Addressing a joint session of Congress on health care, President Barack Obama reiterated his often-expressed aversion to the profit motive:
Is this true? Is profit wasteful, as Obama implies? Does it lead to higher prices and lower value to consumers? Can the government, unburdened by profit, do the same job as a private company, only cheaper and better?
|Yes. Profit certainly has the potential be wasteful. Profit always leads to higher prices and can lead to lower value. The United States government, unburdened by profit, can often, though not in all cases, do a less expensive and better job than a private for-profit company. A public health insurance option would compete with private companies and, should one option force another out of business, let the best service win.|
|To answer, let’s consider one business, one product, and one profit-seeking man who lived at a time when the market operated largely free of government subsidies, bailouts, regulations, taxation, and other “progressive” intrusions.||Looking at a single example can be illustrative but cannot be evidential. Also, products and services are different, so looking at a product will not be analogous to looking at a service like healthcare.|
|Henry Ford, at age 13, saw a steam-driven land vehicle, a “road locomotive,” which filled his imagination with the vision of a horseless carriage and fueled a passion to create one. As a young man, he worked day jobs, while trying to build a car in his free time. Realizing a viable car could not run on steam, he sought to develop a new kind of engine.||On a public road or a private road?|
On Christmas Eve 1893, the 30-year-old inventor clamped his first gasoline engine to his wife Clara’s kitchen sink. With the home’s electricity providing ignition, the motor roared into action, sending the sink vibrating and exhaust flames flying while Clara prepared the holiday dinner.
In pursuit of his dream, Ford and Clara moved eight times in their first nine years of marriage. He quit a secure job at the Edison Illuminating Company, banking everything on his vision. He co-founded the Detroit Automobile Company—a venture that failed. Jobless, Ford moved his wife and child into his father’s home. But he kept working on his car. “It is always too soon to quit,” he said.
Ten years passed from the roar of the little engine on Clara’s sink to the launch of the Ford Motor Company. It took five more years to produce his big success, the Model T, and additional years to master its mass production.
Why did Ford persist through years of hardship and uncertainty? How much would his love for the work have sustained him without the hope of eventual profit? Imagine if he had lived in a system where politicians could, at the stroke of a pen, seize his profits or decide how much he could keep. Would he have risked so much or worked so ferociously to bring a world-changing invention to market?
|From this anecdote, I would say Ford persisted through years of hardship to sate his “filled imagination” and through a belief that “it is always too soon to quit.” Who knows if “the hope of eventual profit” motivated him? Who knows if he would have persevered without said hope? Who knows if Ford would “have risked so much or worked so ferociously to bring world-changing invention to market” under a hypothetical oppressive totalitarian government? Who knows if he would have needed to? Are counterfactual hypotheses appropriate outside of fiction?|
|Would an Amtrak employee devote a decade of free time inventing a new train, only to rise a notch on a civil-servant’s pay scale? Dream big, work hard, create something earth shaking, but be paid small is the antithesis of the American dream.||Would a teacher, a police officer, an intelligence agent, a firefighter, or any other civil servant devote a decade of free time to civil service on a civil servant’s payscale? Of course! So might an Amtrak employee do the same? One might if Amtrak became a civil service. Payscale is a factor, but not the only factor, in determining what jobs people do. Mother Theresa, Pope John Paul II, Martin Luther King, Jr., Martin Luther, Pablo Picasso, William Shakespeare, George Washington, Thomas Jefferson, Abraham Lincoln, and Jesus of Nazareth are just a few examples off the top of my head of people who did extraordinary work without being solely or even primarily motivated by profit; they “dream[ed] big, work[ed] hard, create[d] something earth shaking, but [were] paid small” if you will. Perhaps all of these people are simply unAmerican, and poor role models by implication.|
|The pursuit of profit not only motivated Ford, but also his bold investors who had the foresight to realize the horse was doomed.||I am not sure if “the horse was doomed” is intended literally or literarily, but figuratively, the horse of unregulated free-market capitalism looks pretty doomed these days. Also, the horse of gas-powered automobiles is now doomed.|
|In 1903, a school teacher invested $100—half her life savings—in the Ford Motor Company. Sixteen years later, she sold her stock for a total gain of $355,000. Why would she and others place their money on a highly experimental venture, were it not for the hope of tremendous gain should the enterprise succeed? What kind of person would deny her the reward for recognizing Ford’s vision and risking her own money?||What is the purpose of this two sentence anecdote? What is the parallel? Should only publicly-traded companies be allowed into the market? Are the authors under the impression that wholly private companies or wholly public companies would drive publicly-traded private companies out of business? Are the authors under the impression that somehow private ownership is at risk? I fail to see the relevance or intention of this anecdote and pair of rhetorical questions. I admit that this failure may be my own blindness to some allusion or detail.|
The pursuit of profit also impacted every aspect of Ford’s business operations.
