12 October 2008

13. Profit Motive vs. Profit Destruction

This posting is to point out the immense, positive importance of the Profit Motive and Freedom of Competition to a prosperous, healthy capitalistic society and economy, and to compare that to the hideous, negative effects of Profit Destruction and State Controlled Economy that form an impoverished, miserable statist (socialistic) society and economy (if it exist at all). The Profit Motive and Freedom of Competition are presented first, followed by Profit Destruction and State Controlled Economy.

Profit Motive and Freedom of Competition

I begin with a quote from Capitalism: A Treatise on Economics by Dr. George Reisman, reprinted with permission:

“The dependence of the division of labor on the price system points the way to its indirect dependence on the institution of private ownership of the means of production. The price system rests on the profit motive and the freedom of competition. Operating in conjunction with one another, these are the elements that drive and regulate the price system – that determine the formation of all individual prices and their integration into a system. The profit motive and the freedom of competition, in turn, vitally depend on the institution of private ownership of the means of production. … It is necessary to explain here the nature of both of these sets of dependencies: that of the price system on the profit motive and the freedom of competition and, in turn, that of the profit motive and the freedom of competition on the private ownership of the means of production. … The profit motive – financial self-interest - makes everyone be concerned with the revenue or income he earns and the costs or expenses he incurs. As stated, precisely this is what harmonizes and integrates the economic plans and the economic activities of all the separate businesses and individuals who make up a division-of-labor society.”

--- Dr. George Reisman, from his book Capitalism, Part Two, “The Division of Labor and Capitalism,” Chapter 5, “The Dependence of the Division of Labor on Capitalism I,” Part A, “The Nature of the Dependencies,” pp. 137-138 (Jameson Books, 1998.)

Both of these concepts - “profit motive” and “freedom of competition” - encourage and promote the competition of rational and moral business principles, practices, long-range planning, judgment, and decision making – all of which ultimately benefit and enhance the well-being of the entire economic system, from producers to consumers, from businesses to the individual citizen. Both “profit motive” and “freedom of competition” help keep an entire economic system stable, balanced, harmonious, productive, and prosperous. Under Capitalism, unrestricted and unregulated economic competition is oriented towards providing the best product and service for the best competitive price and cost to fulfill the millions, even billions, of demands and needs in an economic system.

Again, a brilliant assessment by Dr. George Reisman:

“[A] major institutional feature of capitalism: the harmony of the rational self-interests of all men, in which the success of each promotes the well-being of all.”

--- Dr. George Reisman, from his book Capitalism, Part One, “The Foundations of Economics,” Chapter 1, “Economics and Capitalism,” Part B, “Capitalism,” p. 28 (Jameson Books, 1998). Reprinted with permission.

Only in a society of Laissez-faire Capitalism can economic stability and growth, along with social harmony and peace, exist, because under Capitalism (1) individual and economic freedom, individual rights, property rights, and all derivative freedoms are recognized, preserved, defended, and protected by a proper, objectively established, constitutionally-limited government limited to its proper functions (see Items Nos. 2 and 8 above), (2) the economy and all commerce is completely unrestricted and unregulated, and (3) coercive government force, including any kind of government sanctioned private force, is prohibited in a true capitalistic society.

Capitalism represents, encourages, and promotes (1) the Pursuit, Production, Accumulation, and Rational Use of Profit (The Profit Motive), (2) the Pursuit, Production, Accumulation, and Rational Use of Wealth, and (3) the unobstructed Freedom of Economic Competition (completely unrestricted and unregulated) as GOOD and Beneficial for life and society.

The Profit Motive and the Freedom of Competition make possible a prosperous life and society. That is the nature of Capitalism.

Profit Destruction and State Controlled Economy

(1) Statism discourages and destroys any rational, good, and moral motives for profit and/or wealth pursuits, production, accumulation, and use.
(2) Statism also regulates and controls competition in the economy (no true economic freedom).

These two events encourage and promote irrational, dishonest, immoral, corrupt despicable business practices - and discourage sound, rational (moral) principles, sound long-range economic planning, and rational judgment and decision making. These two events encourage short-range business thinking and planning, and the practice of Pragmatism. This ultimately endangers and destroys the well-being of the entire economic system, from producers to consumers, from businesses to the individual citizen. Under Statism and/or statist-oriented political policy, economic competition is oriented away from providing the best product and service for the best competitive price and cost to fulfill the demands in an economic system, to becoming oriented towards government and political interference, manipulation, favoritism, and special interests in the economic system, and the competition for government business subsidies and welfare.

Statism, in any and all of its forms, destroys the profit motive and the freedom of competition.

Statism, in any and all of its forms, destroys the rational self-interests of all men and businesses.

Statism, in any and all of its forms, destroys the well-being of all men and businesses.

Statism represents, encourages, and promotes Self-Sacrifice, Redistribution of Wealth, and Fairness as the good in life and society, and portrays the Pursuits of Profit, Wealth, and Economic Competition as EVIL and Burdensome for life and society.

In the end, the Destruction of Profit and Economic Competition only destroys life and society. That is the nature of Statism.