Bonus Quotation of the Day…

by Don Boudreaux on October 19, 2020

in Myths and Fallacies, Other People's Money, Property Rights, Seen and Unseen, Social Responsibility, The Profit Motive

… is from page 102 of the May 9th, 2020, draft of the important monograph – forthcoming this month jointly from the Adam Smith Institute and AIER – by Deirdre McCloskey and Alberto Mingardi, The Myth of the Entrepreneurial State:

And why suppose that profit is inversely correlated with social values? The supposition is fundamental to the statist left: profit is seen as a sin, a pointless and indeed evil extraction by the bosses, when the whole average product of labor should go to labor alone. But no, it should not, not if the economic pie is to be as large as possible, giving the poor their 3,000 percent improvement. The owners of the company are last in line for payment, as most economist have understood, at the latest in 1921 from Frank Knight’s Risk, Uncertainty, and Profit. The wages, material costs, costs of routine management, and the cost of insurance against calculable risk are all pre-contracted, bought from the outside of the enterprise at their going prices. The stockholder-owners therefore bear the uncertainty of any enterprise, the very uncertainly that [Mariana] Mazzucato in her 2013 book claimed only the State could properly assume. (We do so wish, not for the first or last time, that the a professor of economics exhibited an acquaintance with the elements of economics.)

DBx: “Stakeholder capitalism” (so-called) is a recipe for economic calamity. Those who endorse it – those who call for corporations to aim to maximize the welfare of “stakeholders” rather than the profits of shareholders display an astonishing ignorance of basic economics (and also of advanced economics).

As with campaigns to “buy local,” campaigns for “stakeholder capitalism” are a litmus test: Anyone who supports such campaigns thereby reveals his or her economic ignorance.


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