Forum Post: In Defense of Corporations and Profits

I'm talking basic principles here, in an non-corrupt system. Communism under Marxist teachings basically says that profits gained by anyone come from taking something from another. If I make anything, someone has to lose. This is actually incorrect. Companies make profits only because the other side gains. This sounds counterintuitive, but it isn't. If the other side didn't gain in the transaction, they wouldn't enter into it, and the company wouldn't make a profit.

Take a simple example. Suppose you decide to see a movie, and it costs $10. You are always thinking about whether the movie was worth it. If it was a really good movie and entertained you, you think it was worth the $10. What does that mean? Money is an arbitrary value indicator. You are thinking that the enjoyment you got from seeing the movie was better than other things you could have done with the money. So you think you came out ahead in the transaction. The movie people made money off of you and you got enjoyment off of them. If enough people feel as you did, they make more and more, cover their costs and make a profit. If the movie stinks, you feel like you got ripped off and didn't come out ahead in the deal. That concept spreads, people don't see the movie, and the studio can't cover their costs and lose money. So profit only results when BOTH sides benefit from a transaction. You get more in benefit than you paid and so does the movie studio. Thus profit is a measure of everyone's overall benefit.

This very concept is what separates two systems and resulting cultures. It can be expressed in mathematics. Marx wrote the supply equations. They basically say that I give up something and you gain from that. The Austrian school of economists wrote the demand equations. They appear to say the opposite, I gain at your expense. You put them together, and the losses cancel out and we both gain. Communists essentially only have the first equation. Capitalists have both. And wars have literally been fought over this difference in mathematical equations.

There is an exception to this. Wall street functions differently. It is essentially a gambling system where people place bets. I bet you that this company will do well. You can bet against me. One of us wins, one loses. This does provide necessary capital and money flow to keep corporations and teh economy going. The problems occur when the betting isn't fair, the money flow is disrupted, and power starts consolidating amongst those who have access to the money.

This consolidation of power and corruption to the system IS the problem. The government's job is to regulate the overall system and act as a check and balance. The government is clearly failing in that regard. The corporations, industry groups, unions (which are essentially worker based corporations), and bankers are controlling the politicians and interfering with the regulatory function the government should be providing. They are allowing consolidation of wealth and preventing access to capital. This is where reform efforts need to be focused.

Right now there are lots of relatively simple fixes that can have dramatic results.
1) Make the tax system fair and predictable. Today, it is neither.
2) Take corruption out of the system. The government has lost its independence and is no longer a regulator, checks and balances have broken down.
3) Put the needed regulations that make sense and control the system back in place.

4) Deal with those areas of economics that the government should be controlling-- shared resources (the environmnet, for example) and extreme resources (healthcare is basically worthless if you don't need it, infinitely valuable if you do).