Not Guilty
A message for business owners who feel they need to “give back,” as if they are guilty of stealing from others simply by running a successful business: You’re not guilty.
The title of this piece is not a verdict in a criminal trial. It is a reminder to business owners experiencing feelings of guilt—those who think they need to “give back,” as if they stole something or committed some wrong simply by running a successful business: You’re not guilty.
This may seem obvious to some business owners, yet for far too many, it is not. Every time a successful entrepreneur, investor, business owner, or CEO expresses a desire to donate to a charitable cause in order to “give back,” he is, knowingly or not, implying that he has taken something that does not rightfully belong to him.
In a society that values freedom—including free markets for businesses—this mistake might be trivial and of no concern. However, in our postmodern progressive United States—in which growing numbers of Americans value empty promises of free stuff and perfect security more than individual freedom—it is a grave tactical and strategic error. It emboldens those who blame the supposed greed of business owners for virtually all social ills.
Is inflation decreasing the purchasing power of your dollars? Greedy business owners trying to make a profit are to blame!
Is there a shortage of affordable housing, cars, or health care? Greedy business owners trying to make a profit are to blame!
Have race relations in the United States worsened? Are women subjected to misogyny? Are forest fires becoming deadlier and more destructive? Greedy business owners trying to make a profit are to blame!
When business owners discuss “giving back,” they unintentionally portray themselves as guilty of some injustice, reinforcing the popular belief that businesses and their owners are liabilities rather than assets in America. Instead of being celebrated, successful businesses are seen as problems to be solved. And there is no shortage of demagoguing politicians promising to solve that “problem,” if only we grant them more power, control, and money.
It is time to remind honest business owners why they are not guilty of any wrongdoing. They owe no social debt to anyone. Simply by running a profitable business, they are doing something wonderful and contributing much good to society. They may choose to donate to various causes or charitable organizations if they like, but there is nothing to “give back” because they took nothing from others.
To illustrate why successful business owners deserve gratitude and appreciation rather than scorn, let us step back and consider some foundational truths about business, beginning with the fundamental human problem that businesses address: poverty.
Poverty
Poverty is lack of adequate wealth, with wealth defined as the various things people value in order to live well, or to live a good life. To live in poverty means to be without adequate food, clean water, shelter, clothing, medicine, education, transportation, and security.
Extreme poverty is characterized by human misery and early death. This is no mere cliché; it is a fact: Where people suffer from severe poverty, one finds starvation, illness, short life spans, and desperation.
The human species originated in a state of dire poverty. Going back to the earliest times, when cave dwellers were scratching images on stone walls, it is clear there was no abundance of wealth. Human beings had little of what they valued: food, water, shelter, reliable sources of heat, and protection from enemies and the elements. These valued goods had to be produced, which means wealth had to be created.
Here’s the rub: historically, most people in most places were not free to create wealth. Anything useful or valuable that they produced was often taken from them by a master, king, pharaoh, caesar, emperor, or some other governing force.
Throughout history, individuals lived under some form of a slave incentive. When commanded to work under the threat of physical punishment, a slave’s incentive is to produce the bare minimum needed to avoid the whip.
Why produce more? Why would a slave seek inventive ways to be more productive when anything he produces is taken from him? The answer is: he wouldn’t. In fact, people living under such oppression typically did not seek to increase their productivity.
If we were to graph the total global amount of wealth throughout history, the line would remain relatively flat and low for thousands of years. For a long time, there was little wealth in the world, and little new wealth was created.
War was the most common means of acquiring wealth—stealing from others after using an army to conquer or defeat them. This approach benefited victorious kings and members of the ruling class, but offered little for ordinary people who did not dwell in the golden palaces elites built for themselves.
Then something important occurred in Western civilization in the mid-1700s: more people than ever before began to create new wealth. Human nature did not change; rather, for the first time, governments and laws started to protect individual freedom and personal property rights instead of limiting freedom and confiscating property.
Individual freedom provides an entirely new way of life and a solution to the problem of poverty. Freedom allows people to keep what they create or earn. It encourages inventiveness, innovation, and productivity because free individuals, living under laws that protect their freedom and personal property, are allowed to retain whatever they produce, which also means they have value to trade with others.
Where people are incentivized by the freedom to keep what they produce, they tend to produce much—very much—which is the solution to the problem of poverty: Being productive and creating wealth solves poverty.
Wealth Creation
If wealth creation solves the problem of poverty, let us define precisely what wealth is. Wealth is value. More precisely: Wealth is what other people value. If you have much that others value, you’re wealthy. If you don’t have much that other people value, you’re poor, at least in the ordinary economic meaning of the word.
