Profits: The Heart of Industrial Life
Profits are the heart of the industrial society in which we live. The expectation of profits is the pulsating force that drives the life-sustaining blood to every part of the economic body. The blood is money. Whenever it flows, rightly distributed and in sufficient quantity, the various members of the body function; they keep each other active; life abounds in energy. When it does not flow, rightly distributed and in sufficient quantity, some of the members cannot do their part of the work; palpitation and debility result; the whole body is lethargic. Periodically, as we have just observed, this anæmic condition recurs; there is trouble in the central pumping station.
Men, materials, and machines, ready to do their part, lack the driving force which is needed to put them into such relations that they can go on with the world's work. In the actual economic world in which we live, the pumping station cannot develop much power without the motive force of anticipated profits; and it cannot long continue to operate at all, unless the expected profits are actually realized. In short, the chief urge to business activity is the profit motive.
Whether this is a happy or an unhappy fact, we are not for the moment considering. The point to emphasize is that, whether we like it or not, it is a fact. Possibly an industrial world could be organized on some other basis; possibly it would be a better world in which to live. The one in which we now live is so far from perfect that we might well try to conceive of a nobler one -- one built nearer to our heart's desire. And while we are thus giving free rein to our imagination, it is interesting to speculate on the possibility of a human society in which the profit motive is wholly replaced by others, just as it is interesting to try to conceive of a human body in which a new kind of pump has taken the place of the heart. Each of these projects involves more than a major operation: it means the creation of a new organism. This comparison, which may appear unwarranted, we are thrusting forward at the outset, even at the risk of seeming prejudiced, and losing our readers before we are well under way. That would disappoint us, because we hope to say something important, before we get through, about the relation of profits to sustained business activity and to human welfare generally.
But we do not want anybody to follow us under false impressions. We have no panacea to prescribe for economic ills -- nothing to offer as a substitute for a money and profit economy. We expect money to remain a central interest in life and profits the dynamic center of business enterprise. We see no possibility of running our machinery of production and distribution at any approach to its present efficiency, however unsatisfactory that may be, except under pressure of the profit motive. That it is a very powerful motive, the advocates of revolution must admit. Even Sidney and Beatrice Webb distinguished for constructive work in economic history, in social reform, and in the British Labor Cabinet declare in their account of The Decay of Capitalist Civilization that 'no competent observer of the business world will deny the efficacy of profit-making as a way of stimulating and canalizing the energies of those who practice it.' That motive, in our view, is and will remain the heart of industrial society.
In short, we expect that the future economic structure, at least in the United States, will be built with infinite pains and with the aid of persistent scientific study, slowly, stone upon stone, year after year, upon the present foundations. That is the proved process of human progress. To burn down the house in which we live before we have even working plans for a new one is the way of retrogression. In any event, it is folly to destroy the real structure that toiling generations have reared and attempt to build a new one upon a foundation of untried theories, until we know a great deal more than we now know about the structure that we seek to demolish; until we know how it was designed and why; with what contributions to our comfort it must be credited; for how much human suffering it is responsible and how much is due to other causes; and what weaknesses, if any, are inherent in it, and cannot be remedied by any treatment less violent than dynamite. Many disagree with us. They believe that all countries, following the example of Russia, should demolish the present structure, foundations included, and immediately begin reconstruction on a communistic base. Such revolutionary programs we shall not consider here.
Gradually Weakening the Profit Motive is Not Practicable
We may well pause at this point, however, to remark that the alternative program of gradually weakening the profit motive in one industry after another is not practicable. If the Brooklyn Bridge is not the best means of getting across the East River, we should demolish the bridge and resort to ferry boats, rather than gradually weaken the supports of the bridge, taking out a cable here and a cable there, injuring one pier after another, until the whole structure collapses. That is the method of those who are trying to destroy the profit incentive that is now operative in industry, without offering an effective substitute. It is the way the railroads in the United States were treated for many years. It is economic suicide
The man who thought that, by reducing rations a little every day, he could eventually make his donkey work without any food, had to abandon the experiment because the donkey died. Concerning the profit motive, Lenin was right in what he said at the beginning of his destructive career; but he was wrong before he died. He was right in declaring, at the outset of the Russian Revolution, that the quickest way to kill capitalism is to cut out its heart; that a new industrial organism must have a new heart. But he was wrong later on, after he had failed to find a working substitute for the heart of capitalism, in supposing that he could partially restore the heart and make it work effectively, while hampering its action in countless ways. Such a compromise is not workable: society must either use the profit motive -- in such industries as it is used at all for as much as it is worth, or kill it and supply a better one.
Great Wealth Has Been Produced by Profit-Seekers
At least we must admit that, under the impulse of the profit incentive, the world made material progress, during the nineteenth century, with giant strides. Even The Communist Manifesto of Marx and Engels, published in 1848, before the era of great industrial achievements, declared that capitalism 'has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature's forces to man, machinery, application of chemistry to industry and agriculture, steam navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalization of rivers, whole populations conjured out of the ground -- what earlier century had even a presentiment that such productive forces slumbered in the lap of social labor?'
The epoch in which the profit motive and capitalist control of industry became dominant was precisely the one that brought the most effective utilization of new inventions, the most extensive development of labor-saving devices, the most rapid increase in real wages, the greatest accumulation of capital facilities, and the largest total volume of production. No other period in the world's history showed such progress in public health, in medicine, in free schools, in transportation, and, generally speaking, in the means of gratifying human wants. Furthermore, the greatest progress has been made in those countries, notably in the United States, where the typical organizations of a money and profit economy have been most highly developed. 'It may be freely admitted,' according to the Webbs, 'that, with all its drawbacks, the dictatorship of the capitalist scored an initial success. It delivered the goods. It created the highly efficient machinery of ever-increasing production.'
Without this machinery, created and saved under the urge of the profit motive, we should not now have the possibilities of higher standards of living. There would be no point to our present inquiry concerning the means of using our agencies of production continuously to better advantage; for this vast capital would be an aim and a hope, rather than a reality and a problem. The question whether such Aladdin-like achievements would have been possible under any other industrial régime, and the question to what extent they resulted from causes other than the profit motive, we are not now discussing. We are merely stating the facts. These achievements -- real, unprecedented, unquestioned -- were in large part the outcome of the efforts of men who were seeking business profits.
No Other Motive Has Been Widely Successful
Accepted economic theory fortified these men in their belief that private ownership of capital facilities, and freedom in the use of these facilities in profit-seeking enterprises, would bring forth the largest material sources of human happiness. It may be well, as the Webbs suggest, to bear this fact in mind. The profit method of remunerating the directors of commerce and industry was not adopted out of malice. 'It was not intended to produce masses of destitute persons. It was not designed to diminish personal freedom and to lead to class oppression. It was not even devised for the creation of an hereditary class which lives by owning.
The economic institutions necessary to the vocation of profit-making private property in the instruments of production, and free enterprise in the use of such instruments -- were maintained and developed by British and American statesmen and legislators during the eighteenth and nineteenth centuries, with the approval of the economists, because these men honestly believed that unrestricted profit-making by manufacturers, traders, and financiers was the most effective way of increasing the national wealth.' It is still the belief of leaders of industry, economists, and statesmen generally, not indeed that unrestricted profit-making is essential -- for, as we shall see presently, there is no such thing; but that profit-making, under such restrictions and conditions, and subject to such taxes as may from time to time become desirable, leads to the creation of greater wealth than any other feasible economic system that has ever been tried on a large scale, or even suggested.