Freeman

ARTICLE

The Social Role of Business

OCTOBER 01, 1982 by RIDGWAY K. FOLEY JR.

Mr. Foley, a partner in Schwabe, Williamson, Wyatt, Moore & Roberts, practices law in Portland, Oregon.

The current fashion is to pontificate, sometimes to excess, concerning the social role of modern business and the social responsibility of trade entities in late twentieth-century society. Given this tendency, the nature and appropriate role of business in any social setting deserves attention.

At the outset, let us propose a working definition of business: the methods of voluntary action utilized to conceive, produce, transport, and distribute scarce goods, services, and ideas from those who create such products to those who wish to trade some value they have created in ex change for those products. It is at once a structure, device or institution as well as a process. It serves those who wish to trade; it exists solely in a market; it does not partake of coercion; it exacts no penalty from those who prefer not to share their produce.

All too often, observers tend to limit their thinking of business to modern corporate giants exemplified by Exxon, Standard Oil Company of California, or General Motors. While these entities do represent specific examples of one successful mode of business, such a myopic view distorts reality and conjures up the inaccurate premise that all business consists of large aggregations of people, machines and capital, mass-producing integrated or disparate goods for consumption.

In fact, business includes numerous corporations unlisted on the New York Stock Exchange and virtually unknown beyond the boundaries of a local or provincial area. It also encompasses myriad family enterprises, close corporations, general or limited partnerships, and individual proprietorships, all providing a host of desired goods, services and ideas. It further embodies such activities as farming which raises, transports and sells needed foodstuffs in the market yet which often receives undeserved discrete treatment in the political and economic realms. It envelops professional men and women who offer their services to others in exchange for value.

In the broad sense, business enfolds within its grasp anyone and everyone engaged in trading his ideas, his services, his goods, that which he creates and owns, with other individuals who possess goods, or services, or ideas which they consider expendable or less desirable than the exchange goods offered by others. Thus, every person who performs gainful employment in ex change for a wage, salary or other kind of remuneration really participates in business: he trades his time, energy and creative efforts to another for payment which, in turn, can be used to fulfill his needs and desires.

Economic Laws and Business

Man displays the curious communicative tendency to employ the identical term to convey quite disparate concepts. The word “law” offers a striking example.[1] Positive, or human, law generally refers to a system of rules and orders, emanating from a sovereign, directed to subject people, commanding or proscribing human action, and exacting a penalty or sanction for known noncompliance or disobedience. Natural law (of which economic law forms a part), on the other hand, refers to certain causal relationships which flow from human action. Like positive law, natural law enforces conduct and wrests a sanction for human action, but there the analogy terminates. Positive law emanates from mankind with its inherent fallibility; natural law reflects reality and neutrality rather than individual bias. Commoner and King both bleed when cut with a knife. Natural law makes no value judgments; it merely levies a cost related to universal truth by means of cause-and-effect consequences for human action.

The three fundamental economic laws concerning business form a part of the natural law rather than man-kind-enacted and enforced normative rules.

The First Law of Economics: Scarcity

The first law of economics dictates that this science deals with the creation and distribution of scarce goods, services, and ideas. Where free goods exist, the study of economics disappears.

Imagine an island paradise, blessed with clean air, fresh water and an abundance of tropical fruit. Here business exists only in the most rudimentary form since little effort need be expended by the inhabitants to secure their daily foodstuffs and water. Yet, even that condition and the minimal effort reveals that business in some form may be necessary. A supply of fruit and water, while sufficient, is finite, not endless. Some method must be utilized to divide and distribute the existing or potential scarce goods to the islanders. Business represents a method, the best and fairest means of distribution, where each individual, acting voluntarily, offers to exchange that which he possesses for that which he desires.

