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Sep 14, 2006

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Ned Netterville

What a wonderful commentary on the true value of profits. It is also an enlightening discussion of the difference between for-profit and non-profit corporations. May your words be widespread and widely read. Based on what you have written in this piece, you might be interested in my website, which is devoted to Jesus and where profit is not a dirty word. The site is: http://www.jesus-on-taxes.com/. The most valuable resource you will find there is a book-length essay entitled JESUS OF NAZARETH, ILLEGAL-TAX PROTESTER, which is available to read or download free of charge and unencumbered by copyright laws. Sincerely, Ned Netterville

Michael Kruse

Thanks Ned. I will certainly check it out.

RonMck

Thanks for posting this.

Profit is normal throughout life. I get out of bed in the morning, because I hope the benefits will be greater than the cost. I eat porridge for breakfast, because the enjoyment exceeds the cost. I forgo caviar for lunch, because it would be unprofitable for me. The cost would outweigh the benefit.

The book of Proverbs gives God's approval to profit.
"All hard work brings a profit,
but mere talk leads only to poverty" (Prov 14:23).

Blessings
Ron

Michael Kruse

You are welcome Ron.

"I forgo caviar for lunch, because it would be unprofitable for me. The cost would outweigh the benefit."

Free would not make caviar profitable for me. :)

RonMck

According to standard accounting practice, a non-profit institution can only purchase capital items, if it has a surplus of income over expenditure (or by borrowing). Almost all not-profit institutions have to run a surplus in their statment of financial performance, for this very reason.

Michael Kruse

"surplus of income over expenditure"

And technically this is the correct language. The surplus is technically not called "profit" but is the same principle.

Nate

Mike,

What about govermental funds that are raised by creating legal monopolies of shared communal resources? For example radio spectrum. Without enforcing some kind of monopoly the spectrum is far less useful, in fact the goverment's act of regulation in that sense creates value. Clearly this is not taxation in the traditional sense, right? Would the wealth raised by creating legalized monopolies of public property be a anti-profit method of funding social services?

One more question ... what then is the role of churches or The Church is this everything is profit model? Is the church simply a purveyor of religious goods and services? Are churches then in competition with eachother to bring in the high value congregational members? How do we deal with James 2 in that context? And if the church is supposed to be a place where the dominant economic models do not apply ... how does that effect the lives lived by members of the Body of Christ i.e. The Church?

Thanks for engaging these questions and issues both in the long blog series and in future posts. I am growing in my understanding by interacting with these ideas. In that sense in the free interchange and dialog of ideas value (wealth) is being created as well, right?

Michael Kruse

Great questions Nate! I wish I knew someone who could answer them. :)

Seriously, before I say anything else that nothing I written should be taken as absolutist instance on free market for every circumstance. The points I would emphasize are these:

1. Free markets and profits are not only not tainted ways of relating to each other they are USUALLY the most efficient and just ways of production and distribution. (This is in part because the markets are not just exchange systems but a radically decentralized information system with suppliers and customers giving real time communication about their needs and wants.) Thus, working in a profit environment is a noble and honorable activity.

2. Free markets should be the default assumption about economic exchange and the burden of proof lies for other approaches to demonstrate why the markets are not the right option.

3. There most certainly are instances where the markets are not the answer.

Economists often talk about externalities: “…a side effect from one activity which has consequences for another activity but is not reflected in market prices.” If a factory dumps waste into a river that then contaminates the river for everyone down stream, then the factory is not bearing all the costs of production and in effect shifting it on to their neighbors. Regulation is used to control this externality. Zoning laws would be another example.

I would oppose legalization of prostitution. While there are no doubt those who might willfully chose to be prostitutes, the legalization legitimates and creates a demand for services that countless people would never chose as a economic option, but when economically vulnerable would allow themselves to violated for economic advantage. Compelling people or creating such economic enticement that people feel all but compelled does not serve the best interest of society.

The sex industry is legal in Germany. Recently an unemployed young women seeking benefits was required to consider all legitimate offers for employment as a requirement for receiving government aid. A phone sex company locating her in the government database offered here a job which she refused. Her benefits were suspended because she would not take a legitimate job that was offered.

