Good Sense Makes Good Business; H. Bugbee

The distinction between a ne cessity and a television set was perfectly clear to Dr. Piszczek as it is to anyone with a firm grip on reality. His interest in keeping the distinction clear in the minds of people who might buy television sets and then fail to pay doctor bills was obviously different from that of the broker who wants to 1969 GOOD SENSE MAKES GOOD BUSINESS! 693 sell stock in companies that deal in television sets. But brokers who deal in invest ments, as well as companies that deal in television sets and other prod ucts, also share an interest in ensuring the perpetuation of a so ciety in which they can do busi ness. And that interest might well take priority over the urge to sell their products! Before they add to the confusion of people whose grip on reality already is weak, they might consider the current threats by some of the poor against the society in which busi nessmen are trying to operate.

They might ask themselves how those people got the idea of what they claim as "rights." In a society so affluent that it can be contended, with almost no dissent, that a television set is a necessity - even for the poor there must be something about the poor that makes and keeps them that way. It must be a deficiency either in their ability and willing ness to earn money or in their ability and willingness to manage it. The latter often stems from a failure to accept the reality that 2 pIus 2 make 4 and cannot make 6 or 8 or 10. And if their grip on reality is that weak, it may be dangerous to redefine as a neces sity each new luxury that is brought within the reach of most people by mass production! From Luxuries to Rights It's a short step from calling a luxury a necessity to calling it a right. In the short time since Dr. Piszczek made his complaint, the product he deals in - medical care - has been made a "right" for the "medically indigent." That means that the rest of us must pay for their care with our tax money.

Before businessmen get too eager to turn television sets into necessities and to sell these and other desirable products to people who are about to be exempted from taxes, they well might pon der whether they want these lux uries-became-necessities turned in to "rights," with the burden on businessmen and other taxpayers increased to pay for them (or to pay for police protection if the "rights" are not granted). It's good business, of course, for businessmen who have goods and services for sale to look at the opportunities for profit in almost everything that happens; but it's also good business to take account of the dangers that accompany the opportunities! The broker's ad spoke of "companies selling con sumer goods and services" as "the particular beneficiaries" of the tax cut for the poor, and held out to investors in such companies the prospect that "2.2 million Ameri cans will have $700 million more to spend. . . . And not only will 694 THE FREEMAN November they have more money to spend.

With more money they'll be able to borrow more money." Among companies that stand to benefit, said the ad, are companies that "deal in everything from food, soft drinks, girdles and TV sets to installment and' housing loans." One man in the installment loan business, Ernst A. Dauer, director of credit studies of Household Fi nance Corporation, showed his awareness of the dangers that ac company such opportunities when he told a seminar of the National Industrial Conference Board re cently of the need for "constant attention by credit managers" to the credit worthiness of borrowers. Consumer installment debt, he said, has grown 125 per cent in the last nine years. That's 1V2 times as fast as the national prod uct has increased, and Mr. Dauer predicted that installment debt would grow another 122 per cent by 1980. One wonders how Mr. Dauer would rate the "credit worthiness" of people who have been declared "medically indigent"

so the taxpayers will pay their medical bills. Should they be granted credit, say, for a television set? Of course, businessmen can't be expected to forget their business or to act as though their prospec tive customers were simple-minded and in need of a protector. Customers would resent that idea as much as businessmen would. However, no one should single out the poor as the simple-minded when it's reported that business men are mailing credit cards to welfare clients, and when busi nessmen add to the confusion of brains already dangerously addled by promoting the ideas that non essentials are necessities and that buying power can be increased by using part of it to cover finance changes. Earn More and Get More Some of the so-called rights that some of the poor are demand ing, and some of the threats and actions they are using to enforce their demands, suggest that the only possibility of keeping our society viable and prosperous is to clear up their confusion and show them how to earn more money and get more for it. Some of the demands being made are so fantastic that few businessmen would take them seriously. How ever, President Nixon's proposals for a "family assistance" system should suggest that even far-out demands be viewed seriously. Not so many"years ago, only leftwing periodicals took seriously any pro posal for a guaranteed income.

President Nixon's proposals dif fer from the guaranteed income by requiring work or an attempt 1969 GOOD SENSE MAKES GOOD BUSINESS! 695 at work before a family would be eligible for $1,600. In today's mar ket $1,600 doesn't sound like much, and most people would agree that a family should have at least that much. But it would cost taxpayers $4 billion to guar antee that minimum, and hardly any of the people who believe families should have $1,600 would expect to pay f~!}j it by reducing their own consumption. Instead, they'd make every effort to shift the burden of increased taxes to their employers or their customers through wage increases and price increases, thus reducing the value of the $1,600 grant. Then the poor would feel cheated and demand more "rights." This may happen over and over, as it has happened when previ ously legislated benefits have left the beneficiaries as poor as they were before. The dollars received have gone up, but so have the dol lars recei ved by everyone else.