Here are a few examples:
Millions of people value watching basketball played at high levels of excellence. If you have the physical and athletic talent, intelligence, and disciplined work ethic to play basketball at the highest level of excellence, you’re wealthy. Likely, right now, someone is paying you millions of dollars to play in the NBA.
If you possess specialized knowledge that other people value—such as how to conduct successful heart surgeries, how to represent a large law firm as general counsel, how to extract more energy from petroleum products, how to coordinate complicated transportation logistics across many nations and continents—you are wealthy.
If you own something physical, tangible, that others want—such as a piece of land on which developers want to build new commercial business centers—or you’ve built quality homes that people want to buy—you are likely wealthy.
Here’s the important thing: Wealth can be created. Wealth must be created. That’s good news for everyone, especially those who don’t have much wealth: If wealth can be created, then those who don’t have much wealth can create new wealth for themselves by producing value for others.
We see this even at young ages: A teenager who has no money offers to pull weeds, mow grass, or wash cars for neighbors in exchange for cash. Some neighbors value having help pulling weeds and mowing grass and washing their cars, and they agree to trade cash-for-help. Soon the teenager is depositing money into his own checking account because he produced something—he offered a service—that others value.
Wealth is created by learning, thinking, working, producing things and doing things that others find to be useful, entertaining, or otherwise valuable. The more other people value what you have produced or what you can do, the more wealth you’ve created.
As more people create more wealth, more people have the food, shelter, clothing, medicines, and other goods they value to improve their lives. As more people create more wealth, fewer people live in poverty.
Is Wealth Creation Theft?
There is a widespread assumption today that the creation of wealth by some requires taking from others. Many fellow citizens—including politicians and popular pundits—conclude that wealth creation is theft and therefore morally wrong.
This perspective is terribly misguided. It promotes an opinion that harms many people, especially those born into poverty.
When one person creates wealth, it does not require taking anything away from anyone else. On the contrary, when you create wealth, you are helping others by producing value for them; you have not taken anything from them. The creation of wealth is not only not wrong, it is positively beneficial. It is good.
When you invent, innovate, or produce something of value, this does not prevent others from inventing, innovating, or producing even more.
Consider: When you develop or produce things others value, how do they acquire the goods you have to offer? Unless they resort to stealing or begging, they must create something of their own—something of value to you—in order to trade. The creation of wealth by some incentivizes others to create wealth.
When some people create wealth, it hurts no one and takes nothing away from anyone. There is no theft. Those who create wealth are helping others by producing and providing value for them.
The creation of wealth requires production of value, which is work. And life requires work.
Business
The most efficient way to create wealth for yourself by producing value for others, often, is to work within a business with productive colleagues.
Many Americans today believe that businesses are especially corrupt because business owners are especially greedy, even looking to hurt or defraud people if not closely regulated. But like the common opinion that wealth creation is theft, this too is an unfounded and untrue prejudice.
Let’s clarify matters with a simple definition: A business is organized, specialized labor. That’s it. Organizing labor and resources that are specialized for specific productive work makes a business efficient—and efficiency is productivity.
Consider, as an example, the smart phone in your pocket, which was made by a business.
You could try to make that phone by yourself, from scratch. You could hire a team of scientists, engineers, and researchers to develop the technology needed for the phone. You travel around the world and try to get all the raw materials needed for the phone’s hardware, and you could then hire people to design and build the machinery necessary to turn the raw materials into refined, useful materials. Maybe, at some point, you’d have a useable smart phone.
But that wouldn’t be a very efficient way to get a smart phone. It’d cost millions or even billions of dollars; the project would span decades; it would require large teams of people, including many highly-paid experts.
Alternatively, you could walk into a business that sells smart phones, pay several hundred dollars, and walk out with a working, useable smart phone that’s probably much better quality than anything you ever could make on your own.
So why is the smartphone you purchased in a store so good, so cheap, and instantly available? Why does the smartphone from the store not cost you billions of dollars and decades of time and teams of highly-paid experts? The answer is: The smartphone store (or the company that made the phone) is a business. And every business organizes specialized labor and resources, which makes businesses very efficient, very productive.
Competition
Some people complain that some businesses form monopolies, or others engage in “price gouging.”
Where one finds genuinely free markets—including protections for property rights, low taxes, and few or no regulations—one finds many businesses, old and new, big and small. Where one finds many businesses, one finds robust competition. And where there is robust competition, it is virtually impossible for one business to have a monopoly. It is impossible for one business to engage in “price gouging.”
Competition is the solution to the problems of monopolies and “price gouging.”
