Many people speak of the “profit motive” and attach it to free markets. Of course, there is a profit motive but the idea that the profit motive vanishes in the absence of markets is absurd. The desire to profit exists regardless of the economic/political system under which one labors.
The bureaucrat under the system of state socialism is just as driven to improve his life as the so-called robber baron. No system eradicates this motivation.
The political/bureaucratic system abolishes “profits” in the sense of creating value in excess of costs. But it does not abolish profits for the individuals who labor in that system. Politicians don’t earn profits in the sense that business owners do, yet they profit by their political activity. They gain things which are important to them and that includes monetary gain, prestige, power, praise, etc.
The idea that profit is only monetary in nature is naive at best. Once, when I sponsored a dinner with Milton Friedman, his entire compensation, in terms of material goods, was dinner for himself and Rose and a reduced parking charge at the hotel garage. When I handed him his discount coupon for the parking I commented: “This has to be one of the lowest honorariums that you have ever received.”
Friedman, never one to miss a chance to make an important point smiled and said: “Any good economist will tell you that their is more to profit than mere monetary gain.”
The basic reality is that all humans are profit-maximizers especially when you realize this covers more than “profits” in the pure business sense. Politicians and bureaucrats profit. All people are “greedy” in the same sense. Everyone wants to improve their life.
Political control doesn’t eradicate such greed and neither does the free market. But the two systems do create different incentives as to how one uses their “greed” in relationship to others.
In a totally free market, one without subsidies or political control, the entrepreneur must produce a good which I am willing to buy. For me to be willing to buy his product I must conclude that the value of the product is worth more to me than the value of the money which I am paying for it. If I conclude that I am worse off, I simply don’t purchase the product. In order for the entrepreneur to be “better off” by having me part with my money he has to make me more satisfied than I would be without the trade. His profit is dependent on his ability to increase my well-being. That is because the market is voluntary, and in order to get me to “volunteer” to part with my money, he must increase my well-being.
This is most certainly not the case with politics. Where markets rely upon voluntary exchange the political process relies upon state coercion. Politicians and bureaucrats have the ability to force individuals to make less than optimal exchanges. In fact they have the ability to expropriate private wealth in exchange for nothing at all.
The German sociologist Franz Oppenheimer explained this difference in 1919 in his classic work The State
. Oppenheimer contrasted the two systems of profiting this way:
There are two fundamentally opposed means whereby man, requiring sustenance, is impelled to obtain the necessary means for satisfying his desires. These are work and robbery, one’s own labor and the forcible appropriation of the labor of others. Robbery! Forcible appropriation! These words convey to us ideas of crime and the penitentiary, since we are the contemporaries of a developed civilization, specifically based on the inviolability of property. ...I propose ...to call one’s own labor and the equivalent exchange of one’s own labor for the labor of others, the “economic means” for the satisfaction of needs, while the unrequited appropriation of the labor of others will be called the “political means.”
Even though he was socialist Oppenheimer saw clearly that the “state is an organization of the political means.” As Oppenheimer puts it: “The ‘state’ is the fully developed political means, society the fully developed economic means.” This fits precisely with Felix Morley perspective in his classic The Power in the People
. Morley, a well-known journalist and peace activist (he became the president of a Quaker college), noted that society “carries the flavor of voluntary companionship” but with the state “the association tends to be involuntary”.
“Society” is all interaction, economic or not, which is voluntary and cooperative in nature. It encompasses not just the economic market but social clubs, charitable organizations, private associations and individual activities. It should be noted that the bulk of social good that we experience comes out of this undirected, unorganized, spontaneous social order that free individuals naturally create. The state, on the other hand, is that entity which imposes involuntary actions on people within a certain geographic area. In society many competing and varied organizations seek to do the same good. Within the state there is no room for “a thousand flowers” blooming -- it is a monopolized entity claiming the exclusive right to initiate force.
