Wednesday, February 15, 2012

Is there such a thing as too much profit?


In my last post, I used the price increase of Whitney Houston’s music on iTunes to ask whether it was wrong to profit from someone’s death. One particular response caught my attention. A reader commented that making money off the dead was not inherently immoral, but that raising the price of her music was because “they would've made a lot of money on her death already, but they just wanted more.”

This is an intriguing response because it suggests that some profit is okay, but that there can be such a thing as too much. It is worth mentioning that Adam Smith seems to agree. In The Wealth of Nations, he writes that the attempt to significantly increase profits is “pernicious” (at I.ix.24). Comparing the rise of profit to an increase in wages, he indicates that while paying workers more only increases prices a little bit, increasing manufacturers’ profits cause a “geometrical” rise in prices. These higher prices hurt workers, so, Smith thinks, there is a point where higher profits have bad effects that shouldn't be ignored.

What is interesting about Smith’s claim is that it isn’t about profit itself, but it is about the consequences of profit. It makes sense to suggest that economic inequalities that interfere with people’s rights or moral/political equality are impermissible (John Rawls makes this argument, for example), but what would we have to argue to suggest that some profit is inherently acceptable but more is in-itself not?

In the end, I think we would have to say one of two things: (1) that only a percentage of profit is inherently moral – the “just price theorists” argued something like this in Medieval times, but they assumed that all profit was sinful because they felt money acquisition in-itself was sinful. Or, (2) people are only entitled to earn a certain amount in their lifetime and anything above that cannot be justified. Marx argues an extreme version of this (the amount people can earn is zero), but I don’t know of anyone who claims that people can only make, for example, five times what they need to live. If someone tried, how could they justify what number it would be without being arbitrary? We might claim that people are only entitled to the money that they can use, but if this is the case, where do savings fit in, or inheritance? There are arguments for a “maximum wage,” but these are about income, and not about profit itself. Again, we appear to be stuck.

I suppose if someone did an intensive study and showed that there was a certain wealth threshold at which people started being less happy or less healthy, then one might make some sort of a virtue-based argument for a limit, but this would imply that there is no individuality. Some people do better with wealth than others. Bill Gates does fine, for example, Whitney Houston, not so much. It does seem unfair however, to limit one person’s wealth because someone else would be unhappy at the same level and no law could take every case into account So, the question of profit boils down to the question of personal freedom – not a surprise since many people think liberty and capitalism are necessarily intertwined.

In short, I can’t think of a good way to justify the claim that only some profit is justified without making the good of society trump individual rights. It is fine to make this kind of "collectivist" argument -- I would do so about questions of justice, for example -- but if we do focus solely on profit, we are at the same point we were with the previous post: to question the profit motive is to question the entire capitalist system. If we find excess profit immoral than we have to find much, if not all, of our entire economic approach to be immoral as well. This, I suppose, is part of what the more extreme members of the Occupy Movement are getting at, but if the more moderate members have an argument that articulates how much profit is too much while retaining the current commercial model, I’d love to hear it. I’m stymied.

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6 comments:

  1. It seems to me that the amount of profit becomes problematic when it exceeds what it erodes the processes necessary to continue to produce profit into the future.

    For example, I keep the heat in my house a 50 degrees. It's cold, but I save a ton of money (let's say) doing it. But as a result, I can't work as hard and get sick more often because my body gets really sleepy when I get home. So I lose time and time is money and this has gradually undermined my ability to do my job. So I am likely to get a pay cut and have less money to save.

    I also walk to and from my job to save money on parking, but this too cuts into my working time and working energies. It will eventually result in getting a pay cut.

    So while it's impossible to calculate universal rates of profitability (some companies for example can take more profit from the work without endangering profitability) I do think that everyone has an optimal margin of profit to keep themselves being productive and able to produce more profit.

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  2. I don't know that the amount of profit is problematic, as much as the origin. If the origin of the profit is immoral, as in derived by cutting wages to workers, then too much profit is a bad thing. I don't think anyone really begrudges Apple its profits until it begins to be revealed that they in part rely on exploitation of labor and patent wars to suppress competition. I think the modern corporation has all but forgotten how to compete based on ideas, management, and innovation and relies more and more on manipulating the systems and cronyism.

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    1. I get sick of people talking about workers. Cuba has workers, China has workers. Over here we call them employees. I am of the opinion companies should pay the lowest wage possible to get the level of talent they require while keeping all positions filled. That level finds itself real quick.If the person is still not happy they are welcome to look elsewhere for employment.

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    2. Or they are welcome to organize. When workers band together & begin to treat their labor as a commodity with value to a potential buyer (the employer). Without the undue interference of government bodies (for example the Sherman Antitrust Act was primarily used to break up unions, which were deemed "harmful to the interests of the free market") workers are able to demand wages as high as supply/demand will allow. In my opinion, there is a lot more to it than "looking elsewhere for employment."

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  3. Employee/worker designations are not a function of nationality:

    According to section 230(1) of the Employment Rights Act 1996, an employee is someone who works under a contract of employment. This, however, is not defined by statute so the courts have constructed a number of tests to help them decide whether someone is an employee.

    Although each case is decided on its own merits, there are some essential elements that must be satisfied:
    The individual has to have a contract with the employer
    The individual has to carry out the work personally
    There has to be "mutuality of obligation" between the two parties
    The employer has to have "control" over the work that the employee does

    ergo, we have both workers and employees.

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  4. I think part of the (so-called) backlash following the move was due to a few factors. First, a lot of internet users already feel they are at war with the big labels, the RIAA, etc. and as such, anything they do will be scrutinized. Perhaps rightfully so, after years of selling dreams and whoring out young artists... but that's a whole other argument. Secondly, anybody making significant money right now in the market (talking big corporations) is going to be under attack as the Occupy movements have shown that a large portion of people around the world are fed up with corporatism. Lastly, people love Whitney Houston. I think that more than ever, people buy records to support the artists - otherwise you may as well pirate them. If the artist is dead, then who's to support? (Speaking from the average consumer's point of view. I know there are producers and writers and performers and a long list of people who worked hard and who's likely miniscule cut of sales may be hard earned and well deserved - but does the average consumer know?)

    Is there such a thing as too much profit? Probably not. Did they acquire the profit at the expense of people uneducated or who did not know better? Probably not. Did they acquire profit by taking advantage of vulnerable people? Is it because you were mourning her death that you had to buy her greatest hits compilation on iTunes at an inflated price? Probably not.

    That being said, can a whop of abstract logic justify the fact that the whole concept of jacking up prices after someone's death just doesn't sit right? Especially when supply did not decrease? A lot of questions. I haven't decided yet.

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