The Profit Motive


The world of politics just like other worlds is governed by fash­ion, and the fashion of the mo­ment is to deprecate profit. There is no recognised political party with a word to say for profit.* In the recent Presidential Election Mr. Willkie got as near as he dared to a defence of the profit system, but even he had to accommodate himself to the fashion which to­day rules public affairs. The word "profit" has come to have a nasty, sinister, undesirable meaning. This is quite new, peculiar to the last few years. The word "profit" is not once used in the Bible ex­cept in the sense of something de­sirable, something to strive after, something altogether worthy.

 I am the Lord thy God which teacheth thee to profit, which lead­eth thee by the way thou shouldest go. Isaiah xlviii. v. 17.

Of these things, put them in re­membrance, charging them before the Lord that they strive not about words to no profit, but to the sub­verting of the hearers. II Timothy ii. v. 14.

And more directly in the same vein,

In all labour there is profit, but the talk of the lips tendeth only to penury. Proverbs xiv. v. 23.

The "unprofitable" servant in the Parable of the Ten Talents was "cast into outer darkness."

It is just as well to remember that the needs of a political mar­ket are not unlike the needs of any other market, and that fashion must vary from time to time, but the pity is that when political fashion decrees that a particular matter shall be the leading topic of the talk of the lips, experience shows that the tendency "only to penury" is uniform. Land, for ex­ample, is in greater difficulties the world over today than ever in his­tory, a curious reflection when one remembers that every politician in the world has done something about land. Irelandz ruled the fash­ion in politics for years, with re­sults that are still in question. Similarly, religion and education kept the politicians going with more vigour than any subject in my recollection, with results to re­ligion which do not impress me and to education of which I enter­tain grave doubts. Coal has suf­fered badly from politics and cot­ton is now faced with the same danger.

The antiprofit fashion will no doubt pass, but like all the other political fashions, it will leave its trail of destruction and penury.

The origin of modern error in this matter can, I think, be traced to Ruskin, who committed himself to the wholly false theory that profit comes out of wages, a theory which since Ruskin’s time has been improved by the corresponding fallacy that profit is an addition to price.

On the other hand, by the exact sum which is divided among them (i.e., the employees) more than their present wages, the fortune of the man who, under the present system, takes all the profits of the business, will be diminished.

Time and Tide, Letter I.

Every practical person knows that Ruskin was mistaken, that his theory is false, but the unhappy fact is that fifty years of tub-thumping by his followers have done their deadly work, and brought about the present deplor­able state of affairs. In the mod­ern scramble for votes, Conserva­tives and Liberals alike allow themselves to be swept up into the fashion, and while offering bribes to the poorer classes of society find it advantageous to round off the offer by threats against those higher up the scale who are sup­posed to be fattening on that evil thing, profit.

Profits in World-Wide Disgrace

It is really quite remarkable how in these days all the aspirants for leadership the world over have selected this antiprofit bias as a good card to play. It might be imagined, indeed it may be hoped, that Hitler’s insistence on the antiprofit character of Nazism would tempt his enemies to adopt another line. It must be highly dis­tasteful to our own Labour Party to find the most prominent of their enemies preaching the same doc­trines and making the same offers, leading his misguided public to believe, as our Socialists profess to believe, that the world will be better when profits are abolished. Wherever one looks the abolition of profits seems to be the leading purpose of all politicians. The Su­preme Economic Council in Japan set up by Prince Konoye is work­ing out a new economy based on public service and the abandon­ment of "liberalistic profit-seek­ing," and Roosevelt is putting America right, or wrong, in pur­suance of the same idea.

Faced with such extraordinary unanimity it may be asked what can be done about it? It appears from the recorded opinions of the leaders of the greater part of the population of the globe, that the world is tired of profits, is deter­mined to do without them, and in accordance with the principles of democracy must be free to follow its desires. I constantly talk to peo­ple who ask me to believe that something is right because every­body says so. Six or seven years ago the American public, so easily swayed by fashion, and with a unanimity that was really remark­able, held it to be right that the State, acting through Mr. Roose­velt, should abolish unemployment, and it was and is very difficult to argue against a mass movement such as that. One can only sit back in the melancholy reflection that experience alone will teach, and the alteration in American opinion on that particular question is in no doubt. If democracy is a sys­tem under which millions of peo­ple, whether qualified to judge or not, are to have their way simply because they say so, then democ­racy will not survive. Unless de­mocracy gets back to the concep­tion of its founders and throws up leaders worthy of the high ideal of self-government, the hope of the future is indeed very faint.

