Freedom in One Lesson

65.

Are Businesses Entitled to a Fair Profit?

In my experience of public-policy discussions, one of the weasel words most frequently played as a trump card is “fair.”

Like “need,” which plays a similar role, fairness does not have a clear meaning and thereby provides a lot of room for equivocation, which is almost always used to justify forcing some Americans to pay for what someone else wants.

Fairness has no universal meaning beyond “more for me or those I care about” or “I want, but I do not want to pay for.” I learned this lesson decades ago from my children, who wielded the word to advance their narrow self-interests. When my daughter complained about having more responsibility—she was the oldest—she didn’t mention her bigger allowance. My son complained that his smaller allowance was “unfair” but didn’t mention that he had fewer responsibilities.

Claims of fairness imply agreement on what fairness means both in principle and in practice, but fairness is in the eye of the beholder and varies dramatically from person to person. Judging from common usage, charges of unfairness are mainly the rhetorical garnish necessary to justify using political coercion to plunder those who have a different view of fairness.

Leonard Read understood what so many today fail to understand about market fairness. One of his clearest discussions on this matter is in his essay “Business Is Entitled to a Fair Profit” (Read 1962a).

The notion that a business is entitled to a fair profit has no more to commend it than does the claim that workers are entitled to a fair wage, capitalists to a fair rate of interest, stockholders to a fair dividend, landlords to a fair rent, farmers to a fair price for their produce. Profit (or loss), regardless of how big, cannot properly be defined as fair or unfair.

To demonstrate why fair should not be used to modify profit as a right to which someone is entitled, merely imagine a businessman, heedless of the market, persisting in making buggy whips. If no one were willing to exchange dollars for whips, the manufacturer would fail. . . . Would you have any feeling of guilt or unfairness for having refused to buy his whips? Most certainly not!

Profit is the residual derived from willing customers after costs have been met. Consumers who use their own money to associate with any supplier under any terms they choose do not deny the rights or claims of disappointed suppliers.

We do not think of ourselves as unfair when we search for bargains. We have no sense of unfairness when employing a competent rather than an incompetent helper, or borrowing money at the lowest rate offered, or paying a low rather than a high rental. . . . When we shop around, our choices cause profits to accrue to some businesses, losses to others. We do not relate these exercises to fairness or unfairness or consider that anyone’s rights have been infringed.

. . . There is no such thing as a right to a “fair” profit. All that any person is entitled to in the market place, whether a business proprietor or wage earner, is what others will offer in willing exchange.

So, as with other weasel words, we should ask why people so commonly resort to unfounded claims about “unfairness.” The answer lies in government’s coercive power and the true unfairness it can impose on others.

When it is claimed that business is entitled to a fair or reasonable profit, the claimers must have something else in mind than what they can obtain through willing exchange. Otherwise, they wouldn’t mention the matter.

. . . The “something else” . . . must necessarily mean something other than individual freedom of choice. In short, it must mean the only alternative to freedom of choice: authoritarianism. When the market—freedom in exchange—is cast aside, there remains but one other determinant as to who will get how much of what, namely, government! And when government determines or controls profits, prices, wages, rents and other aspects of production and exchange, we have socialism. . . .

When fairness is demanded as a substitute for what can be obtained in willing exchange, the asker, consciously or not, is insisting on what naturally and logically follows: a planned economy. . . . These measures—socialism—are government’s only means of “fairness.”

How does addressing asserted unfairness cause unfairness?

The declaration that business is entitled to a fair profit connotes equalitarianism; that is, a coerced evenness in reward to the competent and incompetent alike. . . .

Assuming the market is free from fraud, violence, misrepresentation, and predation, the economic failure or success of any individual is measured by what he can exchange in willing exchange—fairness being a state of affairs that is presupposed in the assumption. Everyone, according to any moral code I would respect, is entitled to fairness in the sense of no special privilege to anyone and open opportunity for all; no one is entitled to what is implied by a fair price, a fair wage, a fair salary, a fair rent, or a fair profit. In market terms, one is entitled to what others will offer in willing exchange. That is all!

As Read wrote in his 1948 book Pattern for Revolt, “Given freedom of opportunity, protection from fraud, violence and predation, and a dependence for our welfare on our own initiative, we can and will look out for ourselves better than will any other person or any government agency” (Read 1948). In other words, protecting what should be our inalienable self-ownership is fair to all; violating it is unfair to all but tyrants.