The Role of Profits in Free-Market Capitalism, and Why High Profits are Good for a Company’s Workers

Underpants Gnomes Meme - Phase 1: Physical Labor Phase 2: ? Phase 3: ProfitWhether people like it or not, it is a fact that the production of valuable things requires more than physical labor. (I’m looking at you, Karl Marx, with your Labor Theory of Value and “profit as exploitation.”) This is especially true when it comes to industrial-scale mass production. To successfully deliver products at a reasonable price and quality, a company must be organized in certain ways that are effective; there must be communication and coordination between the various departments; there must be management to make sure things keep running smoothly together and that timetables are kept; there must be wealth invested for buildings, machinery and raw materials in the right amounts; any machinery and facilities must be continually maintained; there must be management of sales and distribution of the product; etc.

A collection of factory workers without power tools, without specific roles and without management direction will produce very little and very inefficiently. In any line of business, there is a tremendous amount of strategy, business planning, technical planning, management, and industry knowledge that goes into making a company productive and successful.

As I discussed in my essay, “How Business Executives and Investors Create Wealth and Earn Large Incomes,” a company’s chief executive officer (CEO) carries tremendous responsibility: he is crucial in making large-scale decisions for the company, implementing and coordinating major changes, planning long-term for the future market and technology the company will face, formulating and holding onto a large-scale vision of where the company should go, etc.

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Ayn Rand and the Crude Materialism of the “Rich vs. Poor” Worldview

The Virtue of Selfishness by Ayn RandOne of the most common criticisms of Ayn Rand that I hear from people (especially on the Left) is that she “loved the rich and hated the poor,” or, in more recent terms, that she “was for the 1% at the expense of the 99%.”

Yet Ayn Rand herself did not really think or judge people in those terms, as should be fairly obvious to anyone who has read her writing without prejudice: Many of the heroes and protagonists of her novels were poor or roughly middle-income, including a young Howard Roark, Steven Mallory, Roark’s friend Mike, Eddie Willers, Cheryl Brooks, Jeff Allen, Gwen Ives, and even her most famous hero, John Galt. Many of Rand’s villains are wealthy businessmen, government officials and scientists, including the mature Peter Keating, Guy Francon, James Taggart, Orren Boyle, Floyd Ferris, Wesley Mouch, Kip Chalmers, and Mr. Thompson.

Rand’s nonfiction explicitly says that what is important in the moral judgment of people is not the scale of their productive ability, but how they choose to use their minds. In her essay, “The Objectivist Ethics” (VoS) Rand writes:

“Productive work is the road of man’s unlimited achievement and calls upon the highest attributes of his character: his creative ability, his ambitiousness, his self-assertiveness, his refusal to bear uncontested disasters, his dedication to the goal of reshaping the earth in the image of his values. “Productive work” does not mean the unfocused performance of the motions of some job. It means the consciously chosen pursuit of a productive career, in any line of rational endeavor, great or modest, on any level of ability. It is not the degree of a man’s ability nor the scale of his work that is ethically relevant here, but the fullest and most purposeful use of his mind.” [emphasis mine]

So Rand doesn’t accept that having more money automatically makes one more moral.

But why then the accusations that she’s in favor of the rich and against the poor? The accusations actually show us, not what Rand believed, but what many of her critics believe. The accusations actually reflect the materialistic nature of these critics’ worldview.

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The Social Justice Warrior’s 9 Theses Against this Blog and Its Author

This blog is racist, because it supports Israel over Islamic totalitarians, and because it posts videos of people speaking in front of Tea Party sympathizers. (You know, those horrible racists!)

This blog is sexist, because it uses “he,” instead of “he/she” or “(s)he” or “he or she” or “she,” when referring to those of unspecified gender.

This blog is ableist, because its author doesn’t believe people should be robbed to support the disabled, (and all the disabled are permanently useless and can never support themselves without the government forcing others to care for them.)

This blog is hateful of poor people, because it doesn’t support the forcible tearing down of rich people for their sake.

This blog is against sound economics, like the Broken Window Theory and “wealth inequality means everyone is poorer.”

This blog dares to peek beyond the Veil of Ignorance, and challenge John Rawls’s view of (social) justice as fairness.

This blog is homophobic, because its author doesn’t support laws forcing private businesses to hire or serve people they don’t want to, such as gays.

This blog is anti-science, because its author doesn’t want government to destroy people’s freedom on the basis of unreliable computer models.

