The Social Role of Business; R. K. Foley, Jr.

Ridgway K. Foley, Jr. THE SOCIAL ROLE O!F BUSINESS THE current fashion is to pontificate, sometimes to excess, concerning the social role of modern business and the social responsibility of trade en tities in late twentieth-century so ciety. Given this tendency, the na ture and appropriate role of business in any social setting deserves atten tion. At the outset, let us propose a working definition of business: the methods of voluntary action utilized to conceive, produce, transport, and distribute scarce goods, services, and ideas from those who create such products to those who wish to trade some value they have created in ex change for those products. It is at once a structure, device or institu tion as well as a process. It serves Mr. Foley, a partner in Schwabe, Williamson, Wyatt, Moore & Roberts, practices law in Portland, Oregon. those who wish to trade; it exists solely in a ma*ket; it does not par take of coercion; it exacts no penalty from those whcr> prefer not to share their produce.

All too often., observers tend to limit their thinking of business to modern corpo:r:ate giants exempli fied by Exxon,' Standard Oil Com pany of California, or General Mo tors. While these entities do represent spec~fic examples of one successful mod~ of business, such a myopic view tlistorts reality and conjures up th~ inaccurate premise that all business consists of large aggregations ofipeople, machines and capital, mass-producing integrated or disparate goods for consumption. In fact, busi~ess includes numer ous corporation~ unlisted on the New York Stock Exchange and virtually 612 THE FREEMAN October unknown beyond the boundaries of a local or provincial area. It also en compasses myriad family enter prises, close corporations, general or limited partnerships, and individual proprietorships, all providing a host of desired goods, services and ideas. It further embodies such activities as farming which raises, transports and sells needed foodstuffs in the market yet which often receives un deserved discrete treatment in the political and economic realms. It en velops professional men and women who offer their services to others in exchange for value.

In the broad sense, business en folds within its grasp anyone and everyone engaged in trading his ideas, his services, his goods, that which he creates and owns, with other individuals who possess goods, or services, or ideas which they con sider expendable or less desirable than the exchange goods offered by others. Thus, every person who per forms gainful employment in ex change for a wage, salary or other kind of remuneration really partici pates in business: he trades his time, energy and creative efforts to an other for payment which, in turn, can be used to fulfill his needs and de sires. Economic Laws and Business Man displays the curious commu nicative tendency to employ the identical term to convey quite disparate concepts. The word "law" of fers a striking example.! Positive, or human, law generally refers to a system of rules and orders, emanat ing from a sovereign, directed to subject people, commanding or pro scribing human action, and exacting a penalty or sanction for known noncompliance or disobedience.

Natural law (of which economic law forms a part), on the other hand, re fers to certain causal relationships which flow from human action. Like positive law, natural law enforces conduct and wrests a sanction for human action, but there the analogy terminates. Positive law emanates from mankind with its inherent fal libility; natural law reflects reality and neutrality rather than individ ual bias. Commoner and King both bleed when cut with a knife. Natu rallaw makes no value judgments; it merely levies a cost related to uni versal truth by means of cause-and effect consequences for human ac tion. The three fundamental economic laws concerning business form a part of the natural law rather than man kind-enacted and enforced norma tive rules. The First Law of Economics: Scarcity The first law of economics dictates that this science deals with the cre ation and distribution of scarcegoods, services, and ideas. Where free goods 1982 THE SOCIAL ROLE OF BUSINESS 613 exist, the study of economics disap pears.

Imagine an island paradise, blessed with clean air, fresh water and an abundance of tropical fruit. Here business exists only in the most rudimentary form since little effort need be expended by the inhabitants to secure their daily foodstuffs and water. Yet, even that condition and the minimal effort reveals that busi ness in some form may be necessary. A supply of fruit and water, while sufficient, is finite, not endless. Some method must be utilized to divide and distribute the existing or potential scarce goods to the islanders. Busi ness represents a method, the best and fairest means of distribution, where each individual, acting vol untarily, offers to exchange that which he possesses for that which he desires. Where wants exceed the free (not scarce) goods available, the ex change economy develops. An ele mentary specialization and division of labor arises, where, in place of each inhabitant carrying his or her own water, gathering fruit, and handling all needs, one member of society de velops a skill in the production of grass skirts or handmade thongs which he or she exchanges for man goes delivered to the door.

