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 vaue 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 suceed.Those 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.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 5kgs 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?