Where wants exceed the free (not scarce) goods available, the exchange economy develops. An elementary specialization and division of labor arises, where, in place of each inhabitant carrying his or her own water, gathering fruit, and handling all needs, one member of society de velops a skill in the production of grass skirts or handmade thongs which he or she exchanges for mangoes delivered to the door.

The law of scarcity introduces yet another salient economic concept: labor. Labor consists of the productive expenditure of human energy and provides the necessary base for business. Even on the tropical isle of our hypothesis, the rudiments of labor exist: picking breadfruit, carrying water, sewing clothing, and thatching a hut all require some effort.

Viewed broadly, all business rests upon labor, past or present. Present labor appears obvious: the physical and mental efforts of men and women engaged in the creation, production, transportation and distribution of scarce goods, services and ideas. Yet business enterprises also use past labor, stored-up and unconsumed labor, often termed capital. The productive results of labor may be consumed or saved; those efforts which are saved are invested in tools and machines to be used in future productive efforts. Capital renders present labor more productive and efficient. Past and present labor applied to existing resources creates new and desirable scarce goods for trade.

The Second Law of Economics: Insatiability

The second law of economics provides that man’s needs, wants, and desires are insatiable, dynamic and never-ending. Man’s acquisitive nature mandates that his individual and collective cravings always outstrip his production. In short, he is never satisfied with the current state of affairs.

Recur to the example of the isolated island. As man grows, he becomes more acquisitive; good food and plentiful drink, an adequate hut and basic clothing may not be enough. He will seek variety in his diet, distinguished and distinguishing feature in his living quarters and class or style in his clothes. He may hanker after a plow, a conveyance, a book or a whole host of other things. Faced with an array of scarce goods, services and ideas, his wants are insatiable.

The Third Law of Economics: Cost

The third law of economics follows from the roots of scarcity, labor, capital and insatiability: every thing possesses, and occasions, a cost. This immutable norm of natural law flows from the fundamental natural law rule of consequences, of cause-and-effect. Denial of the principle cannot destroy it.

Some state this premise in homely fashion, such as, “it’s time to pay the fiddler” or “there ain’t no such thing as a free lunch.” The cost analysis of natural law provides that no one can secure scarce and desired goods, services or ideas without effort—even a taking by force or fraud requires risk of retribution, clever cunning action, and physical and mental effort. The effort constitutes the cost of the product, whether it represents effort by the producer in making the device, or effort by the trader in manufacturing trade goods, or effort by one (donor) on behalf of another, third party beneficiary.

In a free society, a business or market society, the cost of an exchange amounts to the intersection of that which someone who possesses the desired good, service or idea will demand from the buyer in trade, and that which the latter will voluntarily transfer to the producer in exchange. In simple economic terms, price represents the intersection of the supply and demand curves. But lines on a graph, being abstract, obliterate reality; the reality of price is cost, and cost stems from the natural law of the universe.

In a command society, the cost of an exchange will be disguised because of the avoidance of a market mechanism.[2] Nevertheless, each good, service, and idea will command a cost under the natural law as surely as men in power try to command their fellows. The cost required amounts to the effort expended—the past and present labor—in production, and the alternative courses of action avoided. Each human action (including economic or business activity) requires a choice and each choice produces moral consequences. The consequences constitute the cost of the ac tions.

In what manner do these three fundamental economic laws decree the need for business? Business—the structure and the process—deals with the rules of scarcity, insatiability and cost in a voluntary and efficient way. The allocation of scarce, desirable and valuable goods, services and ideas must be secured in some manner. Basically, two methods exist: coercion or voluntarism. Because men and women choose different ways to satisfy their ever-expanding wants, property can be divided in two ways: (1) each person can bid for the goods and services sought against all competing uses (the nonaggressive method) or (2) some person or group can seize power and forcefully decide (choose) for others by allocating scarce goods, services and ideas to satisfy those insatiable wants (the coercive method). The coercive method allows some individual or group to use force to distribute these products in a forceful manner, according to their subjective value judgments. The voluntary method allows each individual to act without force to provide for his own ends and to pursue his own brand of happiness. The state represents the coercive method; business provides the voluntary method.

