Capitalism has raised millions, if not billions, of people out of poverty. It is the greatest engine of human flourishing that has ever existed. It is worth defending, but those willing to do so are few and far between, even in the societies that have most benefitted from the wealth that capitalism has generated. In the late twentieth century, economist Milton Friedman stood against the tide of anti-capitalist propaganda that flourished in the halls of academia.
Friedman is gone but anti-capitalism remains, and it is no longer constrained to academia. It is common in the halls of Congress (Senators Bernie Sanders and Elizabeth Warren come readily to mind) and even in corporate boardrooms, with the modern push for corporations to engage in ESG — Environmental, Social, and Governance — efforts. Champions of capitalism have never been more needed, and Professor R. David McLean’s 2023 book, The Case for Shareholder Capitalism: How the Pursuit of Profit Benefits All makes a strong case for inclusion in that category.
McLean begins, as a defender of capitalism should, with an explanation of profit. Not the profit that anti-capitalists caricature, some dark motive of dastardly villains, twirling their mustaches or adjusting their monocles as they plan to exploit yet another widow or orphan. McLean counters the false melodrama of the anti-capitalist with the mundane “profit” of Adam Smith. It is the (sometimes surprising) pile of money left after the small business owner has paid all of the bills for the month. It is the signal that the value a business owner creates in the lives of his fellow citizens is high enough to pay for all the inputs and have something left over.
The allure of profit drives businesses to increase the value of their products to consumers and to limit the costs imposed on society by the productive process. The first task is achieved by finding out what consumers want and giving them more of it. Some add new or improved features to existing products. Others reimagine what will want and invent. If entrepreneurs succeed, the public is much happier, and businesses much wealthier. Wealthier businesses hire more employees and salaries, and generate taxes that boost to local communities. The “invisible hand” of Adam Smith motivates us to look beyond ourselves and serve others, in order to improve our own lot.
The Case for Shareholder Capitalism lays out the benefits of profit with clarity and simplicity, complete with a variety of Finance 101 principles. That clarity is likely to be lost on those whom it would most benefit, but few of them will read a book that offers a defense of profit and capitalism.
Profit does not worry about the disdain of Marxists, but goes about its business of increasing material abundance. That claim — that profitable enterprise increases availability of resources—often confuses people, but the logic is straightforward. All inputs into the production process have to be paid for, and waste in the process cuts into profits. Maximizing profits means reducing waste. Entrepreneurs are consistently motivated either to make more with the same resources, or to make the same amount with fewer resources.
A couple of important side-notes. First, basic economics is clear that, holding everything else constant, a lower cost of production or fewer inputs means greater availability of those inputs across the market (because less is wasted) and lower cost of production in other industries. Profits drive behavior that keeps prices lower, even for those who didn’t act to increase profit.
