Earning a Profit, or Not?

Earning a profit is important for five reasons:

  1. It allows you to stay in business.  If you don’t earn a profit, you will eventually consume your capital and fail.
  2. It allows you to grow and become ever more productive.
  3. It allows you to employ other people, thus making them productive and better able to support themselves.
  4. Working for a profitable business gives the employees a sense of accomplishment, security, and self worth.
  5. It allows you to pay taxes to support various levels of government so they don’t throw you into jail.

Governments, on the other hand, are not designed to nor intended to earn a profit; therefore, they have to find other means of support.  The first place to look is profit-making organizations and individuals.  The greater the profit, the more they can take from the entity/person without putting it out of business.  Beyond taxes, governments may want more money than they can politically seize in taxes.  This brings us to a second way in which they raise money.  They usually have good credit because they can forcibly seize their citizens’ assets in the form of taxes.  Thus, they can borrow money from investors, both domestic and foreign; however, at some point, it’s possible for governments to ruin their credit by borrowing more than they can ultimately pay back.  At that point, they either have to pay much higher interest rates to borrow, or they may default on their debt obligations.

And the last source of funds, for some governments, is to simply print more currency units (what most people call money), thus taking value from its citizens by making each currency unit worth less with every unit that’s printed (assuming it’s not backed by anything of value).

By taking money from profitable businesses and individuals, governments deprive those people of the capital they need to grow and become even more profitable.  They divert those funds from the production of consumer goods and capital equipment to government mandated projects, which are generally wasteful, thus consuming capital and making everyone poorer.  So which is better, earning a profit or not?

Bottom line: without profits, businesses fail and governments fail.  Thus, profits are better than losses.  Perhaps loss-generating governments should keep this in mind and nurture profit-making businesses rather than raising their costs with more regulations, higher taxes, and inflation.

Robert F. Sennholz

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