[I]s there any other standard available for the distinction between profiteering and legitimate profits than one provided by personal judgments of value?It is strange indeed that an eminent logician, the late L. Susan Stebbing, entirely failed to perceive the issue involved. Professor Stebbing equated the concept of profiteering to concepts which refer to a clear distinction of such a nature that no sharp line can be drawn between extremes. The distinction between excess profits or profiteering, and “legitimate profits,” she declared, is clear, although it is not a sharp distinction. [Footnotes Stebbing's Thinking to Some Purpose.]Now this distinction is clear only in reference to an act of legislation that defines the term excess profits as used in its context. But this is not what Stebbing had in mind. She explicitly emphasized that such legal definitions are made “in an arbitrary manner for the practical purposes of administration.” She used the term legitimate without any reference to legal statutes and their definitions. But is it permissible to employ the term legitimate without reference to any standard from the point of view of which the thing in question is to be considered as legitimate? And is there any other standard available for the distinction between profiteering and legitimate profits than one provided by personal judgments of value?--L. Von Mises, "Profit and Loss," (29-30)
Because I am known as something of a partisan of Stebbing (here, here, and here) and have an interest in the philosophy of economics David Gordon was kind enough to call my attention to Von Mises' criticism of Stebbing delivered at one of the early Mont Pèlerin Society meetings in 1951. I am unsure what Gordon thinks about the state of play, but I believe that Von Mises's criticisms miss their mark. Let me explain why.
For, it is not true "this distinction [between legitimate and excess profits] is clear only in reference to an act of legislation that defines the term excess profits as used in its context." The distinction is clear enough even absent legislation. All the distinction requires is (a) ordinary expectations about profits (or profit rates); (b) the ability to detect or discriminate violations of these expectations that (c) are out of proportion of these expectations. If one allows (d) that ordinary expectations may have normative import then Stebbing is in the clear without having smuggled in a legal standard.* The argument is deliberately using Adam Smith's vocabulary when he talks about, say, profits or justice.** To be clear: it does not follow that all violations from expectations are profiteering, of course, and obviously there will be cases where judgments of proportionality may conflict. (But given that all sides in the dispute accept that the distinction is not 'sharp,' that's okay.) So, the answer to Von Mises's rhetorical question "is there any other standard available for the distinction between profiteering and legitimate profits than one provided by personal judgments of value?" is: yes.
The problem in Mises criticism of Stebbing is that he slides from "legitimate' involves a standard' to 'legitimate must involve a legal standard.' Ordinary expectations may well generate normative standards that fall short of a legal standard. Obviously, deriving an ought from such an is, is fraught with difficulty and potential controversy. I am not defending here the idea that we ought to generate our standards in this fashion. I am just claiming that Stebbing's distinction is clear and so cannot be dismissed on grounds of unclarity.
Now, of course, one might wish to deny that ordinary expectations are a good standard. (I have some sympathy for this.) I don't think that's a promising strategy for an Austrian economist; for the whole idea of defending spontaneous orders against, say, imposed orders is that ordinary expectations are, by and large, to be defended. Again, this is defeasible. But, just because one can't settle on the right standard, it doesn't follow that Stebbing's distinction becomes less clear.
So, the distinction is fine; it's just that Von Mises disagrees with what the distinction entails. (Alternatively, he might also have challenged the manner in which the distinction is applied.) Now, Von Mises ends up in his position because he is committed to the claim that "judgments of value are necessarily always personal and subjective." (18; [emphases added]) As as regulative principle, this is an excellent commitment when we are tempted to speak against or on behalf of others. But it is not obvious this is the right view about value, and Von Mises offers no defense of it that entails the modality he attributes to it. Perhaps, I am being unfair here; maybe Von Mises means that *judgments* are by definitions are personal. But it does not follow that the decisions that follow from these are not open to moral criticism by "philosophers" or other impartial spectators (as he implies in context).
So Von Mises mistakenly charges Stebbing with an "error," which "consisted in the confusion of existential propositions with judgments of value." (31) Even if one accepts a very robust distinction between facts and values, it does not follow that a claim can't be about both, at once.
Anyway, the interest of Von Mises's publication is not exhausted by his criticism of Stebbing. In particular, the significance of Von Mises's pamphlet is primarily to be found in the ways in which it foreshadows contemporary critics of ordinary voters' capacity as a means toward privileging the market. But about that more some other time.
*I don't know if this is what Stebbing has in mind--I don't have access to her text at the moment.
**Adam Smith famously advocated a cap interest rates because he believed that very high interest rates encouraged (socially destructive) speculative enterprises (or projection). His account of the origin and normative import of justice relies crucially on reasonable expectations.
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