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).
 

Business Ethics, Moral Values, and the Herd Conformity of Virtue Signaling

So-called virtue signaling means showing off to the significant others of one’s group in order to maintain identity as a prominent and respected member. It is always other directed with eyes on conforming to the herd. “Sucking up” might be a vernacular way of describing the behavior. “Looking good to be good” is another way.

Genuinely virtuous behavior is an expression of one’s character and what others think of us is fundamentally irrelevant.

Ethics (or morality—the two words are synonyms), as Ayn Rand defined it, is “a code of values to guide man’s choices and actions—the choices and actions that determine the purpose and the course of his life.” The first part of this definition is the genus and includes not just Ayn Rand’s theory, but the other ethical theories that have been developed throughout history. More importantly to understand, the genus also includes the applied sciences and the many personal values we choose that are morally optional, such as taste in ice cream, choice of romantic partner and career, or the eating of red meat and drinking water out of plastic bottles.

Moral values are universal. Optional values are not, which means they do not have to be accepted and pursued by everyone.

The second part of the definition is the differentia that gives us a standard of moral value, as well as the derivative values and virtues that guide our choices and actions. A value is whatever we act to acquire and enjoy and a virtue is the action to acquire it. Moral values and virtues are broad abstractions and general actions, not concrete objects or specific actions.

Rand’s standard of moral value is human life as a being that possesses the capacity to reason. Her fundamental value, then, is reason with the corresponding virtue of rationality. Deriving from that standard, Rand identifies several other moral values, including honesty, courage, integrity, independence, productive work, and justice, to name several that are relevant for the present discussion.

The corresponding virtues derived from reason and rationality are telling the truth, acting against great odds or opposition, remaining loyal to one’s fundamental values, relying on one’s own mind to perceive reality, purposeful pursuit of a rewarding career, and judging oneself and others by conformity to moral and legal standards, including especially in business by the standard of the ability to do the job. Vices are the opposite: lying, cowardice, corruption, dependence, indolence, and unfairness. Irrationality means placing something higher than reason, such as faith or emotion.

At this point let me highlight the optional values that guide our lives. First, the applied sciences. The engineer has a code of values to guide his or her thinking and development processes of designing and making tools to improve human life. The end value may be to build a bridge; the principles of civil engineering are the guides. We normally do not call the actions of engineers moral virtues and the mistakes vices, unless dishonesty or cowardice is involved. The values and principles of action required of applied sciences, and the behavior of their practitioners, are assumed to be moral unless one has reason to think otherwise.

Our personal values also are assumed to be moral, but just as everyone does not have to be a civil engineer, or an engineer at all, not everyone has to like vanilla ice cream or even like ice cream at all. We all hold and pursue a large number of morally optional or personal values. Choice of romantic partner and career both are extremely personal and optional, but also complicated in the sense of requiring a great deal of thought, planning, and knowledge before making the choice. And both do have moral components, as Rand has discussed extensively (1, 2), but I am focusing here are the optional element.

As stated above, red meat and water in plastic bottles are not moral values and acting to acquire and use both are not vices. Someone putting a slab of red meat over your face such that you cannot breathe would be a moral issue, but then we would be talking about attempted murder!

In a free society, no one will stop you from refraining from eating red meat, if you think that is necessary for your physical health. But it is not a moral issue. Neither will anyone stop you from drinking water out of non-plastic bottles.

Individual rights mean that everyone has the moral right to choose whatever each person wants to eat and whatever container each wants to drink water out of. Preaching a gospel of “immoral” foods and containers is the moralization of concretes that I have written about before. It is rampant in today’s culture and a major source of “virtue signaling.”

It is also condescending and phony, condescending because the signalers are convinced they are right and everyone else is wrong and phony because the signalers are playing at ethics without a clue as to what ethics really is.

Leaders of the intelligentsia, however, do or should know better, especially when they are spewing communist/fascist propaganda, such as: “the United States is systemically racist,” “recent state laws are election suppression,” and the favorite of all Marxists, “capitalism puts profits over people.”*

Such signals as these are either false (the first and third) or highly questionable without further investigation (the second). And all, in contrast to true moral values and virtues, are political catchphrases used as virtue signals to intimidate any opponent into thinking he or she is immoral.**

For business leaders to cite and promote them is not just gutless compromise of the principles of individual rights and capitalism, but their actions bring up 1932 Germany (1, 2) when twenty-two business leaders urged President von Hindenburg (who some said was senile) to appoint Adolf Hitler as Chancellor.

The group that today’s business leaders are sucking up to is the communist/fascist left and they, the business leaders, apparently think they will be protected when the left finally takes over the US government. Think again, business leaders, and do your homework about what happened to business leaders in the USSR and Nazi Germany.

Business ethics does not differ from general ethics, as moral values and virtues are broad enough to cover all applied fields. Business leaders, therefore, need to practice Rand’s virtues. Justice is particularly relevant to business ethics and virtue signaling because it means judging each individual person according to the moral standards of honesty, courage, integrity, independence, and productive work and treating each person by his or her conformity to those standards. It does not mean judging one by membership in a group, class, race, or by sex or sexual orientation (i.e., social justice). Individual justice in society means abiding by the US Constitution’s Bill of Rights and treating everyone equally, regardless of group, class, race, sex, or sexual orientation.

All virtue signaling is manifestly unjust because it is a pretension to ethics that does not treat each individual fairly or equally. At root it is collectivist. To some virtue signaling may be a psychological problem, which means they want to be liked, but for the virtue-signaling leaders, especially our business leaders, it puts us on a dangerous path to dictatorship—as in one-party rule, show trials or worse, expropriation of private property, and censorship.

Are we there yet, business leaders?

You and many others in the intelligentsia have become true believers, to borrow Eric Hoffer’s words on mass movements. You seem to be seeking, in your desperate and foolish virtue signaling, to identify with the left’s holy cause (1, p. 12; 2).

Hoffer has many phrases to describe the true believer, but here is a choice one (p. 62): each individual member of the movement “must be stripped of his individual identity and distinctness . . .  by the complete assimilation of the individual into a collective body.”

It means conformity to the herd.

In the late nineteenth century an advertising client asked his agent if he had any good ideas for ads. The agent replied, “Try honesty for a change!”

Altering this advice a bit, my suggestion to you, dear business leaders, is to try a genuinely virtuous behavior for a change—especially one of honesty, courage, integrity, independence, justice, and productive work.

A virtuous character is not a signal. It is a way of life.


* The intelligentsia does far worse. Cancel culture, according to David Horowitz, is tantamount to Nazi book burning and should be called what it is. And most or all of today’s leftist leaders are bigoted racists. Their intimidation tactics are right out of the Nazi playbook. Ominous parallels? The problem with conservatives, says Horowitz, is that they want to “play patty cake with the devil.”

** Racism, as Shelby Steele has demonstrated (1, 2), effectively ended in the 1960s with desegregation. What we have now is systemic white guilt. Issues of election irregularities or fraud are factual issues that need to be thoroughly examined, not evaded. And under capitalism, profits are earned through customer satisfaction. They are not deductions from the wages of workers; wages are deductions from profits (1, 2).