Those who spurn entrepreneurial profit as “unearned” mean that it is lucre unfairly withheld either from the workers or from the consumers or from both. Such is the idea underlying the alleged “right to the whole produce of labor” and the Marxian doctrine of exploitation. It can be said that most governments — if not all — and the immense majority of our contemporaries by and large endorse this opinion although some of them are generous enough to acquiesce in the suggestion that a fraction of profits should be left to the “exploiters.”

There is no use in arguing about the adequacy of ethical precepts. They are derived from intuition; they are arbitrary and subjective. There is no objective standard available with regard to which they could be judged. Ultimate ends are chosen by the individual’s judgments of value. They cannot be determined by scientific inquiry and logical reasoning. If a man says, “This is what I am aiming at whatever the consequences of my conduct and the price I shall have to pay for it may be,” nobody is in a position to oppose any arguments against him. But the question is whether it is really true that this man is ready to pay any price for the attainment of the end concerned. If this latter question is answered in the negative, it becomes possible to enter into an examination of the issue involved.

If there were really people who are prepared to put up with all the consequences of the abolition of profit, however detrimental they may be, it would not be possible for economics to deal with the problem. But this is not the case. Those who want to abolish profit are guided by the idea that this confiscation would improve the material well-being of all non-entrepreneurs. In their eyes the abolition of profit is not an ultimate end but a means for the attainment of a definite end, viz., the enrichment of the non-entrepreneurs. Whether this end can really be attained by the employment of this means and whether the employment of this means does not perhaps bring about some other effects which may to some or to all people appear more undesirable than conditions before the employment of this means, these are questions which economics is called upon to examine.

The idea to abolish profit for the advantage of the consumers involves that the entrepreneur should be forced to sell the products at prices not exceeding the costs of production expended. As such prices are, for all articles the sale of which would have brought profit, below the potential market price, the available supply is not sufficient to make it possible for all those who want to buy at these prices to acquire the articles. The market is paralyzed by the maximum price decree. It can no longer allocate the products to the consumers. A system of rationing must be adopted.

The suggestion to abolish the entrepreneur’s profit for the benefit of the employees aims not at the abolition of profit. It aims at wresting it from the hands of the entrepreneur and handing it over to his employees.

Under such a scheme the incidence of losses incurred falls upon the entrepreneur, while profits go to the employees. It is probable that the effect of this arrangement would consist in making losses increase and profits dwindle. At any rate, a greater part of the profits would be consumed and less would be saved and ploughed back into the enterprise. No capital would be available for the establishment of new branches of production and for the transfer of capital from branches which — in compliance with the demand of the customers — should shrink into branches which should expand. For it would harm the interests of those employed in a definite enterprise or branch to restrict the capital employed in it and to transfer it into another enterprise or branch. If such a scheme had been adopted half a century ago, all the innovations accomplished in this period would have been rendered impossible. If, for the sake of argument, we were prepared to neglect any reference to the problem of capital accumulation, we would still have to realize that giving profit to the employees must result in rigidity of the once attained state of production and preclude any adjustment, improvement, and progress.

In fact, the scheme would transfer ownership of the capital invested into the hands of the employees. It would be tantamount to the establishment of syndicalism and would generate all the effects of syndicalism, a system which no author or reformer ever had the courage to advocate openly.

A third solution of the problem would be to confiscate all the profits earned by the entrepreneurs for the benefit of the state. A one hundred per cent tax on profits would accomplish this task. It would transform the entrepreneurs into irresponsible administrators of all plants and workshops. They would no longer be subject to the supremacy of the buying public. They would just be people who have the power to deal with production as it pleases them.

The policies of all contemporary governments which have not adopted outright socialism apply all these three schemes jointly. They confiscate by various measures of price control a part of the potential profits for the alleged benefit of the consumers. They support the labor unions in their endeavors to wrest, under the ability-to-pay principle of wage determination, a part of the profits from the entrepreneurs. And, last but not least, they are intent upon confiscating, by progressive income taxes, special taxes on corporation income and “excess profits” taxes, an ever increasing part of profits for public revenue. It can easily be seen that these policies if continued will very soon succeed in abolishing entrepreneurial profit altogether.

