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.

Notes on "A History of Political Theory" -- Episode 29

For episode 28, see here

To start at the beginning, see here

The Theory of the Nation State: The Moderns

XXIX. Liberalism: Philosophical Radicalism 

"The history [of philosophy of natural rights] was an example of the paradox of which Hegel was so fond, that a philosophy is fully developed in its details and

applications only when its main principles have come to be taken for granted

and to that extent have become retarded in their speculative development." 669

 A. Liberalism of the 19th Century was reaction against the excesses of the

      Revolution and on reliance on "self-evident" axioms.

 B. Defined classical liberalism, in essence a program of legal, economic and

      political reforms connected, as they supposed, by the fact of being all

      derived from the principle of the greatest happiness of the greatest

      number.

 C. Chief ideas that actuated the Philosophical Radicals:

       1. Greatest happiness principle as a measure of value.

       2. Legal sovereignty as an assumption necessary for reform through

           the legislative process.

       3. A jurisprudence devoted to the analysis and censure of the law in

           light of its contribution to the greatest happiness.

 D. Four dimensions of pleasure or pain (for calculation):

       1. Intensity.

       2. Duration.

       3. Certainty it will follow given kind of action.

       4. Remoteness from the time it will occur.

 E. Greatest happiness principle useful in stripping away 'fictions' and 

      recalling that real individuals are affected by law and government

      actions. 

 F. Allocation of pains and pleasures by good legislation brings about most 

     desirable results.

       1. Utility only reasonable grounds for such legistation and obligation

           to obey.

       2. Property rights justified by the need for security and certainty of the

           results of our actions.

 G. Jeremy Bentham's liberal humanist feeling caused him to temper the

      greatest happiness principle (efficiency) by holding equality of men in

      calculating happiness.

 H. Classical economics grew alongside Bentham's social philosophy 

      from the same roots in Adam Smith, via David Ricardo, Thomas Malthus 

      and the French successors to François Quesnay and the Physiocrats. 

       1. Laissez faire theory

       2. Economics and politics mutually interdependent with 'law-like'

           economic behavior.

       3. Embraced two diverse points of view:

           i. natural order as inherently simple, harmonious and beneficent

           ii. belief this order is devoid of ethical attributes and its laws have 

               no relation to justice, reason or human welfare

           iii. the first assumption corresponds to a static social free-market

                that will produce most cheap harmony of interests 

           iv. the second corresponds to the social dynamics of distribution 

                of the total product of that market through economic classes 

                where what one gets depends on which class one is in

       4. At odds with utilitarian principle which requires a harmony of

           interests which is not natural but must be produced by legislation.

 I. Malthus proposed two laws:

       1. In general, population increases faster than production of food.

       2. Law of rent -- food is the product of land and land is peculiar in

           that it is limited in amount and differs in productivity. Rent is the

           difference between productivity of any given piece of land and that

           of land which at prevailing food prices would just fail to pay the

           cost of use.

        3. Rent therefore contributes nothing to production and landlords

           are economic parasites. (Ricardo), and;

           i. increase in food prices brings less fertile lands under cultivation,

              increases rent and increases population which increases prices

           ii. implies law of wages -- except for temporarily, wages cannot

              rise above or fall below subsistence level 

           iii. total product of industry in general distributed as rent, wages

               or profit with profits falling as rent increases

           iv. does not mesh on theoretical level with a neutral free market

               but on practical level led to policy of free trade

           v. Marx had ready made picture of exploitation of labor (profit was

               economic rent paid to the holders of the means of production

 J. Bentham saw that Liberal government need not be defended by accepting

     its inefficiency.

 K. James Mill

       1. Shared Hobbesian view of men driven by desire for power which

           institutional limitations cannot check.

       2. With Bentham rejected any conception of balancing of powers.

       3. Saw middle class as "wisest part of the community" which lower

           classes would follow. 

       4. Unified egoistic theory of individual motivation and belief in the 

           natural harmony of human interests.

 L. Philosophical Radicalism had great practical effect in 19th Century

     England.

       1. Had no positive conception of a social good and a passive view 

           of government.

       2. Left need for some conception of social good and positive government.

Next week:  Liberalism Modernized

     

 

No Alternative to Capitalism Except Democratic Captitalism

All life is an effort at self-replication. Species that succeed survive and evolve. Those that don't enter the fossil record. All higher forms of life are driven by two elemental instincts, sex and self-preservation. (The former may often overcome the later but that's another issue.)

In human beings, these two drives are experienced as lust – and its “higher” form, love – and the chase after the means of survival – in modern life, money. Capitalism feeds off both of these – indeed combines them – and provides a wide range of products and services in return. (Look at how many combinations of human desire are served by social media such as Facebook and Twitter.) The struggle for the legal tender takes two gross forms in modern capitalist economies: the selling of labor and the reaping of profits by those who control any particular means of production. Capitalism requires both (at least as long as some people are needed to produce and run the machines that increasingly have taken over production).

We all seek more money than we currently have, in part from necessity but as much to provide us with a sense of security. We want to survive today and also tomorrow and the day after. We never know when enough might not be enough so we keep wanting more. Seeking riches is simply the highest manifestation of the drive for self-preservation. No other economic system so deeply satisfies this need than capitalism.

Capitalism is a complete economic system. It directly serves the human hunger for more and more and provides the means to satisfy that hunger. It does this through utilizing the division of labor that arises from the various forms of inequality – those which exist by nature, those that derive from human prejudices and vagaries and those that result from the workings of the capitalist system itself. Put simply, some people work to survive and some reap profit from the work (often including their own).

There seems no real alternative to capitalism because it works directly off of our two most basic drives. Many – most of the world's religions as well as Marx, Luddites, socialists, romantics, nihilists etc – have bemoaned this or looked for alternatives. But there seems no other way to organize an efficient, growing economy than through private ownership and a free market. State control and social ownership have no instinctual basis in human nature and don't work in practice.

The problem arises because capitalism is amoral and by itself produces unfair and unjust outcomes. The belief in some invisible hand that somehow makes it all come out right is an outdated religious notion that flies in the face of our actual experience.

The issue of morality and justice comes into it because humans do not live as monads but as members of society. We cannot survive as individuals outside society. The stability of society, any society, depends on a degree of social cohesion sufficient to keep it from breaking down into an Hobbesian state of nature. Government alone – however much a Leviathan – cannot provide sufficient efficient cohesion. Political dictatorship is incompatible with long-term economic prosperity, it dams the flow of individual freedom that drives the innovation that a capitalist economy requires to avoid stagnation. A widespread experience of the fairness and justice of how the economy functions is the only sound basis for social cohesion in a capitalist society. In other words, capitalism must be tempered sufficiently to provide a common sense of “ownership” or it becomes disruptive.

Capitalism must therefore be regulated for its – and our – own good. Such regulation must somehow represent everyone the system serves. It must therefore be democratic. Only through the functioning of democratic governance can the necessary element of fairness and justice be introduced in a way that serves everyone's efforts at self-preservation. Regulating a capitalist economy – placing limits and requirements on private ownership and market activities – by collective decisions taken through democratic means is the only alternative to capitalism. There seems no other.