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ROBB AUSTIN'S TURN

Chauncey Ford Taught Economics and a Good Lesson

 October 5, 2009

It wasn’t long ago - at Walter Johnson High School in Bethesda, Maryland - during my senior year - that I enrolled in an economic class taught by business professor Chauncey Ford.

The major assignment that semester for students in my class was to research and survey the retail food service business model of the school cafeteria.

Yet, one afternoon Mr. Ford opened class discussion with a simple question that stymied many of us, "What is the purpose of business?," he asked. WJ was filled with bright students - it was one of the country’s then most prestigious public high schools. But to this question students were perplexed and dumfounded - only a few took a stab at giving a rambling response that was not right.

Finally, Mr. Ford ended the discussion - and the suspense - with the correct - yet simple - answer: "The purpose of business," he said, "is to make money."

That answer is well worth remembering in the face of what is certain to soon be a 10 percent unemployment rate in the coming months in what many have described as the worst economic situation since the Great Depression.

Mr. Ford did not expand on his definition. He knew the kids in his class understood benefits derived from a business that makes money. Those included an obvious increase in hiring, more tax revenue to the government, a stronger and more stable community, more revenue going to local retailers and businesses, and an increase in funds to local schools.

Yet none of these auxiliary benefits is actually the purpose of business - the purpose is to make money for the investors of the business - whether it be mom and pop and their life savings - or a Wall Street conglomerate.

This economic principal is certainly unfolding in the economic situation we are experiencing and the Obama administration’s insistence to treat business as an "enemy" isn’t helping. Business incentives were ignored in the $780 billion economic stimulus package passed in Congress over Republican objections earlier this year.

There is now within the Obama administration the need for a second stimulus package to stem the rising unemployment rate - yet if it does not contain incentives for business - it, too, will not work.

Many have been blinded by the sensational headlines over the past several years that portrayed Wall Street and the banks as villains - and that is understandable. Yet, not everyone works on Wall Street - and those who took out mortgages far larger than they could afford - knew exactly what they were signing onto and simply wanted to cash in on a rising housing market few thought would crash.

Truth is most Americans work for small businesses - local grocers, smaller manufacturers, accounting companies, law firms, public relations firms, service companies, banks, art dealers, automotive repair companies, various retail and food stores, electronic industries, and the like.

Because there was very little in the way of economic incentives for these small businesses in the first economic stimulus package they were left to their own devices in order to make a financial profit. In the wake of a massive decrease in consumer spending - the only way to make money was to cut costs - across the board.

Unfortunately, the largest economic return for businesses trying to manage costs is to lay off employees - that’s where the largest savings are. As layoffs continue it puts pressure on the unemployment rate and consumer confidence and delays any meaningful economic recovery.

Hopefully, the Obama administration will soon understand that businesses sometimes need tax incentives to put people back to work.

As we learned 42 years ago - in the Walter Johnson classroom of Chauncey Ford - the purpose of business is to make money - and that will happen only one of two ways.

Through expansion or contraction.

 

Robb can be reached at RbbAustin@aol.com