Social spending

Profits improve all our lives

By Mark Luedtke


Some people compare capitalism and socialism from a utilitarian point of view, others from an ethical point of view.

From a practical point of view, Ludwig von Mises destroyed the idea of socialism with one observation. As the Mises Institute Wiki reads, “Ludwig von Mises argued in a famous 1920 article ‘Economic Calculation in the Socialist Commonwealth’ that the pricing systems in socialist economies were necessarily deficient because if government owned or controlled the means of production, then no rational prices could be obtained for capital goods as they were merely internal transfers of goods in a socialist system and not ‘objects of exchange,’ unlike final goods. Therefore, they were unpriced and hence the system would be necessarily inefficient since the central planners would not know how to allocate the available resources efficiently.”

Mises’ critique was proved in every socialist country in history. It doesn’t matter how benevolent and wise the decision makers are, they can’t rationally or efficiently allocate resources without market prices.

In contrast to a capitalist society, prices and profits provide information about the availability and desirability of every good traded, consumer and capital, and this information guides entrepreneurs to rationally allocate resources based on the demands of the people. If a good trades at a significantly higher price than the price of the inputs required to produce it, i.e. profits and profit margin are high, which happens when demand outpaces supply, entrepreneurs will enter the market to obtain a share of those profits. This increases supply and drives down the price. Once the price has dropped far enough where profits and profit margins are comparable to other goods in the marketplace, entrepreneurs will stop entering that market and search instead for other markets, which are underserved. Using prices and profits to guide them, entrepreneurs make the most effective use of resources based on the demands of the people.

There are consequences in both cases. In a capitalist society, the people have the power. Entrepreneurs must serve them, and serve them well, or go bankrupt. So, self-interest leads entrepreneurs to serve others. In a socialist society, power aggregates into the hands of a few decision makers. Lacking the ability to make rational economic decisions, those equally self-serving decision makers tend to use their socialist powers of theft and coercion to benefit themselves at the expense of the people. This is why governments attract the worst people to work for them, and the worst of the worst rise to the top.

As for the moral argument, Hans-Hermann Hoppe explains that profits in a free market are a measure of the good an entrepreneur does for his fellow men. “His profit or loss are the quantitative expression of the size of his contribution to the well-being of his fellow men, i.e., the buyers and consumers of his product, who have surrendered their money in exchange for his (by the buyers) more highly valued product,” he writes. “The capitalist’s profit indicates that he has successfully transformed socially less highly valued and appraised means of action into socially more highly valued and appraised ones and thus increased and enhanced social welfare. Mutatis mutandis, the capitalist’s loss indicates that he has used some more valuable inputs for the production of a less valuable output and so wasted scarce physical means and impoverished society.”

This doesn’t mean that today’s billionaires have done billions in service to their fellow men because we don’t enjoy a free market. Far from it. We suffer an economy dominated by the jackboot of government coercion, which unjustly enriches rulers at the expense of the rest of us. The state effectively owns all property. Nominal ownership is a privilege proven by taxes, regulations, and asset forfeiture laws. Also, government obtained all property it controls by theft. Hoppe observes, “The state, then, contrary to its own self-serving pronouncements, is not the originator or guarantor of private property. Rather, it is the conqueror of private property. Nor is the state the originator or guarantor of justice. To the contrary, it is the destroyer of justice and the embodiment of injustice.”

Regarding a free market, Hoppe informs, “Money profits are not just good for the capitalist, then, they are also good for his fellow men. The higher a capitalist’s profit, the greater has been his contribution to social welfare. Likewise, money losses are bad not only for the capitalist, but they are bad also for his fellow men, whose welfare has been impaired by his error.”

The views and opinions expressed in Conspiracy Theorist are the views and/or opinions of the author and do not reflect the views and/or opinions of the Dayton City Paper or Dayton City Media and are published strictly for entertainment purposes.

Reach DCP freelance writer Mark Luedtke at

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Reach DCP freelance writer Mark Luedtke at

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