Profit

I have never been very interested in economics and did not study the subject while at the University. Even so, I do know that even the finest of our economists can disagree completely when it comes to any given topic, program, or prediction. Thus, I suspect that giving a Nobel Prize for Economics is not far removed from giving one for Witchcraft. But by being so uninterested in economics I have also given little thought to such things as money, interest, and profit. The recent problems that have arisen in our country have forced me to think more carefully about such things, especially things like a “for-profit” health care system, as well as our “market-driven” society in general.

First of all, it occurs to me that you do not need a concept of “profit” in order to have a viable, on-going, fully functional society. As far as I know you do not find any such thing as profit in pre-industrial societies, where barter was the major economic activity. In the potlatch system of the Northwest Coast of America, for example, an individual might distribute blankets or coppers or bundles of other items, and he might receive greater numbers of those items in return, but he did not retain this increase as profit, but simply recycled them into an on-going system of exchange. You might say he profited in that he gained in prestige, but he did not gain in material wealth. Similarly, in Melanesia, groups often exchange gifts of pork or live pigs, and they are expected to receive a somewhat greater return. So a man might offer his pigs as part of the exchange, and he might receive a bit more in return, but, again, he did not retain them as profit as they, too, kept circulating in the exchange system. In the famous Kula ring of the Trobriand Islands, certain items passed from person to person in one direction and others in another direction but there was no profit involved. The trading ring provided people with entrée into other groups where they might barter for other items they needed or wanted, but it was by no means a profit-based system. I guess it could be argued that there could be a concept of profit without money being involved but this does not seem to have happened. That is, one could engage in bargaining in such a way as to end up with more than he started with, and I guess that could be conceived of as profit, interest, and income, but I don’t know of anywhere those ideas originated outside of a full-blown market economy.

This raises for me the question of whether you could have a market economy like ours without concepts like interest and profit. As Karl Polanyi so brilliantly observed, in order to have a true market economy everything has to be for sale. And for everything to be saleable, everything has to become a commodity. This was part of the Great Transformation Polanyi wrote about in his famous book by that title. In the shift from a pre-industrial society to an industrial one with a full-blown market economy, land, labor, and money all had to become commodities. A commodity is something produced for sale. But land, labor, and money are not true commodities as they are not produced for sale, land being just another word for the environment, labor a word for human behavior, and money merely a token of exchange. These are basically false commodities that we treat as if they are real commodities.

Because money is treated as a commodity it can be bought and sold in the marketplace. There are various ways to do this through buying and selling mortgages, buying loans, buying currencies, and I don’t really know how many other incredible means there are for doing this. There is no other reason for doing this other than to make a profit (at least as far as I know). And because money is treated as a commodity it can also be borrowed and lent. This, of course, involves interest. Apparently interest is the fee you charge the borrower to reimburse you for the risk you take in loaning him the money. As there are ways of assessing the amount of risk, the interest rates can vary from loan to loan. This is where some real questions arise for me. Mainly, would it be possible to have a market economy without interest or profit?

Consider the question of interest first. Sometimes people do get no-interest loans. A friend, perhaps doing you a favor, loans you money expecting only to get the same amount in return. No profit there. This is rare. Sometimes you can get a no-interest automobile loan. Where is the profit there? It does exist, of course, because the car company makes a profit on the car they sell you whether they get interest or not, and if they want to sell cars badly enough, they do this. If they also charge interest this makes them even more profit (which is why they don’t really prefer you to pay cash). This can work for other commodities as well, refrigerators, stoves, etc., but there is always profit involved. It is the concept of profit that interests me the most. In the case of interest, how does the element of risk enter into the equation? Obviously if one has substantial collateral it is easier to get a loan and get it at a lower interest rate than otherwise. In order to turn a profit through loans like this there has to be a means of assessing the amount of risk, plus the actual amount of time and effort it takes to draw up the necessary paperwork, process the loan, and etc. People are paid a salary for doing this. If the interest on the loan only covered the actual costs involved there would be no profit, although the employees would make a living and the basic expenses, paper, ink, etc., would be covered. Whatever profit there is has to be related to the risk. Thus you would expect if there was no risk, or very little risk, the borrower would pay very little. But the one making the loan calculates the risk, and if the borrower doesn’t want to pay what the risk is said to be, they don’t take the loan. You can be sure the risk is always going to be calculated at a higher rate than it truly needs to be. You could, theoretically, have a system in which the loan payments pay only the actual costs, the borrower would still receive the money and use it for his needs, the employees would draw their salaries, and the system could run without profit as such being involved.

Profit, it seems to me, is fundamentally what is paid in excess of costs. That is, it is not enough that people get paid salaries and live for doing various kinds of work, there must be additional money added in order to make a profit. This is why we speak of “wage labor,” or “slave labor,” and why it is that capitalists become wealthy off the sweat and hard work of others. You enjoy the excess that results from them working harder than they need to in order to earn a living. You could have a system in which the only profit involved would be the personal profit people enjoy from their labor, their salaries, wages, and personal satisfaction. If profit is merely the excess from labor or other activities, theoretically a system could work without profit. Or a society could allow profits to be made but insist they be either saved or used for community purposes (instead of being used for conspicuous consumption). Those who provide the capital (capitalists) would not be able to make profits by doing nothing other than lending money, living off the work of others (the proletariat). Everyone would have to be engaged in some form of productive work (simply having and loaning large sums of money I am suggesting is not productive work, although managing money for community purposes could be). Such a system does not imply or require socialism or communism. As some people work harder and more efficiently or productively and creatively than others, they would reap greater rewards. There would still be disparities in the amount of wealth individuals could possess, but these would be more realistically limited. There would be no question of taking money away from some in order to give it to others. Without interest and profit a society could survive over time and serve the basic needs of its citizens, huge fortunes could not be amassed and there would not be the huge discrepancies between the haves and the have-nots. Each person would have to live out their life doing the best they could without taking unfair advantages of others.

I cannot think of a more egregious example of a profit system than in the case of Insurance-based health care. Here is a system in which the Insurance companies do virtually nothing at all in order to reap huge profits. It is true they keep their employees working, but they are working at nothing but insuring the companies make more and more profits. I have yet to have anyone explain to me why Insurance companies should have anything whatsoever to do with health care. They do nothing but act as middlemen between patients and doctors, taking in fees and trying to provide as little coverage as possible. As a for-profit system it is in their interest to deny care whenever possible. It’s like paying for people to kill us for nothing short of profit. This Insurance-based health care system we have is an absolute disgrace, shameful and disgusting beyond belief, and it exists for no reason other than to profit from the misery and deaths of sick people (and can buy the votes of many Congresspersons).

Yes, I know, I am babbling. Perhaps I am too far out of my element. There is not going to be Utopia. But money as a commodity truly is the root of all evil. Things would not have to be so. Much of the world lives without interest and profit. Indeed, most of the people throughout history lived without such concepts. Were they without problems, of course not. Were they all completely miserable, of course not. Is money required for happiness, not everywhere or by everyone.

“Capitalism turns men into economic cannibals, and having done so, mistakes economic capitalism for human nature.”
Edward Hyam