A Lesson in Profit

Faulty collectivist philosophies — all too often mischaracterized as 'virtues' — are at the root of our current economic downturn. But what if men like Henry Ford had adopted this 'virtuous' mindset?
Marsha-enright

Addressing a joint session of Congress on health care, President Barack Obama reiterated his often-expressed aversion to the profit motive:

“[B]y avoiding some of the overhead that gets eaten up at private [health insurance] companies by profits and excessive costs and executive salaries, [the public insurance option] could provide a good deal for consumers, and would also keep pressure on private insurers to keep their policies affordable and treat their customers better . . .”

Is this true? Is profit wasteful, as Obama implies? Does it lead to higher prices and lower value to consumers? Can the government, unburdened by profit, do the same job as a private company, only cheaper and better?

To answer, let’s consider one business, one product, and one profit-seeking man who lived at a time when the market operated largely free of government subsidies, bailouts, regulations, taxation, and other “progressive” intrusions.

Henry Ford, at age 13, saw a steam-driven land vehicle, a “road locomotive,” which filled his imagination with the vision of a horseless carriage and fueled a passion to create one. As a young man, he worked day jobs, while trying to build a car in his free time. Realizing a viable car could not run on steam, he sought to develop a new kind of engine.

On Christmas Eve 1893, the 30-year-old inventor clamped his first gasoline engine to his wife Clara’s kitchen sink. With the home’s electricity providing ignition, the motor roared into action, sending the sink vibrating and exhaust flames flying while Clara prepared the holiday dinner.

In pursuit of his dream, Ford and Clara moved eight times in their first nine years of marriage. He quit a secure job at the Edison Illuminating Company, banking everything on his vision. He co-founded the Detroit Automobile Company—a venture that failed. Jobless, Ford moved his wife and child into his father’s home. But he kept working on his car. “It is always too soon to quit,” he said.

Ten years passed from the roar of the little engine on Clara’s sink to the launch of the Ford Motor Company. It took five more years to produce his big success, the Model T, and additional years to master its mass production.

Why did Ford persist through years of hardship and uncertainty? How much would his love for the work have sustained him without the hope of eventual profit? Imagine if he had lived in a system where politicians could, at the stroke of a pen, seize his profits or decide how much he could keep. Would he have risked so much or worked so ferociously to bring a world-changing invention to market?

Would an Amtrak employee devote a decade of free time inventing a new train, only to rise a notch on a civil-servant’s pay scale? Dream big, work hard, create something earth shaking, but be paid small is the antithesis of the American dream.

The pursuit of profit not only motivated Ford, but also his bold investors who had the foresight to realize the horse was doomed.

In 1903, a school teacher invested $100—half her life savings—in the Ford Motor Company. Sixteen years later, she sold her stock for a total gain of $355,000. Why would she and others place their money on a highly experimental venture, were it not for the hope of tremendous gain should the enterprise succeed? What kind of person would deny her the reward for recognizing Ford’s vision and risking her own money?

The pursuit of profit also impacted every aspect of Ford’s business operations.

Ford didn’t need a politician’s scolding to lower prices—only the desire to make huge profits by reaching mass markets. Because early cars were expensive, people viewed them as mere playthings of the rich. But Ford sought to “build a motor car for the multitude.” This led him to develop his moving assembly line, significantly reducing manufacturing costs and, consequently, prices. The original $825 price of the Model T finally bottomed at $260. That price-lowering strategy brought him the millions of customers that made him rich.

Similarly, Ford’s pursuit of profit didn’t result in bare-subsistence wages for employees, but in phenomenal pay increases. He shocked the world by introducing the $5 workday, more than doubling the era’s prevailing wage. Why? To attract the best workers, whose talents increased product quality and company efficiency. High pay also decreased employee turnover and training costs, again increasing Ford’s profits.

Ford typifies the successful capitalist, whose profit-driven innovations lower prices, while raising wages and living standards for all.

Even today’s Ford Motor Company, a much-fettered child of our mixed economy, demonstrates the superiority of private- over government-run companies. Ford refused TARP bailout money, choosing to operate without government strings. The result? Ford’s profits are up 43 percent, while bailed-out GM and Chrysler lag behind.

In Henry Ford—a thin man who was the fattest of fat cats—we see an embodied refutation of President Obama’s worldview. Ford developed a new form of transportation vastly cheaper, faster, more convenient, and superior to the old mode. He continually lowered prices so that everyone, rich and poor, would have access to his product. He created thousands of jobs. He raised employee wages. He did all this good without government grants, bailouts, stimuli, subsidies, or coercion, but simply as a result of the honest pursuit of personal gain.

This achievement was possible only because a private individual had the freedom to pursue his own self-interest, in cooperation with others who supported his vision and shared in the rewards, unencumbered by government.