Property, the Creation of Value, and the Pursuit of Happiness

Business provides the structure and the process which creates and distributes property. Property constitutes the name given to those goods, services and ideas created by men and women, acting productively by themselves or in a group. One does a disservice if he limits property to land or “things,” like furnaces and machine tools; property includes the corporeal and the incorporeal, the tangible and the intangible: legal and accounting services and management ideas as well as books and chairs.

In a broad sense, property may be described as the human creation of value. The world exists. Man can only create by taking existing things or elements and altering their character or transporting them so as to make those things or elements, or a combination of them, useful to him or to others, or by conjuring up ideas about existing things or documents useful to him or to others. Property sometimes connotes elements in a natural state: game or wilderness land or minerals. This presents too narrow a view: fauna or dirt or iron ore provide nothing of value—they just exist—until used by men to satisfy their needs and wants. In the more salient sense of the term, elements become property when they become useful to mankind, when men and women apply their value structure upon these existing matters.

How do human beings value items? The fundamental of business is that men and women value everything subjectively. Each person attaches worth to goods, services and ideas in accordance with his or her unique character and individual judgment. Mankind rates merit of various matters on individual and ever-shifting scales of preference, fueled by internal measurements, assessments, perceptions, desires and motivations which no one else can reproduce or appreciate. As a concomitant natural rule, one recognizes that objective value does not exist; no one can conceive of a universally defined and accepted “good chair” or “good city” or “good concept” which will rate equally with each person.

Value Is Subjective

If objective or inherent value existed, a single producer for each kind of product would suffice: everyone would prefer Borden’s to General Foods and the latter would go out of business. Since men value everything subjectively, business develops to supply and service these insatiable and increasing wants related to scarce and costly items. As a result, several producers of similar goods will find their adherents in a market. Cost diminishes as competition between vendors keeps only the most efficient in the market. Profit appears, maintaining the sellers, as the buyers bid in competition with other potential users for wanted products.

Some who recognize that all value is subjective confuse value with reality and deny the existence of absolutes or truth. The two concepts do not war and are not coincident. Truth exists; it represents a facet of natural law which is no more than the face of reality. The concept of subjective value means that men—possessing the power of ultimate choice over their own destiny—may disregard truth and believe in, and value, fiction. The great lesson of liberty is that freedom implies the freedom to be wrong, to err. Because man is free to choose, he maintains the freedom to choose badly, to value fallacy over truth. Truth is not value, and value is not truth. Value represents an internal scale of preference while truth represents a natural law which applies a cost or consequence for choice freely made.

Business does not engage in moral value judgments except to the extent that business decisions represent moral choices of the producers who must (like all men) live with their consequences. Business provides goods, services and ideas to those who wish to purchase or trade for them, without acting as a moral arbiter of the choices of the consumer. If a business distributes harmful automobiles or addictive drugs, the maker must bear the moral results of his part in the process, but unless his conduct partakes of force or fraud, the state should not step in and restrain a free transaction. The wisdom of the choice of the buyer cannot be measured by fallible men since (1) each element in the universe incorporates the potential for harm and (2) no person possesses the ability to supplant another actor’s choice-making process. Hence, except as indicated regarding coercion or deceit, business remains morally neutral and the buyer must also bear the moral consequences of his choice.

Our Declaration of Independence did not promise eternal bliss and ethereal well-being; it recognized as supreme the inalienable human rights to “life, liberty and the pursuit of happiness.”[3] It rests within each person to seek his own ends and to achieve happiness. No one, including the state, can promise another happiness; it cannot even define happiness for another. The proper role of the state is simply to leave man free to pursue his happiness in response to his subjective value system. Business merely exists as the most effective and efficient mechanism by which men can pursue happiness, compatible with natural law principles of inalienable rights.

