Profits Are for People

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The Occupy Wall Street demonstrators are demanding “people before profits” — as if profit motivation were the source of mankind’s troubles — when it’s often the absence of profit motivation that’s the true villain.

First, let’s get both the definition and magnitude of profits out of the way. Profits represent the residual claim earned by entrepreneurs. They’re what are left after other production costs — such as wages, rent and interest — have been paid. Profits are the payment for risk taking, innovation and decision-making. As such, they are a cost of business just as are wages, rent and interest. If those payments are not made, labor, land and capital will not offer their services. Similarly, if profit is not paid, entrepreneurs won’t offer theirs. Historically, corporate profits range between 5 and 8 cents of each dollar, and wages range between 50 and 60 cents of each dollar.

Far more important than simple statistics about the magnitude of profits is the role played by profits, namely that of forcing producers to cater to the wants and desires of the common man. When’s the last time we’ve heard widespread complaints about our clothing stores, supermarkets, computer stores or appliance stores? We are far likelier to hear people complaining about services they receive from the post office, motor vehicle and police departments, boards of education and other government agencies. The fundamental difference between the areas of general satisfaction and dissatisfaction is the pursuit of profits is present in one and not the other.

The pursuit of profits forces producers to be attentive to the will of their customers, simply because the customer of, say, a supermarket can fire it on the spot by taking his business elsewhere. If a state motor vehicle department or post office provides unsatisfactory services, it’s not so easy for dissatisfied customers to take action against it. If a private business had as many dissatisfied customers as our government schools have, it would have long ago been out of business.

Free market capitalism is unforgiving.

Producers please customers, in a cost-minimizing fashion, and make a profit, or they face losses or go bankrupt. It’s this market discipline that some businesses seek to avoid. That’s why they descend upon Washington calling for crony capitalism — government bailouts, subsidies and special privileges. They wish to reduce the power of consumers and stockholders, who hold little sympathy for blunders and will give them the ax on a moment’s notice.

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  • rich___b

    Would the Government been able to create the ipod? Not in a million years or all the money in the US.

  • truebearing

    If you look at the underlying motivation of leftists it is based in negativity. Envy, hate, dishonesty, and revenge dominate the emotions of these people. They live in darkness and want an egalitarian darkness where everyone is forced to be equally miserable and unfulfilled. They embrace the opposite of everything that good people embrace as virtue. The left always tries to create a tyranny of the weak and dysfunctional, but especially of the envious. It is a manifestation of evil in politics.

    The left hates profit because it is proof of the success of capitalism and is only attainable with disciplined individual effort. Collectivists are generally too dysfunctional to succeed on their own, and driven by envy turned to hate, strive to impose Procrustean method on anyone who makes them feel inferior by comparison. The lying left champions diversity but practices cookie-cutterism.

  • StephenD

    Excellent article Mr. Williams. I even think OWS participants could understand it (if they could get to read it).
    Especially poignant is your point of how “unforgiving” the Free Market is. If a product is inferior to others, we won’t buy it. If someone is price gouging, we take our business elsewhere. You soon go out of business.
    With the potential for more profits companies invest in Research & Development, re-tooling and expansion.
    With minimal regulations in place to keep cartels or monopolies from forming, the Free Market System is the best in the world!