Townhall...
Profits
Are for People
By Walter E. Williams
October 26, 2011
The
Occupy Wall Street demonstrators
are demanding “people before profits” -- as if profit motivation were
the
source of mankind’s troubles -- when it’s often the absence of profit
motivation that’s the true villain.
First,
let’s get both the definition
and magnitude of profits out of the way. Profits represent the residual
claim
earned by entrepreneurs. They’re what are left after other production
costs --
such as wages, rent and interest -- have been paid. Profits are the
payment for
risk taking, innovation and decision-making. As such, they are a cost
of
business just as are wages, rent and interest. If those payments are
not made,
labor, land and capital will not offer their services. Similarly, if
profit is
not paid, entrepreneurs won’t offer theirs. Historically, corporate
profits
range between 5 and 8 cents of each dollar, and wages range between 50
and 60
cents of each dollar.
Far
more important than simple statistics
about the magnitude of profits is the role played by profits, namely
that of
forcing producers to cater to the wants and desires of the common man.
When’s
the last time we’ve heard widespread complaints about our clothing
stores,
supermarkets, computer stores or appliance stores? We are far likelier
to hear
people complaining about services they receive from the post office,
motor
vehicle and police departments, boards of education and other
government
agencies. The fundamental difference between the areas of general
satisfaction
and dissatisfaction is the pursuit of profits is present in one and not
the
other.
The
pursuit of profits forces
producers to be attentive to the will of their customers, simply
because the
customer of, say, a supermarket can fire it on the spot by taking his
business
elsewhere. If a state motor vehicle department or post office provides
unsatisfactory services, it’s not so easy for dissatisfied customers to
take
action against it. If a private business had as many dissatisfied
customers as
our government schools have, it would have long ago been out of
business.
Free
market capitalism is unforgiving.
Producers please customers, in a cost-minimizing fashion, and make a
profit, or
they face losses or go bankrupt. It’s this market discipline that some
businesses seek to avoid. That’s why they descend upon Washington
calling for
crony capitalism -- government bailouts, subsidies and special
privileges. They
wish to reduce the power of consumers and stockholders, who hold little
sympathy for blunders and will give them the ax on a moment’s notice.
Having
Congress on their side means
business can be less attentive to the will of consumers. Congress can
keep them
afloat with bailouts, as it did in the cases of General Motors and
Chrysler,
with the justification that such companies are “too big to fail.”
Nonsense! If
General Motors and Chrysler had been allowed to go bankrupt, it
wouldn’t have
meant that their productive assets, such as assembly lines and tools,
would
have gone poof and disappeared into thin air. Bankruptcy would have led
to a
change in ownership of those assets by someone who might have managed
them
better. The bailout enabled them to avoid the full consequences of
their
blunders.
By
the way, we often hear people say,
with a tone of saintliness, “We’re a nonprofit organization,” as if
that alone
translates into decency, objectivity and selflessness. They want us to
think
they’re in it for the good of society and not for those “evil” profits.
If we
gave it just a little thought and asked what kind of organization
throughout
mankind’s history has accounted for his greatest grief, the answer
wouldn’t be
a free market, private, profit-making enterprise; it would be
government, the
largest nonprofit organization.
The
Occupy Wall Street protesters are
following the path predicted by the great philosopher-economist
Frederic
Bastiat, who said in “The Law” that “instead of rooting out the
injustices
found in society, they make these injustices general.” In other words,
the protesters
don’t want to end crony capitalism, with its handouts and government
favoritism; they want to participate in it.
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