Goverment Control of Prices
 Evidently, then, the Government cannot regulate profits -- except in so far as it can prevent monopolies and stabilize the general price-level -- without regulating individual prices. But it must be equally clear that the Government cannot regulate individual prices without to that extent taking over the functions of price. For, once prices are fixed and thereby prevented from functioning, somebody has to decide who is to be allowed to buy, at the fixed price, not only the available supply of leather and cotton, but also the supply of aluminum, theater tickets, safety-razors, works of art, and everything else.
The moment the Government prescribes a lower price for anthracite coal, for example, than the competition of buyers would establish, somebody must decide how much is to be allotted to Massachusetts, how much to theaters, how much to women's clubs, how much to John Smith. And no government can possibly make such decisions with as little dissatisfaction to the governed as they are now made, every minute of every day, by the governed themselves, under a price system that, while giving rise to some large profits, attends to the almost infinite details of distribution with an efficiency that no other system has ever approached.
The members of the War Industries Board can bear witness. Even with the requirements of war as a guiding principle, and with eagerness to do right, these exceptionally able men -- far abler than the usual Government officers in time of peace -- were unequal to the task.
Many of their decisions were ridiculous -- necessarily so. How could anybody know enough to tell in what proportions the available steel, for instance, should be allocated among makers of shells, bridges, cutlery, watches, rails, and a thousand other commodities? Something unusual had to be done because, once the mistaken policy of the Treasury Department had allowed inflation to run riot, it was not possible to continue to produce and distribute in response to individual desires and at the same time wage collective warfare effectively. 'Business as usual' was impossible. In this emergency, Mr. Hoover had some success in controlling prices (and therefore profits and distribution) in certain industries; but only because he had behind him almost unlimited money and power and the compelling motive of patriotism. The people tolerated this interference with the functioning of price, however, as they tolerated conscription, merely as a war emergency measure.
No Congress, no Cabinet, no commission -- not all the public officials in the country put together, even if they gave all their time to the work -- could possibly measure and meet the desires of one hundred million people as accurately and quickly as they are now measured by the price system -- a system, let us repeat, under which some large profits are unavoidable. During the past generation no official board would have allocated enough labor and materials to the automobile industry to enable it to expand, as it actually has expanded under the mandate of consumers' dollar-votes. No official board, sensing the will of the people, would have voted to make a million cars a year that could be sold below $500. Even if such a board had decided on such a program, it would not have selected as director the ablest available man for this particular enterprise and given him sufficient freedom to carry it out.
The professor may sit in his study, or the Congressman in his council chamber, and figure out 'saturation points' in various industries and classify products as 'luxuries' and 'essentials.' But buyers are not interested; they decide these matters for themselves. In time of peace, they will not tolerate rationing by the Government. Then, the guiding principle of production and distribution is and must be individual desires; desires so numerous, so varied, so capricious, that they can be recorded only by the delicate machinery of price -- by the millions of dollar-votes that are cast daily in the ordinary course of marketing.
It is the same with interest rates. If Senator Ladd's bill became law, and the rate on borrowed money were fixed at four per cent, or if Senator Magnus Johnson succeeded in his attempt to fix the Federal Reserve rate at two per cent, 1 and there was not enough money to go around at the price, somebody would have to ration it. But money is different from motor cars, we are told; for if there is not enough money, all the Government has to do is to print more. That is true. But then we may have inflation, which means that prices shoot up faster than wages, and money becomes scarcer than ever. As prices rise, more and more money is needed to carry on a given volume of trade, and the demand for money outruns the supply.
Witness the hopeless struggle of the printing-presses in Russia. If the State keeps on printing money, without due regard to the relation between the flow of consumers' goods and the flow of consumer's income, it gets into a vicious spiral, in which it never can satisfy the cry for more money. Even if it allows interest rates to go up, in response to increased demand, once in that spiral it cannot supply enough money. For money is different from motor cars in another respect: increased supply does not tend to decrease demand, but the reverse. Nor is the increased supply exchangeable for more bread, or shoes, or cottages. In Germany, as we have said, a trillion marks grew where one grew before, but not a trillion blades of grass; and very few people were as well fed, or clothed, or housed, as formerly. So, for the common good, the best we can do is to allow the price of money, along with the price of wheat to vary with demand and supply.
No Government Can Tell What Price Will Yield a 'Fair Profit'
Exactly what the price of wheat, or motion-picture films, or tin cans, or anything else should be on any particular day, in order to preclude profiteering and yet guarantee a 'fair profit,' it is impossible for Government officers or anybody else to tell. Even if it were possible to tell to-day, to-morrow somebody would produce the same article at a lower cost. Thus he might become a profiteer without being aware of the fact until the balance sheets revealed the evidence. Recently the city of Boston bought one pair of lions for $2400, and one Anubis baboon for $150. No charges of profiteering have been heard.