The law of scarcity introduces yet another salient economic concept: la bor. Labor consists of the productive expenditure of human energy and provides the necessary base for busi ness. Even on t;he tropical isle of our hypothesis, th~ rudiments of labor exist: picking ,breadfruit, carrying water, sewing ~lothing, and thatch ing a hut all require some effort. Viewed broa<illy,all business rests upon labor, past or present. Present labor appears (j>bvious: the physical and mental efforts of men and women engaged in the ,creation, production, transportation! and distribution of scarce goods, services and ideas. Yet business enterprises also use past labor, stored-up and unconsumed la bor, often termed capital. The pro ductive resultsl of labor may be con sumed or saved; those efforts which are saved are invested in tools and machines to b¢ used in future pro ductive efforts. Capital renders present labor tnore productive and efficient. Past and present labor ap plied to existip.g resources creates new and desirable scarce goods for trade.

The Second Law of Economics: Insatiability The second l~w of economics pro vides that maJl.'s needs, wants, and desires are insatiable, dynamic and never-ending. Man's acquisitive na ture mandates that his individual and collective ~ravings always out strip his production. In short, he is never satisfied With the current state of affairs. Recur to the example of the iso614 THE FREEMAN October lated island. As man grows, he be comes more acquisitive; good food and plentiful drink, an adequate hut and basic clothing may not be enough. He will seek variety in his diet, distinguished and distinguish ing feature in his living quarters and class or style in his clothes. He may hanker after a plow, a conveyance, a book or a whole host ofother things. Faced with an array of scarce goods, services and ideas, his wants are in satiable. The Third Law of Economics: Cost The third law of economics follows from the roots of scarcity, labor, cap ital and insatiability: every thing possesses, and occasions, a cost. This immutable norm of natural law flows from the fundamental natural law rule of consequences, of cause-and effect. Denial of the principle cannot destroy it.

Some state this premise in homely fashion, such as, "it's time to pay the fiddler" or "there ain't no such thing as a free lunch." The cost analysis of natural law provides that no one can secure scarce and desired goods, ser vices or ideas without effort-even a taking by force or fraud requires risk of retribution, clever cunning action, and physical and mental ef fort. The effort constitutes the cost of the product, whether it represents effort by the producer in making the device, or effort by the trader in manufacturing trade goods, or effort by one (donor) on behalf of another, third party beneficiary. In a free society, a business or market society, the cost of an ex change amounts to the intersection of that which someone who pos sesses the desired good, service or idea will demand from the buyer in trade, and that which the latter will voluntarily transfer to the producer in exchange. In simple economic terms, price represents the intersec tion ofthe supply and demand curves.

But lines on a graph, being abstract, obliterate reality; the reality of price is cost, and cost stems from the nat ural law of the universe. In a command society, the cost of an exchange will be disguised be cause of the avoidance of a market mechanism. 2 Nevertheless, each good, service, and idea will com mand a cost under the natural law as surely as men in power try to command their fellows. The cost re quired amounts to the effort ex pended-the past and present la bor-in production, and the alternative courses of action avoided. Each human action (including eco nomic or business activity) requires a choice and each choice produces moral consequences. The conse quences constitute the cost of the ac tions. In what manner do these three fundamental economic laws decree the need for business? Business-the 1982 THE SOCIAL ROLE OF BUSINESS 615 structure and the process-deals with the rules of scarcity, insatiability and cost in a voluntary and efficient way.

The allocation of scarce, desirable and valuable goods, services and ideas must be secured in some man ner. Basically, two methods exist: coercion or voluntarism. Because men and women choose diffferent ways to satisfy their ever-expanding wants, property can be divided in two ways: (1) each person can bid for the goods and services sought against all competing uses (the nonaggressive method) or (2) some person or group can seize power and forcefully de cide (choose) for others by allocating scarce goods, services and ideas to satisfy those insatiable wants (the coercive method). The coercive method allows some individual or group to use force to distribute these products in a forceful manner, ac cording to their subjective value judgments. The voluntary method allows each individual to act with out force to provide for his own ends and to pursue his own brand of hap piness. The state represents the coercive method; business provides the voluntary method.

