How Societies Are Harmonized Through Market Transactions
Viewing profit and the free market as a zero-sum game ignores that market transactions occur only if the outcomes are mutually beneficial to both parties.
When people hear the word “profit,” negative connotations often come to mind. For many, profits are the fruit of material greed, emblematic of inequality and the poor state of human nature. The different segments of society are almost in congruence when asked about the nature of profits. It is a “dirty word,” as India’s first prime minister Jawaharlal Nehru declared. The media rarely portrays profits as anything more than a markup over cost, and pundits are often quick to demonize any corporation that earns more than a “reasonable” profit margin.
Politicians offer a notorious example of this mindset. The demonization of profits is a convenient club to wield against the private sector. It shifts blame away from the government’s own bad policies. For instance, with the US coming off high inflation, some of the country’s political elites were quick to accuse corporations of price gouging, the practice of raising prices above what is “fair.”
Never mind the data. Ignore money supply increases and put supply chain problems by the wayside. It’s a lot easier to pin the blame on firms and businesses. These entities are driven by self-interest, which is deemed inherently bad. “Give us more power, and we’ll make sure these corporations never make profit at the public’s expense,” or so the narrative goes. This is not a phenomenon unique to the US; parallels can be drawn with the rhetoric used by politicians in the Philippines during the recent sugar and onion fiascos. Economics be damned. Politicians have their favorite bogeyman, and they will milk it for all its worth.
Contrary to the negative connotations, no other mechanism elicits genuine intentions more than the profit motive. Let’s momentarily set aside the complications of modern society and think only of a simple community where we are neighbours with bad blood against each other. In this community, we have additional roles. I am a seller and you are a buyer. Since I want your money, I offer you my product.
Given our history of animosity, you may be apprehensive about the quality and safety of the product. Perhaps you are worried about its quality or suspect that I have somehow rigged it to endanger you. However, you also know that I am greedy. You know that it is in my best interest to make you a regular customer. After all, to keep you coming back means to keep your money in my hands. Taking that into consideration, you can be assured of the integrity of the product. You know that my desire for profit is genuine, and I will never willingly compromise the product to your dissatisfaction, as that would sully our business relationship. Hence, you purchase my product.
Now, that is a vast oversimplification of how greed acts as a guarantor of integrity and quality. The real world is never as straightforward as portrayed, and greed can lead to bad outcomes depending on the circumstances. However, that simple scenario demonstrates how the market system harnesses what is generally considered evil into a force for good. Greed, by itself, is a vice of character. Yet, under a free market supported by the proper legal and political framework, it becomes the driver of consumer satisfaction. Through profit, people are incentivized to use their faculties to satisfy others’ wants and needs. In a world where the only incentive to produce is gratitude and good will, not much will be produced. Such a world does not exist or, if it does, cannot sustain civilizations for extended periods of time.
The caveat here is the framework of laws. Greed can be used for good when the means to satisfy it are through providing for the desires of others. However, if the political and legal environment allows for greed to be satisfied in less desirable ways, it can be detrimental to society.
Rent-seeking, for example, refers to increasing one’s wealth without contributing to the broader society. This phenomenon often occurs in the political arena. Corporations lobbying for tariff protections and barriers against new entrants into the market gain these benefits without contributing much to the economy. They may also bribe bureaucrats and politicians in exchange for special benefits and handouts. In these cases, firms satisfy their greed not by providing for society, but through graft and corruption. They represent a constant drag to the economy causing a persistent blunting of growth. In these environments, greed becomes a tool to fatten the pockets of politicians and businessmen alike. To foster greed as a force for good, the playing field must be level and unconducive to unfair practices.
Greed substitutes trust as a guarantor of integrity and quality, but it would be wrong to say that greed is mutually exclusive of trust in the marketplace. It is more accurate to say that greed serves as a foundation for trust, then exists simultaneously with it after business relations are established. A buyer in a foreign land only has the respite of greed as his guarantee that what is sold to him is on par with some minimum standard of quality. After multiple transactions with the seller, trust between the two is formed, with greed coexisting with this trust. However, while this trust might be exclusive between a pair of buyer and seller, greed is a universal understanding that permeates throughout the entirety of the marketplace. Trust is built across a series of satisfactory transactions between a buyer and a seller, while greed is a constant amongst all sellers, a fact understood by all buyers.
History provides an enduring example of how trust is built in the pursuit of profit. Describing the London Stock Exchange, the 18th-century French philosopher Voltaire wrote:
“Go into the London Stock Exchange – a more respectable place than many a court – and you will see representatives from all nations gathered together for the utility of men. Here Jew, Mohammedan and Christian deal with each other as though they were all of the same faith, and only apply the word infidel to people who go bankrupt. Here the Presbyterian trusts the Anabaptist and the Anglican accepts a promise from the Quaker. On leaving these peaceful and free assemblies some go to the Synagogue and others for a drink, this one goes to be baptized in a great bath in the name of Father, Son and Holy Ghost, that one has his son’s foreskin cut and has some Hebrew words he doesn’t understand mumbled over the child, others go to their church and await the inspiration of God with their hats on, and everybody is happy.”
Viewing profit and the free market as a zero-sum game ignores that market transactions occur only if the outcomes are mutually beneficial to both parties. Since profit-making is sellers’ universal goal, they mobilize around satisfying consumer wants and needs. Histories of conflict and contradicting cultures are set aside for the pursuit of profit in the market. Societies are harmonized through market transactions built upon leveraging unmet desires. Without the profit incentive, civilization returns to a state where the only trust established is with your own kin, where exchanges do not recognize reciprocating values, and where war and conquest is the only way to get ahead.