Human Action Principles
March 19th, 1995
Lecture Number Fourteen
Ladies and gentlemen, the question I have for you is this; which is the true means to the greatest good for the greatest number? One, entrepreneurial management of the profit system, or bureaucratic management of the anti-profit system? As always, I will show you how to take a scientific approach to answering this important question.
I’ve already demonstrated, where you have entrepreneurial management within a profit system, you have a social system that optimizes freedom of choice. In sharp contrast, where you have bureaucratic management within an anti-profit system, you have a social system that minimizes freedom of choice through the violent confiscation of that choice.
But, again, note, I have not condemned these bureaucratic administrators of violence, but I’ve not hidden the fact that I have no respect for violence in whatever form it may take. But the mere condemnation of violence is never enough to end it. If, over the years you’ve acquired a certain degree of contempt toward bureaucrats and bureaucratic management, then you’re not alone. So has almost everyone else.
Even the bureaucrats will commonly condemn bureaucratic management or mismanagement. Have you heard that? But as I’ve said from the beginning, to dislike an effect is not the same as to understand the cause of that effect. Therefore, it is not enough to complain about bureaucratic management, and the purpose of this seminar is not to give you another reason to complain.
We’re going to apply science to arrive at a scientific answer to the question you see on the screen.
It will be a scientific answer as opposed to an arbitrary, dogmatic, or superstitious answer. That is what is both new and different about this seminar. My friends, you do not have to be a genius to figure out that bureaucratic management and bureaucratic screw-ups are synonymous.
There have been thousands of books authored on this subject. It is common knowledge. I’m not impressed if you know this. Therefore, if you come into the seminar with a negative attitude toward bureaucratic management, and your reaction is, “Well, Snelson sure has reconfirmed what I’ve always known. These bureaucrats, they’re always screwing things up. All the time they’re screwing it up.”
If that’s your reaction, then you’ve missed, again, the importance and the significance of what you’re hearing. This entire seminar involves the presentation of simplex principles. Remember, I warned you from the beginning, the simpler the concept, the more difficult it is for the explainer to explain and the more difficult it is for the learner to learn.
If you have a good mind, it will be difficult for you to understand the significance of a principle. If you have a poor mind, it will be near-impossible for you to understand the significance of a principle. I don’t have a definition of good mind, necessarily, but if you have a good mind, you can grasp the nature and significance of the fundamental constants and principles discovered in the physical action, biological action, and human action sciences.
And, as a general rule, I would say that, if you are not truly excited about the significance and meaning of a given law of nature or principle, that can mean only one thing: You didn’t get it. You do not understand it. All science is built upon sweeping generalizations. Let’s see if you can identify a few generalizations that will tell you, in a few sentences, the true nature of all manner of bureaucratic management. Let’s see if you can do this.
A bureau can be a desk. The original French usage meant a cloth covering a desk, a large desk. The still-earlier Latin burra was a rough cloth. A bureau can be a government agency filled with such desks, and, commonly, it is wall-to-wall bureaus, Hence, the term bureau evolved to describe an agency of the government filled with desks or bureaus. The Greek krates means ruler. A bureaucrat is literally one who rules from behind a desk.
One of the first generalizations you can make about bureaucrats is that all bureaucrats are rulers, and wherever there are rules, there must also be people who are being ruled. Where there are rulers and the ruled, there are also rules and rules and rules and rules and more rules. And it’s not just the ruled who must follow the rules. The bureaucratic rulers must also follow the rules.
What is it that distinguishes the modern-day bureaucrat from the earlier rulers? The first duty of every bureaucrat is to follow the rules. You must follow the rules of confiscation of choice established by the political and bureaucratic rulers who came earlier. It’s the duty of the bureaucrat to obey rules and to impose rules.
It’s very important for you to note that something the bureaucrat is never doing – he takes no risk. The bureaucrat both follows the rules and imposes the rules without the necessity of assuming risk. As long as the bureaucrat follows the rules, he never has to assume any risk. If he is within the rules he never has to be accountable for his actions.
When you criticize a bureaucrat for his actions, he will tell you, “Sir, my job is to follow the rules and regulations of this agency. Any questions? Good.” His duty does not involve innovation. It does not involve serving the consumer bosses with the highest-quality products at the lowest prices. Virtue for the bureaucrat can only be found in the total obedience to the rules.
Why does a career within the bureaucracy appear to be a safe and secure career for many people? Why is that? Because all you have to do is follow the bureaucratic recipe. However, if you experiment with the recipe, there will be no applause. You have broken the rules. Don’t mess with the rules and you’ll get along fine in the bureaucracy. You don’t have to be inventive. You don’t have to be courageous. You just have to what? Follow the rules.
However, whenever the goal is progress and for whatever reason you are forced to deal with the bureaucracy, you’ll always have this problem, progress always requires change. If you present your new idea for change to the bureaucracy, you will be met with opposition. Change always rocks the boat. Why?
The new and progressive idea is always in conflict with the old, established, traditional idea. Furthermore, to achieve progress, someone must be willing to assume very heavy risks. One of the reasons people enter the bureaucracy in the first place is to avoid risk. Furthermore, the champion of progress and innovation is always faced with this problem. In the beginning, innovation, no matter how progressive it may be, will not be appreciated.
How many people have heard of this man? He tried to market, in the 19th century, a little after the middle of the last century, a writing machine he had invented. He called it the typewriter. It was not appreciated, to say the least. What was he up against?
It’s hard for us to appreciate this, because when we came into the world, there were typewriters. When our parents came into the world there were typewriters. What was he up against? He was up against the oldest established traditional method of putting things down called writing. That’s right, writing.
Writing by hand, pen and ink, pencil. That old idea had been around for how long? Centuries? How about thousands and thousands, millennia and millennia? He couldn’t sell his idea of the typewriter, not even to businesses, because everybody already had pen and ink. The little marketing success that he had was to sell his writing machines to people who were blind so the blind could finally write letters.
Discouraged by the poor reaction to his progressive idea, Sholes sold his invention to the Remington Firearms Company in 1873 for a mere $12,000. But even Philo Remington, who was already a successful manufacturer of firearms, farm machinery, sewing machines – he tried for 13 years, and he couldn’t market the typewriter either. Why? Everybody already had pen and ink.
Remington finally sold his typewriter business in 1886 to private interests who kept the Remington name, so the Remington typewriter that survived has nothing to do with the original Remington Firearms Company. It became a different company. They just kept the name. The new Remington typewriter company finally broke into the business market in the early 1890s. And soon, there was a typewriter bandwagon. Every business had to have a typewriter.
There’s another important reason why most people will not appreciate new innovations and progress. Please note, almost nobody will appreciate new innovations and new progress including educated, intelligent, successful people. They will not appreciate it. The reason they won’t appreciate is because they don’t understand the causes of innovation and progress, especially in schools where they hardly teach the causes of anything. You can’t expect to know this.
Of the few who do understand the causes, most of them will be unwilling to acknowledge the value of the new innovation. You see, it takes a little courage to admit that somebody has done something important that you didn’t do. That takes a little courage. Somebody else did that. I didn’t do that. To even admit I couldn’t have done that takes a little something. Most people don’t have this ability.
By the time even a few people get around to praising the innovation, usually the innovator is long since dead. Christopher Sholes died in 1890, just at the time a few people in business were beginning to recognize the typewriter’s immense value as a tool of what? Production. “Hey, this is a tool of production.”
A technologist is always running into people’s ideological immune systems. The ideological immune system protects you from what? New ideas. It protects you from new technology, especially revolutionary new ideas in technology. You are fully protected from that by your ideological immune system.
