Profits Determine Who Produces the Goods
By means of price bidding, buyers not only determine who gets the available goods today, but for the most part what goods are to be produced in the future. Sellers may do their utmost by means of advertising and salesmanship to influence choice; but after they have done their utmost, the choice remains with the buyers. The prices they pay today are, in effect, orders for future production. Leave them alone and they'll come home, bringing the goods behind them. People who spend money thus determine what will be produced, because those who produce succeed only if they make what people with money to spend wish to buy.
As a result, production which is not determined by the buyer necessarily remains small in volume. It is selflimiting. It is confined to goods produced by those who mistake the buyers' wishes, or who carry on business (until they fail) for their own satisfaction. The bookseller who proudly announces that he is in business, not to make money, but to spread the habit of reading is not in business at all, but in philanthropy; and he can continue distributing books from philanthropic motives only as long as his money lasts. So, also, a publisher who produces unsalable books, merely because he thinks they ought to be published, is an exception to the rule because his business is sterile; it has no means of reproduction. As a rule, production is and must be governed by the wishes of the people who spend money. And they express their wishes -- cast their votes, so to speak -- by the very act of spending the money.
Consumers control Production by their Dollar-Votes
This is a democratic means of determining what is to be produced. In the domain of commerce, every human being has a vote every time he makes a purchase. No one is disfranchised on account of age, sex, race, religion, education, length of residence, or failure to register. Every day is election day. The buyer casts his vote wherever he goes. The votes are counted at once and with few errors; the cash register is more dependable than the ballot box. Those in charge of the polls are dependable, too, for since they are seeking profits, it pays them to have prompt and accurate records. Moreover, minorities count. In fact, the price and profit system very nearly attains for economics the ideal that is sought for politics by the advocates of proportional representation. Minorities that are so small as to be insignificant in national and even in State elections, direct production according to their wishes. Technical books, works of art, surgical instruments, and other items that literally fill many volumes of trade manuals, are regularly produced in response to the dollar-votes of fewer than one tenth of one per cent of the voters.
The objection will be raised that the consumers' franchise, with its property qualification, is undemocratic: it is heavily weighted, like the political franchise in Prussia before the War. In other words, the influence that any one consumer can bring to bear upon production varies directly with the amount of money he has to spend. True; and as a result human productive powers are not directed to yield the highest possible sum total of human satisfactions. But the fault is not with distribution according to price. We shall clarify our thought if we avoid confusing two distinct questions. One question is this: Who is to decide what shall be produced in exchange for the dollars of each purchaser? The other question is this: How shall the total number of dollars be apportioned among the purchasers? They can be apportioned equally (and can thus, according to some theories, direct production to the maximum satisfaction of society as a whole) only under complete communism. But no matter how the total purchasing power is apportioned, the fact remains that the established methods of determining prices, profits, and production -- though not perfect -- are extraordinarily effective methods for guaranteeing each buyer exactly what he wants up to the limit of his dollars.
Even if the total purchasing power were distributed equally, consumers would still want to control production, would still insist on freedom of choice. Let the reader try the matter out for himself -- no matter who he is, no matter how rich or how poor, no matter how conservative or how radical. To whom would he be willing to turn over the decision as to what should be produced as his share of the total output? To a city council? To bank directors? To labor-union officers? To Congress? Which of his choices would he be disposed to delegate? His choice of food? Amusements? Books? Cigars? There is but one answer. Even if his dollar-claim upon the total output were precisely the same as that of every other consumer, he would still prefer to exercise the freedom of personal choice; and the most effective way to register his choice would still be through dollar-votes. He does not need the recent tragic experience of Russia to convince him that slow and bungling would be the best efforts in his behalf of even the most devoted official directors of production.
In our price and profit economy the individual citizen has much more control over business than he has over government. Slow, indirect, inarticulate, as a rule, are the ways open to him for expressing his political desires. So it often happens that his vote at the polls is far from being an effective demand. His vote in the markets, on the contrary, is usually effective because only those producers who heed it can stay in business. He who seeks profits must do his utmost, not only to keep account of today's market election returns, but to anticipate tomorrow's.
