Profits over People or Primacy of Profits?

The favorite refrain—ad nauseam, actually—of the communist-fascist left is that capitalism and its representatives, entrepreneurs, care nothing for people.* Profits are all that capitalists seek, exploiting both workers and customers.

In response to such Marxist blather, let me just say that profits are sales minus costs and the only way to earn a profit under true capitalism is to create and deliver a product (a good or service) to customers at a price that exceeds its cost. To do so, the created value must meet a need (a requirement for the improvement of the customer’s life) or want (an optional value that a market segment likes and wants, though not everyone has to like or want it) of the entrepreneur’s prospective customers.

Contrary to “profits over people,” this is the meaning of profits through customer satisfaction. Everyone in the company from CEO (the market entrepreneur) to lowly stock person must first consider the customer’s needs and wants before making any decision or taking any action. Most small businesses, as examples of this practice, face significant competition because they suffer fewer government regulations and enjoy fewer favors than their larger counterparts.

In today’s non-capitalistic mixed economy of government privileges and punishments for the favored and unfavored, the paperwork of bureaucratic management requires that entrepreneurial attention be turned away from customers to the government in order to comply with the imposed rules and regulations and for the profits the (political) entrepreneurs can acquire (not earn) through government-granted privileges.

This is one source and meaning of profits over people, because, in a government-by-lobby mixed economy, (usually big) businesses vie with one another for government favors. Customers, as a result, may be thrown an occasional crumb, maybe even a product improvement if it will keep the government happy, the taxpayer money flowing, and the competition at bay. Think in particular of the many occupational licensing monopolies (ranging from hair stylists to hospitals and insurance companies), public utilities and schools, and all broadcast, cable, and social media.** Today’s big businesses in general.

The more serious issue, however, when talking about profits is whether or not profits are a deduction from worker wages. Both Adam Smith and Karl Marx say they are. This primacy-of-wages doctrine led Marx to develop his exploitation theory asserting that capitalists—for the sake of profit—reduce workers to subsistence living. Hence, the major source of modern blather from the many historically and economically ignorant who mouth the slogan “profits over people.”

Economist George Reisman takes this issue head on and provides a strikingly clear and revolutionary identification of profits as the original and primary form of income, disagreeing with both Smith and Marx. Reisman writes (p. 19***):

Capitalists do not create profit and subtract it from wages. On the contrary, they create wages and the other costs which are subtracted from sales revenues, and thus the capitalists reduce the proportion of sales revenues that is profit.

Profits exist prior to capitalists. Reisman cites Adam Smith’s example of poor people who collect Scotch Pebbles on the shore of Scotland, then sell them to stone cutters. All receipts, states Reisman, are profits, because the collectors have no costs. Sales revenue of the pebbles is all income, not wages as Smith contends (p. 15; Smith, p. 33).

Sole proprietors of retail stores who work the stores entirely by themselves do have costs (rent, cost of goods) and the difference between sales and costs is the their profit. When the proprietors hire helpers, they pay a wage, which further reduces their profit. This is how profit and wages come into existence, both made possible by the capitalists.

Since wages are payments made in exchange for the performance of labor, “capitalists do not impoverish wage earners, but make it possible for people to be wage earners” (p. 19, Reisman’s italics). Reisman supports this statement by quoting F. A. Hayek’s Capitalism and the Historians where Hayek writes that the so-called proletariat created by capitalism “was an additional population which was enabled to grow up by the new opportunities for employment which capitalism provided” (Hayek, p. 16, my italics).

Thus, Reisman concludes that “between wage earners and capitalist there is in fact the closest possible harmony of interests,” not exploitation (p. 21). And by extension, since workers are also customers, we can conclude that there is not a clash but the “closest possible harmony of interests” between capitalists and customers.

Adam Smith observed that the rate of profit is lower in wealthier countries (Smith, p. 159). Reisman points out that this is because a greater percentage of total national income is spent on research and development, buildings and land, parts and materials—and wages—than in poorer countries. Workers, as consequence, should lobby for a greater, not lesser, degree of capitalism. The greater the degree of capitalism, the wealthier the country, which means higher wages and standard of living for everyone (pp. 20-21).

Capitalism brings into existence not just a proletariat that did not exist before, but an entire middle class that did not exist at all before the rise of capitalism.

Far from seeking “profits over people,” capitalists put labor and customers front and center. Capitalism, as Reisman argues, is run for the sake of the masses.