It’s important for you to recognize that both bureaucrats and entrepreneurs have ideological immune systems. Everybody does. Of course, the question for this seminar is do you control it, or does it control you? It controls most people all of their lives. They never escape from the domination of their ideological immune system. That’s almost all people. They never escape from that. It’s a closed loop. It takes courage to get out of this loop, probably more courage than most people have.
What is more frightening to most people than anything else? It is the idea, the thought that there could be anything wrong with their own paradigm. They will be repelled by any thought of that. They must protect their paradigms that they were indoctrinated with the rest of their lives and go to the grave with the same paradigm.
You see, in schools, there’s no Courage 1A course. You don’t even have a rational concept of courage in our society. We think courage is jumping on top of the grenade and save your buddies. If you’re a technologist with a new idea, it is always easier to market those ideas where there is a free market society.
In a free market society, the innovator always has the optimum number of choices to further develop his innovation. The greater the freedom of choice, the greater the innovator’s potential to sell his new idea, even if it is a revolutionary idea. Where there’s a free market, there will be investors searching for new ideas, new technologies to back. The innovator may only have to persuade one single investor to lend them the necessary funds to market his invention. It can be done. It’s been done.
But what if there is no free market at all? What if there is only an imposed system of bureaucratic interventionism? The innovator must sell his ideas to the top bureaucratic bosses. It’s common for these top bureaucrats to be old men, accustomed to following a prescribed set of rules. They are far less likely to be looking for new ideas to back than are the investors in a free market.
In this regard, von Mises explains, no progress and no reforms can be expected in a state of affairs where the first step is to obtain the consent of old men. If you look into history you will find that the pioneers of new inventions and new methods are not looked upon as pioneers. By whom? Any or all of their contemporaries old or young. They are looked upon as rebels.
Because they are looked upon as rebels, guess what? They are treated like rebels, which means they are treated with contempt or worse. If the innovator must look to the bureaucracy for support, he is always confronted with this obstacle: Innovation is alien to the bureaucratic mind because the first duty of the bureaucrat is to follow the rules.
It’s not that the bureaucrat necessarily lacks imagination, but the bureaucratic system does not reward imagination. There is the problem. This is why the bureaucrat clings to the customary and the antiquated. The bureaucratic goal is to follow the rules, and it is this goal that is elevated to a great virtue and dominates the bureaucratic mentality.
For this and other reasons, progress falls outside of the field of bureaucratic activities. The rules and regulations at a bureaucracy prevent the bureaucrat from either accepting progress or even recognizing that it is progress in the first place. Where the goal is to follow the rules, there is no room for progress.
But where there is a free market and a profit system, all of the goals change. When you are entrepreneuring a risk venture, the goal is not to follow the rules. If the goal is not to follow the rules in a risk venture, what is the goal? Do all of you know? What’s the prime goal in any entrepreneurial venture, any risk venture?
The prime goal, prime meaning above all others is always to achieve profit by serving the consumer bosses. The profit system itself is the only social system that can optimize progress.
In contrast, the system of bureaucratic interventionism is a regressive social system. One reason for this is that profit falls outside of the field of bureaucratic activities. Where there’s a free market with its profit system, there are entrepreneurs in search of improvement because the system rewards them for any improvement that they can market. Success in the marketplace means, can you successfully market it and make a profit?
The high potential for profit motivates entrepreneurs, technologists, and investors to take very heavy risks. Most people say no risk. I’m a no-risk person. I don’t want it. I don’t want any risk. That’s okay. That’s all right. But you have to take huge risk to be an investor, technologist, and innovator.
Billions are invested in product improvement because the investors are eager to profit. To be an entrepreneur is to be in search of product improvement. Improvement means decrease the costs of production or increase the quality of the product. But if you ever try to do this, you will find that it’s easier said than done. Most people never try.
Many of your innovative improvements will bomb in the marketplace. Many of your creative products will fail to even reach the marketplace. These entrepreneurs will be making countless errors, blunders, mistakes. There will be all of the new innovations they should have adopted, but they didn’t. There will be all of the new innovations they did adopt, but they should not have. Works both ways.
All of this effort is aimed at giving the consumer boss one thing, greater satisfaction. But the consumer will see none of this, because these costly failures are hidden from view. The consumer never sees the risks. The consumer never sees or feels the risks of product production.
More important, the consumer never feels the risk. The consumer will only be a witness to the most colossal market blunders. Many years after the death of Henry Ford and his son Edsel, the Ford Motor Company tried to market a new automobile named the Edsel. Certainly every person interested in the history of automobiles knows about this.
But the consumer bosses said, essentially, “This Edsel is a dog. We don’t like the looks of it. We don’t like anything about it. We’re not going to buy this dog.” And guess what? They didn’t. Their decisions cost the Ford Motor Company over $300 million in losses in 1958 and 1959. I might point out that in 1958 and 1959, $300 million was a lot of money for one corporation to lose. In fact, the loss was so large that the failure of the Edsel almost wrecked the entire Ford Motor Company. It almost put them out of business.
Now, automotive historians claim the Edsel was a much better automobile than the consumers thought it was at the time, but who’s boss? The consumer. Whether the automobile is good or not is really irrelevant. It’s what the consumer thinks it is. In the end that’s all that counts.
I want to make an important distinction between the profit system versus the nonprofit system. Doesn’t sound very interesting or exciting or entertaining, but it’s very important. My job here for the rest of the seminar and from the beginning is to try to do something that is very difficult to do, and that is to make very, very, very important things also sound interesting. That is the hardest thing there is to do. The more important it is, the harder it is to make it sound interesting.
“Boy, I better learn this. I’m going to sit on the edge of my seat. This is really important.” That’s tough. That is really tough. But I could entertain you with trivia for the next 10 years and have you right on the edge of your seat, and it would be all trivia. It’s done every day.
When the goal is to build the highest-quality product at the lowest price, there is a reason why the profit system will accomplish this goal faster, better, and cheaper. The reason has to do with the process of entrepreneurial decision-making. There is a profoundly significant action the entrepreneur takes before they make a business decision.
This entrepreneurial action is so important that, when I name it, it will not have a big impact upon you. Nevertheless, it is the dynamic foundation of prosperity for everyone. Here is the first building block of what is important in the entrepreneurial domain, Namely, the entrepreneur measures their risk.
Each entrepreneurial decision is carefully weighed. What is its potential for success or failure? Even if the entrepreneur cannot define the term success or failure with any scientific precision, it’s intuitive. Success, of course, means the consumer is willing to pay a higher price for the product than the cost of production. Very important. Secondly, failure means the consumer is unwilling to pay a higher price than the cost of production. An entrepreneur is one who continually calculates business decisions for their potential profit or loss.
There’s a second building block that generates prosperity for everyone. The entrepreneurial decisions of the entrepreneur will either increase or decrease their own personal wealth. An entrepreneur is one who is always risking both his reputation and his personal wealth. If he’s not risking both, he’s not an entrepreneur.
Unfortunately, that term is not defined. We’ve got a zillion people in the world calling themselves entrepreneurs who aren’t. If for no other reason, they’re not at full risk. If you’re not at risk you’re not an entrepreneur no matter what you call yourself.
Here we see once again the vast difference between an entrepreneur versus a manager. The gulf is huge. You must understand the difference between manager and entrepreneur. A manager is almost always a salaried employee. Immediately, you know they’re not an entrepreneur. Salary means no risk. Salary is a guaranteed wage. No one on salary is at risk. I didn’t say there’s something wrong with a person who’s on salary. I’m just saying they are not at risk. It’s important to understand this.
