Tuesday, August 4, 2020

The Profit Motive

There can be no doubt that the profit motive provides a positive dynamic in human society. It is essentially the drive for Darwinian survival expressed in the economic realm. One can argue that the tremendous global changes brought about in the past few centuries have not been unambiguously good for us and the planet. But it’s also true that the profit motive has lifted human life to an entirely different plane. It provides for the sustenance and comfort of billions and has allowed mankind to reach for the stars. It also seems that there is not a clearly better way to run an economy. Inventors, makers and sellers trying to get buyers to pass them money for whatever it is that they are offering does, in theory and largely in practice, effectively and rationally organize economic exchanges. It seems much more likely that free markets of willing sellers and buyers works better than any one actor or group of actors trying to mandate or direct such exchanges.

But.

Darwinian adaptation is blind. It does not automatically lead to the greatest good for the greatest number. It aims instead at the continued viability and growth of the individual organism. The other members of the species or the ecological community may find themselves not much advantaged by the successful organism and may in fact be harmed or out-competed. The profit motive in human society operates in the same way and does not, by itself, work towards the greatest good for the greatest number. Over time, markets become encrusted with the Darwinian “winners” whatever else has happened to the others sharing the economy. Inequalities will increase and society will move ever further from distributive justice. (According to John Rawls, a just society is one in which we would be satisfied being born into if we did not know where in that society we would appear.)

Pure markets – where the profit-seeking winners take all – are rarely truly free. More to the point, no innovator or entrepreneur has created all the inputs and structures that make his or her business possible. Every individual “creation” of something profitable rests on the social, cultural, political, economic and built capital that was already there. So it seems fair to place some requirements and limits on successful enterprises and even certain incentives to nudge enterprises towards adding to social value as well as their own.

Some examples:

  1. Progressive income taxes on individual and corporate wealth and income (from whatever source).
  2. Inheritance taxes on every generation and similar turnover.

  3. Various forms of government action to tilt income distribution back towards even such as livable minimum wage and unemployment assistance levels, some form of universal health care, cash payments to children born to parents below a certain income level, high quality and affordable primary and secondary education and vocational training and/or university.

  4. Occasional and limited government actions and policies to avoid or ameliorate the broad social and economic impacts of economic disturbances.

  5. Occasional, limited and restricted government support to promising and socially or economically beneficial technologies or enterprises.

None of this would entail abandoning the profit motive (or capitalism) but would instead go in the direction of perfecting its results.


3 comments:

Simon Barber said...

A pure market, surely, in one in which all parties win because each is getting what it wants from every transaction. Such a market exists only in the minds of economists and ideologues. Real markets are war zones in which parties are constantly trying to get one over on each other -- to get the best possible deal from themselves and theirs by means fair or foul. This generates a lot of energy, both creative and destructive. Knowing that we are fallen, we create norms, rules, and institutions to keep the destructive energy in some form of check and give the creative energy precedence. Those norms, rules and institutions are all under attack in contemporary America.

Wm. Craig Diamond said...

As you may recall, Adam Smith reminded his readers that societies should regulate the actions of the markets that he imagined. How society judges what those actions might be is, I think, beyond any rational discussion; all such "discussions" are in my opinion "cover for action" for those pursuing whatever fantasies they may have of their self-interest.

It appears clear to me that our two major political parties, which once functioned as the "clearing houses" for such discussions, are simply moribund. Even though he killed off the old Republican Party, Trump proved to be the "new Reagan" insofar as he also successfully stole traditionally Democratic voters from the enfeebled Democrats. Sanders threatened to plunge a similar stake into the nearly dead body of the Democratic Party, but (although they offered no new ideas) their apparatchiks successfully defended themselves working with different rules. As it is, we have in Biden the perfect representation of the current state of the Democratic Party.

I can only imagine that if we have a new occupant in the WH next year, there will be a feeding frenzy to get some of the money being raised by the new taxes. As for the rhetoric generated by these people to justify their share of the spoils, who can say.

Philiip Rakita said...

Apropos of your citation of John Rawls, I would add the comment made by JFK in his June 1963 Civil Rights speech

"If an American, because his skin is dark, cannot eat lunch in a restaurant open to the public, if he cannot send his children to the best public school available, if he cannot vote for the public officials who will represent him, if, in short, he cannot enjoy the full and free life which all of us want, then who among us would be content to have the color of his skin changed and stand in his place? Who among us would then be content with the counsels of patience and delay?"