off and why they oppose the very system – capitalism and freedom – that has been responsible for the most enormous increase in the standard of living in the whole of human history. Poverty is the state of nature of humans in the world; it is their ingenuity that has flourished through freedom that has allowed them to harness the powers of nature and increase the amount of wealth and satisfaction that we gain from them. If we compare the condition of human existence in 1800 (where 85% of the world’s population was living on $1 a day) to that of today (down to 20%) then we can see that freedom has been exceedingly good to the poor. Perhaps smart libertarians, accused of ignoring the plight of the needy, should raise this point and query whether, in fact, it is their ideological opponents who are really the ones who don’t care?

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Politicians and Entrepreneurs

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When perusing much public discourse concerning those in government and those who, say, are businessmen and entrepreneurs, one of the more striking aspects is how their economic roles and motivations are viewed as the complete opposite for what they really are.

Even though their achievements may, from time to time, be lauded, the businessman, entrepreneur or capitalist is almost universally despised for what appear to be his motives of greed, selfishness and exploitation. Central to this is the profit-motive, a factor that seems to receive exclusive attention at the expense of any other. Yes, it is true that people are in business to make money and usually as much of it as possible. But this completely overlooks the fact that no businessman is in a position to force anyone to contribute to his income. He can only gain a return on his investment if he is able to accurately devote the scarce resources available to the most highly valued ends of consumers. Even if he has no charitable motivation or any emotive feeling towards the people whom he serves, at the very least he is required to have a superior empathetic understanding of their tastes and desires. If he fails in this regard then the result is not a bumper profit but an eye-watering loss. All transactions, therefore, between businesses, their customers and their employees are entirely voluntary. People enter voluntary transactions because they expect to be better off as a result of them. Nobody is therefore put into a worse position through his interaction with a business, or at least they expect not be.

Counter this with the view of the politician. Reading the list of supposed motivations for government office one would think that only those with an angelic disposition need apply. Not only are they expected to be selfless and altruistic, thinking only of their “people” and of their “nation”, they are also supposed to be utterly devoid of any kind of personal ambition. Asked whether he/she has any eye for high office, one is normally retorted with the rhetoric of “public service” and the apparent fact that the budding statesman is just there to “do his job”.  In short, the implication is that government employment produces universally good and wonderful things that apparently require some kind of sacrifice for which there is very little reward. Nothing could be further from the truth. Government receives its revenue from taxation, and taxes are paid compulsorily. Whereas the entrepreneur has to risk the entirety of his wealth in order to persuade his consumers that what he produces is worthwhile spending their money on, a politician faces no such restraint. They can charge as much as they like, deliver services that are despicably dire and command a personal income that far exceeds what they would be able to obtain in the free market. Furthermore, because the funds for all of their boondoggles have been levied by the threat of force, there is a very real loss experienced by the taxpayers, even if the resulting service is relatively “good”. For none of them would need to be forced to pay up if the government’s ends where truly what they most highly desired to do with their money. Whereas an entrepreneur makes everyone – himself and his customers – better off, the politician only makes himself and the recipients of his tax loot better off. Those who have been forced to pay are left substantially worse off.

These fallacious views have played themselves out recently in the whole debacle of corporate tax avoidance. Few overlook the fact that the likes of Amazon and Starbucks rake in large revenues (if not apparent accounting profits) that somehow requires them to “give something back” to “society”. Yet what is forgotten is that they have only been able to obtain these revenues and profits through voluntary exchange because they have created employment and served the needs of customers by providing them with products that they want to buy. Yet for some reason we think it is just to charge them for this “privilege” of serving our needs. Further, is there not something incongruous about the whole rhetoric of “giving back”? I want a coffee so I go to Starbucks; I give them money, they give me coffee; they have already given in the form of a product that meets my needs. If Starbucks has to “give back” then why don’t I have to “give back” their coffee? Why am I, through the route of taxation, effectively allowed to renege on my side of the bargain?

