About This Blog

Ludwig von Mises (1881-1973) was the greatest economist of my time. His greatest works can be accessed here at no charge.

Mises believed that property, freedom and peace are and should be the hallmarks of a satisfying and prosperous society. I agree. Mises proved beyond a shadow of a doubt that the prospect for general and individual prosperity is maximized, indeed, is only possible, if the principle of private property reigns supreme. What's yours is yours. What's mine is mine. When the line between yours and mine is smudged, the door to conflict opens. Without freedom (individual liberty of action) the principle of private property is neutered and the free market, which is the child of property and freedom and the mother of prosperity and satisfaction, cannot exist. Peace is the goal of a prosperous and satisfying society of free individuals, not peace which is purchased by submission to the enemies of property and freedom, but peace which results from the unyielding defense of these principles against all who challenge them.

In this blog I measure American society against the metrics of property, freedom and peace.

Friday, June 15, 2012

The Choice Is Ours: Profit Or Slavery

Every so often we are presented with an opportunity to peer into the heart and soul of a man. On May 21, 2012 President Obama afforded us that opportunity. Commenting on Mitt Romney's work at Bain Capital, Maximum Leader Obama said:
Now, I think my view of private equity is that it is set up to maximize profit. And that’s a healthy part of the free market. That’s part of the role of a lot of business people... ...But understand that their priority is to maximize profits. And that’s not always going to be good for communities or businesses or workers."
I've owned several small business in my lifetime. I chuckle when I hear people like Obama say "profit" as if it is a dirty word. What Obama doesn't understand, and what all successful business owners know for certain, is that "profit" is not "part of the role" of a business; profit is the lifeblood not only of a business but also of our economic system. Without profit a business dies. This is a hard concept for politicians to understand because most of them have never owned a business, and all of them do not have to make a profit or close up shop.

In previous posts I've described the benefits of property and a free market, as well as capitalism which combines property and a free market into a functioning economic system. These posts can be summed up in a single phrase: In a voluntary trade, both parties to the trade always win. This phrase may strike you as ephemeral or theoretical, as cute but having no concrete relation to reality. Yet, it describes to a "T" how business owners earn their living (and their profits) in our capitalist system.

Properly understood, a private business is nothing more than a prospective trading partner, a vendor offering goods and services for purchase by other businesses and individuals. There is no force or coercion involved. Like eBay, all transactions are free and voluntary. What makes the system work is profit.

When an individual "A" purchases a guitar, for example, from another individual "B" for $100 on eBay, it is obvious that "A" would rather own the guitar than $100 and that "B" would rather own $100 than the guitar. "A" and "B" value the guitar subjectively and differently. "A" thinks the guitar is worth more than $100 to him, and "B" thinks the guitar is worth less than $100 to him. Each trader is satisfied with the deal; each has made a profit, which is the difference between the value each places on the guitar and $100 in cash. If this were not so, "A" and "B" would not go through the trouble of making the trade.

Another way to put this is that profit equals the satisfaction each individual takes away from the deal. Human beings act with purpose, i.e., they act if and only if they believe their state of affairs will be more satisfactory after the action than before. If "A" and "B" were both indifferent about the trade, i.e., if neither "A" nor "B" expected to profit (to be more satisfied) as a result of the trade, they would not trade.

No individual, who values logic and rationality, is able to disprove these truths unless he assumes that human beings act without purpose, i.e., randomly, willy-nilly or at the behest of emotion or instinct. I submit (as does Ludwig von Mises) that if such an assumption is correct, then there is no significant difference between human beings and other lifeforms.

Many progressives make just this assumption. They argue that since human beings are slaves to their emotions and animal instincts, they are incapable of acting with a purpose contrary to these emotions and instincts. As a consequence, they believe human beings must be forced and coerced to act in their own best interests, which are often contrary to their emotional and instinctual impulses. They believe there must be an authority in society which forces and coerces individual human beings not only to live together amicably and peaceably, but also to trade fairly and equitably. Left to their own animal devices, human beings would prey on each other and, as in the realm of nature, the strongest would survive at the expense of the weakest.

