By Kevin D. Williamson
Monday, June 30, 2014
People intensely dislike profits. The belief that turning
a profit is tantamount to operating some sort of con is disturbingly common. In
their paper “Is Profit Evil? Associations of Profit with Social Harm,” Amit
Bhattacharjee, Jason Dana, and Jonathan Baron asked research subjects to guess
at the profitability of certain firms (e.g., Visa, Barnes & Noble) and
certain classes of firms (e.g., oil companies, professional sports teams), and
to estimate the social value of those companies and enterprises. The findings
were not qualitatively surprising — the bias against profit in popular thinking
is well-established — but they are quantitatively surprising: The correlation
between perceived profitability and perceived social value was negative .62 for
individual companies and negative .67 for classes of companies. (The
always-insightful Bryan Caplan’s thoughts on the matter are here.) Identical
economic tasks were judged very differently when the actor in question was
identified as a nonprofit rather than a for-profit firm. It is worth noting
that the anti-profit bias generally persists across party identification and
political affiliation.
There are a few obvious potential explanations for why
this might be. It could be popular culture, in which the world “corporation” is
practically a synonym for evil, in spite of the fact that the power of
individual corporations is in rapid decline. (It seems likely to me that the
corporation as currently organized will not exist in 50 years. More here.) It
could be envy; anything ancient enough to make the list of Seven Deadly Sins
and to form the basis of a hundred thousand cautionary myths is bound to have
some explanatory power. But we should consider the possibility that it is
simply the result of an intellectual error.
Properly understood, all economic values are subjective.
Some items have useful applications, but the relative value of those
applications is itself subjective; there’s nutritional value in a pound of
cauliflower, and there’s nutritional value to an ounce of Beluga caviar, and
the difference in the price between the two is based on no objective criterion.
Even scarcity does not explain the difference: There are more diamonds in this
world than there are autographed photos of Anthony Weiner, but try giving your
wife the latter for your anniversary and you’ll get a short and possibly
violent lesson in the subjectivity of value. In fact, it is the subjectivity of
value that makes exchange possible — if our values and preferences were
perfectly aligned, we’d never trade anything for anything else, because we’d
all value every item and service at precisely the same level, and there would
therefore be no incentive to engage in commerce. That our preferences should be
non-uniform ought not be surprising — our lives are non-uniform, too. If I
operate an apple orchard, I am probably not going to buy apples from you at any
price, unless perhaps they are a different sort of apple than the ones I grow.
The rancher and the fisherman each assigns a different value to beef and fish
than does his opposite number. Disagreement is fundamental.
The crude version of exchange — which is, unhappily, the
common version — is inclined to suspect that there is an objectively correct
price for a good, and that profit comes from duping somebody into paying more
than the correct price for it. That error is fundamental to Marxism and other
anti-capitalist philosophies, and it is implicit in such social phenomena as
the anti-advertising movement, “Buy Nothing Day,” and similar political tendencies.
But that bias does relatively little harm in the heads of greying Marxists,
peddlers of “profit is a crime” banalities, and Occupy riff-raff. Where it is
truly destructive is in the disorganized thoughts of the large majority of
ordinary people with no particularly strong political commitments or economic
orientation. Consider these phrases: “An honest day’s work for an honest day’s
pay,” “just wages,” “fair price,” “obscene profits,” “price gouging,”
“excessive executive compensation.” For any of those phrases to have any
intellectual content, then there must be a price that is in some non-subjective
sense the correct one. But if economic values are subjective — and they are —
then “an honest day’s work for an honest day’s pay” can only mean one thing,
that being the payment of an agreed-upon wage for an agreed-upon performance of
labor, with “honest” referring only to the fulfillment of the agreement and
saying nothing substantive about the terms of the agreement itself.
The Left often tries to explain its objection to free
prices and wages in terms of asymmetrical economic power, and that analysis is
not without some practical meaning: If you have been unemployed for six months,
have $20,000 in debt, and are down to your last $4, then you are in a pretty
poor negotiating position vis-à-vis most potential employers. But what is true
at the anecdotal level is not true at the aggregate level: In spite of a lot of
lamentably flat-earth commentary to the contrary, large, powerful firms such as
McDonald’s and Walmart are effectively unable to raise prices, and firms such
as Goldman Sachs and Wells Fargo are unable to dictate wages. While individual
circumstances obviously vary, every potential buyer and seller, and every
potential employer and employee, has precisely the same power in the market:
veto power. McDonald’s would love to charge you $50 for a hamburger, and
Goldman Sachs would love to pay a lot of people a lot less than it does.
Neither firm can get away with that, because potential buyers and potential
workers will walk away — that’s the upside of having lots of buyers and sellers
in the marketplace.
Why this never occurs to, say, would-be health-care
reformers is puzzling: In a market in which licensing rules and other
regulations ensure that most states have only a handful of major policy sellers
in the health-insurance market, and in which the outmoded model of
employer-based health insurance means that there are a limited number of
buyers, you’d think that the most popular policy would be radically increasing
the number of buyers and sellers — and you’d be wrong. What we get instead is
extraordinarily primitive thinking about the role of profit in the
health-insurance business (an evil, and a deduction from the sum of the public
good), price-fixing schemes, and the like. All of which is based upon the idea
— the superstition — that there exists a right price or a right profit for this
or any other good.
In the entire history of economic thought, nobody has
ever been able to demonstrate that there is an objectively “right” price for
anything separate and apart from the subjective valuation that happens in the
marketplace. Progressives like speeches about diversity, but they loathe the
actual diversity of views and desires, especially the idea that prices should
be sorted out according to the billions of subjective valuations in the
marketplace through a process that nobody is in charge of. (In Dante’s Hell,
the engraving reads: “Abandon Hope All Ye Who Enter Here.” In Ezra Klein’s
Hell, the engraving reads: “Nobody In Charge.”) Implicit in this belief is that
most people — consumers and workers alike — are too stupid or too weak for us
to allow them to act on their own subjective valuations, that we are compelled
by . . . justice, efficiency, expert opinion, whatever . . . to substitute our
own judgment for theirs. And then all you need is two government studies and a
rent-a-philosopher writing in the New York Times to proclaim that there is some
real-world basis for your own preferences as compared to those of the rabble on
whose behalf you have just deputized yourself to organize the world. The
language of “social justice” is largely a sort of moral minstrel show designed
to distract from the real argument, which is: “You’re too stupid to be entrusted
with your own life.” Something close to the entirety of the progressive agenda
(apart from sexual license), from wage rules to health care to “investments” in
modish fantasy projects to industrial policy, assumes that that metaphysically
correct price is out there, simply waiting for the right people with the right
ideas in service of the right policy to discover them, or at least to
approximate them.
We should not continue to let them get away with that,
whether we charitably consider it sloppy thinking or less charitably judge it
to be outright intellectual fraud. You can have the Congressional Budget Office
model your magical, metaphysical prices however you like, but what’s happening
is nothing more than the sneaky insertion of a set of unsubstantiated moral
principles disguised as math into an issue without any more inherent moral
aspect to it than the fact that some lumps of carbon are cheap by the ton while
others are tens of millions of dollars an ounce simply because they have a
prettier crystal lattice.
If the Left is going to argue that profit is a scandal,
then we should at least make them do the math and show their work.