The Multiple Roles of Individuals in a Business Society

Less perceptive observers tend to fragment society into sections like “business,” “labor,” “consumers” and “farmers.” Actually, all members of a modern market society play many roles: most are shareholder-owners, worker-producers, and consumer-users and some are officer- managers of business. Fragmentation distorts reality and serves no useful purpose. Many people create value, directly or indirectly, and all consume. To the extent that they save some of what is produced, they become owners: every possessor of an insurance policy, bank account, pension plan, bond or stock is an owner of business in society.

The meaning of these roles may be both seen and unseen, obvious and obscure.

The visible meaning: class warfare destroys us because we are fighting ourselves. Anti- business legislation or litigation attacks all who own a share of that business. Moreover it destroys the structure and the process which fulfill our wants and desires as consumers most effectively.

The hidden meaning requires some thought. In which of these roles may members of society use the state to enforce their desires? Man merits no right to use force in any one of these roles except in two limited circumstances: he may band together to prevent and punish aggression, the initiation of force and fraud, and to secure common justice, the settlement of otherwise insoluble disputes. Beyond these limited roles, the state intervenes in business only at the peril to all who reside in society; each inhabitant, in one or several roles, derives exceptional benefit from the existence of business.

Consider two of the many aspects of this hidden or secondary truth.

First, mankind in a free society retains the absolute right to refuse to trade with those one wishes to avoid for whatever reason. If a party does not desire to drive a Ford, he need never buy one. If he does not believe that he has received proper recompense for his toil and his production of value, when his contract terminates he may go elsewhere and sell his services for whatever the market will pay. Business in a free society is noncoercive: has anyone, even in this euphemistically-la-belled “mixed economy,” ever forced another to buy a Chrysler instead of a Volvo, or to purchase Colgate-Palmolive products in place of a competitor’s offering?

Second, the absence of business would render trade abominably slow, tedious, and uncertain. Imagine the difficulty you would encounter in this country of 225,000,000 souls if you attempted to satisfy your wants by trade without a business structure. Each of us would surely starve naked in the dark; as Leonard Read has so convincingly demonstrated, not one among us can construct—start to finish—an item as simple as a common pencih[4] Business defines the means by which we voluntarily speed up and apply precision to the many transfers which make our lives productive and satisfying as we pursue happiness.

Three myths pervade the study of business: the myth of the windfall profit, the myth of the private monopoly, and the myth of the evil entrepreneur. Each fantasy accounts for much common misunderstanding of the role of business in society yet, in unmasking these chimeras, a nub of substance remains to be explored.

The Myth of the Windfall Profit

The consideration of the trading transactions of business introduces another term: profit. Profit represents the most misunderstood portion of business endeavors.

Profit describes the excess trade value transferred to a party in a transaction, beyond the value of the matter exchanged. Seller conveys a book to buyer for $5.00; the seller’s profit is the excess of value received over the value of the book to him. Such a value may consist of tangible or intangible matters. For example, the book may be a fungible item, one of many almost exactly the same; in this case, the seller may trace his profit to the amount in excess of the cost of the book. After totalling the charges for typing, proofreading, printing and publishing the tome and adding on a figure for the labor involved in writing, the seller may conclude that his cost is $4.75 and his profit $0.25. In different circumstances, where the book could be classified as a collector’s item or a first edition, other factors will enter into a determination of profit.

Often, analysts overlook the fact that all parties profit in all free transactions. The seller may receive a stated sum of money or goods of a value which represents his cost of goods sold plus an increment for the use of his time, capital and entrepreneurial abilities. He expresses willingness to trade his goods for their return; for any lesser amount, he would rather keep what he has produced. On the other hand, the buyer will trade a stated sum of money or goods of a value which represents the value the buyer places upon the seller’s offer. If the seller’s goods are worth less to the buyer, he will not make the trade and, instead, will keep his trade goods or money substitutes. If the trade takes place without coercion or fraud, both parties profit because each one receives something he values more from the other than that exchanged. This possibility takes place because of the doctrine of subjective value: individuals value things differently.

