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In Markets, Profits are Earned

My close friend Lyle Albaugh, CFO of Betsy Fisher – a small, upscale women’s clothing store in D.C. – sent to me the following e-mail in response to this recent blog post of mine. I share Lyle’s e-mail here with his kind permission.

One small point and by no means a criticism: you say ” shave a few percentage points off of costs.” For a small, closely-held corporation with, for example, $2M in costs, shaving even .5% off costs, would mean $10K in extra net income to the owners annually – a substantial sum. My point is to support your correct argument that even the smallest decrease in costs can have significant impact on stakeholders. We, small business owners, work endlessly to achieve these tiny cost savings.

Yes. To the extent that consumers can spend their money as they choose, entrepreneurs ceaselessly work hard to attract and to maintain customers. Consumers reap enormous benefits, yet they almost never notice the entrepreneurs’ hard work – the entrepreneurs’ risk-taking, the experimentation, the losses – that are inseparable from the competitive market process. Some arrogant professor or politician or pundit shows up and, seeing only the profits that successful business owners earn, complain – mistakenly supposing that these profits are wrung from the hides of consumers and workers.

It’s as maddening as it is ignorant. Yet this attitude – expressed today by many conservatives as well as by “Progressives” – is prevalent. No society can remain prosperous if this attitude becomes and stays widespread.