Prices and Profits Determine How Much Is to Be Produced
When prices and profits thus play their part, they answer the question, How much of each commodity shall be produced? When consumers are willing and able to pay a higher price for balloon tires, more are produced; when they are unwilling or unable to pay as much, production falls off -- assuming that producers have adequate knowledge and that exceptional factors do not control the situation. These assumptions, we are all well aware, are often contrary to fact. In the long run, however, the prices at which goods are sold -- not, let us observe again, the prices at which goods are offered regulate the scale of production of each commodity.
Consequently, at all times, while the production of some consumables is being increased, the production of others is being curtailed. When the supply of leather in relation to demand is large, profits decrease and less leather is produced. If at the same time the supply of sugar in relation to demand is small, profits rise and more sugar is produced. If every acre of land were utilized to full capacity, all our warehouses would be jammed with useless products. But there is no danger of such a plethora. As soon as the output of foodstuffs increases too rapidly, consumers show by the way they spend their money that they want other things more than they want additional food. Wise producers act accordingly. But whether they are wise or not, the fact that they must pay expenses or presently stop adding to surplus stocks protects society, under a price and profit régime, from such vast wastes.
Any limitation of production by capitalists, however, is ascribed by many people to what they call the sabotage of profit enterprises. 'Under its dominion,' we are told, 'basic production languishes, while for a time salesmanship and production of non-essentials flourish. Ford can make more cars and the tobacco men more cigarettes, but the farmers must stop growing wheat and apples.' The assumption seems to be that industry, once freed from the restraint of the profit motive, could increase indefinitely and simultaneously the output of everything the people might desire. This is impossible. Even if greed were banished from the world and love ruled, it would still be necessary constantly to decrease the output of less-desired goods in order to increase the output of more-desired goods. And this is precisely what is now going on. In the ordinary course of price bidding, millions of people daily express their relative desires, not only for tobacco and wheat, but also for cotton and silk, phonographs and radio-sets and everything else that is offered for sale. Profit-seekers respond by making more of whatever the people particularly want and less of other things, because that is the way to make profits and avoid losses. Why blame the profit-seekers? If they increase the production of cars and cigarettes and decrease the production of wheat and apples, they act in response to what they believe to be the mandate of consumers.
Most Producers Cannot Increase Profits by Limiting Output
Such action is rarely the result of a conspiracy to maintain prices. Rather it is the result of the independent decisions of thousands of enterprisers, each of whom must produce no more than he can sell at a profit, or run the risk of bankruptcy.
Yet managers of industry are constantly charged with limiting production in order to maintain prices, and thus make excessive profits. 'It has long been evident,' says one critic, 'that the desire to make as much money as possible operates to lessen production.' Those who make this charge overlook the fact that it is only under the highly exceptional conditions of complete monopoly, or agreements that bind all the producers of a given commodity, that output is subject to such control. Certainly there could be no such control of the production of bread, shirts, nails, pencils, chairs, jewelry, and thousands of other familiar household articles. For agreements among the producers to limit the output would be exceedingly difficult to arrange; the temptation to violate the agreements would be strong; violations would not be easily proved; and, finally, the legal prosecution of the violators would be impossible because the agreements would be illegal.
Producers would be tempted to violate such agreements because the profits of the individual producer usually increase with the volume of his business. He would like to have his competitors produce less, but he has no incentive to limit his output. Does any one imagine that makers of Buick cars ever cut down schedules in the hope of maintaining prices, while Studebaker factories are running at capacity? Does any one suppose that the makers of Phnix hosiery can force consumers to pay more for their product by producing less, when the makers of Onyx and Holeproof and Van Raalte and every other line would jump at the chance to supply the deficiency? These cases are typical. In the face of such competition, each producer is constantly striving to produce more goods, and at lower costs. He knows that the chief result of limiting his output would be to give his competitors a larger share of the market. Since he must compete with other producers for the same customers, he is constantly striving to be in a position to sell, if buyers insist, at lower prices than any one else.
The individual capitalist, then, does not limit his output in the interest of other producers; neither does he discharge men because it is advantageous to employers in general to have large numbers of men seeking employment. 'Individual capitalists,' it is said, 'find it to their economic interests to maintain a reserve army of the unemployed.' This is not only far from being true in general, but it is doubtful if a single case can be found in which an employer discharged men in the supposed interest of employers as a whole. If the individual employer hires workers, he does so because he believes that he can profit by so doing; if he discharges workers, he does so because he is convinced that he can no longer profit by employing them. In neither case is his conduct determined by the effect on the labor market.
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