That is partly because lions and baboons do not figure in the family budget, partly because the man in the street is aware that he has no means of knowing what prices would yield a fair profit to dealers in lions and baboons. But he is no better informed concerning goloshes and umbrellas. The fact that the price of anything is higher than it was, or higher at home than abroad, or higher than we can afford to pay, or has gone up faster than other prices, does not prove that anybody is making unusually high profits, or that a lower price would benefit the community. This great difficulty in identifying the profiteer by his prices is another reason why every one -- in Congress or out -- who wants to be fair and helpful will be wary of making charges against any man.
It is clear, then, that we must either sacrifice our freedom of choice as consumers, together with the profit urge to individual initiative, or retain an industrial society in which, in any given year, a few men are certain to make large profits, some of these men through no special fault or merit of their own. This being the case, it is folly to cry fraud and corruption, and organize a congressional investigating committee, every time it appears that somebody has realized large profits.
Yet Harmful Profiteering can be reduced
But it does not follow that socialism or communism is the only means of reducing those vast inequalities in wealth which are part of the indictment of a profitmaking economy. How much profit a man shall be permitted to make is one question; how much he shall be permitted to retain is a totally different question. By means of railroad regulation, income taxes, inheritance taxes, and profits taxes, the people are already appropriating for public use a considerable part of the profits of business enterprise. They can take a larger part whenever they want to. Since those who do not directly share in profits have a large majority of the votes, they can elect representatives pledged to appropriate all the profits. The main reason they do not do so is the wellgrounded fear that incentives to productive effort may be so weakened that higher tax rates will result in less real income, not only for the Government, but also for themselves. Most people do not care to make themselves poorer merely for the sake of making the rich poorer. And taxation, as we shall see presently, is not the only means available in a price and profit economy of bringing about a more equitable distribution of the products of industry -- a more democratic dollar -- franchise.
Neither does it follow from our failure to discover any workable substitute for a profit economy, that we must accept the prevailing profit economy just as it is. 'Capitalistic civilization' has already done much to curb or destroy various forms of profit-making. It has waged effective warfare against men who bribe Government officials, operate bucket-shops, counterfeit money, grant secret rebates, falsify income tax reports, misrepresent products, or destroy competition. Nowadays, these profiteers are no more condoned than embezzlers or highway robbers. They are not essentials of capitalism. The nearer we come to abolishing them, and other socially unproductive and even predatory enterprisers who still flourish, the nearer we come to realizing the full benefits of a price and profit economy.
It is folly to insist that profit-seekers, in serving their own interests, always serve the public interest. As a matter of fact, the profit motive, however effectively it promotes the common welfare in other ways, does not always safeguard natural resources. The individual producer of coal, for example, sometimes profits by wasteful methods; sometimes, indeed, has no choice. He cannot possibly pursue a policy which is best for future generations as long as he has to compete with men who ignore the interests of future generations.
So, also, no lumber company can afford the expenses of reforestation as long as it must compete with companies which have no such expenses. This does not mean that we must therefore relinquish all advantages of a price and profit economy; it means that there are various social purposes, including the conservation of natural resources, which society cannot rely on the profit motive to serve. As soon as we understand all this, as soon as we are thus ready to discriminate as carefully as possible between profit-making enterprises which serve society and those which do not, we are in a better position to take measures against the baneful activities of the latter.
When we consider various kinds of profiteering, rampant in former generations and vigorously prosecuted to-day, it is evident that we have made progress. We can and must make much more. Indeed, while the fourfold indictment of our industrial system is based as it is upon indisputable shortcomings, we cannot justify that system in its entirety by such an exposition as we have just presented of the functions of prices and profits. The way ahead, however, is not the way of revolution.
The present industrial organization, constructed through generations of labor and sacrifice, through innumerable experiments and painstaking study, is so delicate and complicated an instrument, with so many interdependent parts, that ill-considered changes throw the mechanism out of gear. Profit-makers suffer thereby, but not so much as other people. Adjustments must be made gradually, year after year, on the basis of a better understanding than we now possess of the functions of prices and profits and various other factors that keep the whole organization in some kind of working order. The task is an adequate challenge to the best intellects. To devise plans for betterment and gradually get them to the point where they will achieve their purposes, without in the process doing more harm than good, will take all that humanity can muster, generation after generation, of brains and patience and courage.
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