By eliminating profit, Obama implies that everything else about an enterprise would remain the same, only the product would be cheaper and better. Actually, by removing profit, nothing at all would remain the same.

Contrary to Obama’s notions, profit is not an overhead cost, but a vital gain sought over and above costs in order to reward a company’s risk-takers. According to economist Ludwig von Mises, “Profit is the pay-off of successful action.” And “The elimination of profit . . . would create poverty for all.”

Eliminate the hope of profit, and you extinguish that spark which ignites the human engine and powers it to explore uncharted roads: the creative mind. Profit is the proud product of the creative mind, and the creative mind is an attribute of the individual. Obama’s attack on profit is an attack on human creativity and innovation, which is an attack on the individual.

Obama’s antipathy for the self-interested individual is explicit. “In America, we have this strong bias toward individual action,” he said in an interview in the Chicago Reader. “But individual actions, individual dreams, are not sufficient. We must unite in collective action, build collective institutions and organizations.”

It was Henry Ford’s individual actions and individual dreams that brought motorized, personal transportation within reach of everyone in the world.

America is rooted in the “pursuit of happiness”—which means the right of each of us to create, to produce, to rise, to succeed, and to profit from the fruits of our labor. Contrast this worldview with that of a president who disparages the individual and seeks to limit or expropriate his profits on behalf of a faceless “collective.” Obama’s war on profit is a war against the individualist heart and soul of America.

Profits are a badge of honor earned by someone who offers others something they value enough to buy. The first buyer of the first car of the Ford Motor Company was a doctor. He was tired of hitching up his horse and buggy for nighttime emergencies. Ford’s product enhanced his life, as it later enhanced the lives of millions. Profit is the medal Ford received from his customers for a job well done.

If our nation is to cultivate productive geniuses like Henry Ford, it must proclaim that the quest for profit is moral and noble.

POSTSCRIPT: Transportation Secretary Ray LaHood recently announced “the end of favoring motorized transportation at the expense of non-motorized.” This means that the federal government, with its vast powers to fund highway projects, “liveability” initiatives, and other aid programs, as well as to tax gasoline, now intends, in LaHood’s stunningly brazen words, “to coerce people out of their cars,” in favor of walking or cycling. A century ago, Henry Ford, through capitalism and the profit motive, brought motorized transportation to the world. Now, an alarmingly anti-capitalist government is reversing that historic achievement and pulling us back to the pre-industrial age.

Marsha Familaro Enright is a psychologist, writer, lecturer, and educational entrepreneur. Founder of the thriving Council Oak Montessori School in Chicago, Marsha’s latest venture is the Reason, Individualism, Freedom Institute, the Foundation for the College of the United States.  Gen LaGreca is the author of Noble Vision, an award-winning novel about the struggle for liberty in health care today.

 

11 comments from readers  

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Small
The argument for capitalism is correct and entertaining. However, I feel that the bait has been taken in steering individuals to argue merits of solutions, rather than tactics for gaining power. If the politicians supported solutions, that would be (a bit more) obvious in the results of their labor. The argument for better solutions than what has been proposed can be easily made in a hundred different ways. But to continue arguing solutions only continues to hide what is actually taking place.

Nevertheless, the above argument DOES need to be made to bring to light accurate thinking. Thanks for that.
Small
Needless to say, my children are not learning this in grade school. What a pity!

Thank you for a great column.
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Everyone needs to read this and understand that profit is not evil and that men who profit by their own ingenuity, hard work and vision aren't evil. People see men like Sam Walton and what he does and has done to his workers here and abroad and think everyone is the same. As with any venture, there will be people who will put their own profits above everything and everyone else and thus taint public opinion. I guess no one ever heard that one bad apple doesn't ruin the whole barrel.

Excellent article.
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Another example; at my place of business we used a private trash hauling company, Waste Management, to provide a dumpster and haul the trash for the first two years at our new location. We received a letter from our city stating that we must use the city sanitation service since the city had exclusive rights to provide that service within the city limits. The cost? Double what the private company charges. Double, for a more geographically concentrated customer base and a monopoly on the service. I think we can expect the same result from the government with health care.
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I am in the process of reading a book about the history of the Ford Motor Company. The company has always been a leader in new products and marketing innovations. The biggest problem they have always faced was government interference and regulations that hurt the quality of their vehicles or forced them to market cars their customers didn't want (CAFE Standards). Henry Ford went bankrupt a couple of times before hitting upon the formula that ultimately created the modern world.

Your observation on the desire of the Obama administration to turn us back to the pre-industrial age is quite accurate. When will Americans wake up and put a stop to this insanity?
Small
Excellent, Marsha and Gen!!

Profits are what's left after we pay direct and indirect costs of our undertaking. The desirability of profit is a subset of the desirability of liberty.

