News From Terre Haute, Indiana

Business

November 26, 2009

Arthur Foulkes: Love it or hate it, make a profit is vital to civilization

TERRE HAUTE — Profit is a beautiful thing.

I know many people regard profit as “obscene” — or at least “big” profits are regarded as “obscene.” But profits are actually wonderful and necessary for a growing, expanding, prosperous civilization.

All human action is aimed at “profit” in a sense. Humans act in order to bring about goals that they believe will make things better. They also take into account the opportunity costs of reaching their goals. You may have a goal of learning to play golf well, but that goal includes the cost of many hours of practice, the expense of equipment, lessons, etc.

If the cost is too high from the point of view of the actor, the action is either stopped or not started. In this sense, all human action can be said to be aimed at achieving benefits that exceed costs — that is, a “profit.”

To reach our “profitable” goals, we often cooperate with others through voluntary exchanges. Voluntary exchange — “trade” — is also a wonderful thing because any voluntary trade is always regarded as beneficial to both people trading. In other words, trade allows people to voluntarily increase their levels of satisfaction.

Trade also is wonderful because it allows people to specialize in specific fields of production or service. In a trading society, someone especially good at knitting can concentrate of making clothes and leave farming, carpentry and baking to someone else.

This specialization also is wonderful because it allows people to produce only those things at which they are best, meaning more stuff can be produced by the same number of hands. It also allows for the specialist to increase his skills and his efficiency, which also increases the amount of goods and services available.

The scope of possible trades between people increases dramatically when some “medium of exchange” — money — is used. The invention of money permitted humans to exchange with each other much more easily than if they could only barter with each other. Without money, for example, a brewer who wanted shoes would need to find a shoemaker who likes beer. That’s why money is also a wonderful thing.

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