Posts Tagged ‘local economies’

Profit Maximization is Self Annihilation

April 21, 2015

“Some states (i.e., nations – ed.) have lost their liberty by particular accidents: But this calamity is generally owing to the decay of virtue. A people is travelling fast to destruction, when individuals consider their interests as distinct from those of the public.” – John Dickinson, Letters of a Pennsylvania Farmer, 1768

 

Profit maximization is self annihilation or, PM = SA in economese, should one feel the need to mathematize the phenomenon, but profit maximization first emerged not of mathematical modeling, or validated by empirical evidence, but by commentary that tickled the vice of greed.

In 1970, Milton Friedman wrote an article for The New York Times, “The Social Responsibility of Business is to Increase Profits.”

And with that commentary, Friedman kicked off one of the most singularly damaging ideologies that would go on to send the global economy over a cliff.

In this writing, Friedman argued for the singular focus of business to be profits. This myopic view of business endeavors completely ignored the negative externalities that could unfold from such a concentration and, being an economist, Friedman should have understood the concept of negative externalities.

No doubt he did, but only in areas of economic theory that supported his ideology. That’s the beauty of neoclassical economic theory, the orthodox teachings of most economic departments today: With its mathematical elegance and a priori thinking, one can make neoclassical economic theories say anything one wants. For the uninitiated, such theories appear “scientific” thanks to the abstruse mathematics. And while the mathematics provides a patina of science, in fact neoclassical economic theories are diametrically opposed to sound scientific endeavor, as a conclusion is assumed before a hypothesis is empirically tested.

And that is exactly what Friedman does in this perennial favorite of C-suite management: he assumes the conclusion, otherwise known as “begging the question.”

Ignored in his argument is that a singular, obsessive focus on profits completely discounts the reality that profits are a means to an end, not an end unto itself.

The ultimate goal of business – yes, and even economics – is social welfare. Business and economic institutions reside in a society to serve the needs of that society’s individuals, its citizens.

For those in the audience who are thinking, “Uh oh, here comes the corporate social responsibility speech,” or for the lesser minds who enjoy clinging to hyperbole, a case for “socialism,” guess again.

A singular focus on profit maximization not only destroys markets, an economy or other macroeconomic entities, it also destroys that other twin-obsession to profits, “shareholder value.”

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Decentralizing economies.

December 3, 2014

Over Thanksgiving break, a vandal scrawled the following graffiti across an exterior wall at Indiana University’s Kelley School of Business:

“Fuck Capitalism.”

It may be a convenience for a graffiti artist to use “capitalism” as a monolithic term – just as “socialism,” “communism” or “anarchism” are treated in the same fashion – but it is indeed small minded to maintain this monolithic treatment within serious discussions. There is – surprise – more than one type of capitalism, and the time to discuss the alternatives has arrived, now.

The attempt to erase the "Fuck Capitalism" sentiment, added to the Kelley School of Business in November 2014, was in vain.

The attempt to erase the “Fuck Capitalism” sentiment, added to the Kelley School of Business in November 2014, was in vain.

The arguments against (centralized) capitalism are numerous, and the examples of the dysfunctional nature of centralized capitalism – as it has emerged over the past couple of centuries – are readily found. But I remain supportive of (decentralized) capitalism because I believe there is something intrinsic in the nature of humanity that desires recognition for one’s efforts.

Sadly, this “recognition” has been translated by centralized capitalism to mean one’s salary, but that is a very empty translation. We can live in trendy neighborhoods, drive expensive vehicles and join the exclusive clubs but at the end of our lives, on our deathbeds, we realize we were just another anonymous gnat on the ass of the universe. The world, at large, does not know us, appreciate us, or can even comprehend what in the hell we actually accomplished while manipulating spreadsheets on our computer monitors. Centralized capitalism – with the exception of the very few – renders us anonymous, insignificant, and isolated.

Decentralized capitalism holds the potential to render us valuable, as being significant, as holding meaning… within a local community, within a local economy. I may be nothing more than the village butcher, baker or candlestick maker, but I provide an invaluable service to the local residents of my neighborhood or village. I am recognized for my work, and the value I bring to a community. Such recognition, value and sense of dignity cannot be bought with a paycheck. (more…)

A Faded Conservative’s Call for a Social Net

June 27, 2013

I do not consider myself a conservative, at least, not in the contemporary understanding of that term in 21st century America. Nor, for that matter, do I consider myself a liberal, progressive, or libertarian; again, not in the way these terms are generally understood today. This has done me no favors, as those unfamiliar with my writings tend to pigeonhole my politics as quickly as possible into one of these categories. In this age of microwave attention spans, I have to assume this is the norm and live with the consequences.

Nevertheless, when a piece of writing catches my attention in the manner the one below did, I like to pass it on, no matter the conclusions to which a reader may jump. And in the following essay, conclusion jumping will come easy, since the title of this work by August Heckscher II holds the word “conservative” in it. Those on the left will immediately write it off and never read it, and those on the right will be angered by its message, having been pulled into this essay on miscalculated assumptions.

But for those who labor to read the essay, it will be worth the time. The conservative mindset represented here, in post-World War II America, has almost vanished. It is inconceivable for me to consider any of the conservatives operating in the public forum today as standing behind Heckscher’s sentiments towards conservatism. That is why I felt it important to post this work, to keep alive, in a paltry manner, a conservatism that quickly became a relic of the past when Richard Nixon entered the White House and Ronald Reagan forever banished such thinking from the Republican Party, making room for the rise of neo-conservatism, an evolution of American conservatism that distorts-beyond-recognition the viewpoints presented here.

August Heckscher II (1913-1997) was an American intellectual, historian, and administrator. He served as President John F. Kennedy’s Special Consultant on the Arts from 1962 to 1963 (the White House’s first cultural adviser), as well New York City Mayor John Lindsay’s Parks Commissioner in 1967, amongst other highlights in a wide-ranging career and life. His obituary can be found here.

This essay originally appeared in Confluence in 1953, a journal that lasted for only seven volumes in the 1950s (Trivial Pursuit: Henry Kissinger edited Confluence while at Harvard).

The Imaginative Conservative first made the text available here, and I found this copy here.

Many thanks to Emilio, over at LinkedIn, for bringing this to my attention. I, working alone, admit to having added the emphases throughout the text. I hope you enjoy it.

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