A Reminder from the Deep

A lot of people think that profit is a dirty word—and sometimes it can be. If Peter spends $500 dollars on a gun and robs Paul of $1,000, then his $500 profit is tainted. The same is true if Peter pays the authorities $500 to put his competitor Paul out of business. However, if Peter spends $500 creating something that Paul buys for $1,000, then Peter’s $500 profit is well deserved even with the very high margin. Paul has something that he values more than $1,000, Peter has an extra 500 bucks, and we have witnessed wealth creation.

The wonder of markets is that those seeking profit can only realize it by providing for others. Make something for $20 and no one will buy for more than $10, then you are not providing value for others and better find something that does—and quick. It is this motivation that takes human nature and channels it in to creating the free and prosperous society.

In many of the college courses taught by the MBM Institute, we like to start with the Introduction from How the West Grew Rich by Nathan Rosenberg and L.E. Birdzell. Although the Introduction offers many insights into the peculiar rise of prosperity is some parts of the world, one of the main themes is that the lessening of many different social, political, and religious conditions allowed European entrepreneurs to go forth and make profit. They responded by building businesses, seizing on innovations, and undertaking risky ventures and opportunities. Free from the risk of confiscation, price controls, or arbitrary government intervention, the entrepreneurs began talking the natural risks (weather, climate, etc.) that had for so long impeded human development.

I was reminded of the risks taken for profit by this article on a perfectly preserved 17th-century shipwreck recently discovered in the Baltic. It looks like a Dutch vessel—probably one of the hundreds or thousands that plied the Scandinavian timber trade. While the wreck is remarkable, I cannot help but think that the people on this ship probably died trying to provide for themselves and their families by supplying goods for other people—many of whom they neither knew and might not have even liked.

Comments

[David McGinnis]

I thought Peter was robbed to pay Paul ;)