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Archive for October 18th, 2010

Quotable: On Profit & Pleasing Customers

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Profit is vital to human well-being. Profit is the payment to entrepreneurs just as wages are payments to labor, interest to capital and rent to land.  In order to earn profits in free markets, entrepreneurs must identify and satisfy human wants and do so in a way that economizes on society’s scarce resources.

Here’s a little test. Which entities produce greater customer satisfaction: for-profit enterprises such as supermarkets, computer makers and clothing stores, or nonprofit entities such as public schools, post offices and motor vehicle departments?  I’m guessing you’ll answer the former. Their survival depends on pleasing customers. Nonprofits, such as public schools, post offices and motor vehicle departments, survival depends mostly on pleasing politicians.

When a firm fails to please its customers and thereby fails to earn a profit, it goes bankrupt, making those resources available to another who might do better.  That’s unless government steps in to bail it out.  Bailouts permit a business to continue doing a poor job of pleasing customers and husbanding resources.  Government-owned nonprofit entities are immune to the ruthless market discipline of being forced to please customers.  The same can be said of businesses that receive government handouts.

It’s this ruthlessness of market discipline that forces firms to please customers, economize on resources and thereby earn profits or go out of business and goes a long way toward explaining hostility toward free market capitalism

Walter E. Williams, professor of economics at George Mason University

Written by frrl

October 18, 2010 at 7:37 pm

Posted in Uncategorized

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