Both an entrepreneur and a manager may be well-dressed, well-schooled, well-mannered, and they may both have integrity and keen judgment. But if you do not understand the vast difference between the two, you do not understand the causes of prosperity. If you do not understand the causes of prosperity, that failure alone means simply you don’t understand what’s going on, in the social world at least.
Here in one sentence is the driving force behind the success of the entrepreneur within a profit system, which is a social system. The key element is the quality of the entrepreneur’s business decisions. They determine the quantity of their personal profit or loss. If you’re an entrepreneur, then every business decision you make involves your assumption of risk, acceptance of risk, and acquisition of risk. An entrepreneur, you might say, is a manufacturer of risk.
However, his goal is not to assume risk. That’s not the goal. The risk is an unavoidable feature of entrepreneurial achievement. So the free market’s profit system optimizes the potential to assume entrepreneurial risk. The greater the potential achievement, the greater the risk. Where there is a profit system, you have a social system that optimizes the assumption of entrepreneurial risk.
I’d like to examine now the regressive domino effects of tax confiscation upon risk assumption. All taxes confiscate choice. The technology of tax confiscation bears many familiar names including the progressive corporation tax, the progressive income tax, retained earnings tax, excess profits tax, windfall profits tax, and more.
They are all enforced with the same political theme of confiscating your property. If you oppose me in this confiscation, you will be fined, imprisoned, or shot. Many people object to this violent confiscation, as I’ve said. Since the very first tax in history, whenever that was, invented thousands and thousands of years ago, there have been tax protestors. This is not new. There have been tax protestors since the first tax.
In U.S. history – all of you studied U.S. history in school – as early as 1794, George Washington, as president and commander in chief, on horseback, led an army of gunmen into western Pennsylvania to put down, with arms, what? A tax revolt. This revolt is called by historians, in the seminar for the first time, what?
How many of you took U.S. history, just out of curiosity? You were absent on the day they discussed this, right? Okay. This was called the Whiskey Rebellion. That probably jogs your – oh, yeah, the Whiskey Rebellion. Okay. I remember that. Yeah. Did you get an A on the question for that test?
What was the Whiskey Rebellion all about? Well, there was a federal tax on whiskey enacted in 1791. The taxpayers protested by, among other things, seizing federal tax collectors, ripping their clothes off, then covering them with tar and feathers. As you might anticipate, that was a then quite popular method of showing contempt for people you did not like. You got to be literally tarred and feathered.
Washington and especially the secretary of the treasury, Alexander Hamilton, did not like this at all, and especially Hamilton even more than Washington was responsible for having all of the leaders, who led the revolt, jailed. What the tax protestors of history have failed, clearly, to see is this generalization. There have always been tax protestors. There will always be tax protestors as long as there are taxes.
What they don’t see is that tax confiscates the incentive to assume the necessary risk that is the foundation of progress. In other words, taxes confiscate progress. Please note, however, those people who propose more taxation are always claiming what? “This taxation will achieve the greatest good for the greatest number.” Don’t they? Sure.
But instead, if it’s a tax, it will always confiscate more and more progress. You cannot tax without confiscating progress. The confiscation of progress can never achieve the greatest good for the greatest number.
Here’s a chain of regressive domino effects to follow. When you confiscate profits, you confiscate incentive. When you confiscate incentive, you confiscate risk. When you confiscate risk, you confiscate progress. But who sees the confiscation of progress? Who sees it? It’s not seen because the progress is confiscated before it can be achieved.
I will now examine in more detail the reality of bureaucratic administration of the nonprofit system. What does every employee of the bureaucracy have in common? One thing is, they do not have profit as a goal. The bureaucratic decisions of the bureaucrats do not directly increase or decrease their personal wealth. Their standard or criterion of success is not measured in profits, and their criterion of failure is not measured in losses.
Something is missing at the bureaucracy. Here’s one thing. The bureaucrat never entrepreneurs a product with the goal of meeting the most urgent demands of the consumers for the highest-quality products at the lowest price. That means the bureaucrat never has to serve the consumer bosses, which means he never has to serve the people.
Please note, every bureaucrat claims to be offering what, an indispensable service to the public. Don’t they? Here’s a good question for you. Why is it impossible for any bureaucrat to offer a service to the people? Write me an essay. That would be a good essay question for you. Impossible. Yet they all claim to be public servants, don’t they? It’s impossible for them to meet any of their stated goals.
Here’s why. Every true offer remains merely an offer until when? Until there is a voluntary acceptance of that offer. When there is a true offer, then not one person ever has to accept that offer. When you do accept the offer, it is only when you believe your act of acceptance will in some way increase what? Your level of satisfaction.
There was an expression popularized in Hollywood movies about the mafia that you’ve heard many times. The mafia will give you an offer you cannot refuse. This is exactly what the bureaucratic gunman does. He will give you an offer you cannot refuse. Why can’t you refuse it? Because it’s an offer backed up with a gun, in which case you were not given an offer. Do you see that? But a command that you must accept or else.
Would you say there’s a rather dramatic difference between someone giving you an offer versus someone giving you a command? An entrepreneur makes you offers. A bureaucrat gives you commands. Nevertheless, the bureaucrat always claims he’s offering a public service, but what is the reality of his so-called offer?
When a “service” is imposed upon you with a gun, it is not a service. Please note, “service” is in quotation marks, implying it’s something other than it claims to be. It’s always amazed me how few people have noticed that when it’s imposed upon you at gunpoint, it is always a disservice. Then why would you call it a service if it’s a disservice?
The bureaucracy, by its very nature, is the imposer of disservices or pseudo-services. It’s the only kind they give. Calling a pseudo-service a service does not make it a service. What is the measure of customer satisfaction? There’s only one scientific test.
First of all, do you make true offers of services, of products? And product is just a generalized term for goods and services. Just say products, tangible or intangible. You make true offers to people who can refuse to accept your offer for any reason. That’s the first test. Second of all, do consumers like your product offer so well they will accept that product, they will buy the product, and they will pay you a price for your product that exceeds your cost of production they like it so well?
That’s really the ultimate test. They like it so well, they will pay you more than your cost of production. When they continue to voluntarily accept your offer to sell, this is the feedback that is the only scientific measure of customer satisfaction. There is no other. This is what entrepreneurial profit is all about. Profit is the amount of gain in excess of the total cost of production where the product is voluntarily purchased.
I’d like to point out something else about merely having profit as your main goal. By having entrepreneurial profit as your goal, you can thereby avoid hundreds of potential blunders if your goal is also to serve your fellow man. Professor von Mises pointed this out as early as 1945 when he said, “No private enterprise will ever fall prey to bureaucratic methods of management if it is operated with the sole aim of making a profit.”
If there is just one goal, you have another simplex principle. The entrepreneur can only build a private enterprise when there is a profit system. Another reason why the profit system is both important and unique. The profit system is the only social system that optimizes the potential for market efficiency. The profit system, when allowed to operate, is by itself one of the super giant social solutions in the history of mankind. The profit system is the most humanitarian social invention in the history of human action.
I gave you the definition of humanitarian for this science. It is helping to improve the welfare and greater satisfaction of mankind. If you are a human being, then what is your human action all about? Since we now have a science on the subject, we do not have to guess at what it’s all about. I gave you the law of human action. All human action involves employment of the chosen means aimed at the attainment of some end of greater satisfaction.
Everyone is after greater satisfaction, but we have no control over this ultimate goal. The only control we have is, how do we get there? It turns out that of all the possible social systems you can have, the profit system is the supreme and incomparable system if the goal is to improve the welfare and greater satisfaction of mankind. No other social system is even a close second.