If we are good enough to earn profits, we also earn independence. We pay for our own food, shelter, savings, recreation as well as that of our families. We select other worthy enterpises to fund and support.

Notably, the objectionable part of this to collectivist mentalities is we are doing the choosing in the above categories. The choices are not being made for us by politicians, bureacrats, and other agents of plunder and tyranny.

Keep the good stuff coming---thanks!!
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Many of you who have commented here have asked in one way or another why americans don't understand the profit motive and what it has done for america. There are many factors that contribute to this problem, but the one factor that is far and away the most powerful contributor to this growing ignorance is the public school system. Our children are not being taught anything about what america was and should be today. I put it to you that until and unless we reclaim our schools we are doomed.
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I think the way to address such questions is by beginning with what profit, real profit not just pieces of funny colored paper, is. Profit is producing something of more value than the value consumed in its production. In other words, it is increasing the amount of actual value in the world. Look at it this way the next time someone decries "profit".

No, the government doesn't need to turn a profit. It doesn't need to produce more value than it consumes. It can always print up more tokens of purported value pretty much at will and put future generations ever more in hock to pay for the party. It can always take more from the diminishing number of people who actually manage to produce more than they consume, especially when so much is taken away or limited in how it can be used by the government. After all it has legalized force and bigger guns. Why does it need to turn a profit? It does not have to be self-sustaining any more than any other parasite.

It is much more this bringing more value into the world that drives such a person to risk everything for years on a dream value that they will not let go. Whether they make a lot of tokens of value on it or not bringing that value into existence is an unquenchable passion. Yes you certainly want the simple justice of the inventor receiving as much of the new value created as in mutually agreeable. Those that produce more value with values at their disposal should have more value continuously at their disposal. That is, if one's goal is to actually increase the amount of value in the world as much as possible.
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Thank you for this article. I don't know if Obama would be a decent human being outside of politics. I'd guess he'd be a loving husband and father, and would have trouble quitting smoking if he tried. But since he's in power, he literally is only as good as his politics. Meaning, he's absolutely terrible.

I had always felt that in a free country, people tend to be better than their politics. It's a humanistic but cynical sentiment. It's cynical probably because politics doesn't give most people any immediate benefit. But I'm starting to realize, though, it's a true sentiment because we gain and lose values as we interact with the world, and as free people, those gains and losses can be enormous.

Henry Ford, though not a perfect human being, reaped benefits by his virtuous profit-seeking actions, from which others benefited as well. If we let our freedom slip away, then those ancillary benefits vanish, and even if we hoped and tried, we might not overcome artificial barriers to better lives. As the state encroaches upon our liberties, our connections to a benevolent universe become tenuous.

Despite Obama's deceitful rhetoric to the contrary, we suffer the real consequences of bad behaviors we may subsequently adopt. It may seem like it doesn't matter to us whether Obama is deceiving himself as well. We suffer anyway. But as a political leader, he should be made aware of the consequences of his beliefs and actions.
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I only wish two things; 1, The rating scale went higher,2, This could be taught in every classroom in every school in every country.
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Outstanding! This article excellently sums up why I'm an objectivist.

We're all running toward the light, and then there are these soul-draining vampires preying upon the slowest among us. My inner soul says to Ray TheHood (Wesley Mooch?): "By What Right?!" the thought that comes immediately after that is "I think not!"

Strategy toward freedom is one area where Rand did not excel. She favored slow, steady, incremental change in her life. She did her part though, by providing a great, explicit intellectual framework that was only lacking the lowest tiers: a clear strategy, replete with tactics.

Well, let me direct you toward winning tactics:
http://www.fija.org (especially Clay Conrad's "Surviving Voir Dire")
http://www.jurorsforjustice.com --outreach designed for those with less time to research, designed to interfere with "mala prohibita" punishments
http://marcstevens.net -legal tools for defense in the courtrooms
http://www.isil.org/resources/lit/history-jury-null.html

Putting the above materials into the hands of incoming jurors as they enter the courts for jury duty is a great way to cripple tyranny. Instead of grenades on a battlefield, these are informational tools of war, that do not allow lies to remain unchallenged in court. Juries usually enter on monday morning, and maybe again on wednesday morning. Since there is a deadline for them to get there, they are all in one place (entering court) an hour to a half-hour prior to the deadline.

Easy to reach!

Further, we need to get creative about videotaping in court, we need to take the lead in the destruction of coercive collectivism. ...There isn't much time left, so we need to be smart.
To post comments, please log in first. The Atlasphere is a social networking site for admirers of Ayn Rand's novels, most notably The Fountainhead and Atlas Shrugged. In addition to our online magazine, we offer a member directory and a dating service. If you share our enjoyment of Ayn Rand's novels, please sign up or log in to post comments.