Those Spurning Entrepreneurial Profit as “Unearned” Mean that It Is Lucre Unfairly Withheld from the Workers and/or Consumers

Those who spurn entrepreneurial profit as “unearned” mean that it is lucre unfairly withheld either from the workers or from the consumers or from both. Such is the idea underlying the alleged “right to the whole produce of labor” and the Marxian doctrine of exploitation. It can be said that most governments—if not all—and the immense majority of our contemporaries by and large endorse this opinion although some of them are generous enough to acquiesce in the suggestion that a fraction of profits should be left to the “exploiters.” . . .

Those who want to abolish profit are guided by the idea that this confiscation would improve the material well-being of all non-entrepreneurs. In their eyes the abolition of profit is not an ultimate end but a means for the attainment of a definite end, viz., the enrichment of the non-entrepreneurs. Whether this end can really be attained by the employment of this means and whether the employment of this means does not perhaps bring about some other effects which may to some or to all people appear more undesirable than conditions before the employment of this means, these are questions which economics is called upon to examine.

The idea to abolish profit for the advantage of the consumers involves that the entrepreneur should be forced to sell the products at prices not exceeding the costs of production expended. As such prices are, for all articles the sale of which would have brought profit, below the potential market price, the available supply is not sufficient to make it possible for all those who want to buy at these prices to acquire the articles. The market is paralyzed by the maximum price decree. It can no longer allocate the products to the consumers. A system of rationing must be adopted.

The suggestion to abolish the entrepreneur’s profit for the benefit of the employees aims not at the abolition of profit. It aims at wresting it from the hands of the entrepreneur and handing it over to his employees. . . .

If, for the sake of argument, we were prepared to neglect any reference to the problem of capital accumulation, we would still have to realize that giving profit to the employees must result in rigidity of the once attained state of production and preclude any adjustment, improvement and progress.

In fact, the scheme would transfer ownership of the capital invested into the hands of the employees. It would be tantamount to the establishment of syndicalism and would generate all the effects of syndicalism, a system which no author or reformer ever had the courage to advocate openly.

A third solution of the problem would be to confiscate all the profits earned by the entrepreneurs for the benefit of the state. A one hundred per cent tax on profi ts would accomplish this task. It would transform the entrepreneurs into irresponsible administrators of all plants and workshops. They would no longer be subject to the supremacy of the buying public. They would just be people who have the power to deal with production as it pleases them.

The policies of all contemporary governments which have not adopted outright socialism apply all these three schemes jointly. They confiscate by various measures of price control a part of the potential profits for the alleged benefit of the consumers. They support the labor unions in their endeavors to wrest, under the ability-to-pay principle of wage determination, a part of the profits from the entrepreneurs. And, last but not least, they are intent upon confiscating, by progressive income taxes, special taxes on corporation income, and “excess profits” taxes, an ever-increasing part of profits for public revenue. It can easily be seen that these policies if continued will very soon succeed in abolishing entrepreneurial profit altogether.

--Ludwig von Mises, “Profit and Loss,” in Planning for Freedom: Let the Market System Work; A Collection of Essays and Addresses, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2008), 158-161.