The joint effect of the application of these policies is already today rising chaos. The final effect will be the full realization of socialism by smoking out the entrepreneurs. Capitalism cannot survive the abolition of profit. It is profit and loss that force the capitalists to employ their capital for the best possible service to the consumers. It is profit and loss that make those people supreme in the conduct of business who are best fit to satisfy the public. If profit is abolished, chaos results.

All the reasons advanced in favor of an anti-profit policy are the outcome of an erroneous interpretation of the operation of the market economy.

The tycoons are too powerful, too rich, and too big. They abuse their power for their own enrichment. They are irresponsible tyrants. Bigness of an enterprise is in itself an evil. There is no reason why some men should own millions while others are poor. The wealth of the few is the cause of the poverty of the masses.

Each word of these passionate denunciations is false. The businessmen are not irresponsible tyrants. It is precisely the necessity of making profits and avoiding losses that gives to the consumers a firm hold over the entrepreneurs and forces them to comply with the wishes of the people. What makes a firm big is its success in best filling the demands of the buyers. If the bigger enterprise did not better serve the people than a smaller one, it would long since have been reduced to smallness. There is no harm in a businessman’s endeavors to enrich himself by increasing his profits. The businessman has in his capacity as a businessman only one task: to strive after the highest possible profit. Huge profits are the proof of good service rendered in supplying the consumers. Losses are the proof of blunders committed, of failure to perform satisfactorily the tasks incumbent upon an entrepreneur. The riches of successful entrepreneurs is not the cause of anybody’s poverty; it is the consequence of the fact that the consumers are better supplied than they would have been in the absence of the entrepreneur’s effort. The penury of millions in the backward countries is not caused by anybody’s opulence; it is the correlative of the fact that their country lacks entrepreneurs who have acquired riches. The standard of living of the common man is highest in those countries which have the greatest number of wealthy entrepreneurs. It is to the foremost material interest of everybody that control of the factors of production should be concentrated in the hands of those who know how to utilize them in the most efficient way.

It is the avowed objective of the policies of all present-day governments and political parties to prevent the emergence of new millionaires. If this policy had been adopted in the United States fifty years ago, the, growth of the industries producing new articles would have been stunted. Motorcars, refrigerators, radio sets, and a hundred other less spectacular but even more useful innovations would not have become standard equipment of most of the American family households.

The average wage earner thinks that nothing else is needed to keep the social apparatus of production running and to improve and to increase output than the comparatively simple routine work assigned to him. He does not realize that the mere toil and trouble of the routinist is not sufficient. Sedulousness and skill are spent in vain if they are not directed toward the most important goal by the entrepreneur’s foresight and are not aided by the capital accumulated by capitalists. The American worker is badly mistaken when he believes that his high standard of living is due to his own excellence. He is neither more industrious nor more skillful than the workers of Western Europe. He owes his superior income to the fact that his country clung to “rugged individualism” much longer than Europe. It was his luck that the United States turned to an anticapitalistic policy as much as forty or fifty years later than Germany. His wages are higher than those of the workers of the rest of the world because the capital equipment per head of the employee is highest in America and because the American entrepreneur was not so much restricted by crippling regimentation as his colleagues in other areas. The comparatively greater prosperity of the United States is an outcome of the fact that the New Deal did not come in 1900 or 1910, but only in 1933.

If one wants to study the reasons for Europe’s backwardness, it would be necessary to examine the manifold laws and regulations that prevented in Europe the establishment of an equivalent of the American drug store and crippled the evolution of chain stores, department stores, super markets, and kindred outfits. It would be important to investigate the German Reich’s effort to protect the inefficient methods of traditional Handwerk (handicraft) against the competition of capitalist business. Still more revealing would be an examination of the Austrian Gewerbepolitik, a policy that from the early eighties on aimed at preserving the economic structure of the ages preceding the Industrial Revolution.