This blog is triggering, because it contains offensively positive references to Ayn Rand.

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Related Articles:

Alternet’s Ayn Rand fetish

Salon’s Ayn Rand fetish

Socialism and Welfare vs. Justice: Why Inalienable Private Property Rights are Required for Justice

A farm and a factory: examples of property that requires effort to build.In 1816, Thomas Jefferson wrote:

“To take from one, because it is thought that his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, “the guarantee to every one of a free exercise of his industry, and the fruits acquired by it.””

Here, Jefferson is affirming the principle of individual rights, especially property rights. But don’t property rights sometimes stand in the way of justice? In any such cases, wouldn’t it be a moral imperative for government to violate property rights?

The purpose of this essay is to show that inalienable private property rights are a necessary condition of justice. That is, any violation of property rights implies injustice, to the extent of the violation. Please note that it is not the purpose of this essay to argue that property rights guarantee justice. Objectivism does not hold that property rights are a sufficient condition for justice, only a necessary condition. There is much injustice that can occur without violations of property rights. But no one, including the government, can rectify such injustices by violating property rights. Anyone attempting to do this is in the wrong, morally.

So, what is an inalienable property right? It is a principle specifying that no one else may take or otherwise use the thing a person has a right to, without that person’s permission. (All things properly called “rights” are inalienable–that is, they cannot morally be taken away; otherwise they are not “rights,” but grants of permission by someone else. Note also that one person’s rights can be waived by him, by the act of violating another person’s rights.)

A property right to a certain, distinct thing–call it “X”–is properly acquired by either 1) engaging in a productive process directly involving X, when it is not already owned by someone else, or 2) consensually trading things or services with another person for X, when that person owns X, or 3) receiving X as a gift from another person, when that person owns X. A “productive process” might be farming to produce food, building a home, building a factory, making shoes, writing software, providing services, like air conditioning repair, radio, television, movies, etc.

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Laissez-Faire Capitalism Solves “The Tragedy of the Commons” and Deals With Negative Externalities: A Dialogue

Enjoy CapitalismAs the reddit user, /u/sobersymphony, I participated in a discussion on reddit on the subject of capitalism vs. socialism. Another user asked me in a private message (PM) about one of my statements in that discussion. The ensuing PM discussion is reprinted here with his permission:

Him: In that conversation, you said, “Circumstances that arise due to people’s voluntary choices are not examples of force. They are simply the law of cause and effect in action. That people have to work and be able to dispose of the product of their labor to live in the long term is a fact of reality that no one can wipe out. It is not coercive.”
The usual response to this is that we value freedom, but we value other things too, so we make tradeoffs. We obviously don’t want to be coerced, but we do want to live in what might be called a “fair” or “humane” society. Everyone (tautologically) wants to act in their self-interest, but sometimes it is in their self-interest to have some governing authority solve coordination problems in ways that leave everyone better off. The same author I linked to uses a hypothetical tragedy of the commons situation to illustrate this point. He explains how even a system of voluntary contracts would not solve this problem.
Analogously, in the “work or starve” situation: behind a veil of ignorance, everyone would prefer some form of coercion to prevent work conditions becoming too terrible.
How would you respond to this argument? Apologies if this is too basic, but I haven’t yet heard a satisfying answer to this.

Me: 

Apologies if this is too basic, but I haven’t yet heard a satisfying answer to this.

No, that’s fine. They’re understandable questions that are worth analyzing.

The usual response to this is that we value freedom, but we value other things too, so we make tradeoffs.

The first question I would ask is: Who is this “we”? Do all individual human beings in a society share a collective mind and collective values, like the Borg in Star Trek? No, I might disagree with you and value different things than you do. My judgment is my own, and yours is your own. So on what basis can you say that “we” value some coercive governmental programs more highly than freedom?

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QuickPoint 7: Good Teamwork Is Self-Interested

Kobe Bryant of the Lakers passing the ball.

There’s no “I” in “team.”

So goes the common saying that encapsulates the common idea that good teamwork is selfless. But, punchy as the saying is, (and as correct as its literal meaning is) the idea that good teamwork is selfless is entirely wrong.

When a sport is team-based, it is, by its nature and rules, a cooperative activity. A proper motivation for any individual to become a player of that sport is to enjoy playing as a member of a team and to contribute to the success of the team. To enjoy the team sport, each individual should enjoy putting his skills at the service of the team’s success. The player’s personal interests should be aligned with those of the team.

