3.  What is Free Enterprise?


Melbourne Argus, June 4, 1949.

The third of a series published in connection with a study course conducted by the Victorian League of Rights.

The case for free enterprise cannot be stated without at the same time stressing the fundamental importance of the much abused profit motive.  Persistent Socialist propaganda over a long period has been so successful that the mere mention of the term “profit motive” conjures up in the minds of many people something evil and anti-social.  And yet a little dispassionate thought should convince all reasonable people that the actions of every person are motivated by a desire for a profit of some description.

There are only two ways of obtaining human activity in any sphere:  inducement or compulsion.  All the best work in this world has been done under the stimulus of inducement, even if only the inducement of mental satisfaction.  Under an economic and political system which does not enable the individual to make any profits for himself, those who control the system must use compulsion to try and keep the system functioning.

Need for Compulsion.

The more Socialism a society has imposed upon it, the greater the necessity for compulsion.  Individuals who are stimulated to give of their best when they feel that their efforts are going to produce concrete benefits for themselves and their families, are not very im­pressed with exhortations to work for the “common good” — particu­larly when the “common good” is synonymous with the power-lusters who run the complete Socialist State.

Profit can perhaps be best defined as a desirable result which accrues to individuals when they make the proper associations.  When a seed is planted in fertile soil and there is sufficient sun and water the unseen forces of nature operate; and, for example, a fruit tree results, a tree from which a harvest can be taken every year.  The difference between the cost of man’s effort and the ultimate result can be termed profit.  Nature apparently does not recognise the wickedness of the profit motive!

When the proper associations are made under the free enter­prise system of production and distribution a financial profit is made.  It is the inducement of this financial profit which motivates the manu­facturer to make the goods which he believes that consumers desire.  Seizing on some of the abuses of a system of enterprise motivated by a desire for profit — abuses which are always associated with mono­poly, private or State — the anti-profit advocates have developed a very plausible argument, which suggests that “production for profit must be replaced by the service motive.”

But it is fallacious to say that there is any irreconcilable anta­gonism between profit and service.  Under free enterprise no profit can be made unless a service is first given.  Socialist enterprises, operating for the “common good,” are not notorious for the service they provide.

The Money Vote.

The money system is the most marvellous voting system ever devised.  When there is genuine competition between economic or­ganisations all seeking to serve the consumer with better goods and services at lower cost, the consumer in possession of adequate money “votes” has economic sovereignty.  By indicating that he prefers one type of shoe to another type, he automatically controls the shoe manufacturing industry.  The consumer has the freedom to dis­franchise any business organisation which cannot or will not supply the goods and services he requires.  He can hold as many “elections” in the day as he likes.  And so flexible is this money “vote” that even if a majority of consumers “vote” for a certain type of shoe, it does not prevent a minority from “voting” for another type.  It enables majorities and minorities to obtain the greatest possible degree of satisfaction.

Many people uncritically accept the Socialist propaganda which damns a business man who employs a staff of 50 people and makes a financial profit by serving the requirements of consumers, never apparently noticing that under Socialism the business man may be­come a head of a government department controlling hundreds of minor officials all telling the consumer how his money should be spent or engaged in spending it for him.  Socialism destroys the. very basis of all satisfactory human associations:  personal responsibility.

One of the great virtues of free enterprise is that it effectively fixes personal responsibility upon both producer and consumer.

Exploitation and Monopoly

Many people often confuse profit with exploitation.  But ex­ploitation can only take place when there is monopoly, when the consumer has no genuine alternative.  Those who oppose free enter­prise governed by the profit motive conveniently select certain abuses by monopolies and use them to condemn free enterprise, and to urge the necessity of more Government control.

These people are careful not to point out that practically all the abuses they mention are the result of Government policies.  For example, high taxation in recent years has been responsible for the concentration of economic power at the expense of small and medium-sized businesses.  Heavy taxation as an instrument for furthering the centralisation of economic power is well understood by Socialists.  The concentration of economic power paves the way for complete State control.

Although the Socialist leaders are forever telling their followers about the evils of big business, which they erroneously claim is “in­evitable” under free enterprise governed by the profit motive, it is significant to note that certain sections of big business in all parts of the world welcome Government policies which eliminate any com­petition.  It was the late J. P. Morgan who said,

“We are true Socialists.  We have realised the advantages of combination (to eliminate competition), and we are going to take the profits of com­bination until the people have enough sense to take them for them­selves.”

This statement was recently quoted with approval by one of Australia’s leading Socialist writers, Mr. Brian Fitzpatrick, who claims that the activities of men like the Morgans provide the founda­tions for the Socialist State.

All individuals become corrupted by power without responsibility.  Business men are no different from other men in this respect.

There are no shareholders’ meetings to worry about, the question of making a profit is of little importance, and the consumers have little effective control.  Consumer control of industry by the money “vote” is the only way in which the inevitable tendency to concen­trate economic power can be curbed.

The desire to increase and extend profits has resulted in every invention, every improvement in production and distribution.  One of the most ridiculous statements made today is the assertion that labour produces all wealth.  The fact is, of course, that the modern production system is based upon the application of solar energy to automatic and semi-automatic machinery.  The efficiency of the modern production system is the result of the urge for profit in the past.

In the physical sense we are today investing the profits from the past in the hope and belief that they shall yield greater profits in the future.  The time has come when the advocates of free enter­prise must state openly and unashamedly that they believe in bigger profits for everyone — that every individual in the community must be permitted to obtain increased profits from increased efforts and more efficient methods of doing things.

The Political Vote

If genuine free enterprise is to be preserved and extended, steps will have to be taken to prevent the perversion of the political vote that is leading to the destruction of the value of the money “vote.”  Some serious thought will have to be given to necessary constitutional changes for making the political vote, like the money “vote,” a re­sponsible vote.

If, for example, all those who voted for a Socialist Party pro­gramme had to accept personal responsibility for all the results of this programme, including all financial losses, many of those sup­porting this programme at present would do some serious thinking.  Under free enterprise, individuals who invest their money “votes” in a venture which fails must accept personal responsibility for all losses.  Is it not a fair proposition to suggest to all Socialists that, if they are so certain that Socialism is preferable to free enterprise, they should be prepared to accept personal responsibility for their policies?

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