HIGHLAND, UT |3 April 2008 | Earlier this week, the executives of the country’s largest oil companies sat down with the House Committee on Energy. The governors were upset over the $123 billion profits these oil companies have recently posted. Rep. Edward Markey (D-Mass.) in particular, claims to be upset over this windfall while many of the “poor people have to choose between heating and eating because of high energy prices,” as reported by Josef Herbert of the Associated Press.

Elsewhere in the economy, government-related entities are offering to bail out companies that are losing money and threatening, as a result, to send the American economy into a tailspin, which may prove to be extremely difficult to recover from, at least in any time soon. These irresponsible displays of government usurpation violate many of the Principles of Prosperity™. One could start, so often is the case, with the proper role of government (Principles 11, 12, and 13). Each one of these comes into play, certainly, but government officials’ tyrannical behavior, such as Rep. Markey’s and others earlier this week revolves around a wholesale misunderstanding that “profit is the toll of validation” (Principle 9).

Key Points

• Businesses know they are doing the right things when they can sustain a profitable level.
• Adam Smith explained, “…if [the merchant] sells [a product] at a price which does not allow him the ordinary rate of profit in his neighbourhood, he is evidently a loser by the trade…[it]… is his revenue, the proper fund of his subsistence” (Smith, 79).
  Adam Smith further explained, “The market price of any particular commodity…can seldom continue long below its natural price. Whatever part of it was paid below the natural rate, the persons whose interest it affected would immediately feel the loss, and would immediately withdraw so much land, …labor,…or stock, from being employed about it, that the quantity brought to market would soon no more be sufficient to supply the…demand. Its market price, therefore, would soon rise” (87-88).
• If the buyer of a that commodity refuses to pay the price that produces profit for the seller, no exchange is made and neither party is validated.
• Simply state, profitable companies, like Exxon Oil and Shell Oil, stay in business; unprofitable ones like Bear Stearns soon go out of business. Only a company in business can create value for the economy.
• Markey, according to Herbert’s news story, “challenged the executives to pledge to invest 10 percent of their profits to develop renewable energy.” Herbert wrote that the oil companies response partially included explanation that such behavior added to the high taxes on gasoline products would continue to drive prices higher. For the oil companies, who wish to stay in business, this is the only answer.

Conclusion

The demanding air of Rep. Markey and others upon these oil companies reveals that our elected officials do not understand the importance of profits in the marketplace. This is typical of Marxist or brain-off mentality. Dr. Skousen explained that Karl Marx’s theories have failed everywhere they have been tried. “this was because they did not understand the genius of the profit system” (Skousen, 208). Rep. Markey is probably not a Marxist, but in a world where ideas have consequences, it is critical to understand where ideas come from so that this nation may steer clear of the ruinous “experiments” of other nations. Further, Markey is not alone in this line of thinking. It behooves every citizen of this country to espouse the correct principles that lead to continued prosperity and freedom. The oil companies appear resolved upon this process, so far as they adhere to correct principles, such as profit validating their value in the marketplace. Further, everyone feels the pain of high gasoline prices, but consider our world without enough gasoline because of the bankruptcy of these companies: long lines at gas pumps, rationing of energy sources, less mobility to transport goods throughout the country and therefore shortages in other items. Profitable energy companies certainly aid the prosperity of the rest of the country.

Action Items

1. Be deliberate in your personal finances by keeping monthly income/expense resports, balance sheets and budgest.
2. Decide how much you want and need to exchange with the oil companies. Again, be deliberate.
3. Explore ways to be profitable yourself. Though this may not mean obtaining a raise from your employer, consider additional ways to increase your balance sheet that will in turn increase your profits.

MRFC Principles:  (9, 11, 12, 13)

Resources
Herbert, Josef. “Oil Chiefs Say High Prices Not Our Fault,” (AP). April 1, 2008

Smith, Adam. The Wealth of Nations. Originally published 1776. Bantam Classic Edition, 2003

Skousen, W. Cleon. The Making of America: the Substance and Meaning of the Constitution. NCCS. Washington D.C. 1985.