Ford didn’t need a politician’s scolding to lower prices—only the desire to make huge profits by reaching mass markets. Because early cars were expensive, people viewed them as mere playthings of the rich. But Ford sought to “build a motor car for the multitude.” This led him to develop his moving assembly line, significantly reducing manufacturing costs and, consequently, prices. The original $825 price of the Model T finally bottomed at $260. That price-lowering strategy brought him the millions of customers that made him rich.
|“Reducing manufacturing costs, and consequently, prices” is almost exactly analogous to a public option for healthcare; replace “manufacturing costs” with “unnecessary spending” and the praise of Ford’s frugality becomes praise of Obama’s frugality. If “that price-lowering strategy” works in Obama’s case, millions of citizens will save money on healthcare.|
Similarly, Ford’s pursuit of profit didn’t result in bare-subsistence wages for employees, but in phenomenal pay increases. He shocked the world by introducing the $5 workday, more than doubling the era’s prevailing wage. Why? To attract the best workers, whose talents increased product quality and company efficiency. High pay also decreased employee turnover and training costs, again increasing Ford’s profits.
|Ford’s pursuit of profit didn’t result in bare-subsistence wages for his employees, but what about the “manufacturing costs” that he lowered? Surely reducing manufacturing costs reduced someone’s pay! Likewise, a public insurance option would surely pay its employees better than “bare-subsistence” wages.|
|Ford typifies the successful capitalist, whose profit-driven innovations lower prices, while raising wages and living standards for all.||Ford may have risen “wages and living standards”, but certainly not “for all”; horse-drawn-carriage-makers, for instance probably lost business, as well as competing motor companies.|
|Even today’s Ford Motor Company, a much-fettered child of our mixed economy, demonstrates the superiority of private- over government-run companies. Ford refused TARP bailout money, choosing to operate without government strings. The result? Ford’s profits are up 43 percent, while bailed-out GM and Chrysler lag behind.||What kind of fettering (I assume from the government) does today’s Ford Motor Company have? Are the authors referring here to regulations like the requirement that all motor vehicles must have seatbelts? Also, Ford was doing better than GM and Chrysler before the government intervention, allowing Ford to pass on the bailout. I agree that the bailing-out of “too-big-to-fail” companies is a terrible idea, but that issue is completely different from that of a public option for health insurance. The bail-outs are akin to a public mutual fund, i.e. purchasing shares of private companies with public money. Like the teacher in the earlier anecdote, we the people are all together “risking [our] own money . . . on a highly experimental venture . . . for the hope of tremendous gain should the enterprise succeed.” The bailouts are public purchases of companies that needed more investment capital. If the bailed-out companies turn around and survive, the money will be paid back with dividends; if the companies dissolve, the unrepaid money is lost. The only difference between the bailout and the schoolteacher story is who is investing and in which company.|
|In Henry Ford—a thin man who was the fattest of fat cats—we see an embodied refutation of President Obama’s worldview. Ford developed a new form of transportation vastly cheaper, faster, more convenient, and superior to the old mode. He continually lowered prices so that everyone, rich and poor, would have access to his product. He created thousands of jobs. He raised employee wages. He did all this good without government grants, bailouts, stimuli, subsidies, or coercion, but simply as a result of the honest pursuit of personal gain.||The thesis of this paragraph is preposterous. With healthcare reform, Obama is trying to develop a form of insurance that is “vastly cheaper, faster, more convenient, and superior to the old mode . . . [and create] thousands of jobs.” The final sentence of this paragraph seems to be a bastardization of Adam Smith’s “invisible hand.” However, Smith’s invisible hand helps the government via honest pursuit of personal gain; personal wealth is irrelevant in Smith’s theory. To say that Ford operated strictly outside of government influence is naïve, dishonest, or both.|
|This achievement was possible only because a private individual had the freedom to pursue his own self-interest, in cooperation with others who supported his vision and shared in the rewards, unencumbered by government.||The government of the United States is nothing but cooperation of individuals who support visions and share in rewards. All government actions are ultimately determined by the electorate and the representatives that the people represent. If any encumbering is going on, the encumbering is coming from the very people who are being encumbered (with unfortunate exceptions, like felons and fetuses).|