I’ll give you a profound conclusion on humanitarianism. Profit as the sole aim is the foundation of humanitarianism. What is the hard evidence to support this in addition to everything I’ve said? Again, the profit system achieves something that no other social system can achieve.
The profit system makes those men prosper who have succeeded in achieving the greatest satisfaction for mankind in the least expensive way. That’s essentially my rephrasing of a von Mises concept. The profit system is a beautiful system because it’s the only social system that can optimize man’s potential for attainment of greater satisfaction.
It is the only social system that can serve the consumer bosses in the manner that they wish to be served. Who are the consumer bosses? Anybody who consumes, i.e. all the people. They all consume. There is, in the final analysis, only one alternative, then, to bureaucratic interventionism. The ultimate alternative to all bureaucratic agencies is the enterprise that has the sole aim of achieving a profit. This alternative does not take place in society all at once, but it is an evolutionary process.
Now we come to three scientific conclusions for which I’ve been building the intellectual groundwork during the earlier sessions. In an earlier lecture, I said that one of the subtitles of the seminar is “Science on the Attenuation of Poverty and the Optimization of Prosperity.”
There is one and only one means to accomplish this objective. We’ve already discussed it. The solution is a simplex practical panacea that can now be stated in one sentence. The greatest prosperity for the greatest number can only be optimized where the supreme aim of all production is the achievement of entrepreneurial profit. That is one of the largest solutions, one of the largest concepts you’ve ever heard. It’s a simplex solution. This is a scientific conclusion that is fully supported with the full context of the seminar.
If you have plenty to eat and this is looked upon as good. If you have many clothes to wear and that is seen as good. If you have more than adequate shelter and that is good. If you have access to knowledge and culture and that’s good, too, then, conclusion, the greatest prosperity for the greatest number is also the greatest good for the greatest number.
Therefore, we can now reach this grand conclusion; The greatest good for the greatest number can only be optimized where the supreme aim of all production is the achievement of entrepreneurial profit. Again, this is one of the most important scientific conclusions you’ve ever seen. That means it’s much more than someone’s arbitrary opinion.
I have to warn you, some of you, again, if you’ve come into the seminar with a positive image of entrepreneurial production, and your reaction is, well, Snelson sure has confirmed what I’ve always believed all along. When it comes to production, boy, private enterprise sure is the efficient way to go. If that’s your response, then you’ve missed the significance of the science that is in optimization theory.
I’d like to point out, I may or may not get to this later, but this is just a conclusion that I’ll mention at this point. That is that you can agree with everything that you’re hearing and understand nothing. Agreement is not synonymous with understanding. This one simplex principle gives you a dramatic increase in your understanding of causality. Once this principle is understood, there is no end to its practical application.
One of the many applications is to build a science of careers. Let’s talk about a qualitative analysis of careers and the foundation for a science of careers. What is a career? Your career is literally the course of human action that you follow throughout your entire life. Your life is your career.
A career was originally a fast road for vehicles. That’s what it meant, say, a century to two centuries ago. To career, used as a verb, means what? It means to go at top speed in a headlong manner. To career. Today, the term is commonly applied to mean your life’s work or a significant portion thereof.
By the time you arrive at this seminar, most of you have already chosen a career. Once having chosen a career, most people do not change the course of their career. Nevertheless, you’ll find it useful to understand a scientific approach to a qualitative analysis of careers. Is there some method by which you could measure the quality of Career A versus Career B versus X, Y, and Z?
Who’s to say that one career is superior to another? Isn’t it all a matter of subjective value judgments? What do you think? If you have children – how many are the parents of children? That’s two-thirds of you. If you have children that you are still in a position to influence, that is, they still rely upon you for their sustenance, I would say it’s especially useful to understand the foundation of a science of careers.
One of the major tools of science involves the classification of things into various categories. I’m going to place almost every human being who’s educated, intelligent, and successful into just four separate and distinct career classifications. There are the super-progressives, the progressives, the super-retrogressives, and the retrogressives. Retrogressive is synonymous with regressive.
To illustrate: Thomas Edison and Andrew Carnegie were super-progressives who both played a major role in building the wealth of this nation. What if they would have acted alone without any business associations with others? They would have accomplished very little. Since they are a part of the division of labor, they have various associates who both work with them and for them. These include managers, secretaries, clerks, workmen, aides, machinists. These people may be properly classified as progressives. Even though they may not add directly to man’s progress, they indirectly do so by aiding the super-progressives.
In sharp contrast, who are the super-retrogressives? By definition, these are the major politicians and bureaucrats throughout the world. Please note, this is not name-calling. I have with great precision defined the sphere of regressive human action. I gave you the law of regressive human action or social action as I’ve sometimes called it. All social actions are regressive that decelerate the total quantitative or qualitative accumulation of the tools of production necessary to make the consumers’ most urgent requirements.
Every human action taken by politicians and bureaucrats in their professional role is retrogressive. What percentage of their actions? All of them.
The characteristic feature of all political and bureaucratic action is to thrust acts of interventionism upon the people. Remember, if it’s political or bureaucratic action, by definition, it’s interventionism. I’ve given you this term interventionism. I will continue to give it to you until you begin to feel like you know the concept.
Again, I will repeat the earlier question, can you identify any political or bureaucratic action that does not involve interventionism by definition? Furthermore, can you identify any act of interventionism that is not imposed by violent means? If you can do that, we’ll save that for the discussion period. Hopefully there will be a little time for discussion later. In fact, at one of these sessions, I may call any of you by name and ask you to identify any exceptions, if you know of any.
To be able to place most educated, intelligent, successful people into just four classes gives you a large amount of knowledge. Furthermore, it gives us a foundation for a science of careers. Please note, I have not said that you or anyone else should pursue a career as a progressive or as a retrogressive or, for that matter, to give up a career as a progressive or a retrogressive. I haven’t said you should do this.
However, once you or anyone else can put most careers into a progressive versus a retrogressive category, then you have to decide what you want to do with your life. Execute those human actions in your career capacity that takes society forward or takes society backward. It’s pretty much black and white. I don’t know how else to say that.
Some things are black and white. You’ve heard that nothing is black and white. That’s a fallacy. That’s not true. Some things are black and white. There really are no shades of gray. There are fundamentally only two kinds of human action: those human actions that involve interventionism and those that involve non-interventionism.
All acts of bureaucratic interventionism are socially regressive. That allows for no exceptions. This is because they always cause something to happen. They decelerate the accumulation of the tools of production for consumer products. Furthermore, each regressive action causes inevitable regressive domino effects.
The ultimate regressive domino effect is international war, civil war. If an individual, for whatever reason, decides not to follow a regressive career, they may decide to pursue a progressive career. They may seek out a career of serving in some way the product demands of the consumer bosses.
The system that serves the consumer bosses better than any other system is called the profit system. The profit system is not based upon a caste system. It doesn’t matter who your father was or was not. Anyone can join. There are two ways to get in. One, start your own profit-seeking venture. Two, join one that someone else has already started. That’s it. That’s how to get in. Start your own or join one somebody else has started.
There are no rules to say where you have to start or at what position. You can start as, for example, the saver who invests in production, the technologist or the entrepreneur. You don’t even require, necessarily, any special education. It doesn’t matter, for example, what your sex is. The consumer bosses are not concerned with the sex of the entrepreneurs, technologists, and investors who produce their favorite products.
If you’re a woman and you want to choose a career as an entrepreneur or technologist or investor, are the prerequisites for success different for you than they are for a man? What do you think? No, they’re just the same for a man. There is no sex discrimination. The terms, in fact, please note that the terms, entrepreneur, technologist, and investor are not gender specific. They don’t even imply gender. They could be male or female, right? There are female entrepreneurs and male entrepreneurs, female technologists and male technologists.