As Morley sees is, the state is the same an Oppenheimer’s “political means” and society is the same as his “economic means”. You can dichotomize them as the voluntary versus the coercive as well. I tend to see the one as peaceful action verses violent action.
The political means of wealth acquisition relies upon the use of force or the threat to use force. The economic means requires cooperation and peace. It is said that markets are seductive while political controls are rape. In each case they could potentially achieve the same end, but the one requires seduction or persuasion while the other relies upon orders, threats or violence.
My tendency toward limited pacifism means that I prefer the latter sort of social structure. I say “limited pacifism” because I believe it is immoral to initiate force against others but not necessarily immoral to use force to defend one’s self against violence from others.
And this brings me to my main point -- that businessmen are not inherently inclined toward one system or the other. The profit motive, which we all acknowledge inspires them, exists in both systems.
A profit-seeking businessman could be an advocate of social, voluntary exchange based on the peaceful exchange of value for value, benefiting all parties to the exchange. He, or she, can just as easily prefer the political means of wealth acquisition which uses state power to impose involuntary exchanges upon unwilling individuals. What we call “the profit motive” exists in both situations. But, as I see it, the one is inherently immoral and other moral.
There is nothing about businessmen that makes them more inherently moral than the public at large. Just as some individuals prefer to live by theft from others there are some businessmen who prefer to use the political means, or state coercion, in order to acquire wealth for themselves.
We are witnessing this sort of lolly scramble with those corporate interests who are using state power to confiscate wealth from productive individuals in order to bail out themselves. The entire debacle we see on Wall Street is one where government interventions created distorted incentives and encouraged risky investments, so risky in fact, that they failed. The State then comes in and uses its coercive monopoly to confiscate the wealth of individuals and make them involuntary “partners” in the losses created by the mismanaged corporations.
I do acknowledge that the politicians created the incentives to mismanage things. But that doesn’t exonerate the corporate leaders who choose to use these incentives in an attempt to enrich themselves. Long-term the reliance upon state coercion to gain wealth is doomed to fail. It is inherently destructive. Dr. Martin Luther King noted: “The ultimate weakness of violence is that it is a descending spiral, begetting the very thing it seeks to destroy. Instead of diminishing evil, it multiplies it.” Because the state means of profiting uses force, because it is involuntary, because it is inherently violent, is multiplies the very evils it seeks to address. It tends to exacerbate problems not solve them.
The problem with the State socialist is that he doesn’t see how the use of evil means creates more evil. He is willing to use violence to address the needs of people. He wants to improve the lot of the poor and powerless and for this he creates state power. But power doesn’t fall into the hands of the powerless by definition. The centralized, violent system of statism always ends up in the hands of a powerful elite who use it against the interests of the very people it was meant to help.
Classical liberalism, or libertarianism, properly understood has always been a political philosophy of the Left. This was clearly indicated when the great liberal thinker, Frederic Bastiat, sat on the Left of the French Assembly. Bastiat shared the Left’s desire to improve the lot of the poor and powerless, but, unlike the state socialist, he understood the dangers of using state power to accomplish these goals.
I believe in a libertarianism that speaks out for the powerless and for those who are denied their full equal rights before the law. And I realize that to achieve such a system of justice requires the abolition of concentrated power--not its monopolization. When power is monopolized in the hands of the political classes the results will always be one where the rich and powerful use state coercion to pick the pockets of the poor and powerless.
The “bailouts” that we see today are the plundering of the working classes by corporate elites. It is a plundering that could NOT take place in a truly free market. It is only possible when the State has the power to transfer wealth involuntarily. And the statist Left needs to recognize that they are largely guilty for creating the system that makes such plunder possible.
If the Left wants to put an end to such corporatism they will have to re-evaluate their belief that the use of involuntary, state power can achieve a peaceful, prosperous social system. Violence does not beget peace, coercion does not create cooperation, plundering does not create wealth. Both the ends and the means must be consistent with one another. That means the eradication of concentrated power and the creation of truly free, voluntary markets.
Labels: free markets, incentives, libertarianism, politics, socialism