The Elimination of the Unfit
If a man does not succeed in making profits, sooner or later a more efficient producer takes his place; and this is for the good of society. Indeed, it is in the very process of selecting the fittest for survival and eliminating the rest, that profits and losses in the long run conduce to material progress.
By means of the dollar-franchise, the voter determines who is to make profits -- who is to be allowed to stay in business. With his dollars, he votes for his industrial representatives. He votes to continue in office those, and only those, who make the articles he buys, and who distribute them in ways and at prices that come nearest to satisfying him. In this way he is increasing the trade of chain stores and mail-order houses and ruining many independent, high-cost merchants. Just as surely, he is now deciding which manufacturers of automobiles are to be allowed to continue producing, and which of the two hundred or more makers of tires -- five of whom are equipped to supply the total demand -- are to go out of business. He is forcing publishers, as well, to watch the election returns.
Of three newspapers in a certain city, one will soon be obliged to suspend publication. Which shall it be? The people will decide. This process of killing off the unfit is even more ruthless in its operation than natural selection among human beings, for in business the process is not tempered to such an extent by humanitarian impulses. The managers of industry are, therefore, a responsible ministry, much more amenable to public control than politicians. 'Big Business'is not and cannot be the autocratic thing it is often said to be. It does not matter how successful a manager may appear to be, or how large a business he may build up, a profit and loss economy may eliminate him in the ordinary course of events. 'Nothing succeeds like success' is only a half-truth, for the very success of a business may interfere with future success. Mere size is no cause for public alarm.
In a price and profit economy, few enterprisers can long hold their own who are arbitrary, or reckless, or over-cautious, or lazy, or wasteful, or unprogressive. Few can survive, whatever their personal qualities may be, whose costs are relatively high or whose forecasts of consumer demand are especially faulty. The many thousands of such men who every year fail in business contribute less to society, as a rule, than their competitors. Their labor and materials, if used under abler direction, would do the community more good. To allow such men to continue in charge of industrial enterprises would be to disregard public good, as it would be under communism, or socialism, or any other industrial organization. To eliminate such men is one of the chief functions of profit.
How this beneficent function could be performed in a radically different industrial society is difficult to see. Obviously it would not be performed at all, except in slow and bungling ways, if profits were abolished and the Government controlled all industries. For, since such control would furnish no standards of comparison, the people would never know how much better their industries might be managed. There could be nothing comparable to the pace set and the standards provided by the rivalry of Western Union and Postal Telegraph, of Buick and Studebaker, of Sears-Roebuck and Montgomery Ward, of the Waldorf and Childs restaurants, to go no further into the long list of keen rivals, with the services of which the public is familiar.
Furthermore, we know from long and costly experience that, even if the inefficiency of certain public servants were notorious, it would be next to impossible to get rid of them. Indeed, the very necessity for removing the unfit from responsible positions as quickly as possible appears to be overlooked by those who are now seeking to abolish profits. 'The very fact that these unsuccessful attempts are numerous,' says one critic, 'is an indictment against the capitalist system, since they represent a large economic waste.' 7 Indeed, they do; but how much greater is the waste when, as is certain to be the case under Government control, the relatively inefficient are not promptly eliminated -- often not even discovered. The ruthless functioning of profit and loss, though at times hard on the least capable individuals, is on the whole most economical for society; is, indeed, best in the long run for the least capable themselves.
Many reformers contend that any one who wishes to produce goods and any one who owns a stock of goods should receive bank credit; that they are prevented from borrowing by the 'money monopoly.' Some contend that the Government should issue money to owners of stocks against goods stored in Federal warehouses. But if the mere desire to produce goods or the mere possession of goods were a valid demand on the banks or on the Government for credit, prices and profits could not mean what they mean today. Holders of goods would be relieved of the pressure to sell to such an extent that stocks would pile up and prices would shoot up even more disastrously than under the prevailing system. Moreover, production schedules would no longer be determined mainly by millions of dollar-votes cast daily in thousands of markets, but in part by the wishes of anybody who wanted to produce goods. In short, a new régime would have usurped a large part of the functions of prices and profits.
The present régime, while taking responsibility away from the less efficient, constantly impels the more efficient to progressive action. For in order to continue to succeed they must adopt new ideas, discover better methods, improve their products, reduce wastes, heed the wishes of consumers, and in general merit the goodwill of employees, patrons, and the public. In short, profits and losses for the most part result, not only in retaining the ablest industrial leaders, but in spurring them constantly to greater social services.