If you want to get into this club, how do you get in? I’ve discussed this earlier. It takes something to get in. To be an investor, entrepreneur, technologist, what does it take to get in?
If you want to get in, all the money in the world isn’t necessarily going to get you in.
Extreme high risk. High, huge, monstrous, gargantuan risk. That’s not the same as, well, I’m going to take a risk. You see the point? It’s a question of degree.
What else does it take to get in?
Not only initiative, but extreme, extreme, gargantuan levels of initiative beyond what most people have. Willing to take risks beyond what most people are willing to take. That’s what gets you in.
Those prerequisites are so high, almost everybody is excluded. “I don’t want to take the risk. I could lose everything.” Of course. Most people don’t want to take that risk. It’s okay. But it’s important that you understand what it takes to get in. You don’t have to want to go there yourself, but you won’t appreciate entrepreneurs and technologists and investors unless you have some understanding of what it takes to be one. They are among the least appreciated people on the planet, especially entrepreneurs.
There it is, possession of extreme high initiative and the courage to assume extreme high risk. And if you say, well, I’m rejecting all those options, someone might say – a woman might say, “I want to be a full-time mother.” Then there is sex discrimination there, since only a woman can be a full-time mother.
And if a woman is looking for a challenge in the role of mother, there will be plenty of challenge if the goal of that mother is to raise a child who has a rational perspective of reality, a child who understands causality, a child who has the independence and courage to reject all regressive peer pressure.
That could be a full-time job for a mother. Being a mother is one of the least appreciated, most difficult roles ever designed. One of the hardest things there is to do is to be a successful mother so that you can say, when your kids are all 40 years old, that they are successful adults. That’s what it really means. To be a successful parent is your children become successful adults.
What good is it if they’re great successes as children and total failures as adults? The most effective way to destroy your kid is to let your kid believe that it’s very important to be popular. That is the biggest blunder any parent can ever make. If you want to raise losers, that’s the best thing you can do, put popularity as the prime goal that your children should be striving for.
Whether you’re a man or a woman, the more significant the achievement you aspire to attain, the greater will be the magnitude of your risk. On the other hand, you might say, “But I don’t want to take any risk.” That’s okay. There is no negative stigma because someone doesn’t want to take risk. If you choose to minimize your risk, that’s your choice.
You could become a competent and successful medical doctor without taking on the risk of attempting to discover some new medical cure. You’ll have a lifetime job just attempting to master the knowledge of medicine developed by the founders of medical science. However, if during your medical practice you take on the risk of developing a greater improvement in some medical procedure, then you have entered the ranks of the super-progressives. Or if you add to your risk by investing your medical earnings to finance the tools of production, maybe in medicine, you’ve also entered the ranks of the super-progressives.
Let’s assume you choose to join an entrepreneurial venture somebody else has started. The end product could be anything the consumer bosses demand. The product could be a brokerage service such as insurance or real estate or security exchanges, where the goal of the broker is to bring buyer and seller together to achieve mutually profitable exchanges. The end product could be anything from the manufacture of golf balls to ball bearings.
Let’s talk about how to increase your enthusiasm for your participation in the ultimate production of a product. The end product can be any product, tangible or intangible, the consumers are willing to voluntarily purchase. The structure of the venture is unimportant. It can be a corporation, partnership, or proprietorship.
However, all of the people who are taking the business risks have one common goal, profit, except that it’s a very special kind of profit that I have carefully defined as entrepreneurial profit, not to be confused with just plain old profit. Entrepreneurial profit, by definition, has one source. The source of all entrepreneurial profit is when the entrepreneur sells his products at a price that exceeds his cost of production.
But what is the attitude of the average individual who is employed by one of these profit-seeking ventures? What is his attitude toward business profits? If he’s gone to school – and usually what are they looking for when they hire people? They want people who’ve spent a lot of time in school, right? He has likely accepted, if he’s gone to school, the popular fallacies concerning the nature of the profit system as it evolved from the early days of the industrial revolution to the present.
If he’s attended college, he or she has received an even more concentrated exposure to these fallacies. There are serious consequences when you consider the fact that most of today’s corporations are run by – guess what? College graduates. This is a problem. Most of the people who are in management, even at the lower levels of management, in large corporations are college graduates. Am I exaggerating? You need that to get in the door. They won’t even consider you for flunky management training unless you have a degree in something.
The original entrepreneurs who launched our most successful and durable national corporations are almost all dead or they’ve retired. They’re either dead or they’ve retired, almost all of them. Often, these original entrepreneurs are not replaced with entrepreneurs. Here is a gigantic problem in the history of American business. The entrepreneurs were not replaced by entrepreneurs. What were they replaced by? Managers. Gargantuan blunder.
Part of the problem is, in business schools, the professors don’t know the difference between an entrepreneur and a manager. The manager’s personal fortune is never at risk. Unless his income is directly tied to profits in some way, he is not at risk, and usually even then it’s not a whole lot of risk.
Every day we read about CEOs that leave the corporation having brought the corporation into hundreds of millions of dollars of losses, and they leave the corporation with all of their great benefits and their golden parachutes and what have you. That happens all the time, am I right?
It means that somebody didn’t know what the hell he was doing were doing when they designed what is called rational compensation. There must have been a lot of idiots involved in this. Maybe idiot is unfair. People who do not understand anything about entrepreneurship, cause and effect, causality, the marketplace.
Unfortunately, they don’t understand these things in what are called business schools, with few exceptions. The most important thing they should be teaching in business schools, they don’t even understand to teach it. The innocent acceptance of all these fallacies concerning the nature of profit and the profit system shapes, as I said, the employee’s attitude toward the company his own self-image. His own self-esteem is shaped by this attitude.
But once an employee comes to understand the true humanitarian nature of the profit system, with this understanding will come a new attitude toward the company’s entrepreneur, its management, and his role in the company. The people who either manage or work for these profit-seeking companies have not been sensitive to the fact that a profit system will always accomplish something that the nonprofit system can never accomplish.
In the words of Professor von Mises, “The profit system makes those men prosper who have succeeded in filling the wants of the people in the best possible way at the cheapest price.” My friends, I hope I’m beginning to get this message across. Namely that the profit system is the fountainhead of humanitarianism. I don’t think I can say it any better than that in fewer words.
Dear friends, it is not merely some other alternative social system. It is the greatest humanitarian social system ever conceived. One reason it has not been understood is that no single person invented it, but through the intellectual achievements of the classical economists, it was allowed to evolve. Again, look at the definition of humanitarianism, helping to improve the welfare and greater satisfaction of mankind.
My friends, here is a truly exciting concept. Within the profit system, listen to this, you can actually earn a profit by improving the welfare and the greater satisfaction of your fellow humans. How can you improve on that? I don’t know how to improve on that. Here’s an entire social system with individuals achieving profit through the optimization of humanitarianism. You cannot have a more beautiful and elegant social system. If you’re associated with a profit-seeking business, then you should be proud of your contributions to the welfare of your fellow humans. There is nothing wrong with that. Be proud of it.
Let’s talk about your children and their ultimate choice of a career. Do you care whether or not your children have a successful career? I assume you do if you have children. Does it matter to you what career they follow in order to earn a living? Should you attempt to influence them one way or the other, or should the entire decision be up to the child?
How many parents I’ve heard say, “Well, I’ll let Susie and Johnny make that decision on their own. I don’t want to be involved in that decision at all. Let them figure it out.” Whether the parent makes the decision or the child makes the decision, in either case, what has been missing is a science of careers that can establish a qualitative analysis of careers.
