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Mar 06

If Only Companies Did Not Make So Much Money, Wouldn’t that be Swell?


If Only Companies Did Not Make So Much

Money, Wouldn’t that be Swell?

 

By Daniel Meredith

 

Can a corporation make too much money? Recently, a person claimed that a company should not be allowed to open up in their state, because the corporation makes too much money. This statement is not unique to this one individual. A growing number of people have become increasingly alarmed by companies making profits. But is there something wrong with making money and what would the alternative be?

All companies are required by necessity to make money. If a company does not generate revenue that covers their costs, they will go out of business, which is very bad. When a company goes out of business, bad things happen for everyone: all of the people that the company employs lose their jobs, people that relied on the companies’ goods and services are out of luck, and the government now has less money that they can tax and more unemployed that they must support. A perfect example of this occurred when Hostess went out of business. Over 18,000 employees lost their jobs and the world had to do without Twinkies and Ho Hos. For the benefit of society, companies need to be profitable; otherwise, people will suffer and society will be without creamy goodness.

Many people amazingly do not realize that it is not just the investors who benefit from a profitable company, when a company is profitable everyone wins. The first big winner is the government.  Before the lucky investor is able to use their money for anything, the government comes in and demands a piece of the action. Uncle Sam requires that he receives some of the money through taxes, which go to fund the government that we all fondly enjoy and love. If companies did not make profits, the government would not have enough money to fund all of its programs. Without profitable companies, government would not be able to function.

After the government takes its piece of the profits, the remaining profits do not remain idle. Investors do not stash all of their cash in underground vaults in order to go swimming in pools of gold coins a la Uncle Scrooge McDuck. Thanks to inflation, investors are actually punished if they sit on their cash, because the value of their wealth decreases when money is devalued via inflation. If the profitable investor wants to keep their gains or earn even more money, they are left with only one option, reinvesting their earned profits.

Often, investors will invest more money in the same profitable corporation or another company that has an even greater potential for growth. When they invest in a company, many people benefit. In order to increase production, a company will have to hire more people, which will help the unemployed. Another frequent benefit of expansion is an increase in efficiency, because it is often cheaper to produce 100,000 units of an item than 100 thanks to economies of scale. The increase in efficiency results in a decrease in the cost to produce a product, which is often passed on to customers in the form of a decrease in the price to purchase the manufactured item. This is why a flat screen TV used to cost thousands of dollars, but today can be purchased for a few hundred.

The greater the profit for a company, the greater amount of money is available for the investor to reinvest and benefit all of society. Is it wrong for the company to make a large amount of money when society as a whole benefits from the profits? Would it be preferable to not have any companies making a profit and have government agencies close due to a lack of tax dollars?

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