And no matter how many times their dollar incomes are raised, the poor will find themselves as far behind as they were before, since everyone else gets an increase, too. The poor still won't be able to buy the latest luxury-become-ne cessity, whatever it may be, and will demand another increase. Sooner or later their demands or their anger will destroy us through economic breakdown, revolution, or both - unless they come to un derstand that even an affluent so ciety cannot deliver more to its people than its people produce, and that the best way for one to have as large a share of the na tion's output as he thinks he should is to increase his earning power and make the best use of his buying power. The Cost of Credit It is to be hoped that those who wish to sell to the rural and urban poor may find a better approach more sound than the one a Chicago bank used some time ago to sell its revolving credit program: The man who spends only what he has doesn't have much. Waiting till you accumulate enough cash before you make a maj or purchase such as a dishwasher is like waiting till you can afford to get married. You don't.

And the bitterest pill is having to watch others enj oy their possessions while you wait . . . and wait. . . . That's quite a sales argument. Most people would like to believe there's some magic way a man can spend more than he has this year without spending less than that next year to pay bills. It's mentally easier to accept that pipedream than to face the fact that neither credit merchants nor other lend ing institutions give away credit. They sell it at a price, whether it's called interest or carrying 696 THE FREEMAN November charges or something else. And the amount paid for credit is money that can't be spent for products. So the man who hopes to increase his buying power by spending more than he has shrinks his buying power instead. The only way a man can spend beyond his means without shrinking his buy ing power when the debts fall due is to welch on those debts. It's hard to believe any businessman welcomes such behaviors, though growing numbers of debtors are filing in bankruptcy. The National Consumer Finance Association calls personal bankruptcies "a growing concern." Certainly, the complex credit mechanism that is supposed to sustain our affluent society would break down if busi nesses could not count on credit customers to meet their obliga tions.

American Families Already Overburdened by Debt Of those American families where the breadwinner is under 35, the average already is carry ing debts adding up to 81 per cent of a year's income; and families with breadwinners between 35 and 54 are not far behind, with debts totaling 78 per cent of a year's income. Morris Rabinowitch, president of Financial Counselors, San Francisco, estimated last year that one third of American families were overextended in debts and on the brink of serious trou ble. More recently, John Vincent Neeson, San Francisco manage ment consultant, said that "the average family, in terms of its earning income, is within six weeks of bankruptcy." So, businessmen may be asking for trouble that will blow up in their faces when they encourage people who are thought to need tax relief and help with school lunches and medical bills to spend money and even go in debt for things they might do without.

Not every businessman has the same incentive as the Chicago savings and loan association that ran a full-page ad recently under the heading "Inflation? ... it's up to you." Its message was: What's the best strategy to cope with inflation? It's based on two kinds of know-how - how to get the most from your income and how to handle your surplus funds. Inflation is a signal to postpone some of your spending plans and scale down others. If you don't, at the end of each week or month, you may be in creasingly short of cash or a notch deeper in debt. Some advertisers might ques tion the willingness of people who need such a message to read all about planned spending, super market shopping, consumer credit, 1969 GOOD SENSE MAKES GOOD BUSINESS! 697 and investment of surplus funds. It's far easier, of course, to be lieve in fairy tales than to accept statements like the following: Consumer credit is costly .... For many, the easiest way to reduce ex penses is to cut down on credit buy ing. The family that remains in debt with installment payments for cars, appliances and other consumer goods loses purchasing power in two ways.

First, interest and carrying charges grea tly increase the total cost. And second, the credit buyer loses the extra interest income his money could earn in a savings account while he saved for a cash purchase. It's also easier to peddle the nonsense that everyone can have more than he earns than to talk the kind of sense that requires thought. But a free society cannot survive at a high level of de velopment unless its people begin to think and to understand what they're doing. H. G. Wells wrote shortly after World War I in his Outline of History: Human history becomes more and more a race between education and catastrophe. Fifty years have passed, and catastrophe is close upon us. Have we time to win? Perhaps not. Peo ple might not listen if we do talk sense. But we can't know for sure unless we try. And there is this powerful incentive: Showing peo ple how to manage their affairs intelligently will not only preserve and improve our society but will generate profitable business in the process. ~ IDEAS ON LIBERTY Ludwig von Mises CAPITALISM has improved the standard of living of the wage earners to an unprecedented extent. The average American family enjoys today amenities of which, only a hundred years ago, not even the richest nabobs dreamed. All this well-being is conditioned by the increase in savings and capital accumu lated; without these funds that enable business to make prac tical use of scientific and technological progress the American worker would not produce more and better things per hour of work than the Asiatic coolies, would not earn more, and would, like them, wretchedly live on the verge of starvation.

All measures which - like our income and corporation tax sys tem - aim at preventing further capital accumulation or even at capital decumulation are therefore virtually antilabor and antisocial.