If the goal is the greatest good for the greatest number and the preservation of our human species, then it is useful to begin a classification of careers. I’ve already given you two broad classifications. There are the progressive careers and the regressive careers. Leaders in the regressive careers are the major politicians and bureaucrats. The leaders in the progressive careers are the major super-humanitarians.
The question I have for you now as a parent or as anyone who cares about children or anyone who cares about whether or not our species survives, which I presume is most of you. What is the image that your child has of these super-humanitarians? Have them write an essay on their perspective or image of these people, then have them read it out loud, then you read it.
Is it a positive image or a negative image? With that question in mind, let’s talk about how and why to build within your children, within their minds, a positive image of the super-humanitarians. First of all, if your children have a negative image of the super-humanitarians, what does this mean? It means they have a complete distortion and total distortion of reality. In the real world, these super-progressives are the builders of all the progress. Not some, all, no exception. Anyone, whatever his age, who does not understand the causes of these things simply doesn’t get it.
If they don’t have a positive image of the super-progressives and the super-humanitarians, that immediately means they don’t have a clue as to what’s going on. They don’t know straight up from sideways, forwards from backwards. If you take no action to build within your children’s minds a positive image of the super-humanitarians, then who will? Do you think their teachers will? I wouldn’t count on it.
The fact is, most of the people have been given a negative image of the super-progressives, especially in their roles of entrepreneurs and investors. Most teachers in the world have a negative view of entrepreneurs and certainly investors, if not technologists. They usually have a good view of technologists, but certainly not entrepreneurs or investors.
At the same time, most people, as I say, have been given a negative image of the super-progressives. At the same time, they have been given a largely positive image of the super-retrogressives in their role of politician and bureaucrats, except they are given more favorable names than what I give them. Super-retrogressive is not a very favorable term. You have done a super job of retrogression, of carrying all of society backward. That’s what that means. That’s not a complimentary term exactly.
So we hear them addressed as more favorable terms, titles such as statesman. I like that. Statesman. That really conjures up positive images. Public servants and all kinds of various heroic titles. Your children as well as their parents are constantly bombarded with favorable images of the retrogressives and unfavorable images of the progressives.
Two of the most popular programs on television of recent times have been, they may not be running now, but their reruns are running all over the world, Dynasty and Dallas. You’ve all seen these programs. You can see them all over the world. You go to Britain, and there’s Dynasty. You go to Italy, and there’s Dynasty or Dallas with Italian dubs. J.R. is speaking Italian.
How are the entrepreneurs portrayed in these and most other dramatic and theatrical presentations? The entrepreneurs and investors are characterized usually as villains who swindle their partners and who cheat on their wives and their paramours at the same time. How can you improve on that? Am I exaggerating? That’s your J.R. Ewing. And they are portrayed as, their only loyalty is to a fast buck, especially if it’s both big and fast bucks. True?
The fact is there are such people in the real world. I call them the pseudo-entrepreneurs. But they represent a minority of the people in the business world. If they were the majority, nothing could be produced. In other words, if the average entrepreneur was a Cliff Barnes or a J.R. Ewing, the Dallas characters, do you know what that would mean?
The entire production mechanism would come to a complete screeching halt. The whole thing would go down the toilet. Do you see that? That would be the result if the average entrepreneur had a J.R. Ewing mentality or Cliff Barnes mentality, which is the same. Like bureaucrats, these people, the Cliff Barnes of television and drama, follow the Montaigne dogma. No man can profit except by the loss of others. For me to gain, you must lose. That’s their whole paradigm, isn’t it? That’s J.R. Ewing’s philosophy of life. For me to gain, you must lose, and I’m going to be the gainer, and I’m going to see that you’re the loser.
Like the bureaucrats, they are specialists in interventionism and confiscation, except that it’s private interventionism and confiscation. But only a minority of the people in the business community are confiscators. In contrast, one hundred percent of the people in the political and bureaucratic community are confiscators. It is not only television that gives your children a distortion of reality, but it’s motion pictures, radio, novels, periodicals, stage plays.
Therefore, it’s very much in your interest to see that this distortion of reality is rectified with your children. If you don’t, you’re making a huge mistake. It is a huge omission. And remember, they’re surrounded by this irrational perspective of reality 24 hours a day, 360 degrees, from every direction. If you do nothing, your child could pursue a career as a super-retrogressive.
However, if your child has an understanding of reality, he or she will have a negative image of the retrogressives. Therefore, he or she is unlikely to pursue a retrogressive career. One of the very best introductions to reality you can give your children is to teach them that every product has three sources – at least three. There’s actually four.
This should begin with an explanation that nature is not the source or the cause of any product. Nature will not put into their little hands a single product. The products do not come from nature. Where do they come from? Here they are. One, produced what did not previously exist, which includes exchanging for other products. Two, confiscated from those who did produce it. Three, convinced those who did produce it to give it to you for nothing.
Then you teach your children which professions, which careers fall into which of these three categories. To be sure, in the end, it is their choice. They can choose a progressive career, which involves some aspect of production of products that are in demand by the consumer bosses. Two, they can choose a regressive career which includes some aspect of the confiscation of products. Three, they can choose a regressive career, which involves getting people to give you donations to support your career.
If people are making donations to support an astronomical observatory to improve understanding of the causes of our galaxy, I would call this progressive physical action, even though it may not be the most efficient way to fund an observatory. But if other people are confiscating funds to fund the observatory, then that is clearly a regressive social action.
The important thing to teach your children is that there is a qualitative distinction between careers that transcend in importance income potential, popular acceptance, and prestige. Furthermore, you should teach your children the one road to reality. The road to reality begins with our understanding of cause and effect. The better their ability to correctly understand the causes of things, which includes understanding where products come from, very important, the better will be their ability to think for themselves.
I’m going to discuss the achievement of one of the super-giant super-humanitarians that at some point in time your child should acquire a positive image of. Almost everyone in the civilized world has heard of this man, but the importance and magnitude of this man’s achievements has not been understood. If it was, there would be at least one statue to this man in every major city in the world on prominent display.
He was born the son of a farmer at Greenfield, Michigan, in 1863. He died in Dearborn, Michigan, in 1947. Some of you will already know who it is. All of you have heard of him since the time you were a child. Most of you will recognize his picture. He is the illustrious Henry Ford.
But why is he illustrious, since that’s a positive description? Why is he illustrious, which means notably outstanding for his achievements? Why illustrious? Was it because he manufactured automobiles?
Others had manufactured automobiles both before and after Ford. That wasn’t really all that important.
What did Ford do that was different? Ford did not invent the assembly line. That wasn’t new.
What did he do that was new? Interchangeable parts was long before Henry Ford. What did he do?
To understand what he did in science, to understand it, to get it, it is called an integration. When you integrate, you’re bringing together or connecting previously known parts or concepts or principles to create some bigger whole that is greater than the sum of its parts.
Sometimes, the reaction when you do this, is, well, anybody could have done that. All he did was connect up these various parts of things that already existed, so what’s the big deal? A case in point would be the automobile itself. Before the automobile, all the parts were there. The German automobile pioneer, Karl Benz, here’s one of his early vehicles Benz drove his three-wheeled motor-driven vehicle through the streets of Munich in 1885.
As early as 1885, all of the major parts had been developed for the automobile. The axle and the wheel had been around for thousands of years. The chassis or frame on the carriages had been around for hundreds of years. The steering mechanism had been around for a long time. Another German, Nikolaus Otto, had built as early as 1862 the first four-cycle internal combustion engine. As early as 1862. That was before the Civil War.
