Profits come from providing for people

The ideological divide between the two main parties in the state legislature is increasingly stark. This means that we actually see some rather profound debates up at the state capitol these days.

Minn Post‘s Peter Callaghan nicely summarized one of these debates in an article titled “Profiting or providing? Minnesota Legislature weighs corporations’ role in state’s economy.”

Investor-owned single-family housing is increasing in the U.S. and a Minneapolis Federal Reserve study reported that it makes up 3.4% of single family home ownership in the seven-county metro area. It’s a trend seen nationwide.

Rep. Esther Agbaje, a DFL member from Minneapolis, was asked last week by Republicans why she was pushing a bill that would cap at 10 the number of single-family homes one business entity — primarily corporations — could own. And if consolidation was a problem, why not apply it to non-profit housing providers?

“The issue with housing is that it is becoming much more commodified and housing is being used as a way to make profits,” Agbaje told the House Judiciary and Public Safety Committee. “It is actually a necessity for people. It is where they live. It is where they take care of their families.” But it is harder to find housing “when a number of corporations see that property as a source of income for themselves whether the person living there has an increase of income on their own.”

But her defense of her bill was seen by GOP members as a criticism of capitalism itself.

“Thank you for clarifying the real philosophical difference at the heart of this,” said Rep. Harry Niska, R-Ramsey, “which is whether capitalism is a useful tool to encourage investment in things that are helpful to people.”

Responded Rep. Leigh Finke, DFL-St. Paul: “It is a philosophical difference, Rep. Niska. Providing housing is what our side’s philosophy is about. Not providing profits.”

Deep stuff, and I admire the fortitude of anyone who can have a discussion like that without a few pints in them, but Rep. Niska is right and Reps. Agbaje and Finke are wrong. Lets review.

In the first place, Rep. Agbaje doesn’t understand the issue. She says that:

The issue with housing is that it is becoming much more commodified and housing is being used as a way to make profits.

But that isn’t the issue with housing in Minnesota. The issue with housing in our state is that it costs too much because state and local governments effectively make it illegal to build it cheaply with obstacles put in place by, among others, state legislators like Rep. Agbaje. The remedy for that is to reduce and remove the excessive taxes, fees, and regulations that are responsible for that, not regurgitate old socialist talking points.

Besides which, there is nothing wrong with commodifying necessities. Maslow’s hierarchy of needs lists among the lowest level “physiological needs” both clothing and food and we rely very successfully on the “commodification” of both to provide them. As long ago as 1776, Adam Smith wrote:

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. 

A lot of people object to this. They see it as a negative view of humanity or, more often, as a view that might be valid now but which we ought not to tolerate and should seek to change. That was why socialists were so committed to the idea of the “New Man” and why the whole scheme collapsed when he failed to materialize.

Free market capitalism has, on the contrary, succeeded because it takes man as he is. Rather than bending him over an anvil and trying to hammer him into something else, it aligns private incentives with public desires better than any other social or economic system ever conceived by humankind. Rep. Finke is wrong to say that the “philosophical difference” is that “Providing housing is what our side’s philosophy is about. Not providing profits:” allowing for profits is how you provide housing, just the same as allowing the owners of Walmart and Target to make profits is how you get your food.

You will often hear some variation of the slogan “people before profits.” Always remember that, in a free market economy, serving people is how you make profits.