No Mention of Loss

The first thing that strikes any­one who will reflect on all this abuse of profit is the universal ab­sence of any mention of loss. We are faced, in fact, with a world­wide conspiracy to establish a one-way system of argument. The late Dan Leno in one of his most suc­cessful sketches impersonated a town councillor, and delivered a little speech on the vexed question of tramways. The main street of the town of which Dan was sup­posed to be a councillor ran up a hill, and the difficulty with which he dealt was the fact that while the trams found no trouble in go­ing down the hill, they were less inclined to mount it. The sketch finished, as some readers may re­member, when that inimitable comedian, with a peculiar flourish of the hands, a twisting of those expressive legs and a screwing of the eyebrows, settled the matter by making all the trams run down the hill. That is exactly what these antiprofit demagogues are proposing with the whole of the affairs of mankind at this moment. One might as well discuss Romeo with­out a mention of Juliet, of the characteristics of the moon while ignoring the existence of the sun, as to talk of profit and say nothing about loss.

If any of the leaders of what passes in modern times for thought, Hitler, Konoye, Roosevelt, or Bevin, are to be taken at all seriously, then we are faced with a future in which the whole of the affairs of mankind is run on a basis of loss. There is no escape whatever. Practically everything in the world of economics produces either profit or loss, and seeing that no politician has yet been bold enough to put forward a plan for the abolition of loss but all are determined to legislate profits away, loss is the obvious order of the future.

An Addition to Price?

There are various approaches to this question. It is attacked from various angles. Perhaps the most common line of argument is found in the suggestion that prof­its are an addition to price. Mil­lions of decent, well-meaning peo­ple are under the impression that the shopkeeper buys an article at a certain price and adds a profit to that price, so that by legislating profits away the dealer would be obliged to refrain from making that addition to the price he had paid. The notion will not bear a moment’s serious reflection; and yet it prevails. The records show that the biggest profits are made by reductions in price. The profits of the makers of Rolls Royce motor cars are paltry by the side of Lord Nuffield’s profits, insignificant compared with the profits of Hen­ry Ford, and both these million­aires have acquired their wealth by the steady reduction of the price of the article which they of­fer for the public service. The Woolworth millions have been made, not by adding to, but by lowering price.

But we must return to the ques­tion of the origin and composition of profits a little later. There are, of course, cases where suppliers, having secured control of a mar­ket, need pay no attention to the reduction of price and can indeed impose their own idea of value. There are profits out of politics. When the Board of Education, having an effective monopoly, schedules a book as a suitable in­strument for the development of the mind of its protégés, author and publisher are put on clover. Very large profits have, in this way, been made out of the subver­sive manuals produced by the in­dustrious Webbs. Another exam­ple of profit out of politics is seen when a protective tariff gives a monopoly of a market to a trade well enough organised to secure the ear of Parliament.

But these are details. We are concerned not with a book or a piece of steel, but with the hun­dreds of millions of sales and pur­chases, transactions of every sort, kind, and description, which take place every day of the week even in this little island of ours. To mention only one example—every day of every week, Sundays in­cluded, we are, in our little way (for after all it is a little way com­pared with the way of the whole world), conducting sixty million transactions involving the manu­facture, the sale and the purchase of paper. And this is done by some forty million individuals, and would not and could not be done unless we were all free to follow our peculiar little fancies, wants, and whims in the matter of paper.

Profit and Loss Accounting

Profit and loss are inseparable. No person in business or trade ever heard of a profit account. Every tradesman, whatever his line of business, keeps a private ledger, the chief section of which is devoted to a Profit and Loss Ac­count. Politicians and others whose experience is limited to public af­fairs, are at a disadvantage in this matter because there is from a bookkeeping point of view no Profit and Loss Account in the public ledgers. The income is col­lected by force and spent without any direct relation to costs or mar­kets. But outside politics every job of work which goes to make up the total of the day’s endeavor has within it the prospect of profit and the risk of loss. Council houses, nationalised railways, State ship­ping, have always produced loss. There is no exception in all ex­perience in any part of the world to this ascertained fact. But op­erations in the freer market out­side politics all produce either profit or loss, and society is kept together by the fact that having the need for profit and the risk of bankruptcy through loss always in mind, the balance in all human ex­perience has resulted on the whole in profit. The profit, as so far as­certained, is a small one, two or three per cent upon all the capital employed. Some speculative trans­actions produce big profits, other classes of work in more settled or standardised fields of endeavour produce more moderate profits, and when these are all added to­gether and the losses put beside them, the balance is in the neighborhood of the return to be ob­tained from gilt-edged securities. These are facts; they are not in dispute. The politician gets a hear­ing in the matter because it happens that the big profits some­times fall into the hands of per­sons who do not appear on the face of things to be of the most worthy or desirable class.