Property, the Creation of Value, and the Pursuit of Happiness Business provides the structure and the process which creates and distributes property. Property con stitutes the name given to those goods, services and ideas created by men and worpen, acting produc tively by themjselves or in a group. One does a dijsservice if he limits property to land or "things," like furnaces and machine tools; prop erty includes the corporeal and the incorporeal, th~ tangible and the in tangible: legali and accounting ser vices and man~gement ideas as well as books and cmairs. In a broad s~nse, property may be described as the human creation of value. The worl~ exists. Man can only create by taki*g existing things or elements and *ltering their charac ter or transporting them so as to make those th~ngs or elements, or a combination o( them, useful to him or to others, or lby conjuring up ideas about existing j things or documents useful to him or to others. Property sometimes connotes elements in a natural state:: game or wilderness land or miner~ls. This presents too narrow a view= fauna or dirt or iron ore provide no~hing of value-they just exist-un~il used by men to sat isfy their needs and wants. In the more salient sense of the term, ele ments become! property when they become useful to mankind, when men and women apply their value struc ture upon thes~ existing matters.

How do human beings value items? The fundamental of business is that men and women value everything subjectively. ~ach person attaches worth to goods~ services and ideas in accordance with his or her unique 616 THE FREEMAN October character and individual judgment. Mankind rates merit of various matters on individual and ever shifting scales of preference, fueled by internal measurements, assess ments, perceptions, desires and mo tivations which no one else can re produce or appreciate. As a concomitant natural rule, one rec ognizes that objective value does not exist; no one can conceive of a uni versally defined and accepted "good chair" or "good city" or "good con cept" which will rate equally with each person. Value Is SUbjective If objective or inherent value ex isted, a single producer for each kind of product would suffice: everyone would prefer Borden's to General Foods and the latter would go out of business. Since men value every thing subjectively, business devel ops to supply and service these in satiable and increasing wants related to scarce and costly items. As a re sult, several producers of similar goods will find their adherents in a market. Cost diminishes as compet ition between vendors keeps only the most efficient in the market. Profit appears, maintaining the sellers, as the buyers bId in competition with other potential users for wanted products.

Some who recognize that all value is subjective confuse value with reali ty and deny the existence of absolutes or truth. The two concepts do not war and are not coincident. Truth exists; it represents a facet of natu ral law which is no more than the face of reality. The concept ofsubjec tive value means that men-pos sessing the power of ultimate choice over their own destiny-may disre gard truth and believe in, and value, fiction. The great lesson of liberty is that freedom implies the freedom to be wrong, to err. Because man is free to choose, he maintains the freedom to choose badly, to value fallacy over truth. Truth is not value, and value is not truth. Value represents an in ternal scale of preference while truth represents a natural law which ap plies a cost or consequence for choice freely made. Business does not engage in moral value judgments except to the ex tent that business decisions repre sent moral choices of the producers who must (like all men) live with their consequences. Business pro vides goods, services and ideas to those who wish to purchase or trade for them, without acting as a moral arbiter of the choices of the con sumer. If a business distributes harmful automobiles or addictive drugs, the maker must bear the moral results of his part in the pro cess, but unless his conduct par takes of force or fraud, the state should not step in and restrain a free transaction. The wisdom of the choice of the buyer cannot be measured by 1982 THE SOCIAL ROLE OF BUSINESS 617 fallible men since (1) each element in the universe incorporates the po tential for harm and (2) no person possesses the ability to supplant an other actor's choice-making process.

Hence, except as indicated regard ing coercion or deceit, business re mains morally neutral and the buyer must also bear the moral conse quences of his choice. Our Declaration of Independence did not promise eternal bliss and ethereal well-being; it recognized as supreme the inalienable human rights to "life, liberty and the pur suit of happiness."3 It rests within each person to seek his own ends and to achieve happiness. No one, in cluding the state, can promise an other happiness; it cannot even de fine happiness for another. The proper role of the state is simply to leave man free to pursue his happi ness in response to his subjective value system. Business merely ex ists as the most effective and effi cient mechanism by which men can pursue happiness, compatible with natural law principles of inalienable rights. The Multiple Roles of Individuals in a Business Society Less perceptive observers tend to fragment society into sections like ''business,'' "labor," "consumers" and "farmers." Actually, all members of a modern market society play many roles: most are shareholder-owners, worker-producers) and consumer users and some are officer-managers of business. Frag¢entation distorts reality and serves!no useful purpose.