The Exchange Ratio

Price is not value. Price is an indicator of value at a particular time for particular individuals in a particular setting. But value shifts, so price merely marks the intersection of the supply and demand curves at that time.

Given this understanding, “excess” or “windfall” profits or prices can never exist unless a transaction possesses an element of coercion. Each party to a transaction freely and voluntarily entered receives the result he desires, and each profits in his subjective scheme of value. A windfall occurs when someone receives something undeserved or coerced; one cannot describe a gain as a windfall where both parties voluntarily agree and trade: in the absence of fraud, each receives that for which he bargained. “Excess” indicates a standard; if the standard of value is subjective, the gain cannot be excess in a voluntary situation.

Studies indicate that many individuals hold an unreal vision of business profits. Depending upon the poll, the sample and the source, people may believe that the average business receives up to 45 per cent of each sales dollar as profit. In fact, the average manufacturing concern receives something like $0.05 of each gross sales dollar as profit depending upon the measuring technique. Studies also indicate a misunderstanding about the amount of business cost related to labor and to government compliance. In addition, most profit figures contain the misleading assumption of measurement by a constant standard of value, whereas inflation causes a reduction of real value and an incorrect set of figures. Yet even if profit truly reached the imagined heights, one could not term them excess in a free society for the fact would merely betoken that the seller was supplying a needed service or good or concept desired so much by the purchaser that the latter was willing to trade a larger amount of goods or services or ideas in return. The greater the profit, the higher the need fulfilled.

The Myth of the Private Monopoly

A myth persists that, without governmental intervention in the business world “to assure competition,” private monopolies would result.[5] This would leave society at the mercy of a few large enterprises free to raise prices at will and to impose their corporate desires upon unhappy consumers without recourse or restraint of any kind. Such purveyors of nonsense fail to under stand basic economics, the free society or the concept of subjective value.

If everyone derived perfect satisfaction according to his or her subjective value structure from a single product, a single producer would dominate the field for that item. Yet this simplistic analysis ignores reality.

In the first place, subjective value varies among individual actors, leading to the need for many producers of a single type of product to offer a range of economic choices. Even where goods are fungible, such as steel, over 250 American enterprises appear as sellers, not to mention many foreign entities.

In the second place, if a producer satisfies a great number of consumers with a single product, his profits, far from being a windfall, merely demonstrate that he is assuaging a true demand.

In the third place, in a free society, without state-imposed barriers to market entry, subsidies, favoritism in distribution, and the like, high profits will tend to attract competing producers into the field, leading to innovation, improvement, and lower prices. Monopoly, even if possible, would constitute an ephemeral instance in the true private property order. New creators of value will hasten to share in a lucrative market, given the self-improvement and acquisitive nature of mankind.

In the fourth place, consumers vote in a dollar democracy among a great array of products and services.[6] Thus, not only do creators and traders compete in the market with manufacturers of like goods and services, but also each business must compete in the broader field among a wide variety of substitute, non-competing products; further, each enterprise must compete for the finite consumer dollar (stored-up labor or trade goods) which can be spent or saved. Remember: people tend to vote their own trade dollar more carefully and more in harmony with their true self- interest than they do in the polling place on election day, when many fall prey to the sins of greed, envy, covetousness and coercion. On the market, the consumer-voter trades his or her produce for that which he or she desires the most, based upon the trader’s enlightened subjective value.