A Measure of Efficiency

The profit system, if that is what it may be called (although this talk of system is likely to be very misleading), can be described in very simple terms. In the mak­ing of anything, a steam engine, a bridge, a penholder, a handker­chief, many parties, many mar­kets, numerous processes are in­volved. The complications are sometimes extremely intricate. In connection with every detail of all these complications there are two ways of achieving the purpose de­sired. There is the economical way and the extravagant way. The profit system simply amounts to this, that someone in charge of the problem of making a steam en­gine, building a bridge, or manu­facturing a handkerchief, depends for his living upon the balance of the account at the end of the busi­ness appearing on the right or profit side, and that dependence is forced upon him by the circum­stance that if the balance should be on the wrong or loss side, he himself will be faced with the Bankruptcy Court. In these cir­cumstances the person in charge of any of these jobs of work will devote his time and attention to seeking in all the processes and op­erations involved, the economical way of doing them. If, as these antiprofit people profess to desire, it is decided that the man in charge of the making of handker­chiefs shall be free of the profit motive, he will automatically be relieved of the imperative neces­sity of seeking the economical way in all the problems associated with that interesting business.

It is true that if the person in charge can succeed in lowering the rate of wages, he will add to his immediate profits, if the market allows him to retain the gain on wages while still exacting from the consumers the same price for the article. Seeing, however, that the rate of wages is in the hands of a well-established trade union sys­tem, and that the market price is still happily governed by the forces of competition, and furthermore, that in a free country the con­sumer is still at liberty to spend his money in some other way, the opportunities for the operation of the crude device visualised by Rus­kin are for practical purposes non-extant. It must also be remem­bered that the market in handker­chiefs will be good when the wage level is high and bad when the level of wages is low. The profit-makers’ best interests are always in high wages.

This matter for seeking for the economical way of accomplishing the many processes associated with the production of the simplest ar­ticle is far more important to the general well-being than is com­monly supposed. All of us by na­ture are inclined to rate our own value a little above its true worth. All of us very naturally and very properly are inclined to maintain a consistent pressure for a little more for ourselves. That common human trait is not absent even from the profit-scorning ranks of the bureaucracy itself. It is all to the good in a system governed by the Profit and Loss Account, be­cause in such a system the pres­sure which we exercise to secure more for ourselves will be checked, restrained, and brought within reason by the limitations of the market itself. Working under a profit system every worker is di­rectly governed by the consumer who goes or does not go to the front of the shop counter, and does or does not put down his or her money to the extent demanded by the producers and distributors. If, therefore, any of us can give greater satisfaction to the con­sumer, whether by improving the quality or cheapening the price or increasing the quantity, there arises the surplus out of which our own desire for more can be satis­fied; and can be satisfied, be it noted, for this is of the utmost importance, without any expense to anybody. If, however the profit system, with its necessity for avoiding loss, is abandoned, then the restraint upon each one of us is removed; there is hardly any limit to the value we can place upon our own efforts. The rate of our remuneration is no longer gov­erned by the willingness of the market, the free consumer, to pay the price which we put upon our services, but will depend upon our ability to organise ourselves in such a way as to browbeat the government into placing us in a position of advantage over all the rest.

A Production Problem

Private enterprise working with a view to a profit and facing the risk of loss approaches a produc­tion problem from the market end. It assumes, for example, that there is a market for shoes at fif­teen shillings or for houses at £1 a week, and starting from these figures works right back to the be­ginning of either job, pricing every item from start to finish in the hope of coming within the fifteen shillings or the £1. If a material or a process is too expen­sive, other materials and processes have to be found, because the con­sumer will not pay more and there is no other source from which the costs can be recovered. When, how­ever, a local authority decides to build houses to let for £1 a week, there may be every desire for economy, but there is no necessity for it, as anything over the £1 will merely be taken from the rate­payers.

