The Economic Ignorance of Banning Corporate Profits


It doesn’t require a PhD in economics to understand the importance of profits. Unfortunately, these delegates don’t seem to grasp this elementary point.

To understand what is known as “the profit motive” is to understand human action. People are by nature prone to leisure. That is, people forgo work when it isn’t necessary to achieve desired ends. If we lived in a world where all desired things where suddenly available when needed without working for them, then we would be back in paradise. But, we don’t live in paradise. To have those products we demand action must be taken to acquire them. In our modern world, this requires a division of labor where many people specialize in different tasks to produce those demanded products. Some will take the required risks to get the ball rolling by investing their capital into a business plan. These “risk takers” are better known as entrepreneurs.

It is the entrepreneur who puts off earnings in order to bring his idea into production and they alone take all the risk when the idea fails. Workers are employed to produce these demanded products, but labor isn’t subjected to the same amount of risk as the entrepreneur. The worker gets paid even before the product is completed or sold. The entrepreneur depends on the business being profitable before he receives any benefit. This “risk taking” or entrepreneurship is only desirable because of the “profit motive”.

This is where incentives enter the picture.  People respond to incentives. Without the incentive to do something no one would act. Every action first requires an incentive. In the case of the video, the profit incentive is that which drives entrepreneurs and businesses to produce products. In order for businesses to produce, they must employ labor to do the required work for the production of those products.

What kind of world would we live in if these delegates had their way by having corporate profits banned? It would be a world much like we had in the dark ages. A world where wealth was achieved through plunder and theft, not investment and a division of labor. This is where capitalism has been credited for lifting the standard of living for the average person to levels never before seen in human history. Before the advent of free market capitalism, humankind lived in abject misery and poverty. This has been the majority of human existence. From the time of humans living as hunter/gatherers or living from season to season, the basics of survival had to be attained through much labor and drudgery. Since capitalism entered the scene, we don’t struggle to survive. The struggle in capitalistic societies is for greater affluence, more leisure and attaining more desired “stuff”. Time was consumed in human history by providing food, clothing and shelter and not much else. Today, thanks to capitalism, we use the commodity known as “time” to pursue things such as freedom, justice and education.

To understand more about where this anti-capitalistic mentality came from, I would suggest reading Ludwig von Mises’ book, “The Anti-Capitalistic Mentality” (available at www.mises.org) where he describes this mind set from many different angles. Unfortunately, this type of thinking is prevalent throughout our society. It’s not just found at the DNC Convention. Basic economic ignorance is probably the single most deciding factor for strife and less than desirable economic outcomes in the western world. It is this ignorance that lead the intelligentsia, and average citizen, to consider implementing failed ideas such as socialism.

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2 thoughts on “The Economic Ignorance of Banning Corporate Profits

  1. Pingback: The Economic Ignorance of Banning Corporate Profits | The Libertarian Liquidationist

  2. Pingback: The Failure of Socialism | The Libertarian Liquidationist

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