In the fifth place, the market provides an amazingly resilient and efficient apparatus for determining the employment of scarce and finite resources for the satisfaction of human wants at the lowest cost and on the most praiseworthy and efficacious basis. Business ought to produce what the user wants. Consumer desires rest on subjective value. Thus, the business which prospers best serves the greatest number of subjective value structures at a given time. Those enterprises which do not satisfy the needs of the buyers receive a command from the market: go and employ your scarce resources, your capita], your labor, your time, your inventiveness elsewhere. Thus endeth the Kaiser, the Fraser, the Tucker, the Edsel, and the Imperial, to name a few examples from the American automotive industry in the post-World War II years.

Signals from the Market

If no one, or too few persons, buy a product even at a low price, that fact indicates to the seller that his merchandise does not accord with the subjective value system of the public at the present; in a word, there exists no demand for the stock. A hypothesized private monopolist occupies the other end of the continuum: by presupposition and definition, he serves a real need and best accommodates the fancies of the public in that arena. However, as indicated heretofore, if the market provides a return for such a good, service or idea, the monopolist will not remain the lonely producer for long; he will find plenty of company as new entrants into the field try to outdo him for the reward of profit. If these newcomers succeed, the price drops by virtue of increased competition; if they fail, the market signals that the former supplier still slakes the customer’s thirst best of all.

In the sixth place, while price does not constitute the sole determinant to trade, it does represent a register of value so that the producer—even an averred monopolist—who generates great numbers of goods and holds them for a too-high price (beyond what the subjectively- valuing public wishes to pay) will find himself burdened with a useless inventory. Since the management at General Motors cannot eat Pontiacs or use Skylarks for shelter without in convenience, we witness a reduction in price by means of lower finance charges (encouraging payment over time in fewer real dollars, given the inflationary sweep of the economy), rebates (price reductions by another name) and similar actions. Even these price diminutions have proved of remarkably minor assistance to Chrysler, which has reported losses in recent quarters in significant amounts and which would probably have left the field of automobile manufacture and sales without the existence of a governmental subsidy.

Thus monopoly represents a chimera in the real world in the absence of state intervention in the economy. The only true monopoly: the government monopoly of force.

The Myth of the Evil Entrepreneur

Television, radio, newspapers, magazines, books and plays all portray the American businessman and woman as evil, cunning, treacherous, crooked, greedy, immoral and, sometimes, downright murderous. Think back to the last time one of these media pictured a person in business as wise, decent, helpful, and virtuous. Few can recall such a display. This unfortunate characterization has embedded the populist notion of the evil entrepreneur deep into the fabric of our society, to the extent that it far overshadows reality and truth and does a gross injustice to many millions of upstanding individuals.

In fact, in a free society, people in business are neither better nor worse than their counterparts in education, labor, agriculture, the professions, or the social services. Business people partake of the same flaws which afflict all of us and demonstrate the identical virtues which render us little lower than the angels. Indeed, those who engage in business may often exceed some of their fellows in virtue because the entrepreneur, seeking profit from the satisfaction of wants by the deployment of scarce resources, helps his fellowman pursue the latter’s subjective vision of happiness.

Again, the traducers of business focus on the seen and ignore the unseen. They tend to overlook not only the role of business but also the multiple roles each of us plays in the real economic world: as worker, employer, owner, user, investor, in short, as businessmen and women. By chastising the business community, the unreflective writer or politician demeans us all—yet curiously, they invoke their little statist schemes as a prescribed nostrum for society’s real or feigned ills, artifices which assume perfectibility of the very mankind they disparage.

The Grain of Truth Behind the Myths

A nubbin of truth reposes in these three myths of business: since the business person is no better nor worse than the mill run of people generally, he like his peers may seek an edge, an advantage conveyed by government to one but not to others. It is the entry of the state into the affairs of business and the free flow of the market which leads to unfair profits, monopoly and wicked advantage. Business is designed to function best in a free society; the state represents the viperish interloper in the market Garden of Eden, corrupting what it touches when it exceeds the bounds of providing a fair field to all and special privileges for none.