In the Publishing Business

I can speak with some authority about book production and what would happen if the profit and loss consideration were removed from the business of publishing. If the publisher were free to give all the satisfaction sometimes demanded by his labourer, the author, the price of books would be quad­rupled. He would, for instance, save the author some little incon­venience by putting the first draft of the manuscript straight into type, leaving additions, deletions, and alterations to be made by the printer and thus double the com­position costs. He could keep type standing for indefinite periods at heavy expense. He could give an index to every book (a favourite author’s request), although it is not one book in fifty that justifies such extravagance. The author could have a free hand as regards illustrations, and there would be no need to study the wide field of choice of processes with greatly varying costs. Every author I have known has always agreed thatmore money (my money) should be spent on advertising. There are a hundred ways in which the pub­lisher, the printer, the bookbinder, not to mention the bookseller and many others, would all be forced to increase the cost of production and distribution, if once the brake of profit and loss were removed from the complicated machine that gives us our books. This part of the argument can be summed up by saying that profit is nothing but a commission on economy.

The notion still prevails that there is a fixed national income of which too great a part is taken by those who live by making profits, and that happiness can be secured by legislative arrangements divid­ing this fixed wealth into equal shares between us all. That very partial view leaves all progress, all increase, all advance entirely out of account. It happens in practice—and this again is not a matter of argument, but of recorded fact—that the profitowner, held up to scorn as he may be, is the least of the beneficiaries of the system which it is proposed to abolish. For those who would further study this question I have dealt in some detail with this part of the prob­lem in the chapter, "Whom Do I Rob?" in The Confessions of a Capitalist. The records show that high profits, high wages, and low prices go together, and are universally to be found in association, all three with one another. The total of all the wealth taken by the profit makers is a trifling fraction of the total extra wages earned, and these extra wages and savings would never come into existence without the profits.

Wartime Waste

After more than half a century of compulsory popular education it is sad to reflect on the gigantic losses recently made by this nation and indeed by most nations through legislative attempts to limit, discourage, or prohibit per­sonal profit. Popular education has so far done little to minimise the age-old human weakness of failure to learn from experience. In the Kaiser’s War there was, as hap­pens in all wars, the demand for the abolition of profit, and one of the most muddle-headed of all that muddle-headed class who call themselves socialists, Dr. Christo­pher Addison, then Minister of Munitions, set up the absurd sys­tem of remunerating manufac­turers by the cost of the article plus a small fixed percentage. Trade unions were satisfied, the popular desire to take profit out of war was accommodated, and in the result enormous waste was achieved. I estimate that one-third of the National Debt left to us by the 1914-1918 war was directlydue to the cost-plus-percentage system, and this cannot be attrib­uted to any evil motive on the part of anybody. It arose from the simple circumstance that Dr. Addi­son by a stroke of the pen wiped out the need for seeking the eco­nomical way in all the complicated processes associated with the pro­duction of munitions of every sort, kind, and description. That absurd system has been elaborated and improved by bureaucratic minds and hands and will add to a far greater extent to the costs of the present war. The point is em­phasised by a glance at America in the latter part of 1940 and the early part of 1941. In the Kaiser’s war, before America had at­tempted to swallow the whole of the socialist pharmacopaeia, we employed Pierpont Morgan to act as agent for the purchase of our supplies, and we were not encum­bered on the other side, and were far less encumbered on this side, by bureaucratic devices for ac­complishing economic purposes by uneconomic methods. In the result it will be found that we secured in 1914-18 at least twice the ma­terial for half the money.

We really must bring this profit question on to a higher intellec­tual level. We are still, for in­stance, concerned with the notion that the fool and his money are easily parted, but it is not worthy of us, dealing as we are with the economic welfare of the whole world, to apply the exaggerated machinery of bureaucratic govern­ment to the doubtful purpose of saving the face of the fool. I am old-fashioned enough to think that parting with his money is often good for the fool. There are and must always be plenty of profit­eers, using the word in the ob­jectionable sense desired by the politician. Starting with the bully at school who secures a gramo­phone record as a swap for a few worthless stamps, we shall always have the profiteer among us…. Some of them serve a useful pur­pose in opening up markets that would otherwise never be dis­covered. At their very worst they may be compared to the dung, necessary to the production of good crops, the best dung being that which is most thoroughly rotted. But it is unjust, stupid, and wickedly dangerous to regard the profiteer as typical, or to insist through legislation on forcing upon the rest of us restrictions de­signed to eliminate him. These re­strictions never achieve their pur­pose. Complicated rules and regu­lations give new openings to real profiteers and tend to increase their numbers. One might just as well discuss the advantages and disadvantages of marriage, using only evidence and arguments collected from the Divorce Court, as attempt to discuss economic sys­tems using only evidence secured from the doings of a small class that can never be eliminated and whose operations, however objec­tionable, can never amount to more than a trifling fraction of the eco­nomic operations of society as a whole.