A similarly related fallacy is that anyone who “owns resources” (i.e. land and capital goods) effectively just has to sit back and earn a perpetual income by virtue of this ownership. Although space precludes a detailed examination of the economics, a net return can only be earned from such ownership if the good is directed to a use more highly valued than that anticipated by other entrepreneurs. Failure to do this will simply result in losses. Try telling the owners of Woolworths, HMV or Blockbuster that ownership of resources is a path to perpetual wealth and income. If anything, it is the government that yields a perpetual income from resources. For it can confiscate anything it wants by force, and display zero entrepreneurial talent with its use by spending it on any wasteful project it deems desirable to itself and its cronies. The only say we have in the matter is an “election” between approved and screened candidates once every four to five years.

Whenever one is presented, therefore, with an opinion on the characters of businessmen on the one hand and of politicians on the other it is best to assume that the stated characteristics should be reversed.

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Greed

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All too often one hears the repeated lament that the reason for boom and bust, widespread poverty, the increased inequality of incomes, endless warfare and whatever else happens to be plaguing the world today in the eyes of the saintly commentator are because people are afflicted by greed. “If only people weren’t so greedy then everything would be fine!” chants the typical appeal.

However even a brief thought will reveal the empty nature of this word as a basis for criticism of the current social, political and economic order. This is not to suggest for a moment that the order is perfect or even right, nor that some people are not endowed with malicious intent. Merely that pursuing the problem with reference to “greed” is simply meaningless.

There seem to be two strands to any accusation of “greed”. First, that the alleged perpetrator desires to “possess wealth, goods, or objects of abstract value with the intention to keep it for one’s self, far beyond the dictates of basic survival and comfort” (as Wikipedia puts it) – i.e. that greed is the desire for some form of excess. Secondly, that only some people are afflicted by this menacing motivation whereas the rest of us are apparently content to languish in undemanding modesty.

Taking the first problem, if some people want or desire some kind of excess then we are entitled to ask excess of what. If something is excessive then what we are measuring, what is the unit of measurement and at what point of the scale is acceptability divided from excess?

One plausible possibility is that we attempt to gauge the value that a person’s desires or possessions would bring to him/her subjectively, what might be called “psychic income”. But why should this condemn a person as being the epitome of moral filth? If I get an immense amount of utility out of something that is, to all intents and purposes, useless to other persons what harm is this causing? Is it wrong for me to gain pleasure where others do not? What if I possess an object that gives me unimaginable psychic income, that makes me the happiest person alive, yet is, to everyone else, of little or no value? What has it got to do with anyone else that I enjoy this thing so much? This may sound like an exaggeration, but when you consider that many people have in their possession objects that to them carry great moral sentiment – wedding rings, photo albums, etc. – whose market value is but a pale reflection of the value they hold for the owner then it is not so far fetched.

In any case, even if gaining “undue utility” from an object was reprehensible, how do we measure this excess of subjective value? What is the cut off point? Utility is ordinal not cardinal – we can only rank things in order of how much we value them, not in precise quantities of value. A simple order never gives us any clue about how much something is valued, only how it is valued relative to anything else.

A second possibility is that we attempt to determine a person’s greed by the market value of his desires or possessions. But the market value of an object is simply a hypothetical price that someone might pay if offered the object for sale. It is dependent entirely upon the valuation of everyone else and is subject to constant and unceasing change. Indeed, strictly, market prices are only estimates. Real prices are historical events that bear no relation to future events. But leaving that aside let’s assume that a person’s possessions and/or desires command an exceptionally high market price. All this tells us is that everyone else values those possessions or desires extremely highly also. Why is a person to be condemned for this? Is it my fault if everyone also wants what I want or have? What if my family photo album was discovered to contain the prized, lost work of a celebrated artist or my wedding ring was found to contain a precious mineral and suddenly these objects, overnight, go from being practically worthless to potentially fetching millions of pounds in a sale. Am I now guilty for wanting or possessing these objects? Why should the fact that other people have changed their view of my possessions condemn me as being “greedy” for wanting to retain this property for myself? Should I be divested of my photo album and my wedding ring and the proceeds distributed to combat my alleged greed?