Many people create value, directly or indirectly, and t(ill consume. To the extent that they ~ave some of what is produced, they become owners: every possessor of an insurance pol icy, bank account, I pension plan, bond or stock is an owner of business in society. The meaning of these roles may be both seen and ~seen, obvious and obscure. The visible m~aning: class war fare destroys U$ because we are fighting oursel~es. Antibusiness legislation or litjgation attacks all who own a share of that business. Moreover it des~roys the structure and the process, which fulfill our wants and desires as consumers most effectively. The hidden me~ing requires some thought. In which of these roles may members of soci~ty use the state to enforce their desires? Man merits no right to use force! in anyone of these roles except in t!Wo limited circum stances: he may band together to prevent and putiish aggression, the initiation of forc~ and fraud, and to secure common ijustice, the settle ment of otherwise insoluble dis putes. Beyond th+se limited roles, the state intervenes iin business only at the peril to all who reside in society; each inhabitant~ in one or several 618 THE FREEMAN October roles, derives exceptional benefit from the existence of business.

Consider two of the many aspects of this hidden or secondary truth. First, mankind in a free society retains the absolute right to refuse to trade with those one wishes to avoid for whatever reason. If a party does not desire to drive a Ford, he need never buy one. If he does not believe that he has received proper recompense for his toil and his pro duction of value, when his contract terminates he may go elsewhere and sell his services for whatever the market will pay. Business in a free society is noncoercive: has anyone, even in this euphemistically-la belled "mixed economy," ever forced another to buy a Chrysler instead of a Volvo, or to purchase Colgate Palmolive products in place of a competitor's offering? Second, the absence of business would render trade abominably slow, tedious, and uncertain. Imagine the difficulty you would encounter in this country of 225,000,000 souls if you attempted to satisfy your wants by trade without a business structure.

Each of us would surely starve na ked in the dark; as Leonard Read has so convincingly demonstrated, not one among us can construct start to finish~an item as simple as a common pencil. 4 Business defines the means by which we voluntarily speed up and apply precision to the many transfers which make our lives productive and satisfying as we pur sue happiness. Three myths pervade the study of business: the myth of the windfall profit, the myth of the private mo nopoly, and the myth of the evil en trepreneur. Each fantasy accounts for much· common misunderstanding of the role of business in society yet, in unmasking these chimeras, a nub of substance remains to be explored. The Myth of the Windfall Profit The consideration of the trading transactions of business introduces another term: profit. Profit repre sents the most misunderstood por tion of business endeavors. Profit describes the excess trade value transferred to a party in a transaction, beyond the value of the matter exchanged. Seller conveys a book to buyer for $5.00; the seller's profit is the excess of value received over the value of the book to him.

Such a value may consist of tangible or intangible matters. For example, the book may be a fungible item, one of many almost exactly the same; in this case, the seller may trace his profit to the amount in excess of the cost of the book. After totalling the charges for typing, proofreading, printing and publishing the tome and adding on a figure for the labor in volved in writing, the seller may conclude that his cost is $4.75 and his profit $0.25. In different circum stances, where the book could be 1982 THE SOCIAL ROLE OF BUSINESS 619 classified as a collector's item or a first edition, other factors will enter into a determination of profit. Often, analysts overlook the fact that all parties profit in all free transactions. The seller may receive a stated sum of money or goods of a value which represents his cost of goods sold pIus an increment for the u~e of his time, capital and entre preneurial abilities. He expresses willingness to trade his goods for their return; for any lesser amount, he would rather keep what he has produced. On the other hand, the buyer will trade a stated sum of money or goods of a value which represents the value the buyer places upon the seller's offer. If the seller's goods are worth less to the buyer, he will not make the trade and, in stead, will keep his trade goods or money substitutes. If the trade takes place without coercion or fraud, both parties profit because each one re ceives something he values more from the other than that exchanged.

