Profits and the Well-Being of America
September 23, 2018
There are well-meaning people who have supported Trump while holding their noses. Their rationalizations are many, but include those who justify it on the basis of the corporate and personal income tax cuts, and the drop in environmental and other regulations.
Their claim is that what is good for corporate America and the rich is good for America more broadly. The old quote, “What’s good for GM is good for America,” is a misquote of Charles Wilson, but you get the idea.
On one level, the claim is true. A vibrant economy provides jobs, pensions, and wonderful products at affordable prices, especially to the poor and middle class.
But the claim is also situational, and depends on the context. Adam Smith was quite aware of the contextual drama, because he consistently noted how powerful interests try incessantly to game the system. Those powerful players are sometimes members of a labor union, but more often than not are the capitalists themselves and their politician stooges.
Hence, to ensure that capitalism works for all and really is in the broader social interests, Smith insisted on constraining the laissez faire market in a number of ways. Smith’s goal was to reduce the market power of the powerful, and elevate the market power of the weak.
In the quotes below, Smith notes that a high rate of profit is not the goal of society. High profits are a sign of a country going rapidly to ruin, through rigged markets. In a competitive market, profits will be low, and are a sign of healthy corporate rivalry that gives more power to the consumer.
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All quotes are from The Wealth of Nations (Liberty Fund edition, 1981):
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the publick, or in some contrivance to raise prices.” (84)
“But the rate of profit does not, like rent and wages, rise with the prosperity, and fall with the declension of the society. On the contrary, it is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin.” (Chapter: [I.xi.p], 162), my emphasis added.
“The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the publick. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the publick; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.” (163)
“The violence and injustice of the rulers of mankind is an ancient evil, for which, I am afraid, the nature of human affairs can scarce admit of a remedy. But the mean rapacity, the monopolizing spirit of merchants and manufacturers, who neither are, nor ought to be the rulers of mankind, though it cannot perhaps be corrected, may very easily be prevented from disturbing the tranquillity of anybody but themselves.” (318)
“As it is the interest of the freemen of a corporation to hinder the rest of the inhabitants from employing any workmen but themselves, so it is the interest of the merchants and manufacturers of every country to secure to themselves the monopoly of the home market. (318)
“The high rate of profit seems every where to destroy that parsimony which in other circumstances is natural to the character of the merchant…. Have the exorbitant profits of the merchants of Cadiz and Lisbon augmented the capital of Spain and Portugal? Have they alleviated the poverty, have they promoted the industry of those two beggarly countries?” (396)
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So, to those who support Trump simply for the boost to stock prices, please ask yourselves: are high stock prices and high corporate profits--both of which disproportionately benefit the top 1% of families--the right measure of economic health? Are there other ways of stimulating the market that produce broader social benefits?
[Thanks to Ben Campbell for an interesting discussion of this issue.]
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