The High Cost of Intervention

Suppose it were possible for the advocates of capitalism to attack the world of labour in the way in which the agitating politicians, who have secured the ear of labour, deal with the employing, directing, and managing classes. At the present moment there are thousands of misguided working men unconcerned about the dan­gers of the enemy at our gate, drawing double money to work on Sundays, and taking as a regular holiday two or three weekends when only normal money is to be earned. There are others deliber­ately holding the nation to ransom and securing far more than their labour is worth, because in our dire need we must have their as­sistance. It would, however, be the grossest of libels, the most obvious of lies, to suggest for a moment that these people are typical of the British workingman.

A word must be said about spec­ulators and gamblers, for they exist and are a vital and essential part of any good economic system. Here again, we are swayed too much by the circumstance that the gambler himself is often a person with a mentality, an appearance, or a personal motive that does not appeal to us.

This is an old question and its nature can perhaps be seen by looking back a little. It is some years since Upton Sinclair fa­voured us with his picturesque description of the wheat pit at Chicago. Now we can notice with amusement that while gamblers were making spectacular fortunes and spectacular losses in Chicago, we ourselves were enjoying the cheapest bread in our history. Our bread was in fact so cheap that Joseph Chamberlain was con­strained to admit that if we adopted his scheme for Empire Preference, "your food will cost you more." The fact is, and all his­tory proclaims it, a simple one. The gambling class is a losing class; it loses deliberately, for the curious satisfaction to which it appears to attach importance, of securing an occasional spectacular fortune for one of its members. One need only think of the for­tunes recently made from football pools, or of the State of Monaco, wealthy beyond the dreams of avarice out of the losses of the speculator: and yet the speculat­ing class would feel aggrieved if Monte Carlo were abolished. Here we have the profit motive, using the word in the sense applied so wrongly by the Socialists to the whole class of entrepreneur. Monte Carlo, the organisers of football pools, and the proprietors of every casino in the world, live on the losses of what Mr. Bevin has in mind when he talks of the profit motive. But this has as little to do with the system of economy built upon the necessity for profit as have the operations of the scab in the labour market. The eco­nomic function of the genuine speculator is, of course, a useful one, for it is he who by evening out the market saves us all from ups and downs and booms and slumps, which without him would be much more numerous and troublesome. Profit has been abol­ished in Russia, but the pure-minded Socialists in control of that unhappy country do not scruple to make State profits out of State lotteries maintained to satisfy the gambling instincts of their profitless people.

Part Ii: The Uses Of Profit

Quite apart from the considera­tion of how profits arise, whether there is really a profit motive, whether they constitute an addi­tion to price, or even whether they are moral or immoral, there remains the other big side of the question, the uses to which profits are put, the things which they do, and the problem of whether these things could be done without the existence of profit.

One of the many functions of profit is the payment of losses. It is evident that there must be losses as well as profits. Nobody suggests that when a buyer pays 1s. for an article that 1 s. can always have been made to provide the exact costs of the article, no more or less. If it provides more, there is profit; if it provides less, there is a loss. If, therefore, profits were abolished, some other plan would have to be devised by which the losses could be paid for. A very large proportion of these losses is incurred by the State, not only the losses which the State always makes when it enters into the realm of trade and industry, but such losses as are inevitable in the maintenance of criminals and pri­soners, the provision for the in­sane, and so on. However re­garded, these matters are losses, economic charges which produce no corresponding economic cred­its….