No Other Way of determining Production is Feasible
We have seen that profits result from the taking of risks; that risks are due chiefly to consumers' freedom of choice; that consumers, in exercising their freedom, determine what goods are to be produced and who is to produce them. The question arises whether this freedom of choice is worth what we pay for it. On every hand is evidence that it results, not only in profits that seem inordinate, but also, under the powerful urge of the profit motive, in the turning-out of unworthy products. And then foolish buyers, through the very process of spending their money for such things, direct the energies of workers to the making of more frills and furbelows, while multitudes are in need of food and fuel. What a waste is involved in making and marketing worthless, even harmful goods -- vapid films, freak dresses, ugly bill boards, and the like -- all produced for profit! This is one of the chief complaints of those who decry free enterprise under the urge of the profit motive. It is 'a clumsy, ignorant device,' we are told, 'that allots ability and capital constantly to unnecessary and harmful activities.' Surely, the world would be better off if the choice of the buyer were not so free and wide.
But this brings us sharply back to the function of price. In just what directions should freedom of choice be curtailed? If prices and profits are not to answer that question, how is it to be answered? The answer given in A Constitution for the Socialist Commonwealth of Great Britain appears to be rather vague. There may be some commodity, it is said, the use of which 'is not seen to be of any public advantage -- it may, even, possibly be regarded as having disadvantageous consequences to the community so that consumption or use, whilst not forbidden or prevented, may come to be discouraged by exceptionally high prices.' But this does not tell us who is to decide in just what direction production is to be curtailed by means of high prices. According to this plan, prices are to be 'determined by the Social Parliament, on the recommendation of its Standing Committee on Finance, according to the feelings and opinions of the community for the time being.' But this gives us no idea how the Standing Committee on Finance can possibly discover what the feelings and opinions of the community are, as quickly and as accurately as they are now discovered in the markets.
No one who cries out against wasteful and harmful products proposes to have his own freedom of choice restrained. He assumes that in an ideal economic order, where nobody wasted the labors of men in the pursuit of profit, he would still be able to buy about all that he now enjoys; for, naturally, his own expenditures seem to him sensible. He does not expect 'to give up his favorite cigar or cheese, or anything else except, perhaps, certain newspapers or vaudeville shows that are beginning to bore him. It is always some other man's way of spending money that he wishes to curtail for the common good. So when Thorstein Veblen lashes, with all the thongs of his far-flung vocabulary, the conspicuous waste of the leisure class, and when Hartley Withers condemns it for 'consuming things that it does not really want,' we should bear in mind, however tempted we may be to join in the flaying, that every consumer is the sole judge of what he really wants. No other judge, in Russia or elsewhere, has ever been able to satisfy him. In short, although it is obvious to every one that other people's ranges of choice are too wide, it is not obvious how those ranges are to be greatly changed unless by the functioning of prices and profits.
Moreover, if a considerable majority of the citizens really want to restrict the buyers' markets, they can do so without abolishing any essential feature of a price and profit economy. In a democracy, the way is always open. Already, in the United States, the law has made it next to impossible to carry on traffic in opium, and rather difficult in most States to deal in spirituous liquors. The pure food and drug laws have further limited the buyers' range of choice. The huge profits that were once made from the sale to a gullible public of certain fake medicines did not save the business. No one doubts that the voters of this country, if they cared enough about it, could abolish any other industry, wasteful or not -- the manufacture of chewing gum, for example, or cigarettes. Profits and the price system are not the chief obstacles.
Thus, for the most part, the people themselves decide every day, through accepting or rejecting millions of wage and price offers, what the production of the country is to be and who is to do the producing. 'What they buy, they make.' The system does not work perfectly. That is partly because producers, through ignorance of facts that are now beyond the reach of private enterprise, or error in judging the permanence of the market, miscalculate the nature and extent of consumer demand. They fail to forecast the ways in which freedom of choice will be exercised.
Certainly the system can be made more effective, for it will not be difficult to inform producers, more promptly and more accurately than hitherto, concerning stocks on hand and under way, the trend of demand, and the prospects of profit. By means of this information-service, and by other means to be suggested later, rather than by means of price and production control, the Government can help to direct productive efforts in closer accord with the desires of consumers, and incidentally to forestall some exceptionally large profits and losses.
But, even if producers were fully informed, have we reason to expect that they would be governed by the wishes of consumers? Certainly we have, for under a competitive system in which men must sell goods at a profit, they either respond promptly to consumer demand or go out of business.
One limitation, however, to consumer control of production schedules is of paramount importance. When, for any reason, the flow of money into consumers' hands is insufficient to take away, at current prices, the goods that are flowing into consumers' markets, there is an increase of involuntary unemployment and a slackening of output. Thus less wealth is created, not because the people want less, not because they choose to work less, but solely because certain monetary factors which they do not understand, and over which they have no control, prevent them from obtaining enough purchasing power to take from the markets the commodities they have already produced and would like to consume.