This possibility takes place because of the doctrine of subjective value: individuals value things differently. The ExchangeRatio Price is not value. Price is an in dicator of value at a particular time for particular individuals in a par ticular setting. But value shifts, so price merely marks the intersection of the supply and demand curves at that time. Given this understanding, "ex c:ess" or "windfall" profits or prices c:an never exist unless a transaction possesses an element of coercion. Each party to a ,transaction freely and voluntarily e~tered receives the result he desires, and each profits in his subjective scp~me of value. A windfall occurs when someone re eeives something undeserved or eoerced; one cannot describe a gain as a windfall whete both parties vol untarily agree add trade: in the ab sence of fraud, ea¢h receives that for which he bargained. "Excess" indi cates a standard;, if the standard of value is subjectivte, the gain cannot be excess in a volpntary situation.

Studies indicate that many indi viduals hold an i unreal vision of business profits. Depending upon the poll, the sample Bind the source, peo ple may believe) that the average business receives up to 45 per cent of each sales doll.r as profit. In fact, the average manpfacturing concern receives something like $0.05 of each gross sales dollar as profit depend ing upon the me~suring technique. Studies also indicate a misunder 8tanding about t~e amount of busi ness cost related to labor and to gov ernment compli$,nce. In addition, most profit figur~s contain the mis leading assumption of ~easurement by a constant standard of value, whereas inflation causes a reduction of real value and: an incorrect set of figures. Yet even if profit truly 620 THE FREEMAN October reached the imagined heights, one could not term them excess in a free society for the fact would merely be token that the seller was supplying a needed service or good or concept desired so much by the purchaser that the latter was willing to trade a larger amount of goods or services or ideas in return. The greater the profit, the higher the need fulfilled.

The Myth of the Private Monopoly A myth persists that, without governmental intervention in the business world "to assure competi tion," private monopolies would re sult. 5 This would leave society at the mercy of a few large enterprises free to raise prices at will and to impose their corporate desires upon un happy consumers without recourse or restraint of any kind. Such pur veyors of nonsense fail to under stand basic economics, the free soci ety or the concept of subjective value. If everyone derived perfect satis faction according to his or her sub jective value structure from a single product, a single producer would dominate the field for that item. Yet this simplistic analysis ignores real ity. In the first place, subjective value varies among individual actors, leading to the need for many pro ducers of a single type of product to offer a range of economic choices. Even where goods are fungible, such as steel, over 250 American enterprises appear as sellers, not to men tion many foreign entities.

In the second place, if a producer satisfies a great number of con sumers with a single product, his profits, far from being a windfall, merely demonstrate that he is as suaging a true demand. In the third place, in a free soci ety, without state-imposed barriers to market entry, subsidies, favorit ism in distribution, and the like, high profits will tend to attract compet ing producers into the field, leading to innovation, improvement, and lower prices. Monopoly, even if pos sible, would constitute an ephem eral instance in the true private property order. New creators of value will hasten to share in a lucrative market, given the self-improvement and acquisitive nature of mankind. In the fourth place, consumers vote in a dollar democracy among a great array of products and services.6 Thus, not only do creators and traders compete in the market with manu facturers of like goods and services, but also each business must compete in the broader field among a wide variety of substitute, noncompeting products; further, each enterprise must compete for the finite con sumer dollar (stored-up labor or trade goods) which can be spent or saved.

Remember: people tend to vote their own trade dollar more carefully and more in harmony with their true self interest than they do in the polling 1982 THE SOCIAL ROLE OF BUSINESS 621 place on election day, when many fall prey to the sins of greed, envy, covetousness and coercion. On the market, the consumer-voter trades his or her produce for that which he or she desires the most, based upon the trader's enlightened subjective value. In the fifth place, the market pro vides an amazingly resilient and ef ficient apparatus for determining the employment of scarce and finite re sources for the satisfaction of hu man wants at the lowest cost and on the most praiseworthy and effica cious basis. Business ought to produce what the user wants. Con sumer desires rest on subjective value. Thus, the business which prospers best serves the greatest number of subjective value struc tures at a given time. Those enter prises which do not satisfy the needs ofthe buyers receive a command from the market: go and employ your scarce resources, your capital, your labor, your time, your inventiveness elsewhere. Thus endeth the Kaiser, the Fraser, the Tucker, the Edsel, and the Imperial, to name a few ex amples from the American automo tive industry in the post-World War II years.