Capital Formation

A still more difficult set of prob­lems comes to mind when one con­siders that nearly all capital is provided out of profits. They are the main source from which capi­tal can be secured. The socialist millennium in Russia has depended all along upon foreign capital, and would have collapsed years ago but for the folly, as I think, of other countries in providing the credits and facilities of capitalism for that degrading business. Capital is accumulated wealth, the prod­uct of work done, saved up and put aside for the purpose of pro­viding the basis on which new enterprise can be founded. If profits are to be abolished, some new source must be found to pro­vide capital, and those are not wanting who argue that that source can be found in public credit. They have however to meet the practical difficulty that, in all human experience so far, there is no such thing as public credit; there is only public debit. The talk about profits and credits has so monopolised the political vocabu­lary that there is no room left for discussion of losses or debits.

In the same category, profits are the only source from which to re­place all the wear and tear and wastage associated with all human endeavour. Among the many troubles now germinating for the future is that which will arise when we go too far with the taxa­tion and confiscation of profits calculated as the tax-gatherers now calculate them, without adequate reference to the costs of wear and tear and wastage, or the need for adequate reserves.

The basis of security which profit gives to any society should also be considered. If, for instance, the whole of society were depend­ent upon salaries and wages paid by the State, there would be little, if any, basis of security. There would be nothing to fall back upon, no reserves, and the risk of the collapse of the whole world would always be hanging over such a so­ciety. No such risk on such a scale can exist so long as we continue with the profit system.

Capital Encourages the Development of New Products Involving Risks

One other of the main functions of profit may be mentioned. It is the only way to provide for that speculation with new ideas which is the beginning and end of eco­nomic progress. It is altogether absurd to suppose that the public really knows in advance what it wants and that, by State or col­lective action working through re­search, that want can be supplied. This theory entirely overlooks the truth expressed in the title of the Law of Supply and Demand, which is something very different from the shallow notion of demand and supply. The public judges an arti­cle after it is put upon the market. The public has never demanded in advance of supply all the multi­farious amenities which together make up civilisation and which it now enjoys. Voltaire put the truth in its simplest terms when he sug­gested that the first man to wear a shirt was probably burnt at the stake as a sorcerer. To come to modern times, it will be within the recollection of some of my readers that an endeavour was made to popularise two ideas at the same time, the one roller-skat­ing and the other the moving pic­tures. Capital and labour plumped for roller-skating. Palaces for the practice of the sport were erected by the thousand and the moving picture was neglected. Stock Ex­change floatations for roller-skat­ing enterprises developed into a minor boom at the time when the Palace Theatre was the only con­cern to be found willing to experi­ment with the moving picture. The experience here was exactly my ex­perience in the publishing trade. The good and the inferior were both supplied, the inferior had all the experts to recommend it, but the public judgment, not the first judgment, working gradually through the sense and intelligence of the individual, has left roller-skating on the scrap heap and has brought the moving picture to its present state of perfection.

Where would the internal com­bustion engine and aviation be today had it not been for the profit system? The Codys, the Wrights, and the Rolls were all regarded as cranks; some of them lost their lives pursuing their own "cranky" ideas. But one of the greatest of profit-owners in our time, the late Lord Wakefield, took another view, and spent a large proportion of his fortune, a fortune made en­tirely out of economy in oil, to pay the expenses of the Malcolm Camp­bells and the Amy Johnsons to whom belongs the credit for the present state of development in these matters.

Here again it is contrary to fact to say that the State or the Min­istry of Aircraft Production could or would have done the same thing. In 1909 when Blériot first crossed the Straits of Dover, no politician would have had the cour­age to suggest the allocation of public money to be spent on what everybody regarded as a game. The notion that pigs might fly was the commonest of conversational illustrations of the wholly impos­sible.

There would, of course, be no charities without profit, no volun­tary hospitals, indeed no hospitals at all, because the State has never yet initiated anything. The best that can be said is that it has sometimes stepped into an estab­lished market and taken it over. Charities are admitted to be dependent upon profit, an admission to which official sanction is given by special arrangements for the remission of taxation upon money given to charity….

Part Iii: Democracy And Profit

The Profit and Loss system is essentially the consumer’s system. Human experience so far has failed to produce any other plan under which the consumer has complete freedom of choice and can command or reject at his sole whim or pleasure. We are all con­sumers, and if we accept the theory of the greatest good of the greatest number, any economic system controlled by consumers must give us all the benefit of its operations. Some consumers have advantages over others, as in Rus­sia, where, as we have seen, the use of the motor car or any sort of luxury is the exclusive privilege of the official, for the simple rea­son that there are not enough motor cars to go all round and some process of selection is neces­sary. There must be inequalities in our country, unless we can visu­alise a state of affairs in which there are 46,000,000 portions of caviar and of everything else. The remedy for such inequality is to be found in two ways, either to increase the production of caviar or to abolish it altogether and thus deprive the Russian fishermen of employment.