If you try to sell small bottles of water for $100 each, and many other businesses are selling water nearby, they will offer bottles of water at much lower prices and no one will buy your $100 bottles of water.
Where one finds something resembling a monopoly, or “price gouging,” one finds government involvement in the economy and interference with markets. There can be no monopolies or “price gouging” without government.
Monopolies and opportunities for “price gouging” appear when either through regulations, or tax policies, or both, government has effectively granted a special privilege to one business by prohibiting or making it impossible for other businesses to exist, which means there is no competition, which means there is no check on monopolies and price gouging.
As one example: When a municipal government restricts by regulations the development of land and the building of homes, yet the population of a town continues to grow and demand for housing increases, the few politically-favored home builders have something of a monopoly on housing within that community. They can charge high prices that some home buyers call “price gouging.”
From the outside, it appears that one or two or three developers and home builders have a monopoly for new-housing construction and home sales.
Political elites then go in public and say there is a lack of “affordable housing,” usually followed by proposing taxpayer-funded subsidies for home buyers.
Yet, the shortage of houses that fueled the “affordable housing” crisis was caused not by robust competition among many businesses building and selling homes. The crisis was caused by those in government restricting the land that could be used to build homes upon.
The problems of monopolies and “price gouging” are not caused by businesses and competition; they are caused by politicians in government. Further, government is not the solution to the problems of monopolies and “price gouging;” businesses, free markets, and competition are the solutions.
Job
Anyone who is employed by someone else and has a job, there is an agreement between that person and the business owner (or perhaps a manager or supervisor) to perform a certain amount and a certain quality of work in exchange for a specific amount of money (and perhaps other benefits, conditions, and goods).
A job is a mutual voluntary agreement. It is not merely that one person is an employee and another is an employer. Both parties want and value what the other provides. It’s more accurate to view a “job” as a productive partnership stemming from a mutual agreement.
When one views a job as an agreement, the implications become clearer: Employers and employees are partners. They assist each other in increasing productivity and generating greater profits by satisfying the needs of customers with the products or services they offer. As partners, they are equals in a crucial way: each depends on the other.
(The modern English word “colleague” is derived from the Latin root collegium, meaning “partnership.”)
The employer needs the employee, and the employee needs the employer. Either party is free to end the partnership. The employer can cease financial compensation and fire the employee; the employee can stop supplying his labor and quit.
Alternatively, both the employee and employer can strive to increase their mutual value. The employee can add value to the business, while the employer can create a more rewarding work experience for an employee who is reliable, trustworthy, and productive.
Like any productive partnership or friendship, the relationship between an employee and employer should never involve one party trying to control, bully, or intimidate the other. Employers should not treat employees this way, and vice-versa.
The fundamental purpose of the partnership formed between employers and employees—the essence of what we typically refer to as a job—is to enhance productivity. Why would anyone offer a job, and why would anyone accept one, other than to help make a business more productive?
This means that everyone involved in a business effort—whether labeled “employee” or “employer”—is essential because everyone contributes to the business’s productivity. When business productivity increases and quality of service is improved, more people are helped and satisfied, leading to higher profits.
Everyone gains the benefit of clarity when a job is understood as a productive partnership resulting from a voluntary mutual agreement. It prevents both employees and employers from expecting more than what was agreed to, or feeling entitled to more than is owed, and it incentivizes both to think carefully about what they are willing to agree to, and not willing to agree to.
Profit
Every business aims to earn a profit. When a business fails to do so, it typically closes its doors. In the United States today, more than half of new businesses fail within three to five years because they are not profitable. When a business is losing money—when expenses exceed revenues—it becomes nearly impossible to stay open.
Let us here offer a different way of thinking about profit: Profit represents the happiness of others symbolized by money. A business generates profit by making people happy, or at least, satisfied.
When a business makes others happy by providing products and services that people value, appreciate, and find useful, it is likely to be profitable. To be profitable simply means that customers value the products or services a business offers more than the cash in their pockets; they willingly trade their own money for the products or services of a business.
Why would anyone trade money for a product or service? How does a business profit from such a transaction?
A customer exchanges her cash for a business product because she values the product more than the cash. It would cost her far more to create the product herself than the price the business has set. Recall the example of the smartphone: Would you prefer to pay, say, $1,000 for a smartphone that works well right out of the box and is available immediately, or spend billions of dollars and decades of time trying to invent and produce a smartphone from scratch?
A business can typically produce a product far more efficiently and at a much lower cost that an ordinary person can on her own—that's the essence of a business: specialized labor and resources organized to manufacture certain products or offer services efficiently.
A business can charge a price higher than its production cost while still keeping it much, much lower than what it would cost a typical person to create the same product herself.