You wrote:

“What about govermental funds that are raised by creating legal monopolies of shared communal resources? For example radio spectrum. Without enforcing some kind of monopoly the spectrum is far less useful, in fact the goverment's act of regulation in that sense creates value. Clearly this is not taxation in the traditional sense, right? Would the wealth raised by creating legalized monopolies of public property be a anti-profit method of funding social services?”

The government essentially created a market for radio waves where there otherwise could not be one. If I broadcast on frequency, then I have taken that frequency as a resource away from you and you have received no compensation. This is another externality issue. The auction of frequencies more accurately compels the radio operator to encumber the costs. I don’t think it is so much that the government created value as it is that they created a means by which costs could effectively be allocated.

I will have to come to your second paragraph a little later.

Michael Kruse

One more question ... what then is the role of churches or The Church is this everything is profit model? Is the church simply a purveyor of religious goods and services? Are churches then in competition with each other to bring in the high value congregational members? How do we deal with James 2 in that context? And if the church is supposed to be a place where the dominant economic models do not apply ... how does that effect the lives lived by members of the Body of Christ i.e. The Church?

First off, I am unclear about your assertion “…everything is profit model.” If you are talking about “profit” in the strict economic sense of the word I have not said this. In the post itself I wrote, “I don’t question at all the need for the existence of not-for-profit institutions. There are people and situations where this is the best alternative.” There are people who for any number of reasons are without the wherewithal to participate effectively in the market place. Some are simply without the mental and physical capacity to earn wages and participate in the market place and without a sufficient support network to care for them. Some are temporarily in this plight and need assistance returning to role of full players in the life of the community. Governments, non-profits and churches have a vital role in this regard. There other circumstances other circumstances where this may bet the better option. In an my theology and economics series I wrote:

……….

We would do well to heed what the Jewish Philosopher Maimonides taught about eight levels of charity.

[1] The greatest level, above which there is no greater, is to support a fellow Jew by endowing him with a gift or loan, or entering into a partnership with him, or finding employment for him, in order to strengthen his hand until he need no longer be dependent upon others...

[2] A lesser level of charity than this is to give to the poor without knowing to whom one gives, and without the recipient knowing from who he received. For this is performing a mitzvah solely for the sake of Heaven. This is like the "anonymous fund" that was in the Holy Temple [in Jerusalem]. There the righteous gave in secret, and the good poor profited in secret. Giving to a charity fund is similar to this mode of charity, though one should not contribute to a charity fund unless one knows that the person appointed over the fund is trustworthy and wise and a proper administrator, like Rabbi Hananya ben Teradyon.

[3] A lesser level of charity than this is when one knows to whom one gives, but the recipient does not know his benefactor. The greatest sages used to walk about in secret and put coins in the doors of the poor. It is worthy and truly good to do this if those who are responsible for distributing charity are not trustworthy.

[4] A lesser level of charity than this is when one does not know to whom one gives, but the poor person does know his benefactor. The greatest sages used to tie coins into their robes and throw them behind their backs, and the poor would come up and pick the coins out of their robes so that they would not be ashamed.

[5] A lesser level than this is when one gives to the poor person directly into his hand, but gives before being asked.

[6] A lesser level than this is when one gives to the poor person after being asked.

[7] A lesser level than this is when one gives inadequately, but gives gladly and with a smile.

[8] A lesser level than this is when one gives unwillingly.

……….

The bottom line is to restore the person to being a productive member of the community.

If by “everything is profit model” you refer to the idea that we should seek our self-interest there is a sense in which this is true in everything we do. Jesus said in Mark 8:36
“For what will it PROFIT them to gain the whole world and forfeit their life?” Your soul is of greater worth than all the possessions in the world. Exchanging it for them is not a profitable exchange and not in your self interest. Instead, do what is in your self interest:

"19 Do not store up for yourselves treasures on earth, where moth and rust consume and where thieves break in and steal; 20 but store up for yourselves treasures in heaven, where neither moth nor rust consumes and where thieves do not break in and steal. 21 For where your treasure is, there your heart will be also. Matt 6:19-21

Storing up treasures in heaven is the most profitable thing you can do. One of the ways some store up treasures in heaven is by amassing capital and combining it with other resources so that they and others can employ their gifts as they produce goods and services that are produced for others and incomes are provided for the people under their management. They create so much wealth that things like government and non-profits can function.