How does the communist-fascist left, i.e., socialism and its variants, view the people? Socialism, says Reisman, “is run for the benefit of the ruling elite at the cost of starvation wages” (p. 55). The socialist totalitarian state is a giant monopoly akin to the post office, as Lenin envisioned, which means only one employer in the economy and no competition for labor. Thus, the incentive for the elite is to keep the citizenry—the masses—alive, barely, at minimum subsistence. The only exceptions often are for those who help maintain the elite’s power, such as the secret police and its intelligence services, the military, and perhaps star athletes, dancers, and actors who bump up the dictators’ frail egos.

Capitalists, one might say, to borrow a word from the Marxists, are in the vanguard of progress!

The elite of the communist-fascist left, in contrast, are the ones who put dachas and several million dollar chateaus over the people.


* In an earlier post, I wrote that the designation communist-fascist left “works because differences between the two systems are superficial and Marx, Engels, and Lenin considered communism and socialism to be synonyms. ‘Left’ on the political spectrum means total control of life and economy.” Thus, the word “totalitarian” is redundant when speaking of the totalitarian left, though perhaps “totalitarian” should be used interchangeably with “communist-fascist.” Both communism and fascism are consequence and goal of progressive ideology.

** For the distinction between market and political entrepreneurs, see last month’s post and Burton Folsom’s The Myth of the Robber Barons.

*** All subsequent free-standing page references are to Reisman’s 114-page monograph Marxism/Socialism, A Sociopathic Philosophy Conceived in Gross Error and Ignorance, Culminating in Economic Chaos, Enslavement, Terror, and Mass Murder: A Contribution to Its Death. This work easily could and should be used as a text or supplement in high school and college economics classes. For a fuller treatment of this issue, see Professor Reisman’s magnum opus Capitalism: A Treatise on Economics, especially pp. 473-85 and throughout chap. 11. For a summary presentation of his theory of aggregate profit, see my article “Reisman’s Net Consumption, Net Investment Theory of Aggregate Profit” in the American Journal of Economics and Sociology, July 2004 (available here).
 

Is Big Business Still America’s Persecuted Minority? Or Are We Talking about Work versus Robbery, Corporatist Socialism, and Fascism?

In 1961 Ayn Rand delivered a lecture titled “America’s Persecuted Minority: Big Business.” The speech was subsequently printed in her 1966 book Capitalism: The Unknown Ideal, chap. 3.

In the intervening years the notion of big business being a persecuted minority has been scoffed at by friends and foes alike. Today’s politics of social media titans raises the question once again.

The scoffers, however, seem not to have read Rand’s article, as she clearly makes a distinction between economic and political power. The former is the power of production and trade, the creation of goods and services that customers buy voluntarily. As a result of multiple exchanges offering better and cheaper products, businesses grow large and efficient without government aid or privilege. Economic power is the power of a positive reward, not coercion.

The latter is the power of a government gun—initiated coercion—and Rand in her article demonstrates its use with the (Republican enacted) nonobjective antitrust laws that coerce businesses to bow to government edicts, for example, to hand proprietary patents over to competitors (Alcoa Aluminum) or even to send executives to jail for practicing what the government required their businesses to do a few years earlier (GE, Westinghouse, and other electrical equipment producers). Political power is the power of fear and punishment.

These victims of antitrust laws are indeed minorities and they are persecuted by the laws’ irrationality.*

In his study on the origins of The State (chap. 2), sociologist Franz Oppenheimer uses the two terms, economic and political, to identify the fundamental means of satisfying our desires: work and robbery. In The Myths of the Robber Barons, historian Burton Folsom makes a distinction between market and political entrepreneurs, the former succeeding by work, by satisfying customer needs and wants through economic power, and the latter by robbery, by enjoying the political power of government pull and favors. His book gives examples of both types of entrepreneur.**

In our interventionist mixed economy of government by lobby, most businesses, especially big businesses, enjoy government-granted privileges and just as often suffer coercive punishments, which means government commands, through various laws and regulatory rules, to grant favors to some and assign harm to others. Who get what usually depends on how much money is contributed to political coffers.

As I wrote in an earlier post, we must follow (or rather find) the government intervention before evaluating businesses, especially  social media. Today’s titans enjoy not just monopolistic protections of the Federal Communications Commission, but also Section 230 of the Communications Decency Act.

