"No one must profit from the misfortune of others."
This, like several clever plausibilities, is an international socialistic cliché. In
It is important that we not be taken in by this "reasoning."
Once we concede that socialism is a valid means to alleviate distress, regardless of how serious the plight, we affirm the validity of socialism in all activities. Or, in other terms, when we rule out profit or the hope of gain as a proper motive to supply drugs or to alleviate illness or to provide other remedies for misfortune, we must, perforce, dismiss profit as a proper motivation for the attainment of any economic end.
Consider the scope of misfortune. True, illness is a misfortune as would be the nonavailability of drugs. But suppose there were not a single physician or surgeon! Or no food! Or no transportation of any sort! Most of us would think of ourselves as the victims of misfortune were we to be deprived of electricity. And telephones? Clothing? Heat? Shelter? Gas and oil? Indeed, the absence of any good or service on which we have become dependent qualifies as misfortune. Imagine the disappearance of all power tools. This would be more disastrous than a head cold, diabetes, pernicious anemia, or the inability to get a prescription filled at a drugstore. Our dependence on power tools is such that most of us would perish were they to disappear. But does the possibility of their disappearance (and the inevitable mass suffering and death that would follow it) warrant the setting up of a state owned and operated power tool industry?
Viewed in economic terms, man spends his earthly days working himself out of and insuring against this or that type of misfortune. Bad predicament is our lot except as we succeed in extricating ourselves, and it is no more to be identified with sickness or drug shortage than with fuel or housing or food scarcity.
Scarcity of Goods and Services Is the Problem
Economics, as a discipline, concerns itself with the means of overcoming the scarcity of goods and services, and it matters not one whit what good or service is in short supply. Broadly speaking, two systems, now in heated contention, are advanced as the appropriate means to overcome economic misfortune.
The first, to any casual observer, looks more like chaos than a system. Its credo is freedom in exchange: Let everyone act creatively as he wishes, unattentive to five-year plans or the like; that is, let each person pursue his own gain or profit—willy-nilly, if you please—as long as he allows the same freedom to others. Government, the social agency of compulsion, has no say-so whatsoever in creative actions; it is limited to framing and enforcing the taboos against fraud, violence, predation, and other destructive actions. This philosophy permits no man to ride herd over men. Would-be dictators, mind your own business! The right to the fruits of one’s own labor is of its essence, individual freedom of choice its privilege, open opportunity for everyone its promise, the hope of personal achievement—gain or profit—its motivator. Call this the market economy.
The second is definitely a system: an organized, political hierarchy planning everything for everyone. The hierarchy prescribes what people shall produce, what goods and services they may exchange and with whom and on what terms. In this command economy people are ordered where to work, what hours they shall labor, and the wage they shall receive. It is arbitrary people-control by the few who succeed in gaining political authority. The political eye is on the collective; freedom of choice, private ownership, and profit are among its taboos. Briefly, it is the state ownership and control of the means as well as the results of production. Call this socialism.
Socialism Has Been Tried
No question about it, the results of production can be and are successfully socialized, that is, they can be and are effectively expropriated. Further, they can be and are redistributed according to the whims of the hierarchy and/or political pressures. But socialism, like Robin Hoodism, demands and presupposes a wealth situation which socialism itself is utterly incapable of creating.1 It can redistribute the golden eggs but it cannot lay them. And it kills the goose!
Refer to the early Pilgrim experience, 1620-23. All produce was coerced into a common warehouse and distributed according "to need." But the warehouse was always running out of provender; the Pilgrims were starving and dying. They did, in fact, socialize the results of production but, by so doing, they weakened the means and, thus, had little in the way of results to distribute.2
Those who have few if any insights into the miracle of the market are led into the false notion that the communalization or communization or socialization of an activity reduces costs because no profit is allowed. The fact is to the contrary. The oldest socialized activity in the
The Profit Motive
A distinguishing feature of the market economy is the profit and loss system. But, contrary to what casual scrutiny reveals, profits are not added into price; they are, in effect, taken out of cost. The profit and loss system is an impersonal, couldn’t-care-less, signaling system: the hope of profits entices would-be enterprisers into a given activity and losses ruthlessly weed out inefficient, high-cost producers. The profit on the first ball point pens cried out, "Come on in, the water’s fine." Today, there are ball point pens used for giveaways.4 I paid $250 for my first radio. An incomparably better one can now be had for $7.95. To claim that such examples number a million would be a gross understatement.’
Conclusion: When an activity is in the doldrums, threatening misfortune, we should not attempt revival by a resort to socialism, for it can perform no more than a malfunction: political redistribution! Be the dying industry drugstores or agriculture or railroads or opera or whatever, remove the fetters! Free the market, which is to say, let the hope of profit attract all aspiring producers and let the stern, uncompromising, impersonal lash of losses weed out the inefficient, leaving only the most efficient in charge of overcoming our bad predicaments.
Apart from theory and looking solely at the enormous record, the individuals sorted out by the market are more efficient (lower-cost) managers of human and natural resources than are political appointees. If we remove the hope of profit as a means to alleviate misfortune—poverty, illness, misery, disaster—we shall increase our misfortunes and make them permanent.
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1 This fact requires a lengthy explanation. See "Socialism: A Barren System," The Freeman, March, 1963.
2 For further explanation of the Pilgrim experience, see "Conscience of the Majority," The Freeman, March, 1961.
3 For a critique of socialized mail delivery and the case for free market delivery, see The Freeman, July, 1957 and October, 1962.
4 See "Profits" by Dr. Benjamin A. Rogge, The Freeman, August, 1963.
5 One corporation alone manufactures more than 200,000 items. The total for the nation is incalculable.
Milk Cow or Watchdog?
Some 2,000 years ago, it was Plutarch who warned: "The real destroyer of the liberties of the people is he who spreads among them bounties, donations, and benefits." And it was an old French peasant who made the sad observation after the collapse of
From the Reporter published by the Associated Industries of Missouri