Monthly Archives: February 2014

Are there reasons to revise the old thesis that profit is theft?

We are in the season for economic reports from the Swedish business world, with their staggering profits announced to happy shareholders, as we simultaneously still read about a world where millions suffer from the latest catastrophe concocted by respected criminals in international finance corporations.

In a rather discrete article in my paper one could read the other day that the large companies in our country bestow their shareholders this year with almost 200 billion Crowns (SEK) in dividends alone (7 SEK = 1 USD). Total profits are thus considerably more than that. And this is just from the large companies.

Extrapolating to all companies and total profits one could estimate that each household in Sweden pays about the same amount of “taxes” to private businesses as they pay in taxes to the community, state and local. How this can go on year after year with only marginal comments in the main media should have been some kind of mystery, at least. But there are “explanations”.

The first line of defense is that we all provide the huge profits to capitalists on a voluntary basis. And yes, we are not forced by anyone to buy any goods or services… unless we don’t want to become homeless and live on the sidewalks. It’s rather difficult to survive without feeding the wolfs, although there are some alternatives in the margin, such as cooperatives and the like.

We can take the Swedish bank system as an example. There are four major banks which provide all necessary banking services in this country. For everyone with a normal private economy it’s almost imperative to apply to any of these four banks for services. And these banks don’t compete with prices. They charge too high interest rates on loans and offers too low on deposits, thus making huge profits, half of which they hand out to their owners this year.

If the four banks would arrange meetings in which they agree on this oligopolistic pricing, it would be illegal. But no meetings are necessary. They know perfectly well how to keep interest rates on profitable levels and how to prevent competition, thereby forcing an average household to pay the equivalent of one month’s salary in “taxes” to their bank each year. And we are all enough disciplined not to start any tax revolt in this case, in fact not even react in the most modest way.

Another line of defense for businesses when they practically steal from consumers to create profits is that some of the stolen property returns to ordinary people through pension funds, who are large investors in shares and bonds. That’s of course true but rather pointless. To first deprive people of money, only to give back some part of it, is in all circumstances to drain off wealth in benefit of a rich minority.

It’s a fact that Swedish industries are large exporters, thus that their profits in part are paid by foreigners. If this would be an argument it’s also true that there are many foreign companies operating in Sweden with the opposite effect. But it’s of course a lousy argument. Where the ordinary people who pay for the profits happen to live should be irrelevant.

We are made to believe that profit is a necessary concept in a capitalist society. But in fact profit is an anomaly within neoclassical economic theory. In that model the productive factors worthy of compensation are labor and capital, through wage and interest respectively. To become valid the theory presupposes perfect competition, which entails that economic actors will compete until the margin for profits is compressed to nil.

This inconvenient circumstance has of course bothered economists eager to defend the prevailing system, and numerous attempts have been made to extract something productive from the capitalists’ juggling with their money. But this is a problem just for a narrow world of theoretical discussion. In real life the disastrous shortcoming of the dominant economic theory is totally ignored. Profit is not just considered absolutely natural but indeed one of the most important indicators of the health of an economy.