The worst menace to prosperity and civilization and to the material well-being of the wage earners is the inability of union bosses, of “union economists” and of the less intelligent strata of the workers themselves to appreciate the role entrepreneurs play in production. This lack of insight has found a classical expression in the writings of Lenin. As Lenin saw it all that production requires besides the manual work of the laborer and the designing of the engineers is “control of production and distribution,” a task that can easily be accomplished “by the armed workers.” For this accounting and control “have been simplified by capitalism to the utmost, till they have become the extraordinarily simple operations of watching, recording and issuing receipts, within the reach of everybody who can read and write and knows the first four rules of arithmetic.”3 No further comment is needed.

• 3Lenin, State and Revolution, 1917 (Edition by International Publishers, New York, pages 83-84). The italics are Lenin’s (or the communist translator’s).

In the eyes of the parties who style themselves progressive and leftist the main vice of capitalism is the inequality of incomes and wealth. The ultimate end of their policies is to establish equality. The moderates want to attain this goal step by step; the radicals plan to attain it at one stroke, by a revolutionary overthrow of the capitalist mode of production.

However, in talking about equality and asking vehemently for its realization, nobody advocates a curtailment of his own present income. The term equality as employed in contemporary political language always means upward leveling of one’s income, never downward leveling It means getting more, not sharing one’s own affluence with people who have less.

If the American automobile worker, railroadman or compositor says equality, he means expropriating the holders of shares and bonds for his own benefit. He does not consider sharing with the unskilled workers who earn less. At best, he thinks of equality of all American citizens. It never occurs to him that the peoples of Latin America, Asia, and Africa may interpret the postulate of equality as world equality and not as national equality.

The political labor movement as well as the labor union movement flamboyantly advertise their internationalism. But this internationalism is a mere rhetorical gesture without any substantial meaning. In every country in which average wage rates are higher than in any other area, the unions advocate insurmountable immigration barriers in order to prevent foreign “comrades” and “brothers” from competing with their own members. Compared with the anti-immigration laws of the European nations, the immigration legislation of the American republics is mild indeed because it permits the immigration of a limited number of people. No such normal quotas are provided in most of the European laws.

All the arguments advanced in favor of income equalization within a country can with the same justification or lack of justification also be advanced in favor of world equalization. An American worker has no better title to claim the savings of the American capitalist than has any foreigner. That a man has earned profits by serving the consumers and has not entirely consumed his funds but ploughed back the greater part of them into industrial equipment does not give anybody a valid title to expropriate this capital for his own benefit. But if one maintains the opinion to the contrary, there is certainly no reason to ascribe to anybody a better right to expropriate than to anybody else. There is no reason to assert that only Americans have the right to expropriate other Americans. The big shots of American business are the scions of people who immigrated to the United States from England, Scotland, Ireland, France, Germany, and other European countries. The people of their country of origin contend that they have the same title to seize the property acquired by these men as the American people have. The American radicals are badly mistaken in believing that their social program is identical or at least compatible with the objectives of the radicals of other countries. It is not. The foreign radicals will not acquiesce in leaving to the Americans, a minority of less than 7% of the world’s total population, what they think is a privileged position. A world government of the kind the American radicals are asking for would try to confiscate by a world income tax all the surplus an average American earns above the average income of a Chinese or Indian worker. Those who question the correctness of this statement, would drop their doubts after a conversation with any of the intellectual leaders of Asia.

There is hardly any Iranian who would qualify the objections raised by the British Labour Government against the confiscation of the oil wells as anything else but a manifestation of the most reactionary spirit of capitalist exploitation. Today governments abstain from virtually expropriating — by foreign exchange control, discriminatory taxation and similar devices — foreign investments only if they expect to get in the next years more foreign capital and thus to be able in the future to expropriate a greater amount.