|By eliminating profit, Obama implies that everything else about an enterprise would remain the same, only the product would be cheaper and better. Actually, by removing profit, nothing at all would remain the same.||The argument is actually that health insurance is a right rather than an elective product. Obama is not trying to eliminate profit from enterprises; he is trying to correct the fact that healthcare is treated as a commodity for the privileged rather than a right for all people.|
|Contrary to Obama’s notions, profit is not an overhead cost, but a vital gain sought over and above costs in order to reward a company’s risk-takers. According to economist Ludwig von Mises, “Profit is the pay-off of successful action.” And “The elimination of profit . . . would create poverty for all.”||Profit is probably necessary for a successful privately-owned commerce-intended capitalist company, but not all endeavors are commercial, private, or capitalist. The auto industry is privately-owned, commercial, and capitalist. As such, the profit model makes sense for the industry. Healthcare, however, is a service industry. Publicly-owned not-for-profit can outperform privately-owned for-profit ventures, not in terms of money, but in terms of breadth of service or product. Private health insurance need not be eliminated, but a public option should be available for those who cannot afford or choose not to purchase private insurance. Analogously, many high-profile and wealthy people employ private security; the police serve this function for those of us who cannot afford to or otherwise choose not to have bodyguards.|
I feel like I am being random discussing healthcare here since the article mostly discusses the nearly unrelated topic of the Ford Motor Company, but looking back at the beginning of “A Lesson in Profit”, the article is apparently a response to some of the President’s remarks regarding healthcare.
|Eliminate the hope of profit, and you extinguish that spark which ignites the human engine and powers it to explore uncharted roads: the creative mind. Profit is the proud product of the creative mind, and the creative mind is an attribute of the individual. Obama’s attack on profit is an attack on human creativity and innovation, which is an attack on the individual.||This paragraph is wildly contrived and untrue. History is filled with examples of creative people who were creative without profit as “that spark which ignites the human engine and powers it to explore uncharted roads.” Besides the aforementioned unAmericans, countless other artists, philosophers, scientists, and other creative-types have created and innovated without both eyes on the bottom line. Personally, I often struggle to contain creativity. I also have no desire for money beyond what I need to pay for the goods and services that I buy. Whenever I have excess funds, I give the money to organizations who need the money to provide for the needs of unfortunate people (e.g., abused children, orphans). I tip based on service rather than on how much I spent on my meal. For good service, I tip well even when I’m broke; I once literally tipped my last liquid dollar in such a situation. In the words of Henry Rollins, “I’d rather be heard than paid.” Do motivated creative people who are inspired despite (rather than because of) profit have some sort of disorder? Are people who are uninterested in financial gains nonindividuals? These questions are serious philosophical questions, and are not intended to poke fun.|
|Obama’s antipathy for the self-interested individual is explicit. “In America, we have this strong bias toward individual action,” he said in an interview in the Chicago Reader. “But individual actions, individual dreams, are not sufficient. We must unite in collective action, build collective institutions and organizations.”||I agree with Obama. LaGreca and Enright are free to disagree with the president and me, but as someone with a likeminded viewpoint, I would like to elaborate on the president’s comment mentioned here. Individual actions and dreams are good and necessary, but collective actions and dreams provide additional benefits and fill niches left empty by individuals alone. This idea is not antipathetic towards individuals or towards self-interest. Rather, this idea is the cornerstone for having families, friends, language, communities, corporations, states, etc. Benjamin Franklin drew a famous political cartoon in an attempt to persuade people that the United States is a good idea because collective action can do things that individuals cannot. A related, more fundamental notion is that a human (or a snake) can do things that its cells cannot do individually.|
|It was Henry Ford’s individual actions and individual dreams that brought motorized, personal transportation within reach of everyone in the world.||Ford could not have had such a dream or made such profits without the collective purchases of automobiles by, apparently, “everyone in the world.” Earlier in this very article the authors proclaimed, “Henry Ford, at age 13, saw a steam-driven land vehicle, a “road locomotive,” which filled his imagination with the vision of a horseless carriage and fueled a passion to create one. As a young man, he worked day jobs, while trying to build a car in his free time,” citing several early examples of collective action in Ford’s rise to financial success. Ford did not invent the “road locomotive which fueled his imagination with the vision of a horseless carriage and fueled a passion to create one.” Nor did he live independently of society. Rather, he used common currency and networking to compile his inventions and innovations with those of contemporaries and predecessors. In the end, Ford made remarkable strides toward today’s automobile culture, but he did not do so in complete isolation. He did so as an individual that is also a part of several communities. He did not build the roads or build each car by hand. The assembly line is in fact an epitomic example of the superior power collective action has compared to individual action.|
