Monday, April 3, 2017

Prophets Against Profits

In the capitalist system of society’s economic organization the entrepreneurs determine the course of production. In the performance of this function they are unconditionally and totally subject to the sovereignty of the busying public, the consumers. If they fail to produce in the cheapest and best possible way these commodities which the consumers are asking for most urgently, they suffer losses and are finally eliminated from their entrepreneurial position. Other men who know better how to serve the consumers replace them.
- Ludwig von Mises, “Planning For Freedom”

A (very) brief primer on where profits come from in a free market economy and then a few observations regarding the idiocy of any notion of profits being “too high.”

In a capitalistic economy, sellers (entrepreneurs) compete with other sellers while consumers compete with other consumers.

The seller competes with other sellers in forecasting the consumer’s needs and desires and providing their product in a timely manner at a price the consumer will pay.

The consumers compete by bidding against other consumers via how much each is willing to pay for the product, if anything at all.  

The seller wins or loses (profits or losses) according to how accurate his forecast was regarding consumer demand and how the consumer evaluates the quality and cost of the product.  

If the seller nails it, his risk (investment) is rewarded. By the way, when other entrepreneurs see his rewards, they are motivated to compete for these profits by producing the same product at a cheaper price … and the cost for us consumers is driven downward. Nifty, eh?

So, riddle me this.

What in the world are “unjust” or “ungodly” profits? Where did the profit come from? Satisfied consumers. So what is actually being asserted is that the consumers are wicked.

“No, no, no, Wilson. The seller obviously charged too much for his product.” Maybe it was “too much” for you or you simply didn’t want the product. Fine. For all those who wanted the product, however, the price was juuuust right.

“Well then, the consumers were duped into buying the product by advertisers.” So you’re saying thousands upon thousands of consumers were all too stupid to resist the ads? Can you say … condescending? Anyway, if advertising was that powerful sellers would never have to worry about the demand for or the quality of their product. Just pour a zillion dollars into ads and success is assured.

Question: By what standard do the accusers condemn a certain level of profits as “unjust?” Their. Subjective. Opinions. That’s it. Contrary to Mises’ comment that the consumers are sovereign in a free market, what these self-appointed judges are asserting is, “I am sovereign.” Of course, when our governments make side deals with corporations, deciding winners and losers, or enact price controls, or place higher taxes on products they deem a “luxury,” and etc., they too are asserting their sovereignty over the market place, but that’s a topic for another day.

When I was younger, I never understood the prophets against high profits. Didn’t they see they were railing against their neighbors who purchased the product or who own stock in Too-Wealthy, Inc.? At first, I chalked it up to ignorance. People simply do not understand capitalism and the free market. But then the motive for so many others’ condemnation of high profits dawned on me: it is unabashed envy, seasoned with hatred for the common man.

Copyright, Monte E Wilson, 2017

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