Jan
15
Profits are often reviled by collectivist intellectuals and by most of the general public. Profit motive is often considered as the greatest of evils. People with an inadequate knowledge of economics think that profits are taken away from the workers or consumers. At the bottom of the fallacy, all that there lies is economic ignorance.
It is often said that Capitalism means profits over people. Intellectual savages who utter such nonsense don’t realize that profits can be acquired on a free market only through serving people. Profits are a signal of how well the business is serving its customers. Yet, serving the public is not the justification of profits.
It is the right of a person to exchange value for value.
It is interesting, as an economist had said, people who say “profiteer” doesn’t say “wageer” or “losseer”. Blinded with envy they don’t realize that businessmen take risks and profits are the reward they get when they succeed. Those who say “excessive profits” seem to be totally unaware of the fact that what they see as excessive can only be acquired through a better forecast of the future. Why don’t the ones who feel that the businessman is making excessive profits, save the society by abstaining from buying his products? Profit motive can’t be eliminated without resulting in chaos.
The failure of socialism due to the lack of profit mechanism and pricing system is for all to see.
What I am saying is that the main problem with socialism is not practical, but theoretical.
I’ll explain why. Imagine that you have to bake some bread. You make the bread out of flour. Assume that you make 10 loafs of bread using 5kgs of flour.
How do you know whether you have increased your wealth through making that bread? How would you know whether wealth has increased when 5 kgs of floor has turned to 10 loafs of bread — -To know an answer to that question, you have to reduce both quantities to a common denominator — Do you see?
For instance, if you bought 5 kgs of floor for 10$ and you sold 10 Loafs of bread for 20$,you can conclude that you have increased your wealth by 10$. It means that for you to understand whether you have done your job well — Which means whether you have increased your wealth, a pricing and monetary system is necessary. Profit mechanism is necessary for an economy.
This exactly is what is lacking in a Socialist world.
Now let me explain the importance of a pricing system and profit mechanism.
The importance of a pricing system is that it would lead to the most efficient allocation of resources.
For instance, if you are that bread manufacturer and if you make profits, the funds and resources would flow to you. You would be able to invest these funds further in production. In this manner funds and resources flow to the most efficient people who would further invest it in production.
Moroever,the stock markets divert the funds to the most efficient citizens.
The fact that the most efficient citizens take hold of the production process is very beneficial for the whole of the society. This process of transferring resources to the most efficient people is lacking in the socialist system. In a socialist system who would take hold of the production process would be decided by the central planners and they would not be in a position to determine who are the most efficient people. Even if these central planners were the most intelligent people and the most virtuous men, they can’t decide what is the most efficient means of producing goods.
One of the most widespread arguments against privatization of education and of private institutions in general is that private institutions are run solely on profit motive; lacks ‘social commitment’. Almost every child is born capable of knowing pain and pleasure. He acts to further his pleasure and avoid pain. As he grows up, he learns to endure pain when necessary, when it furthers his pursuit of long term pleasure. Often we find children, and of course grown up men pursuing short term pleasure no matter what it’s long lasting effect may be. No sane, intelligent person now would argue it is expedient to cut of this pain-pleasure mechanism in order to avoid such self hurting tendencies. Children lacking this mechanism, as we all know wouldn’t live long enough to be a grown up man.
As pain-pleasure mechanism acts as the life-nerve of a child, profit motive acts as the life-nerve of an organization. An organization can’t survive well for long when profit motive is taken off from its goals. I offer you Soviet Russia –Or any public sector enterprise-as an elegant example of what I am talking about. Such is the intellectual status of a man arguing against profit motive.
Let’s now, talk of his moral status. What sort of a person would argue against man’s striving for pleasure? He’s the doper, the drunkard, the chain smoker, the woman-chaser, the irresponsible semi-somnambulist wretch. What could be said of his notion of pleasure? Is there any wonder that he finds it expedient to cut it off? Such is his moral status. And such is the moral status of a man opposing profit motive.
We now have to find out what the word ‘social commitment’ is supposed to mean. Parents have commitment towards their child. A man has it toward his wife and the wife has it in back.
An employer has the responsibility to pay his employees as much as he has agreed to pay. Employees have the same responsibility to finish off the work in the best manner possible.
A trader has it toward his customers. A man of course, has to take responsibility for his acts and should live up to his promises. All the commitments above mentioned are individual. No man, but has any responsibility toward the child or woman he just met on the street.
No employer has the responsibility to grant employment to every seeker, nor has any one the responsibility to work for any prospective employer. No one has to trade with all prospective clients. If so, what is this ‘social commitment’ supposed to mean other than living up to the promise of educating the consumers as they had promised? Isn’t it preposterous that the ones, who argue against a man’s responsibility to educate his own child, call for ‘social commitment’ from the part of private educational institutions? Logical inconsistency is explicit when one argues a man should not be held responsible for his acts, but shall be held responsible for the acts of his fellow beings.
Why it is that one should be held responsible for the education of another man’s child?
Is it the high promiscuity in our society which the left liberals are trying to point out?