The engines that Otto and his German partner Eugen Langen designed and developed represent the basis of the modern automobile engine. When Karl Benz and another German, Gottlieb Daimler, pioneered the modern automobile, this was a synergistic development – you hear that term all the time. That’s a popular buzzword these days, but the term is useful. Synergism is a proper concept – integration wherein the whole automobile is far greater than the sum of all of the individual parts.
If Henry Ford did not integrate the automobile, what did he integrate?
When Nikolaus Otto built the first four-cycle engine in 1862, Ford was a one-year-old living on his father’s farm. Henry’s father wanted his son to become a farmer, but, when he was growing up, Henry did not take well to either farming or school. The two things he hated the most? Farming and school.
When he was 15, he quit school, and at 16 he quit his father’s farm and went to Detroit to become a machinist’s apprentice. At the age of 30, he built his first automobile, drove it for 1,000 miles, and sold it for $200. He built that first automobile in 1893, eight years after Benz was driving around Munich.
In 1899, Ford founded a company to manufacture automobiles of his own design, but by 1899, there were many other manufacturers of automobiles around. Let’s look at Ford’s business strategy. That’s kind of important. Ford reasoned as follows at the turn of the century. If you price your automobile at $10,000 apiece, you might be able to sell 100 automobiles a year.
If it only costs you $5,000 to produce each automobile, that’s $5,000 profit per automobile. $5,000 profit per auto times 100 units sold equals $500,000 gross profit. Five thousand dollars profit per automobile times 100 sales. Figure it out. But how many units could we sell if we could figure out how to engineer a drastic reduction in the cost of production and thus make a drastic reduction in the selling price?
What would happen to sales if we could manufacture an automobile that could be sold for the incredibly low price of let’s say $1,000 and still allow us to make a profit on each sale? That’s important. Get it down to the $1,000 but still make a profit. What would happen to sales? Ford projected, “If I can do that, I believe we could sell maybe 100,000 automobiles in a single year.”
If it costs you only $900 to produce each automobile, that’s $100 profit per automobile. Here’s how it looks. $100 profit per auto times 1 million units sold, that’s $100 million net profit. $100 million profit is 200 times more impressive than a mere $500,000 profit, isn’t it?
If it is the turn of the century, this profit projection is merely entrepreneurial speculation. Ford could be wrong. There is only one acid test that will determine the market reaction. Try it. Ford assumed an incredibly large risk based upon his speculation concerning future demands of the consumer bosses.
The problem Ford must solve is how to achieve a drastic reduction in the cost of production without sacrificing the quality of the product, reduction of cost without reduction of quality. Ford developed a simplex production principle. Instead of the workers always having to go after more parts, reverse the procedure. Devise a technology that will bring the parts right to where the worker’s workstation is.
This principle of production has a name known to all of us as the assembly line. As the assembly line progresses, each worker adds a new part. At the beginning of the assembly line, you add the first part. Then you keep adding parts as the line of assembly progresses until the last worker at the end of the line adds the last part and you finally have a synergistic integration, the completed automobile.
The very last worker at the end of the line, pumps gasoline into the tank, and a driver drives it away. That was where the production line ended. Pump in the gas, drive it away for shipping.
Through the development of this assembly line technology, Ford was able to cut the time it took to put one entire automobile chassis together from 14 hours, which wasn’t too bad, to just one hour and 33 minutes from start to finish. When Ford’s assembly line was in full operation, his workers were able to assemble an entire Model T Ford at the amazing rate of 1.6 automobiles per minute.
All this means is Ford was able to achieve that drastic reduction in the cost of what? Production. In 1908, the Model T Ford sold for a mere $850 out the door. By 1925, just 17 years later, it was selling for the amazing price of just $290. But did they sell well? The price was $290, but did they sell well at that price?
During the 19 years that the Model T was in production, the number of Ford automobiles sold was staggering. Here we see Ford standing in front of the 10 millionth Ford.
Before the 19 years was finished, he built another 5 million. He built 15 million Model T Fords in 19 years. Think about it. That is the most incredible production figure probably in the history of production.
He was not producing paper clips. This was an entire, complete automobile. That’s almost one million automobiles a year for 19 years. That is more automobiles built in less than 20 years than there probably were horse-drawn carriages built in the Western world during 6,000 years of carriage-building.
Between 1917 and 1927, nearly one-half of the automobiles produced in America were Fords. What was the fundamental underlying cause of Ford’s unprecedented achievement? He applied a principle to his business. Ford was the first entrepreneur in history to achieve a major application of the principle of prosperity to a major product.
He applied a corollary of this principle to the Ford Motor Company. Ford never heard of this principle by name. I’ve given it a name. I just call it the principle of company prosperity – accumulate the quantity and quality of the tools of production at a faster rate than you accumulate company personnel. Ford was continually plowing Ford Motor Company profits back into the company to create more and better tools. This is what the entrepreneurs of the Industrial Revolution had done much earlier.
This led to a conflict of interest between Henry Ford and his stockholders. The stockholders didn’t want company profits converted into more tools of production. One generalization you could make about all stockholders. They likely don’t have a clue as to what goes into manufacturing a product.
They wanted the company profits converted into more dividends for themselves. The stockholders got the federal government to intervene. The federal government forced Henry Ford to disperse more profits to his stockholders when he wanted to put more profits back into the tools of production.
You don’t have to feel sorry for the Ford stockholders. For example, there was a Mrs. Rosetta House who was the sister of Ford’s business manager, a man named James J. Couzens. Couzens had tried earlier to sell his sister $200 worth of his own shares, but she had great reservation about the future of their value and the future of the Ford Motor Company. She thought it probably would go bust.
But finally, after much effort, Cousins convinced his sister to buy $100 worth of his stock. During the next 16 years, that $100 investment earned in dividends $95,000. Henry Ford strongly believed that he could run the Ford Motor Company better than his stockholders could, and so in 1919 he bought out all of his minority stockholders.
Rosetta House sold her shares, originally purchased for $100, to Henry Ford for $260,000. In 1919, that was 260,000 gold dollars. If you make an inflation adjustment, for example, on the purchase price and the sale price of the stock, that $100 could have been exchanged for five $20 gold pieces worth today at least $500 apiece or roughly $2,500. If they have numismatic value, they could be worth a lot more than that.
That was $260,000 that she got, for example, when Ford bought her shares. That could be traded for 13,000 of these $20 gold pieces, worth today maybe $5 million to $7 million if you adjust for inflation. The $95,000 in dividends on the same trade would be worth today $2.5 to maybe $3 or $4 million. If you adjust both the purchase price and the return for inflation on her $2,500 investment adjusted for inflation, the investment and the return, she earned somewhere between $7 and $10 million on her investment in the $100 share she reluctantly purchased from her brother. I wonder if she ever thanked him.
Finally, what was the nature of this integration that Ford accomplished to generate all of this wealth for the nation? On the production of a major product, he was the first to integrate to connect up these four major principles, the principle of interchangeable parts. This principle was developed a century earlier by the man I mentioned in one of the earlier lectures, the American Eli Whitney.
Two, the principle of the division of labor. That principle has been around for thousands of years. Three, the principle of mass production. Of these four principles, Ford’s contribution to the assembly line technology for a major product was the most original, but he did not invent the principle of mass production either.