The disintegration of the international capital market is one of the most important effects of the anti-profit mentality of our age. But no less disastrous is the fact that the greater part of the world’s population looks upon the United States — not only upon the American capitalists but also upon the American workers — with the same feelings of envy, hatred, and hostility with which, stimulated by the socialist and communist doctrines, the masses everywhere look upon the capitalists of their own nation.

A customary method of dealing with political programs and movements is to explain and to justify their popularity by referring to the conditions which people found unsatisfactory and to the goals they wanted to attain by the realization of these programs.

However, the only thing that matters is whether or not the program concerned is fit to attain the ends sought. A bad program and a bad policy can never be explained, still less justified by pointing to the unsatisfactory conditions of its originators and supporters. The sole question that counts is whether or not these policies can remove or alleviate the evils which they are designed to remedy.

Yet almost all our contemporaries declare again and again: If you want to succeed in fighting communism, socialism, and interventionism, you must first of all improve peoples’ material conditions. The policy of laissez faire aims precisely at making people more prosperous. But it cannot succeed as long as want is worsened more and more by socialist and interventionist measures.

In the very short run the conditions of a part of the people can be improved by expropriating entrepreneurs and capitalists and by distributing the booty. But such predatory inroads, which even the Communist Manifesto described as “despotic” and as “economically insufficient and untenable,” sabotage the operation of the market economy, impair very soon the conditions of all the people and frustrate the endeavors of entrepreneurs and capitalists to make the masses more prosperous. What is good for a quickly vanishing instant, (i.e., in the shortest run) may very soon (i.e., in the long run) result in most detrimental consequences.

Historians are mistaken in explaining the rise of Nazism by referring to real or imaginary adversities and hardships of the German people. What made the Germans support almost unanimously the twenty-five points of the “unalterable” Hitler program was not some conditions which they deemed unsatisfactory, but their expectation that the execution of this program would remove their complaints and render them happier. They turned to Nazism because they lacked common sense and intelligence. They were not judicious enough to recognize in time the disasters that Nazism was bound to bring upon them.

The immense majority of the world’s population is extremely poor when compared with the average standard of living of the capitalist nations. But this poverty does not explain their propensity to adopt the communist program. They are anti-capitalistic because they are blinded by envy, ignorant, and too dull to appreciate correctly the causes of their distress. There is but one means to improve their material conditions, namely, to convince them that only capitalism can render them more prosperous.

The worst method to fight communism is that of the Marshall Plan. It gives to the recipients the impression that the United States alone is interested in the preservation of the profit system while their own concerns require a communist regime. The United States, they think, is aiding them because its people have a bad conscience. They themselves pocket this bribe but their sympathies go to the socialist system. The American subsidies make it possible for their governments to conceal partially the disastrous effects of the various socialist measures they have adopted.

Not poverty is the source of socialism, but spurious ideological prepossessions. Most of our contemporaries reject beforehand, without having ever studied them, all the teachings of economics as aprioristic nonsense. Only experience, they maintain, is to be relied upon. But is there any experience that would speak in favor of socialism?

Retorts the socialist: But capitalism creates poverty; look at India and China. The objection is vain. Neither India nor China has ever established capitalism. Their poverty is the result of the absence of capitalism.

What happened in these and other underdeveloped countries was that they were benefited from abroad by some of the fruits of capitalism without having adopted the capitalist mode of production. European, and in more recent years also American, capitalists invested capital in their areas and thereby increased the marginal productivity of labor and wage rates. At the same time these peoples received from abroad the means to fight contagious diseases, medications developed in the capitalist countries. Consequently mortality rates, especially infant mortality, dropped considerably. In the capitalist countries this prolongation of the average length of life was partially compensated by a drop in the birth rate. As capital accumulation increased more quickly than population, the per head quota of capital invested grew continuously. The result was progressing prosperity. It was different in the countries which enjoyed some of the effects of capitalism without turning to capitalism. There the birth rate did not decline at all or not to the extent required to make the per head quota of capital invested rise. These nations prevent by their policies both the importation of foreign capital and the accumulation of domestic capital. The joint effect of the high birth rate and the absence of an increase in capital is, of course, increasing poverty.