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1 viewsNo Responses to “Profit Motive: An Evil?”
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Honshu5 Says:
January 15th, 2009 at 8:39 pmI am sure you have heard of “speculation”. While the simplistic narration of a capitalist society is quite tasteful, the ills lie in advanced stages of capitalism, where profit becomes the sole motive, at the cost of all other things, including long term loss. We are seeing the same thing happen in US downturn, where excessive speculation led to huge losses.
I would like you to imagine if you were a manufacturer / owner of a public company, and kept working hard day & night to increase the company’s productivity. But some blue-suits in a downtown office hijacked your shares or even just traded on them, and earned on them, all without having contributed a penny’s worth to your manufacturing prowess…
Unpretentious Diva Says:
January 15th, 2009 at 11:53 pmHonshu
Those excessive speculations were not speculated by private companies, but the government proposed those excessive profits on certain speculations of the government controlled Fed works. Government did so to keep the excessive spendings on war and welfare works keep rolling on.
It is not fault of private profit oriented companies, the fault is of government interventionism.
I wonder if people have any idea what national debt American government gains every year because of its extravagance, wars and welfare?
it will explain economic meltdown better —
http://www.reasonforliberty.com/reason/economic-meltdown-explained.html
by the way your example is right
That hijacker in blue suit is the government officer, representative of government interventionism!
deadmanoncampus Says:
January 16th, 2009 at 9:13 amHonshu5,
Stop reading propaganda literature.Speculation has nothing to do with the slump.Recessions are due to expansion of money and bank credit.
Destination Infinity Says:
January 17th, 2009 at 12:38 amI would like to argue this with specific reference to the education sector in the higher education, particularly the technical - Engineering education in India. All these hundreds of colleges which have mushroomed, have come up with the sole aim of making profit. There is nothing wrong with that, as long as they give quality education to make profits! They give utterly hopeless education, call it engineering and highly technical, and at the end of the day, most of the students get placed in some IT company irrespective of their specialization.
Now, everyone is happy. The students are happy that they have got a high paying job for their investment in to the colleges, irrespective of what they have studied. The parents are also happy as they can now get their sons/daughters get married in rich families. The college is also happy because they have made good money in the name of giving substandard education. (All this is private mess, I remind you). So everyone is happy, but the nation suffers because what ever has been invented has been invented abroad, and most of the products that we use are from the western countries, thereby passing on a lot of hard earned money to the MNC’s. The new technological processes comes from west, the majority of the patents are filed in the west etc etc. One of the main reasons for the above pathetic situation is the profit oriented business of the so called educationalists. I am not against making profits or maximum profits going to the most efficient. But in the process of making maximum profits, if we forget that the main purpose of having an education institute is to give quality education, then isin’t such a profit motive WRONG???
Destination Infinity
deadmanoncampus Says:
January 17th, 2009 at 10:34 amYou would agree that in India private schools are far ahead of government schools and almost all of the best Universities in the world are private universities. If so,why is just the case is different in the case of private engineering and medical colleges in India. There must be a reason. One-Higher education is highly subsidized. Imagine what would happen if the government gives away cars for free, and set a price control on the price of cars at 3 lakhs. The quality of private cars will definitely come down. The same applies to education. The poor quality of private institutions is due to price controls and the high subsidization of higher education. Please, start using your mind when you see such contradictions.
Destination Infinity Says:
January 17th, 2009 at 11:41 pmGovernment might control the fees, but who controls the ‘donation’, which incidentally, is on a much higher scale!!
The IIT’s/ IIM’s/ IISC’s of India are run by the Govt. The universities are run by the Govt. And as far as I know, the private institutes are chosen only after these Govt. institutes are full. Even people who can pay enough for a private institute will anyday prefer the above ones. So, subsidization point is ruled out.
Destination Infinity
renegade_division Says:
January 18th, 2009 at 1:30 am@Destination Infinity:
Correction, there is nothing wrong with that as long as they are not holding a gun on the head of their customers and demanding money. Because as far as I know, even if I wanna provide total junk education and charge very high fees for that, nobody is forced to pay me that fees.
Well if everyone is happy then why do you have a problem? You claim “the nation suffered”, really? How did it suffer? If the kids got placed into a company, and the company is satisfied with their performance that means there was a demand and it was fulfilled properly.
Has the nation really suffered because our Gene pool only allows us to have an average IQ of 110??
Has the nation really suffered because our girls are ugly and fat??
I mean you are inserting your own value scale on everyone else. Someone marrying a fat ugly girl is his choice, but its an abomination on your value scale. Well so what? The guy is happy, the girl is happy, their families are happy, but then you are going to say “our society suffers, because they are going to procreate ugly kids”.
Its not wrong because you want everyone to do charity.
Isn’t the purpose of a baker to provide you with healthy food? Then why the hell he provides you with a fatty cake? Why does he not feed the poor? Why shouldn’t a wheat farmer give away his wheat production for free(after keeping the product he requires for himself and his family)??