This unravelling of any accusation of greed begins to show the true motivation of the accusers – that it is really based on their envy rather than the possessor’s “greed”. This leads onto the next problem which is the idea that only some people are greedy – the “haves”. Everyone else is spared the condemnation. But would any of the latter turn down the offer to have their wealth increased beyond the so-called “dictates of basic survival and comfort”, even if it meant that no one else’s was? According to elottery-syndicates.com more than 32 million people play the UK National Lottery each week, well over half the eligible population. All of these people want to advance their own wealth to a great height (at least several million pounds worth in the regular lottery game while the jackpots in “Euromillions” game can run to over £100m after repeated rollovers) while leaving everyone else’s in exactly the same place. “Greed” therefore appears not to be an isolated motivation but one that is shared commonly.

Indeed, it is part of the human condition to always seek improvement to the current state of affairs as they are appraised by the individual. Every human action is an attempt to substitute more desirable ends for less desirable ends with the means available. To seek an end to this is to replicate the fallacy on which so many political philosophies have foundered – that the natural condition of man, with all of his qualities and faults, can somehow be moulded or changed. Any viable political philosophy must account for the true nature of man, warts and all. Further, as a result of humans’ unceasing appetite for improvement “the dictates of basic survival and comfort” change with each generation. In the second decade of the twenty-first century no one thinks that you are greedy if you can afford a house, a car, a telephone, a refrigerator and an annual foreign holiday. In the same decade of the twentieth century such possession would have been the utmost display of ostentatious luxury. As demand is often elastic it has always been the case that what has started out as luxury consumption of the rich has inspired entrepreurial activity to mass production until supply can be increased so heavily that even the poor can afford what was once a symbol of great wealth. Any attempted measure, therefore, of “the dictates of basic survival and comfort” is entirely arbitrary.

There are numerous related fallacies to the so-called greed problem. One is the idea that because one person has something another person must necessarily be without – that one person’s gain is necessarily another’s loss. If I have an iPad does that mean that someone does not have an iPad? No, it does not. I have an iPad because I went to work and created goods or services that I exchanged for money which, in turn, I exchanged for the iPad. The iPad only comes into existence because I created the resources that enabled me to purchase it. If I did not it would not mean that someone else would have it – it simply wouldn’t exist. Now there are definitely people in the world who do not fund their lifestyles from such production and voluntary trade but rather from violent appropriation of other people’s product, and some of them are very rich. But this should be dealt with for what it is and condemned accordingly. Per se one individual being a “have” does not mean that another is a “have-not”.

Another thread that seems to weave itself through social and political commentary is the idea that the net wealth of the rich is sitting around in a bank account somewhere, ready to be enjoyed as luxury consumption. This could not be further from the truth. The productive rich (as opposed to those who live off Government privilege and violently appropriated revenues) are rich because they have abstained from consuming what they have and invested it in real, productive assets – factories, machines, equipment, and things that must be run by people with jobs. Their increased net wealth reflects the success of this enterprise. It means more jobs for the rest of us to go to every day and cheaper goods for us to buy when we go shopping. The rich are rich precisely because their investment decisions have proved to be so productive. If this wealth was to be liquidated and distributed amongst everyone else in the name of “sharing” or “combating greed” then you would have to destroy the entire productive apparatus of the economy and place it in the hands of those who do not have the capacity to save rather than consume and, even if they did wish to save, have no or less of a proven ability to direct resources to their most productive uses. In contrast the amount of consumption spending by the rich, if distributed equally, would barely be enough to give everyone a few extra pennies.

In sum all of this reveals that it is a mistake to concentrate on people’s motivations or desires in achieving their ends. If somebody does something that inflicts no violence on either me or my property or if I trade with him peacefully and voluntarily then it is no business of mine why that other person engaged in those activities. What matters to me is the method of achieving those ends. Let us, therefore, banish any more talk of “greed” and focus instead on ensuring that more of our “greedy” entrepreneurs and businessmen make their wealth the honest way – voluntary trade, saving and capital investment that provides us with jobs and affordable products – rather than through violently enforced Government privilege, tax revenue and bailouts that definitely leaves them richer and us poorer.

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