Signalsfrom the Market If no one, or too few persons, buy a product even at a low price, that fact indicates to the seller that his merchandise does not accord with the subjective value system of the public at the present; iIi a word, there ex ists no demand fQr the stock. A hy pothesized privat~ monopolist occu pies the other enq of the continuum: by presuppositiort and definition, he serves a real nedd and best accom modates the fancies of the public in that arena. Ho~ever, as indicated heretofore, if the imarket provides a return for such a good,service or idea, the. monopolist will not remain the lonely producer f~r long; he will find ]plenty of compatiy as new entrants into the field try to outdo him for the reward of profit. lf these newcomers succeed, the pric~ drops by virtue of increased competition; if they fail, the market signals that the former supplier still sla}tes the customer's thirst best of all. i In the sixth place, while price does not constitute the sole determinant to trade, it does represent a register of value so that tjhe producer-even an averred monopolist-who gener ates great numbers of goods and holds them for a!too-high price (be yond what the s~bjectively-valuing public wishes to pay) will find him self burdened with a useless inven tory. Since the management at Gen eral Motors canIiot eat Pontiacs or use Skylarks for shelter without in convenience, we witness a reduction in price by mea~s of lower finance charges (encouraging payment over time in fewer reall dollars, given the inflationary sweep of the economy), 622 THE FREEMAN October rebates (price reductions by another name) and similar actions. Even these price diminutions have proved of remarkably minor assistance to Chrysler, which has reported losses in recent quarters in significant amounts and which would probably have left the field of automobile manufacture and sales without the existence of a governmental sub sidy.

Thus monopoly represents a chi mera in the real world in, the ab sence of state intervention in the economy. The only true monopoly: the government monopoly of force. The Myth of the Evil Entrepreneur Television, radio, newspapers, magazines, books and plays all por tray the American businessman and woman as evil, cunning, treacher ous, crooked, greedy, immoral and, sometimes, downright murderous. Think back to the last time one of these media pictured a person in business as wise, decent, helpful, and virtuous. Few can recall such a dis play. - This unfortunate characteri zation has embedded the populist notion of the evil entrepreneur deep into the fabric of our society, to the extent that it far overshadows real ity and truth and does a gross injus tice to many millions of upstanding individuals. In fact, in a free society, people in business are neither better nor worse than their counterparts in education, labor, agriculture, the profes sions, or the social services. Busi ness people partake of the same flaws which afflict all of us and demon strate the identical virtues which render us little lower than the an gels. Indeed, those who engage in business may often exceed some of their fellows in virtue because the entrepreneur, seeking profit from the satisfaction of wants by the deploy ment of scarce resources, helps his fellowman pursue the latter's sub jective vision of happiness.

Again, the traducers of business focus on the 'seen and ignore the un seen. They tend to overlook not only the role of business but also the multiple roles each of us plays in the real economic world: as worker, em ployer, owner, user, investor, in short, as businessmen and women. By chastising the business commu nity, the unreflective writer or poli tician demeans us all-yet curi ously, they invoke their little statist schemes as a prescribed nostrum for society's real or feigned ills, artifices which assume perfectibility of the very mankind they disparage. The Grain of Truth Behind the Myths A nubbin of truth reposes in these three myths of business: since the business person is no better nor worse than the mill run of people gener ally, he like his peers may seek an edge, an advantage conveyed by 1982 THE SOCIAL ROLE OF BUSINESS 623 government to one but not to others. It is the entry of the state into the affairs of business and the free flow of the market which leads to unfair profits, monopoly and wicked ad vantage. Business is designed to function best in a free society; the state represents the viperish inter loper in the market Garden of Eden, corrupting what it touches when it exceeds the bounds ofproviding a fair field to all and special privileges for none.