There is but one means to improve the material well-being of men, viz., to accelerate the increase in capital accumulated as against population. No psychological lucubrations, however sophisticated, can alter this fact. There is no excuse whatever for the pursuit of policies which not only fail to attain the ends sought, but even seriously impair conditions.

As soon as the problem of profits is raised, people shift it from the praxeological sphere into the sphere of ethical judgments of value. Then everybody glories in the aureole of a saint and an ascetic. He himself does not care for money and material well-being. He serves his fellow men to the best of his abilities unselfishly. He strives after higher and nobler things than wealth. Thank God, he is not one of those egoistic profiteers.

The businessmen are blamed because the only thing they have in mind is to succeed. Yet everybody — without any exception — in acting aims at the attainment of a definite end. The only alternative to success is failure; nobody ever wants to fail. It is the very essence of human nature that man consciously aims at substituting a more satisfactory state of affairs for a less satisfactory. What distinguishes the decent man from the crook is the different goals they are aiming at and the different means they are resorting to in order to attain the ends chosen. But they both want to succeed in their sense. It is logically impermissible to distinguish between people who aim at success and those who do not.

Practically everybody aims at improving the material conditions of his existence. Public opinion takes no offense at the endeavors of farmers, workers, clerks, teachers, doctors, ministers, and people from many other callings to earn as much as they can. But it censures the capitalists and entrepreneurs for their greed. While enjoying without any scruples all the goods business delivers, the consumer sharply condemns the selfishness of the purveyors of this merchandise. He does not realize that he himself creates their profits by scrambling for the things they have to sell.

Neither does the average man comprehend that profits are indispensable in order to direct the activities of business into those channels in which they serve him best. He looks upon profits as if their only function were to enable the recipients to consume more than he himself does. He fails to realize that their main function is to convey control of the factors of production into the hands of those who best utilize them for his own purposes. He did not, as he thinks, renounce becoming an entrepreneur out of moral scruples. He chose a position with a more modest yield because he lacked the abilities required for entrepreneurship or, in rare cases indeed, because his inclinations prompted him to enter upon another career.

Mankind ought to be grateful to those exceptional men who out of scientific zeal, humanitarian enthusiasm, or religious faith sacrificed their lives, health, and wealth, in the service of their fellow men. But the philistines practice self-deception in comparing themselves with the pioneers of medical X-ray application or with nuns who attend people afflicted with the plague. It is not self-denial that makes the average physician choose a medical career, but the expectation of attaining a respected social position and a suitable income.

Everybody is eager to charge for his services and accomplishments as much as the traffic can bear. In this regard there is no difference between the workers, whether unionized or not, the ministers, and teachers on the one hand and the entrepreneurs on the other hand. Neither of them has the right to talk as if he were Francis d’Assisi.

There is no other standard of what is morally good and morally bad than the effects produced by conduct upon social cooperation. A — hypothetical — isolated and self-sufficient individual would not in acting have to take into account anything else than his own well-being. Social man must in all his actions avoid indulging in any conduct that would jeopardize the smooth working of the system of social cooperation. In complying with the moral law, man does not sacrifice his own concerns to those of a mythical higher entity, whether it is called class, state, nation, race, or humanity. He curbs some of his own instinctive urges, appetites and greed, that is his short-run concerns, in order to serve best his own — rightly understood or long-run — interests. He foregoes a small gain that he could reap instantly lest he miss a greater but later satisfaction. For the attainment of all human ends, whatever they may be, is conditioned by the preservation and further development of social bonds and interhuman cooperation. What is an indispensable means to intensify social cooperation and to make it possible for more people to survive and to enjoy a higher standard of living is morally good and socially desirable. Those who reject this principle as unchristian ought to ponder over the text: “That thy days may be long upon the land which the Lord thy God giveth thee.” They can certainly not deny that capitalism has made man’s days longer than they were in the precapitalistic ages.