When the price a business charges a customer is higher than the cost to produce the product, the difference is profit. Conversely, when the price a customer pays is lower than what it would cost her to make the product on her own, the difference signifies the value she receives from the business's efficiency. This value is why customers are willing to pay the sales price, part of which is profit for the business.
The profit margin for most businesses—the difference between the sales price of a product and the cost of making it—tends to be quite small. In many industries, the total cost to make, market, distribute, and sell a product approaches the price customers pay.
However, the value margin for customers—the difference between buying a product from a business versus making it from scratch—is usually enormous. It typically costs an individual thousands or even millions of times more to create a product on their own rather than purchasing it from a business.
That’s why the value for customers almost always far exceeds any profits earned by a business. For every one dollar of profit a business earns, it provides many thousands or millions of dollars of value for customers. No matter how much profit a business makes, it pales in comparison to the value it provides its customers. Receiving substantial value from the specialized, organized productive work of a business brings great happiness.
The more profitable an honest business is, the more happiness and value it generates for others. That is why no honest owner should feel guilty about running a profitable business. Business owners get up every day and work productively for the purpose of making others happy. That is honorable, not shameful.
Not Guilty
The topic of profit brings us back to the beginning of this essay: Business owners often feel they should “give back,” implying guilt about some injustice or wrongdoing, as if their profitable business is evidence that they have taken what rightfully belongs to others.
This assumption—that profit is shameful and requires rectification or atonement from successful business owners—is evident in how Americans distinguish charitable organizations from businesses. Listen how they talk:
They often refer to charities as “nonprofits,” implying that these organizations are trustworthy, even noble, because they are not incentivized by profit and, allegedly, will not steal from or defraud anyone. The underlying message is clear: “nonprofits” are morally superior to “for-profit” businesses; one cares about profit and is therefore untrustworthy, while the other does not.
The source of widespread public distrust toward profit, as well as the common vocabulary used to express that distrust, in the United States, can be traced back to the New Deal of the 1930s and 40s. In his 1935 Annual Message to Congress, President Franklin D. Roosevelt stated, “Americans must forswear” the creation of wealth and “excessive profits,” arguing that profits place “undue private power over private affairs and, to our misfortune, over public affairs as well.”
Sounding a similar theme, he remarked earlier in his 1932 Commonwealth Club Address that “a mere builder of more industrial plants, a creator of more railroad systems, an organizer of more corporations, is as likely to be a danger as a help” to the United States.
FDR’s message was clear: We should not trust business owners because they are motivated by profit. Businesses are a danger against which government must protect us.
Many Americans agreed then and continue to agree today. This is why many fellow citizens view “nonprofits” as admirable, trustworthy organizations while expressing distrust and even moral disgust toward profitable, successful businesses.
However, anyone with business experience understands that regardless of an organization’s tax status—even if it is a tax-exempt 501(c)(3) charity—it must be profitable; its revenues must exceed its expenses if it wishes to remain operational.
The real distinction is not between “nonprofits” and “for-profits;” rather, the difference is in tax-status. Charities are tax-exempt while businesses are not. Businesses pay taxes. Charities do not pay taxes—even though some raise enormous amounts of money and compensate their executives with sizable salaries and significant benefits. Kind of makes one wonder who is “paying their fair share,” and who is not?
Furthermore, a business can build asset and equity value for its owners or shareholders, motivating them to help ensure the business’s success. In contrast, a charity cannot create such value for its trustees or directors because they cannot sell the organization for profit if its market value increases.
Any organization—whether a charity or a business—that is unsuccessful, undervalued, and on the brink of closure due to its inability to pay its bills is, in essence, a “nonprofit,” which should not be a term of moral probity; it should be a term indicating organizations that produce too little value to exist without being subsidized. A business that creates great value for others—making many people happy by providing appreciated products and services—is a profitable, admirable venture.
The work of producing great value for others is challenging. It requires dedication, discipline, focus, and sacrifice. Business owners who earn profit have nothing to be ashamed of. There is no reason to feel guilty because you, American business owners, are not guilty. You owe nothing to anyone. You have not taken anything from anyone; therefore, you have nothing to “give back” to anyone. You produce what others want. You make others happy.
There are people who sit on the couch and do nothing—you are not one of them. There are problems in the world, and you, American business owners, are not the cause of them. You produce value for others. You do not create poverty; you help to solve the problem of poverty, which was the natural condition of primitive human beings.
Take pride in the profits you earn as those profits mean you have created value for others—an essential part of the beauty and goodness of every honest, profitable business. And, please, don’t give in or give up. Keep on shining. Keep on working. Keep producing. Keep on creating value for other people. And thank you.