|America is rooted in the “pursuit of happiness”—which means the right of each of us to create, to produce, to rise, to succeed, and to profit from the fruits of our labor. Contrast this worldview with that of a president who disparages the individual and seeks to limit or expropriate his profits on behalf of a faceless “collective.” Obama’s war on profit is a war against the individualist heart and soul of America.||“The pursuit of Happiness” is third in a list of three exemplars of “unalienable Rights” enumerated in the Declaration of Independence. The first exemplar listed is “Life,” which I think should include access to life-saving medical procedures. These rights are defined as unalienable, meaning the rights apply to everyone. Every individual in America is the “faceless ‘collective’” that the authors refer to. I wonder which individual the authors think deserve these rights, since the American people are apparently an un-happiness-worthy collective. Also, in Obama’s quote, he used the adjective collective in the phrases “collective action” and “collective institutions and organizations;” LaGreca and Enright use the homonymic noun “collective” here as a derogatory and misleading turn of phrase. Obama has no “war on profit” nor “against the individualist heart and soul of America.”|
|Profits are a badge of honor earned by someone who offers others something they value enough to buy. The first buyer of the first car of the Ford Motor Company was a doctor. He was tired of hitching up his horse and buggy for nighttime emergencies. Ford’s product enhanced his life, as it later enhanced the lives of millions. Profit is the medal Ford received from his customers for a job well done.||Sainthood, inner peace, respect, gratitude, friendship, an improved world, actual badges and medals, future acknowledgement, and unknown yet beneficial effects are just a few other rewards that I think a person might consider recognition of a job well done. If profit were the only motivator, the words “anonymous” and “volunteer” would be much more uncommon.|
|If our nation is to cultivate productive geniuses like Henry Ford, it must proclaim that the quest for profit is moral and noble.||I contend that Benjamin Franklin, an avid proponent of collective action, institutions, and organizations, was a more creative person and a greater inventor, i.e. a more "productive genius," than Henry Ford. I also contest that the word “United” is in the name of United States of America, and that by including the idea of a union of individuals in the very name of the country indicates some favor toward that idea.|
|POSTSCRIPT: Transportation Secretary Ray LaHood recently announced “the end of favoring motorized transportation at the expense of non-motorized.” This means that the federal government, with its vast powers to fund highway projects, “liveability” initiatives, and other aid programs, as well as to tax gasoline, now intends, in LaHood’s stunningly brazen words, “to coerce people out of their cars,” in favor of walking or cycling. A century ago, Henry Ford, through capitalism and the profit motive, brought motorized transportation to the world. Now, an alarmingly anti-capitalist government is reversing that historic achievement and pulling us back to the pre-industrial age.||Walking a cycling are intended for short distances. LaHood also has initiatives for high-speed electric rail systems and development of new technologies for long-distance transportation. I do not know much about Enright and LaGreca, but I do know that Ray LaHood is a transportation expert. I also know that the plans of the transportation department are being dictated by the increasingly vocal and influential movement to break free from dependence on fossil fuels, a movement that continues to gain support from new directions. "An alarmingly anti-capitalist government is reversing that historic achievement [motorized transportation] and pulling us back to the pre-industrial age" is a blatantly dishonest statement. At least, I think they are talking about the United States government. If not, I apologize, but I would like to know what they are talking about. If I do understand what the authors are saying here, however, I maintain that the statement is untrue. The government is far from anti-capitalist (although capitalism as we have known it for the past century may be a doomed horse), and the Department of Transportation is working to bring us to the future beyond motorcars, not back to horse-drawn carriages.|
I could go on, but this response is already longer than I would like. Please, respond to my response!
1The original is only included for reference and for full context. Please read the original article at The Daily Caller. If you have an interest in the copyright of this article and would like me to remove the full text of the original, please just let me know.