There is no reason why capitalists and entrepreneurs should be ashamed of earning profits. It is silly that some people try to defend American capitalism by declaring: “The record of American business is good; profits are not too high.” The function of entrepreneurs is to make profits; high profits are the proof that they have well performed their task of removing maladjustments of production.

Of course, as a rule capitalists and entrepreneurs are not saints excelling in the virtue of self-denial. But neither are their critics saintly. And with all the regard due to the sublime self-effacement of saints, we cannot help stating the fact that the world would be in a rather desolate condition if it were peopled exclusively by men not interested in the pursuit of material well-being.

The average man lacks the imagination to realize that the conditions of life and action are in a continual flux. As he sees it, there is no change in the external objects that constitute his well-being. His world view is static and stationary. It mirrors a stagnating environment. He knows neither that the past differed from the present nor that there prevails uncertainty about future things. He is at a complete loss to conceive the function of entrepreneurship because he is unaware of this uncertainty. Like children who take all the things the parents give them without asking any questions, he takes all the goods business offers him. He is unaware of the efforts that supply him with all he needs. He ignores the role of capital accumulation and of entrepreneurial decisions. He simply takes it for granted that a magic table appears at a moment’s notice laden with all he wants to enjoy.

This mentality is reflected in the popular idea of socialization. Once the parasitic capitalists and entrepreneurs are thrown out, he himself will get all that they used to consume. It is but the minor error of this expectation that it grotesquely overrates the increment in income, if any, each individual could receive from such a distribution. Much more serious is the fact that it assumes that the only thing required is to continue in the various plants production of those goods they are producing at the moment of the socialization in the ways they were hitherto produced. No account is taken of the necessity to adjust production daily anew to perpetually changing conditions. The dilettante-socialist does not comprehend that a socialization effected fifty years ago would not have socialized the structure of business as it exists today but a very different structure. He does not give a thought to the enormous effort that is needed in order to transform business again and again to render the best possible service.

This dilettantish inability to comprehend the essential issues of the conduct of production affairs is not only manifested in the writings of Marx and Engels. It permeates no less the contributions of contemporary psuedo-economics.

The imaginary construction of an evenly rotating economy is an indispensable mental tool of economic thinking. In order to conceive the function of profit and loss, the economist constructs the image of a hypothetical, although unrealizable, state of affairs in which nothing changes, in which tomorrow does not differ at all from today and in which consequently no maladjustments can arise and no need for any alteration in the conduct of business emerges. In the frame of this imaginary construction there are no entrepreneurs and no entrepreneurial profits and losses. The wheels turn spontaneously as it were. But the real world in which men live and have to work can never duplicate the hypothetical world of this mental makeshift.

Now one of the main shortcomings of the mathematical economists is that they deal with this evenly rotating economy — they call it the static state — as if it were something really existing. Prepossessed by the fallacy that economics is to he treated with mathematical methods, they concentrate their efforts upon the analysis of static states which, of course, allow a description in sets of simultaneous differential equations. But this mathematical treatment virtually avoids any reference to the real problems of economics. It indulges in quite useless mathematical play without adding anything to the comprehension of the problems of human acting and producing. It creates the misunderstanding as if the analysis of static states were the main concern of economics. It confuses a merely ancillary tool of thinking with reality.

The mathematical economist is so blinded by his epistemological prejudice that he simply fails to see what the tasks of economics are. He is anxious to show us that socialism is realizable under static conditions. As static conditions, as he himself admits, are unrealizable, this amounts merely to the assertion that in an unrealizable state of the world socialism would be realizable. A very valuable result, indeed, of a hundred years of the joint work of hundreds of authors, taught at all universities, publicized in innumerable textbooks and monographs and in scores of allegedly scientific magazines!

There is no such thing as a static economy. All the conclusions derived from preoccupation with the image of static states and static equilibrium are of no avail for the description of the world as it is and will always be.