How does the government disrupt the political economy? The ways and means are too numerous to count. However, the use of the law for favoritism generally takes one of two broad forms: limitations upon any entry into the marketplace or benefits for some entrepreneurs at the expense or to the exclusion of others. In the first category reside license fees, public utility franchise laws, rules favoring cartels and “natural” monopolies, norms restricting the admission and practice of specified professions, and the like. In the second category one finds subsidies, tariffs, government contracting and purchasing requirements, beneficial tax treatment and rules, and a whole host of curtailments stemming from the shibboleth “self-regulation” where certain members of an industry cloaked with the mantle of law under the guise of a quasi-public entity receive jural authority to make rules and issue orders which govern the-conduct of others in that discipline. The variations on these themes are constrained only by the ingenuity of the minds of men propelled by greed and envy.

Finding a Scapegoat

The populist who rails at “big business” often fails to discriminate between business operating in a free society and business maneuvering in a command society. No one will attain complete satisfaction and happiness in any economy, free or slave, for that is not the lot of mankind. Nevertheless, the purveyors of business myths often decry business practice as a supposed cause for their own shortcomings, failures, or losses. It is quite one thing to challenge a private economic enterprise which receives subsidies, land grants, favorable tax treatment, and a restrictive franchise from the state or federal government. It is quite another matter to preach hatred for a business which becomes successful and highly profitable not by virtue of special favors but by dint of meeting customer needs and subjective desires.

The acorn of truth from the oak tree of myth merely advises the thoughtful that the mandate state may taint the people who partake in the business process and structure. Thus, profit is not excessive where a freely acting seller and buyer reach a mutually-acceptable price without coercion; profit becomes an unfair transfer payment where the government limits the number of sellers or artificially enhances the price by means of law. Thus, monopoly ought not be feared nor even exist in a free society where the state merely acts as an impartial arbiter and policeman; the monopoly to be feared is the monopoly of power possessed by the government and utilized to favor one producer over others. Thus, the entrepreneur perceived as evil deserves no such incantation when he merely serves his purchaser without a forced exchange, for Adam Smith correctly saw that myriad persons, each following their own self-interest, are guided by an Invisible Hand to achieve the desired public result; the businessman merits opprobrium only when he seeks and gains an advantage by use of force or fraud, either individually or with the aid of a compliant state.

The Social Role of Business

We arrive at the seminal inquiry: what represents the social role of business in our community? Since “social” and “society” stem from the same root, the proper answer compels an understanding of two discrete concepts, the state and society.[7]

Society constitutes a voluntary, sharing, exchanging fraternity among consenting human beings. By nature, society is free and open-textured, permitting growth or termination at will as dictated by the mores, consciences and values of the participants. Simply put, one may enter or leave society at any time for any reason without penalty.

On the other hand, the state represents a coercive territorial body issuing commands which must be obeyed by all subjects. It rests on power, not contract. It is closed; one cannot debark without sanction, sometimes quite severe penalties. The state’s existence derives from the nature of mankind and a Rule of Necessity: flawed and finite people possess destructive tendencies which must be curbed, ere freedom is lost for all.

Society and state co-exist and complement each other, each reflecting one of the dual aspects of human nature. Society fosters mankind’s creative desires; the state obstructs the human disposition to coerce and destroy.

Open Competition

In the true sense, business only involves voluntary, nonaggressive human action. Thus, it provides the means for carrying out the concept of society. The state’s role: provide a fair field and no favor. When the state takes a hand in business, it taints the process and the structure be yond recognition. Instead of retarding force and fraud, the interventionist state uses its power to tilt the field and afford special privileges to the few.

Business harmonizes with the open texture which delineates society. One may dissolve a business relationship without sanction, subject only to self-imposed contractual restraints and the reasonable promissory expectations of the parties. A consumer may cease using a manufacturer’s product; a worker may stop laboring for a concern; a shareholder may sell his stock; all without reason or for any reason at all. Society fosters the creative inclination by providing harmonious surroundings and stimulating circumstances within which to live, work and exchange ideas, goods and services and to develop friendship, harmony and warmth. Business provides the mechanism by which such goods, services and ideas are created, transported and distributed under the voluntary exchange system which distinguishes society.

