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A Page on Freedom: Number 5

APRIL 01, 1984 by BRIAN SUMMERS

Social Responsibility

Profit-seeking businessmen are often accused of neglecting their social responsibilities. But in a free and open market, profit-seeking itself performs an important social function.

To see this, we need to understand free market pricing. In an unhampered market, the businessman adjusts his asking price so as to just sell all his products. If he tries to charge more than this market-clearing price, he loses so many customers to competitors that he can’t sell all his wares. If he charges less than the market-clearing price, the demand for his product exceeds his supply. Only at the freely determined market-clearing price can the businessman sell as many items as he wants, and customers buy as many items as they want.

The intelligent businessman is well aware of this. He knows that he can’t make profits by simply raising his prices because he would soon lose customers to his competitors. There is only one thing he can do—cut costs of production. Thus, the businessman tries to use his men and materials in the most efficient manner possible. And, because he must pay market wages, prices, and interest rates, he tries to minimize the number of people he employs, the amount of capital he uses, and the quantity of natural resources he consumes in producing his goods and services. In other words, he tries to practice conservation.

Thus, in a free and open market, with no government subsidies or other special favors, businessmen earn profits by using as little as possible to provide consumers with as much as possible. The greater the profit a businessman earns, the more scarce resources he leaves for other people to use. What is irresponsible about that? []

Brian Summers

THE FOUNDATION FOR ECONOMIC EDUCATION, INC.
IRVINGTON-ON-HUDSON, NEW YORK 10533

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April 1984

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