Four, the principle of prosperity. This principle was first applied in a significant way by the manufacturers who founded the industrial revolution a century and a half before Ford. So, the integration of these four principles of production by Ford will always be a cornerstone of something every consumer boss will always want. What’s that? What does every consumer boss want? The highest-quality product at the lowest price. Even with all of this achievement and wealth generated for people, someone will say, “Well, even though Ford was paying his workers higher wages than anyone else, didn’t he also insist, rather callously, that they put in an honest day’s work without goofing off? Is that fair?”
What about this? On Ford’s assembly line, you can’t just walk off and take a 10-minute toilet break. Is that fair? How many think that’s unreasonable, that you just can’t do that? Can you go to the bathroom at all?
That depends on the contract. If you’re worried about it, maybe you’re not the man for the job. Ladies and gentlemen, when there is an assembly line, this means certain things. Already you can figure it out, can’t you?
If just one assembly line worker is goofing off and not doing their job, what happens to the entire assembly line? It comes to an immediate and abrupt halt, and then there are no Fords, and nobody gets a Ford for $290. Someone else might say, “But wait a minute, okay, I’m beginning to get the message. But I read somewhere that Henry Ford was anti-Semitic, that he didn’t like Jews at all.”
How do you answer that? In fact, it’s said that Henry Ford at least at some time had an autographed picture from Adolf Hitler on his desk, and that Adolf Hitler had an autographed picture of Henry Ford on his desk. I don’t know if that’s been fully corroborated, i.e. whether it’s true or not, but let’s assume it is.
We know Hitler was anti-Semitic, and for sake of argument, we’ll assume that Ford was, too. To what extent he really was, I don’t know, but maybe he was. We know that Hitler was anti-Semitic, and we’ll assume that Ford was anti-Semitic. Is there a difference between the two? Could you write me an intelligent essay on the difference, or would it all kind of fuse and blend together and you couldn’t tell the difference?
For most people, it blends together. They can’t differentiate on anything that’s important. They never know what’s going on, ever, their entire life, on anything. You’ve got to be able to differentiate. It’s the foundation of science and understanding. There is no Differentiation 1A in college. The more important the subject, the less likely it’s taught.
Hitler – we all recognize him, don’t we? What has he done for you lately? Hitler and his Nazi followers did away with whom in Germany? I made a big point of this earlier. Who did they do away with? The consumer bosses.
That’s what made it possible for Hitler to do away with most of the Jews in Europe. But note the order. You do away with the consumer bosses first, then you can do away with the Jews, in that order. That’s how it was done. And it was done methodically. Whatever you’ve heard about that, it was purely, totally confirmed and corroborated that it was a methodical, deliberate attempt at mass extermination, with engineering precision.
In contrast, Ford, as an entrepreneur, had to please consumer bosses, many of whom were American Jews. True? Please note, even though Ford may have been anti-Semitic, nevertheless, Ford, through his achievements, aimed at increasing the satisfaction of the consumer bosses. I claim Ford has brought more wealth and satisfaction to the American Jews than have most Jews in the history of Judaism brought to their fellow Jews.
That generalization is irrefutable. It’s a fact of history. The Jewish people will benefit forever from Ford’s magnificent integration of the principles of production. Ford was the first person to show us how to do it in a grand way with a major product. In sharp contrast, Hitler was the greatest catastrophe for the Jews in a long, long history of Jewish persecution, which everyone knows about if they read the history of the Jews.
And it was Hitler’s Third Reich bureaucracy that deliberately and methodically and systematically murdered millions and millions of European Jews. Each bureaucrat who was a direct or indirect participant in these murders was doing what every conscientious bureaucrat is doing. Their first duty is what? To follow the rules! So, the Jews were first and foremost the victims of bureaucratic interventionism. Even with the long history of anti-Semitism in Europe, without the bureaucratic structure, these mass murders of men, women, and children never could have taken place. In other words, the so-called Holocaust was first and foremost a supreme achievement of bureaucratic interventionism.
A final footnote on Henry Ford: One time, Henry and Mrs. Ford were invited to the White House. They were invited to the White House to have dinner with President Franklin Roosevelt and the First Lady Eleanor and the king and queen of England. It was to be kind of an intimate little dinner party with the six of them in one of the intimate dining rooms at the White House.
Henry Ford sent back his reply to this invitation, but his answer certainly gives you some feeling for the magnitude of his self-esteem and self-confidence. He sent back word to the White House that, well, he couldn’t quite make it that day because his wife’s garden club is meeting, so the wife won’t be able to make it, but thanks awfully anyhow.
Think about it. Then or now, how many people do you know who would turn down an invitation to the White House to have dinner with the President of the United States, the First Lady, and the king and queen of England, just the six of you? You and your wife, just the six of you, little, intimate – how many people do you think would turn that invitation down? Not very many, am I right? How many people would be on the phone: “Guess where we’re going to dinner? What do we wear? We need a gift. Oh, my God!” It would be instant panic.
I want to share with you a quotation from a man who was known as the father of American public education. Does anyone in the seminar know who that is for the first time? Anybody who went to public school?
We have answers of Horace Mann, and there he is. He died just before the beginning of our American Civil War. In his last public speech delivered to the graduating class at Antioch College, he was the president at this college, He said, “And I beseech you to treasure up in your hearts these, my parting words. Be ashamed to die till you have won some victory for humanity.”
I like this quotation. In fact, it’s one of my favorites. But unless we know what Horace Mann means when he says we should win, quote, “some victory for humanity,” unquote, these are empty words. Worse than that, they may be dangerous words. Your world is on the threshold of being destroyed by all manner of good people who honestly believe they are winning some victory for humanity.
If we are going to be human action scientists, we must ask what constitutes victory. Will this victory for humanity propel humanity forward or drag humanity backward? My friends, I only know of one certain test. By providing something of value to humanity or mankind or, in simpler words, provide a valuable product or service for the benefit of your fellow human beings. I don’t think there is any other test.
There’s only one problem with this. What I may think is a valuable product or service, the rest of humanity may not. The critical test is this. Will any of these humans who make up humanity voluntarily purchase my product or service, and are they willing to pay a price that exceeds my cost of production?
Where there is freedom of choice, none of them have to buy from me. I’m in competition with 100 percent of all other sellers of products and services. Where there is a free market, the consumers come every day to vote with their monetary ballots for their favorite producers of products and services. These free market elections, of course, are held 24 hours a day every day of the year.
All of you know what the certain test is, can you achieve a profit by placing your product or service into the willing hands of those consumer bosses? If you own a business that is achieving a profit, if you work for one that is earning a profit, if you play any role in the achievement of these profits, then guess what? To quote Horace Mann, “You have won some victory for humanity.”
Where there is true profit as I’ve defined it, there is a rational means of measuring the humanitarianism. I have not said that profit is the only measure of humanitarianism, but I do claim it’s the only certain measure of humanitarianism. If anyone’s goal is to optimize humanitarianism, what is the true means to that goal?
The profit system allows the super-humanitarians to flourish, and where they flourish, all humanity flourishes. And even if some of these super-humanitarians possess gruff personalities and stern mannerisms, they are still serving humanity. If an entrepreneur achieves entrepreneurial profit, they have succeeded where the majority have failed. If you work for or with them, and they’re a hard taskmaster, their success at profit enhances your potential for greater earnings through your association with their organization.
Just as the satisfied customers are the beneficiaries of entrepreneurial profit, so are the employees and associates who derive their income from the entrepreneurial venture. Anyone who is a part of this entrepreneurial venture can follow a guideline that will lead to their own greater success within the company.
The recognition and understanding that there is only one simplex goal, entrepreneurial profit – this means there is a single guideline that you have to ask. The final question is, what action can I take that will either directly or indirectly increase profits? That’s the prime question you should always be asking if you work for any entrepreneurial venture.