I find a widespread feeling, somewhat vague at present, that by the application of brains, by planning, by organisation, by laws or by more committees, things could be so arranged as to elimi­nate profit and provide that the ample supplies of nature could be freely and equally at the service of all. The experience gained in the course of a war is no criterion as to what might be done in peace, but our war experiences should be helpful towards an understanding of this very common problem. We all know how the consumer has to be relegated to a subsidiary posi­tion; how the planning of supplies and the pooling of resources de­stroy quality, obliterate choice, in­crease cost, and diminish quanti­ties.

Rationing… may be said to give us a little more equality and a lot less of everything else…. The Profit and Loss or consumer system will never give equality and it is as well to be quite clear and definite on that. Other systems may profess to offer equality but no scrap of evidence has ever yet appeared in support of the profes­sion. What this consumer system has done and will continue to do, as an essential part of the search after economy and profit, is to produce an unending stream of new and better products, first of all for experiment by, or the serv­ice of, a small minority, and work­ing down from them, finally for the service of all.

Pressure on Producers

There is the admitted objection that the Profit and Loss system maintains a constant pressure on the producers to produce as much as possible at the least possible expenditure of time and effort. It makes the producer the slave of the consumer. There are those who visualise a system under which we shall all work when and as it suits us, as we shall ourselves direct, in a self-governing democracy, and yet at the same time that we shall enjoy a full consumer life, having each of us prescriptive rights to our share of the general wealth. That proposition will not stand examination. If indeed it were a practical proposal, it would offer a life with no attractions to "man who is man." We cannot have it both ways, and it is good to be clear and definite on the point and remove from our minds unworthy thoughts of a life that is unob­tainable and even if obtainable would not be worth living. The truth is that as producers we must be slaves to our consumer selves, or as consumers we must be slaves to our producer selves. There must be slavery, obligation, necessity, call it what you will, in any honourable and workable scheme of life. We must stand in the market place to be hired as pro­ducers, or must line up in the queue to be rationed as consumers. In the first arrangement there will always be more and more (not, of course, all that everybody wants), for general consumption, while in the second scheme there will be a steadily decreasing supply of everything, until in the end there is nothing to share but equality of poverty.

It will be evident from the fore­going that the economic system through which civilisation has been developed is essentially a democratic system. It evolved a practical universal suffrage, in theory at least, long before any politician thought of universal votes. Under it the command is vested in every individual. The Profit and Loss system makes for responsibility in the individual, any other system reduces the in­dividual to a state in which no sense of responsibility is required or expected. Nobody, for instance, is responsible for anything in a bureaucratic system. No bureau­crat suffers any personal loss if things go wrong or if the public fail to take advantage of his serv­ices. Under the spur of profit and the threat of loss millions of men and women do accept a very real and personal responsibility for the maintenance of economy, expedi­tion, and efficiency, out of which an ever higher standard for all is provided. Without Profit and Loss the quality and genius of all these people is put out of use, no others are invited to cultivate any sort of personal responsibility, and the general standard of life is of necessity lowered.

To sum up. The abolition of profit will bring about a universal state of loss. In the process, it will first of all abolish all economy, efficiency, and expedition; it will place the consumer in slavery; it will stop up the source of new capital and dispel all hope of prog­ress. The very best that can hap­pen if the antiprofit policy is pur­sued, is that we shall go on shar­ing the profits of the past until, they being exhausted, there is noth­ing more to share. The old trouble between the haves and the have-nots will then disappear, in the simplest of all possible ways, by turning us all into have-nots, with consequences that could only be understood by those who have lived in the Dark Ages following the political destruction of many previous civilisations.


August 1960

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November 2014

It's been 40 years since F. A. Hayek received his Nobel Prize. His insights, particularly on the distribution of knowledge and the impossibility of economic planning, remain hugely important today. In this issue, we look back on the influence of his work. Max Borders and Craig Biddle debate whether liberty must be defended from one absolute foundation, further reflections on Scottish secession, and how technology is already changing our world for the better--including how robots, despite the unease they cause, will only accelerate this process.
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