“Is the church simply a purveyor of religious goods and services?”

I guess I would need some specific examples here. I am unclear as to what you have in mind.

“Are churches then in competition with each other to bring in the high value congregational members? How do we deal with James 2 in that context?”

Again, are we talking about pure economic value? All ultimately belongs to God. People of high economic status is of no consequence in the life of the church because they are merely stewards of someone else’s wealth. The competition among churches is about what they put out. Are they turning out “profitable” people in terms ultimate matters? If they are, they will also be transforming the narrower application of economics as they shape demand and production in the free market.

There are some of my initial thoughts. I’ll stop there and see if this clarifies or raises other questions.

Nate

Hey Mike,

Sorry to come back to this conversation so late. I tried writing a longer reply a few times but never quite hit publish.

When I referered to the
everything is profit model" I was refering to this paragraph:

Lets get one thing straight to start with: Every business, non-profit or otherwise, is a profit making venture. You either take in as much or more as you spend or you go under. The essential difference between a not-for-profit and a profit making venture is that in the not-for-profit firm, all of the profit stays in the business. It can not be distributed to the board members or regular members of the organization. So the “non-for-profit” aspect is about the individuals involved not the institution. The non-for-profit institution is engaged in making a profit.

It seems to me that this reduces what a business is into a organism bent on survival. Make a profit or die. I resist the idea that indivigual churches or even denominational structors should be primarily concerned with making a economic profit.

(As I think the thrust of your original post reflected ... when the customer who provides funds and the customer who recives goods are not the same problems can arise.)

Now I agree our work should be profitable (meaning produce fruit) but that is different then saying everything is or should be a business.

I came across this blog post by Lawrence Lessig today and thought about this conversation.

Lessig makes this claim I found interesting:

One of the most important conclusions that can be drawn from the work of Benkler, von Hippel, Weber (my review of both is here), and many others is that the Internet has reminded us that we live not just in one economy, but at least two. One economy is the traditional “commercial economy,” an economy regulated by the quid pro quo: I’ll do this (work, write, sing, etc.) in exchange for money. Another economy is (the names are many) the (a) amateur economy, (b) sharing economy, (c) social production economy, (d) noncommercial economy, or (e) p2p economy. This second economy (however you name it, I’m just going to call it the “second economy”) is the economy of Wikipedia, most FLOSS development, the work of amateur astronomers, etc. It has a different, more complicated logic too it than the commercial economy. If you tried to translate all interactions in this second economy into the frame of the commercial economy, you’d kill it.

Lessig suggests that trying to impose the order or solutions of one economy on another will kill the second. Does trying to impose the non-profit economy on churches have the same effect?

Michael Kruse

Hi Nate, I just got back and now have time to fous on your question. Here is part of the my answer.

It seems to me that this reduces what a business is into a organism bent on survival. Make a profit or die. I resist the idea that indivigual churches or even denominational structors should be primarily concerned with making a economic profit.

Your key words here are “primarily concerned.” Making a profit is essential but that is not the same as saying it is the primary concern. Look at this by way of analogy.

Eating is essential for you and me. Is it our primary concern? No. We go about our days with little thought to food most of the time. However, it is essential that we eat and address the need. We make money so we can lay up supplies of food or have others prepare food for us to eat. You may be the greatest at whatever you do but if you don’t eat you will die. It is a testimony to the incredible productivity of our economic system that the connection between our labor and our eating (surviving as you put it) is hard for us to make.

The word corpus is Latin for body and it is the root word for corporation. Corporations are collections of people that are treated as a body in the eyes of the law. The essential “food” that corporations live on is profits. Their primary concern is offering goods and services but it must be done in such a way that it provides sufficient “food” for the body to sustain itself.

So when you say “Make a profit or die,” is no different than saying “Eat food or die.” Does that therefore reduce life to a matter of eating? Hardly but it is a true statement none the less. Conceiving of a corporation that is without a need for profit is like conceiving a of group people who don’t need to eat.

I will reflect on the second half of your question and may add somemore after some sleep. :)

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