How does the government disrupt the political economy? The ways and means are too numerous to count. However, the use of the law for fa voritism generally takes one of two broad forms: limitations upon any entry into the marketplace or bene fits for some entrepreneurs at the expense or to the exclusion of others. In the first category reside license fees, public utility franchise laws, rules favoring cartels and "natural" monopolies, norms restricting the admission and practice of specified professions, and the like. In the sec ond category one finds subsidies, tariffs, government contracting and purchasing requirements, beneficial tax treatment and rules, and a whole host of curtailments stemming from the shibboleth "self-regulation" where certain members of an indus try cloaked with the mantle of law under the guise of a quasi-public en tity receive jural authority to make rules and. issue orders which govern the-conduct of others in that disci pline. The variatiojns on these themes are constrained o*ly by the ingenu ity of the minds of men propelled by greed and envy.

Finding a Scapegk>at The populist Who rails at "big business" often faUs to discriminate between business ,operating in a free society and busin~ss maneuvering in a command society. Noone· will at tain complete sat~sfaction and hap piness in any economy, free or slave, for that is not toe lot of mankind. Nevertheless, the ,purveyors of busi ness myths oftep. decry business practice as a suppqsed cause for their own shortcomings; failures, or losses. It is quite one thlng to challenge a private economic! enterprise which receives subsidies, land grants, fa vorable tax treatment, and a restric tive franchise fro:m the state or fed eral government. [t is quite another matter to preach hatred for a busi ness which becomes successful and highly profitable! not by virtue of special favors butpy dint of meeting customer needs ~nd subjective de sires. The acorn of tnuth from the oak tree of myth m¢rely advises the thoughtful that tpe mandate state may taint the people who partake in the business proc~ss and structure.

Thus, profit is notjexcessive where a freely acting sellejr and buyer reach a. mutually-acceptable price without 624 THE FREEMAN October coercion; profit becomes an unfair transfer payment where the govern ment limits the number of sellers or artificially enhances the price by means of law. Thus, monopoly ought not be feared nor even exist in a free society where the state merely acts as an impartial arbiter and police man; the monopoly to be feared is the monopoly of power possessed by the government and utilized to favor one producer over others. Thus, the entrepreneur perceived as evil de serves no such incantation when he merely serves his purchaser without a forced exchange, for Adam Smith correctly saw that myriad persons, each following their own selfinter est, are guided by an Invisible Hand to achieve the desired public result; the businessman merits opprobrium only when he seeks and gains an ad vantage by use of force or fraud, ei ther individually or with the aid of a compliant state.

The Social Role of Business We arrive at the seminal inquiry: what represents the social role of business in our community? Since "social" and "society" stem from the same root, the proper answer com pels an understanding of two dis crete concepts, the state and soci ety.7 Society constitutes a voluntary, sharing, exchanging fraternity among consenting human beings. By nature, society is free and open-textured, permitting growth or termi nation at will as dictated by the mo res, consciences and values of the participants. Simply put, one may enter or leave society at any time for any reason without penalty. On the other hand, the state rep resents a coercive territorial body issuing commands which must be obeyed by all subjects. It rests on power, not contract. It is closed; one cannot debark without sanction, sometimes quite severe penalties. The state's existence derives from the nature of mankind and a Rule of Ne cessity: flawed and finite people pos sess destructive tendencies which must be curbed, ere freedom is lost for all.

Society and state co-exist and complement each other, each re flecting one of the dual aspects of human nature. Society fosters man kind's creative desires; the state ob structs the human disposition to coerce and destroy. Open Competition In the true sense, business only involves voluntary, nonaggressive human action. Thus, it provides the means for carrying out the concept of society. The state's role: provide a fair field and no favor. When the state takes a hand in business, it taints the process and the structure be yond recognition. Instead of retard ing force and fraud, the interven tionist state uses its power to tilt the 1982 THE SOCIAL ROLE OF BUSINESS 625 field and afford special privileges to the few. Business hannonizes with the open texture which delineates society. One may dissolve a business relationship without sanction, subject only to self imposed contractual restraints and the reasonable promissory expecta tions of the parties. A consumer may cease using a manufacturer's prod uct; a worker may stop laboring for a concern; a shareholder may sell his stock; all without reason or for any reason at all. Society fosters the cre ative inclination by providing har monious surroundings and stimu lating circumstances within which to live, work and exchange ideas, goods and services and to develop friendship, harmony and warmth.