The reason is that though a farmer can NOT MAKE PROFIT by only feeding his family and giving away everything else. The main reason is that if he did that, then for the next year he will not have any capital to make wheat. Therefore by producing wheat for profit he provides the people, with much more wheat and for a much longer period of time than compared to providing wheat for free out of sheer charity.
Similarly, with Education. By providing his education for profit they enabling providing education for a LOT MORE number of kids than they could have for free or for less profit.
Correct me if I am wrong but as far as I know a Donation taken by a private institution is a voluntary amount of money received by the property owner, in exchange for allowing the usage of his property by the prospective user of the property.
So what’s the problem?
Sanjay George Says:
January 18th, 2009 at 10:29 amThose who say “excessive profits” seem to be totally unaware of the fact that what they see as excessive can only by acquired through a better forecast of the future.
Destination Infinity Says:
January 18th, 2009 at 12:54 pmIf someone holds a gun and demands money, it is so very wrong in your point of view. But if the same money is taken by luring him into a scheme designed to cheat him off his money, it is not wrong! This is like saying death due to suicide is better than being killed because the person in question has excercised that option by himself!!
Destination Infinity
Unpretentious Diva Says:
January 18th, 2009 at 1:20 pmDestination Infinity want to say that since everybody will die a day, since death is inevitable, therefore, Murders should be legal and considered righteous. Well that is what socialism and communism and altruism is, that is what cultism, religionism, or any form of collectivism is.
Since one day everyone has to die, so lets kill now, why let a man live happily FREELY?
No wonder, Hitler was National Socialist, Nazist, no wonder Stalin, Lenin were socialist, marxist, no wonder Mao, Che Guevara, Fidel Castro were communist, socialist, no wonder people are being killed in Nandigram, Haryana, Vidharbha, Kerala.
Now see second point. Who told you cheating is NOT wrong? Who will decide what is cheating? The man or you?
The man will decide it.
if a person gets cheated, he has freedom in free market to get justice, and only a free market can provide justice. Socialism never provided justice to anyone because socialism itself is unjust. You can consider the Satyam case itself. If free-market justice is applied, the corrupt wil be punished and the innocent wont be punished. In socialistic justice, everybody will be punished except the culprit.
cheating is crime, but it is not as big crime as Looting at gun point by violence coercion and force as the government do. Not only that, every sane person living in india with even a little knowledge about India knows pretty well, that the government and politicians not only loot at gun point, they cheat, they embezzle, they creates scams, they lures, they divide human and causes hatred in citizens, they create riots, they do every crime a collectivist will do.
renegade_division Says:
January 18th, 2009 at 8:04 pm@Destination Infinity:
Cheating is when an objective promise is not delivered.
For example if someone says that they will give you a Gun and 50 bullets, but they only give you a gun and 40 bullets, that’s an objective promise(of delivering 50 bullets) but they did not honor their promise.
IF someone says they will give you the best time of your life, now since there is no objective evaluation of best time of your life, it cannot be established whether someone delivered their promise to you. Therefore its not cheating. This is why contractual agreements never contain subjective definitions or abstract terms.
The various colleges only promise you a degree for your money provided you take all the designated courses, and maintain your GPA above a particular level. These are the Objectively verifiable terms of an agreement.
Now despite of graduating from the college you cannot get a job then its not College’s liability or responsibility, unless they promised to get you a job(like Reliance’s Engineering college promised 100% placements to their first batch).
If I come to you and convince you somehow that I have a pill which will make you feel not depressed and I wanna charge $1000 for it, if you choose to buy the pill and you still feel depressed after taking it, you don’t really have a major fraud case here. You can sue me, but all my lawyers will have to prove is that for some people it helps to reduce their depression upto some level.
Now if you give that pill to 1000 people and none of them say that they feel any less depressed than they were, then I will have to pay a settlement fee for fraud(lets say I gave you a sugar pill). But if sufficient number of people(the number to be decided by the Judge/Jury) say that they feel better you have no case.
Similarly, the colleges we are talking about maintain a curriculum, they have labs, facilities, trained faculties. These things may total fraud for you, but nobody is awarded a fraud case because they “think” they were defrauded. This is why advertisements are never sued unless they promise an objective goal and fail to deliver it. For example, a very famous case is back in 19th century in America some company printed an ad saying that their cold medicine will totally take away your cold or else you will get your money back. Now people asked for money and they refused to refund it, so they were taking in the court, and the guys said in their defense that “nobody is suppose to take the money back offer seriously”, but then court granted against that company saying that “its reasonably possible to believe that people might purchase your cold medicine totally believing that they will get their money back if their cold is not removed”.
So if an ad says “it will make you feel like heaven”, you cannot sue the company for not making you feel like heaven because nobody is suppose to believe that, although if the ad says “this dye will turn your hair into red”, and it does not then that’s a fraud.
Sorry to go into all these details but its really ridiculous to say that the colleges are defrauding their customers, when they clearly are delivering what they promised. “Quality education”. I went on to show with real world examples that there is no fraud here by any justice.