Freeman

ARTICLE

The Progression of Profitability

MARCH 01, 1975 by JOAN WILKE

Miss Wilke is an advertising writer.

A man starts with an idea and a few years later, untold millions have profited from it in many ways — ways they’ve never even thought about.

Profit multiplies and spreads contagiously to everyone. You can’t help but "catch it" — even if you’re hundreds of miles away —or hundreds of years.

When one man profits, virtually everyone profits, and the spread­ing circles keep expanding, inter­acting and overlapping — all ways and always.

The consumer benefits directly from the service or product he buys or he wouldn’t buy it. By purchasing from the most efficient (profitable) producer he profits by making his money do more and go farther.

Workers, distributors, suppliers and all secondary services such as transportation, utilities and so on profit from helping to provide the product.

The wage earner’s new profit­ability enhances his marketability so that he enjoys raises, profit sharing, vacation, insurance, pen­sions and other forms of remun­eration.

All kinds of merchants and com­munity services profit from the profits in all these other pockets in the form of wages, dividends, fees and the like — which in turn becomes wages.

And the profitable product of one company is often a profitable tool in the operation of another. How many businesses depend on the telephone and typewriter? And for want of a nail, how many businesses would be lost or not have materialized? And the winged nut? And the staple? And plastic? And everything we take for granted? Once inventions themselves, these things are now relatively cost-free factors of pro­duction. Many are cost-saving fac­tors of production, replacing less efficient methods and materials.

So the profit of one company augments the profit of others and the efficiency is passed on to con­sumers in lower prices as well as paying more wages, dividends, in­terest — with all their correspond­ing reverberations through the economy.

Although the economy is called "competitive" and it is, it could more rightly be called a system of mutual profit. The nature of com­petition prevents any standing still or retrogression. Under com­petition, the initial profit margin diminishes. As soon as the idea is exposed and is profitable, others compete to try to produce it better or at lower cost. The original com­pany must either continually im­prove its product or service to maintain leadership, lower the price or abandon the now un­profitable item and produce some­thing else that’s more beneficial to society, which is to say more prof­itable.

Only favors of governmental partisanship can disrupt this spi­ral of progression, improvement and profitability.

Profit is the incentive toward activity, the reward for the ac­tivity and the means of accom­plishing activity. The more an entrepreneur profits the more he is able to accomplish, and his scale of profitable activity expands rap­idly.

One man starts out as a car­penter, builds a few houses and finds it so profitable he develops new mass-production techniques in construction to build faster and goes on to build whole communi­ties of low cost homes. And this is real low cost housing, not high cost construction offered at low prices with the difference paid by the taxpayer.

A retired southern gentleman takes a family recipe and in a few years builds a multi-million dollar franchise operation creating busi­ness opportunities for countless people, employing thousands and serving millions of low cost chick­en dinners to budget conscious families. And this is really low cost food, not high cost food sold at low prices with the difference paid by the taxpayer.

A penniless young cartoonist draws an entertaining mouse whose profits allow his genius to explode into myriad areas of mod­ern technology, engineering, en­tertainment innovation, film tech­niques, scientific inquiry and com­munity development. He is a true benefactor of mankind, his prog­ress and vast accomplishments paid for by his past successes.

It should be apparent that a tax on profit is a tax on the future —an impediment to progress — a production-stopping, idea-blocking, paralyzing obstruction to the ad­vancement of everyone. A product is simply an idea that has materialized out of profit —one’s own profit from previous success or the invested profit of others who see additional oppor­tunity for profit.

Only a profit economy can offer "something for nothing." And that "something" is in virtually everything produced competitive­ly. It’s often the competitive edge. It is sometimes a premium or give­away item. While it can be argued that the cost of the premium is in the price of the product, it is also true that the product still must be sold at a competitive price or with a premium so appealing that new value is created. Economic­ally, that’s as close to something for nothing as it’s possible to get.

Another of the universally prof­itable aspects of an open, compet­itive economy is that unprofitable activity diminishes, fails and dies out. The pruning of wasteful ac­tivity is as necessary to the prof­itability of an economy and soci­ety as the profit of the successful ventures.

Besides, failure is experience gained, the storehouse of future success. And the "losers" still reap all the benefits of the other efficiencies in the profit economy. The overall efficiency bolsters ev­eryone.

A competitive, profit economy cannot be described accurately as the survival of the fittest. On the contrary, it is a matter of strengthening the weakest . . . en­riching the poorest . . . upgrading the whole.

We all have a vested interest in each other’s profit because it al­ways represents efficiency. Every efficiency is gained by all. Every waste is suffered by all.

The currently popular term "ex­cessive profits" is a madcap ab­surdity in an open, competitive market. No profit is too great when it represents efficiency and when it is the potential of the fu­ture. The efficient producers are precisely the people society should want to profit the most so it can benefit from their activities in other ways. Applying the word "greed" to profit is another mala­propism. It is far more appropri­ate in describing the welfarists’ drive toward expropriating the profits of others.

All government controls—wages, prices, tariffs, subsidies and the rest — are all forms of profit con­trol. As such, they are curbs on efficiency. Since every product is a service of some kind, what is taxed is the ability to provide a service. And it is deducted from future efficiency in producing the service. What is being deducted from society in a cumulative and accelerating way, is efficiency it­self. Tax is paid on what a company has. It is deducted from what it could be. It is paid on what it has produced. It is deducted from what it could produce.

When people tax a company in a competitive economy, they are taxing themselves — everyone — in many ways. Not just in adding to the cost of the product. Not just in dollars. In jobs . . . in efficiency . . . in initiative . . . in opportun­ities . . . in convenience, comfort, fun . . . a myriad of inconceivable, unpredictable things. They are being taxed in ideas.

When we tax profitable com­panies and subsidize unprofitable ones, we are paying for square wheels with money that could be buying not only round wheels, but as yet undeveloped methods of travel. In a controlled economy, we’re all losers. We can’t even be aware of all we’ve lost.

We’re not taxed in dollars, we’re taxed in things that might have been. The dollars paid in taxes in 1940 would have bought clothes­lines, wringer washers, block ice for the ice box, and radios. The dollars paid in taxes today will buy color television, micro-wave ovens, telephone answerers and video tape cassettes.

If our economy were completely controlled, we’d still be paying our taxes in clothesline money. If our economy were completely free, there’s no telling what still unde­veloped marvels you could have in your home for the dollars you’re paying in taxes.

The dollars are nothing — it’s the things we’re losing. If the man who invented the wheel lived un­der the system of distribution we are giving way to, everyone would be sitting around looking at his spoke and no one would have a car.

It’s profit that makes the world go ’round — and if that isn’t love, it’s at least enough appreciation of others to allow them to profit, and in so doing, to profit oneself.

A profit economy is nothing more than an open entry, private contract economy with no licens­ing, permits, trade barriers, sub­sidies or other governmental re­straints, privileges or controls. Its basis must include the reali­zation that one’s own progress ma­terially, intellectually and in many ways, is advanced by the progress of others.

ASSOCIATED ISSUE

March 1975

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