Business provides the mechanism by which such goods, services and ideas are created, transported and distrib uted under the voluntary exchange system which distinguishes society. In the societal sense, then, the so cial role of business is simply busi ness, to produce the best possible goods, services and ideas at the low est possible cost and at the greatest possible profit for the entrepreneur. When business fulfills this role, it acts in harmony with society and its own nature by carrying out the function for which it is well and solely suited. In a word, society favors har monious interchange of scarce eco nomic goods to satisfy the most pressing subjective wants of mankind at the natural law cost; busi ness provides the process to facili tate that intercqange. How Business~erves Society Because business performs volun tary, creative aqd productive accom plishments by its very nature, it necessarily acts in the highest social role when it doe$ what it is supposed to do. On the ot4er hand, business is poorly equipped, to achieve or carry out some sort qf egalitarian social justice (which is] not justice at all) or to redistribute i,tncome or wealth by means of transfer payments or to pe nalize less thanivirtuous conduct on the part of some individuals in soci ety. Those who ~ssign the foregoing aspects as business' social role fail to comprehend 'the nature of busi ness: imposition of "social policy"

normally embodies the dictation of A's value structure upon an unwill ing B, a function best left to the state (the monopoly of coercive force) if to be performed at all. Creative enti ties and processes, like business, cannot easily expedite the destruc tive functions associated with the state. All of this d~es not portend that business is not,)and should not be a good neighbor., Most persons en gaged in business normally act har moniously wit~ the universe and kindly toward! their compatriots. They must obey the same moral laws as the rest of. us do or suffer the 626 THE FREEMAN identical moral consequences. How ever, the businessman ought not be forced to act as the moral arbiter of society: such a task would remain a blatant impossibility since no two persons maintain synonymous value standards at any time. If business misbehaves remedies exist: the con sumer who disagrees possesses the perfect retort by nonviolently with holding commerce, and the state re strains the use of force and fraud by any predatory endeavor. By im pressing these restrictions and no others upon the world of trade, we avoid the stultifying effects of prior restraintS which stifles creative en terprise and we accord business the freedom to serve the subjective needs of the populace. , -FOOTNOTESIBy reason of the limitations of this paper, I confine my analysis of positive law and natural law to its most rudimentary form, reserving for Capital Formation separate treatment this most interesting and absorbing subject.

2This is the great teaching of Dr. Ludwig von Mises in his work on Socialism, which proves that a socialist society must import a market concept in order to price, plan and distribute economic goods. See Mises, Ludwig von, Social ism (Liberty Classics, Indianapolis [1936], [1951], [1969], 1981). 3Declaration of Independence of the United States of America. 4See Read, Leonard E., "I, Pencil" (The Foun dation for Economic Education, Inc., Irvington on-Hudson, New York). 5Severa l significant thinkers much more gifted than I have debunked the monopoly charade. See, e.g., Sennholz, Hans, ''The Phantom Called 'Monopoly' ", VII Essays of Liberty 295-317 (1960) and D. T. Armentano, The Myths ofAnti Trust (Arlington House, New Rochelle, N.Y., 1972). 6Interestingly, the greatest diversity in prod ucts and widest range of choice exists not in the socialist economy allegedly designed for con sumer protection but in the market economy characterized by freedom.

7See my detailed exposition of the nature and interrelationship of these two concepts in Foley, Ridgway K., Jr. "The Texture of Society", 27 Freeman 495-504 (August 1977). aSee Foley, Ridgway, K., Jr. "Prior Re straint", 31 Freeman 609-614 (October 1981). IDEAS ON LIBERTY IT has often been found that profuse expenditures, heavy taxation, ab surd commercial restrictions, corrupt tribunals, disastrous wars, sedi tions,persecutions, conflagrations, inundations, have not been able to destroy capital so fast as the exertions of private citizens have been able to create it. THOMASBABINGTONMACAULAY Ralph Bradford The American Idea THE really significant American Revolution was not the military re volt that led to political indepen dence from England, but the philo sophical about-face which freed the developing American economy from the deadly shackles of bureaucratic control, and by liberating the crea tive energies of the people, made possible the miracle of American production.