Forbes probes profit’s power to boost prosperity

Steve Forbes explains in his latest Forbes magazine column why profit is an essential element in boosting prosperity.

FRENCH ECONOMIST and darling of the left Thomas Piketty is the latest in an endless array of economists who are clueless regarding profits and what brings about prosperity and a higher standard of living. In his call for ferocious wealth and income taxes on a global scale to combat what he believes is the growing inequality between the rich and everyone else, Piketty has become a media rock star. This merely underscores the fact that pundits and all too many journalists, politicos and economists know less about money and economics than their forebears did 100 years ago.

No wonder the global economy is struggling, despite enormous advances in technology and the prospect of incredible breakthroughs in medical care. If not for this lack of elementary understanding, the U.S. would be booming today and the Dow Jones industrial average would be surging past 30,000.

The bottom line: You don’t get economic growth without investment. Capital comes from savings and profits. Period. Every tax and regulation that hurt the creation of capital and punish the rewards of successful risk-taking hurt everyone–but most particularly those with the least, who want, as Lincoln put it, to improve their lot in life. It’s not enough to invent something great. You have to have an environment in which entrepreneurs can turn inventions into marketplace products that become increasingly better, cheaper and more accessible to all. …

… It was the economist Joseph Schumpeter who clarified the crucial, indeed moral, role profit plays. Schumpeter regarded the classical role of equilibrium as nonsense. He explained the process of “creative destruction,” which takes place in an ever evolving economy. As he described it, the global marketplace isn’t a closed single entity but is more like a dynamic, living ecosystem with billions of people engaged in an incomprehensibly complex array of activities and transactions. Change and turbulence are the norm. Entrepreneurs and their innovations aren’t exogenous factors but are at the very heart of the economy, an integral part of growth and progress.

In Schumpeter’s worldview profit has an absolutely crucial role. It isn’t a surplus, it’s a cost of doing business. It isn’t immoral, it’s moral. Without it an economy would stagnate and people could no longer aspire to a better life.

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