To hear some people tell it, profits are pretty easy to come by. People accumulate wealth and enjoy unearned income by taking interest and capital gains. What is profit but a tax levied by the powerful on the powerless? What could be easier than kicking back, lighting a cigar, and watching the profits roll in like they do in so many mobile games?
Quite a lot of things, actually. Losing money is easy. It’s like starving: you don’t have to do much to make it happen. Earning profits–and I use the word earning deliberately–is just like earning any other kind of income. It’s hard. Earning wages requires working. Earning interest requires waiting. Earning rent is a little easier, perhaps, but future rents to land and other resources are capitalized into present prices. Earning profit requires judgment. This is how innovative entrepreneurs like Sol Price and Sam Walton were so successful. They looked at how people bought and sold, found it lacking, and introduced new ways of retailing. They chose wisely, and they were rewarded handsomely.
But if Sol Price and Sam Walton finished rich, that means someone else had to finish poor, right? Wrong. Price, Walton, and other successful entrepreneurs profit by creating something out of nothing. Obviously, they can’t create new matter, but they can rearrange it into “Big Box Stores” that no one had ever thought to put in southern California or northwest Arkansas.
We academics and others working in the non-profit sector are even pretty easy at fooling ourselves into thinking that we have forsaken the easy life of profit-seeking and wealth accumulation to do something more difficult, courageous, and noble. It’s not easy, though, to give people what they want at prices they are willing to pay without consuming even more valuable resources in the process. It’s one thing to pontificate about how this or that business idea would be successful, but it’s quite another to put your own money where your mouth is so you can actually try to make an idea work, all the while knowing that as the residual claimant, any losses come out of your pocket. I’m hard-pressed to think of anything much more noble than finding ways for people to get more bread for the sweat of their brow. As Ayn Rand’s character Francisco d’Anconia explains, successful entrepreneurs make money. Successful entrepreneurs win, but the biggest winners from the Bourgeois Deal are consumers like the rest of us. To the extent we have left them alone to try new things, they have made us rich.
Yes, interventionism means a lot of distortion and profits accruing to people not because they innovate successfully but because they prevent others from innovating. I would hope that both the left and the right could find a common cause in fighting the rent-seeking society. However, it’s the rare person I encounter who despises modern capitalism because the state introduces distortions making it hard for people to compete. They tend to hate capitalism precisely because it is a system where people like Sol Price and Sam Walton–neither descended from royalty or deity, as far as I know–got rich by making other people richer.
Business history is littered with failure. Making money is hard, and those who do it deserve our gratitude rather than our contempt.
Art Carden is Professor of Economics & Medical Properties Trust Fellow at Samford University, and he is by his own admission as Koched up as they come: he has an award named for Charles G. Koch in his office, he does a lot of work for and is affiliated with an array of Koch-related organizations, and he has applied for and received money from the Charles Koch Foundation to host on-campus events.