In the societal sense, then, the social role of business is simply business, to produce the best possible goods, services and ideas at the lowest possible cost and at the greatest possible profit for the entrepreneur. When business fulfills this role, it acts in harmony with society and its own nature by carrying out the function for which it is well and solely suited. In a word, society favors harmonious interchange of scarce economic goods to satisfy the most pressing subjective wants of mankind at the natural law cost; business provides the process to facilitate that interchange.

How Business Serves Society

Because business performs voluntary, creative and productive accomplishments by its very nature, it necessarily acts in the highest social role when it does what it is supposed to do. On the other hand, business is poorly equipped to achieve or carry out some sort of egalitarian social justice (which is not justice at all) or to redistribute income or wealth by means of transfer payments or to penalize less than virtuous conduct on the part of some individuals in society. Those who assign the foregoing aspects as business’ social role fail to comprehend the nature of business: imposition of “social policy” normally embodies the dictation of A’s value structure upon an unwilling B, a function best left to the state (the monopoly of coercive force) if to be performed at all. Creative entities and processes, like business, cannot easily expedite the destructive functions associated with the state.

All of this does not portend that business is not, and should not be a good neighbor. Most persons engaged in business normally act harmoniously with the universe and kindly toward their compatriots. They must obey the same moral laws as the rest of us do or suffer the identical moral consequences. However, the businessman ought not be forced to act as the moral arbiter of society: such a task would remain a blatant impossibility since no two persons maintain synonymous value standards at any time. If business misbehaves remedies exist: the consumer who disagrees possesses the perfect retort by nonviolently withholding commerce, and the state restrains the use of force and fraud by any predatory endeavor. By impressing these restrictions and no others upon the world of trade, we avoid the stultifying effects of prior restraint[8] which stifles creative enterprise and we accord business the freedom to serve the subjective needs of the populace. []


1.   By reason of the limitations of this paper, I confine my analysis of positive law and natural law to its most rudimentary form, reserving for separate treatment this most interesting and absorbing subject.

2.   This is the great teaching of Dr. Ludwig von Mises in his work on Socialism, which proves that a socialist society must import a market concept in order to price, plan and distribute economic goods. See Mises, Ludwig von, Socialism (Liberty Classics, Indianapolis [1936], [1951], [1969], 1981).

3.   Declaration of Independence of the United States of America.

4.   See Read, Leonard E., “I, Pencil” (The Foundation for Economic Education, Inc., Irvington- on-Hudson, New York).

5.   Several significant thinkers much more gifted than I have debunked the monopoly charade. See, e.g., Sennholz, Hans, “The Phantom Called ‘Monopoly’”, VII Essays of Liberty 295-317 (1960) and D. T. Armentano, The Myths of AntiTrust (Arlington House, New Rochelle, N.Y., 1972).

6.   Interestingly, the greatest diversity in products and widest range of choice exists not in the socialist economy allegedly designed for consumer protection but in the market economy characterized by freedom.

7.   See my detailed exposition of the nature and interrelationship of these two concepts in Foley, Ridgway K., Jr. “The Texture of Society”, 27 Freeman 495-504 (August 1977).

8.   See Foley, Ridgway, K., Jr. “Prior Restraint”, 31 Freeman 609-614 (October 1981).

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October 1982

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Heavily-armed police and their supporters will tell you they need all those armored trucks and heavy guns. It's a dangerous job, not least because Americans have so many guns. But the numbers just support these claims: Policing is safer than ever--and it's safer than a lot of common jobs by comparison. Daniel Bier has the analysis. Plus, Iain Murray and Wendy McElroy look at how the Feds are recruiting more and more Americans to do their policework for them.
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