Many, if not most, businesses over the years have been mixed with both economic and political power, especially since the beginning of antitrust in 1890. Social media possess a great deal of economic power because of their millions of satisfied customers whom they have worked hard to satisfy, but they also enjoy political power that makes them monopolistic in the traditional sense of monopoly as a government-granted privilege. Social media enjoy an exemption from liability that empowers them to censor at will and at the government’s bidding.

The solution to these monopolies and their monopolistic practices is not to break them up using antitrust laws, but to repeal their privileges, meaning Section 230 and ultimately the FCC act.

The correct name for current practices is not “crony” or “political” capitalism or “corporate liberalism,” but corporatism or, as it is sometimes called, corporativism (1, 2).

Like the collectivistic organic theory of society, corporatism relies on an analogy to the human body and derives its essence from guild socialism. Corporate groups in society, so the theory goes, are like organs in the body that function together for overall health and flourishing. Thus, guilds or corporate groups—labor, employers, and local governments—are the separate organs that work together using parliamentary or democratic methods to provide a well-functioning and harmonious (socialist) state. A strong central authority is the final arbiter.

Corporatism was mostly associated with Mussolini’s Fascist Italy, though as Ludwig von Mises points out (chap. 7), Italy quickly adopted the German pattern of socialism, namely nominal private property ownership with total central control and little attention to the corporate groups. Communist China and post-USSR Russia are said to be corporatist states today, because some private property and market transactions exist, along with a large number of organizations regulated in near total fashion by the  central authority.

As Mises wrote, the Italian fascists preached “corporativism as the new social panacea” by resurrecting guild socialism from the “dust-heap of discarded socialist utopias.” Such utopias, however, as in Italy always progress quickly to authoritarianism with the worst rising to the top (Hayek, chap. 10, and here).

It is still not quite correct to call the United States a corporatist state. Yes, we have many businesses, laborers and their unions, and local and state governments vying with one another for the national government’s attention and rewards. But it is not organized in the way the older corporatists would have wanted it, and the explicit goal of participants has not been to establish socialism, at least until recently. The interventionist economy for decades has been nothing more than pressure-group warfare, but interventionism, unless eliminated by establishing laissez-faire, always leads inexorably to socialism or fascism.

The other terms used to describe the United States—crony and political capitalism—are not correct because the country today is not capitalist, as in laissez-faire capitalism. And the people who use the terms, usually advocates of socialism steeped in Marxist fallacies, want to slander capitalism with the labels by supposedly exposing the exploiter capitalists as seeking nothing more than profits to ultimately establish their own dictatorship.

Gabriel Kolko (p. 3), himself not an advocate of free markets, prefers “political capitalism” because big business in the late nineteenth and early twentieth centuries sought to stabilize the alleged “inherently unstable” capitalistic competition by partnering with government to pass appropriate controlling laws and regulations. He also adds the correct observation that this view is essential to American conservatism, hence the title of his book The Triumph of Conservatism.

“Corporate liberalism” refers to large corporations as a prominent elite, cooperating with government to lead the way to establish a socially liberal agenda, though social, as opposed to classical, liberalism goes by the better name of progressivism. From about 1880–1930 early progressives were advocates of democratic socialism; their followers from the 1930s to the present are more or less explicit Marxist socialists (1; Applying Principles, pp. 36-39, 110-13).

Senator Josh Hawley, a conservative, has just published a book titled The Tyranny of Big Tech and uses the term “corporate liberalism” throughout to describe our current plight. He also recommends using antitrust laws to break up social media.

The most correct term, however, to describe the United States today is fascism. The fascist state may have what appears to be private property and a free market, but it is in name only, because the entire economic and social worlds are controlled and regulated by the government.***

In nearly all cases, big businesses in such a system exhibit an abundance of political power, but they must tow the party line to acquire and use such power or be punished.

Big businesses that are persecuted minorities, as Ayn Rand wrote, earned their bigness through the economic power of creating wealth and satisfying large numbers of customers, not through government aid, favors, pull, party-line towing, or privileges at the expense of competition.


* See Dominick Armentano’s Antitrust and Monopoly for a discussion of the deleterious economic effects of antitrust policy and a review of prominent cases.

** See Gabriel Kolko’s The Triumph of Conservatism for examples of early political entrepreneurs lobbying for the likes of antitrust, income tax, and regulatory agencies.

*** Fascist Italy and Nazi Germany inherited industrial economies, which gave them a veneer of capitalism. See Gunter Reimann’s The Vampire Economy.