There is a major contradiction inherent in this progressive assumption. If all human beings are slaves to their animal emotions and instincts, it follows that human beings in positions of authority in society must also be slaves to their animal emotions and instincts. How, then, are those in authority able to determine better than any other individual what constitutes fair, equitable, amicable and peaceable behavior? In order to avoid this contradiction, those in authority must assume that some human beings are slaves to their emotions and instincts and some are not. Some, namely those in authority, are blessed with the wisdom, insight and intelligence which is denied those ordinary individuals who are not in authority.

No other conclusion is logically possible.

This is the great divide in human thought that has tormented human beings and fractured their society and culture since man first walked the earth. Are all individuals capable of determining what is in their own best interests and acting upon that determination? Or are some individuals capable and others are not?

What has all this to do with profit?

If profit is satisfaction, and if all men are capable of determining what is in their own best interests and are capable of acting upon that determination to their own satisfaction, then all profit is not only legitimate but advisable. Moreover, if this is true, then capitalism with its inherent principles of private property and a free market, must be the economic system most fitting for human society.

If, on the other hand, some men are capable of determining what is in their own best interests and others are not, then some satisfaction, or profit, is legitimate and advisable and other satisfaction, or profit, is illegitimate and inadvisable depending, of course, on the ruling judgement of the authority in charge. If this is true, then capitalism is not a fit economic system for human society. It would follow, then, that some economic system that incorporates a dominant, ruling authority, like socialism, would be most fitting.

This is the choice before us. It is the choice we must make when determining what political and economic systems we will incorporate into our society.

Some say we can have the best of both worlds by establishing a pure democracy in which the people decide by majority vote which profits are legitimate and advisable and which are not. However, this suggestion is plagued by the same contradiction inherent in a system advocating a dominant authority, namely, if all individuals are incapable of deciding what is in their own best interests, then it does not follow that a majority of these individuals in any particular society will be capable. In such a system the majority becomes the domineering authority.

Others object to the capitalist economic system because in such a system all profit must be considered legitimate and advisable no matter how that profit is produced. Clearly, they say, some profit is the product of greed or other unsavory practices on the part of individual traders. As such, some profit is obviously illegitimate and inadvisable.

This is the point Maximum Leader Obama was making in his speech of May 21, 2012:
"And when you’re President, as oppose to the head of a private equity firm, and your job is not simply to maximize profits. Your job is to figure out how everybody in the country has a fair shot. Your job is to think about those workers who get laid off and how do we pay for their retraining? Your job is to think about how those communities can start creating new clusters so they can start attracting new businesses. Your job as President is to think about how do we set up an equitable tax system so that everybody is paying their fair share that allows us to invest in science and technology and infrastructure. All of which is going to help us grow."
Discriminating readers will note that Obama has fallen victim to the contradiction inherent in all arguments that advocate for an elite authority. He doesn't believe that "everybody in the country" is capable of acting in their own best interests. He thinks "workers" are unable to retrain themselves without authoritative help. He thinks communities of individuals are unable to form businesses on their own without the help of an elite in charge. He thinks the profit which results from voluntary trade between capable individuals must be taxed so the elite in authority can properly distribute and allocate these profits. He is not concerned with growth as it pertains to the satisfaction level of each individual trader. He is concerned about the growth of his own level of satisfaction as it pertains to what he thinks is best for the great collective of his imagined subjects.

Again, the choice is ours. We can either think of ourselves as incompetent dolts who need to be forcibly guided down the right path by an elite in authority, or we can act as rational, independent individuals capable of knowing what is in our best interests and what will best satisfy us.

If we choose the former, any profit we are allowed -- our individual level of satisfaction -- is subject to the whim and judgement of men in authority, like Barack Obama. If we choose the latter, the profit we enjoy -- our individual level of satisfaction -- is subject only to the judgement of our peers as we trade with them in a free and voluntary market.

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