It is not a selfless sacrifice for Kobe Bryant or LeBron James to refrain from showboating and hogging the basketball, when doing so would be detrimental to their team’s chances of winning. Their personal interests are best served by playing good basketball and winning games.

Ask a football player, who lost the SuperBowl for his team by showboating with the ball, whether what he did was good for him. The answer should be clear enough without having to ask.

Let us rid ourselves of the confusion that sees so many social values, such as teamwork, friendship and love as inherently selfless; while also equating “self-interest,” “egoism” and “selfishness” with shortsightedness, foolishness, childishness, materialism, and the harm of others. Let us clearly recognize that one’s own self-interest–one’s happiness–is not bought at the expense of the interests of other people.

I highly recommend the non-fiction works of Ayn Rand, such as The Virtue of Selfishness and Philosophy: Who Needs It, along with her novels, such as The Fountainhead and Atlas Shrugged.

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Related Posts:

QuickPoint 6: Psychological Egoism is False — Not Everyone is Selfish

Atlas Shrugged, Altruism and Egoism

Why a Proper Ethics is Not a Set of Social Rules, But a Complete Way of Life

Values Are Relational But Not Subjective

QuickPoint 1: Thinking is Individual

What Squeegee Bandits Can Teach Us About the Welfare State (Voices for Reason)

Don Watkins makes an excellent and concise point about consent and moral responsibility in this blog post at Voices for Reason:

What Squeegee Bandits Can Teach Us About the Welfare State

Here’s a bonus video: “Is Inequality Fair?” by Yaron Brook of the Ayn Rand Institute:

 

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Related Posts:

America Before The Entitlement State

19th-Century Capitalism Didn’t Create Poverty, But Reduced It

How to Show That Taxation is Robbery

On Fairness and Justice: Their Meanings, Scopes, and How They Are Not the Same

The Nature of the Morality of Rational Egoism: Short Notes

Wealth is Not Money — Monetary Wages vs. Real Wages

MoneyStack-small

Not wealth.

There are many confusions that many people hold about economics today. One fairly common one that I’d like to address is the confusion of wealth with money.

Wealth consists of the actual goods and services that are available to a person. Food, medicine, clothing, houses, televisions, computers, jewelry, the services of a doctor–all of this is wealth.

Money, on the other hand, is the medium of exchange used to indirectly barter wealth. Unlike wealth, having money does you no good by yourself on an island. If the money supply in an economy is doubled, this does not increase the amount of wealth in that economy. What increases wealth in an economy is the production of material goods and the offering of valuable services.

The confusion between money and wealth tends to arise because, on an individual level with a given money supply, the way one gets access to more wealth is to get more money. But the way money translates into wealth is not a simple “more nominal money equals more wealth,” but “having a greater percentage of the money in the economy entitles one to a greater percentage of the wealth in that economy that one doesn’t already own.” Money is a claim to the wealth produced by others, (who are willing to sell) relative to the total money supply and the total wealth.

Money--Wealth Ratio

When people create wealth by producing valuable goods from raw materials or using skills to offer services, then trade these for money, they give value to the money in circulation. If they are able to produce wealth (of a type that’s needed/desired) faster than it’s consumed, they increase the value of the money in circulation. Since there are more goods and services chasing the same amount of money (assuming no more money is printed/created) the prices of the goods and services decrease. Continue reading

19th-Century Capitalism Didn’t Create Poverty, But Reduced It

Here’s an article by Yaron Brook and Don Watkins on the near-laissez-faire capitalism of the 19th Century:

Capitalism In No Way Created Poverty, It Inherited It

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Related Posts:

How to Show That Taxation is Robbery

QuickPoint 2: Altruism Supports Coercion…

Why “Anarcho-Capitalism” is Wrongheaded

The Nature of the Morality of Rational Egoism: Short Notes

The Social Metaphysics of Communism: MiG Pilot

MiG_PilotThe book, MiG Pilot, is the true story of a Soviet pilot who defected to the United States in 1976. As a MiG-25 pilot, Lieutenant Viktor Belenko was among the most elite officers of the Soviet military. Like all Soviet military men of the period, he was thoroughly indoctrinated in Communist ideals and fed misinformation about the West his whole life. Yet through many years of observation and logical thinking, he came to see that there was something deeply wrong with the USSR. The rampant drunkenness, dishonesty and economic stagnation he witnessed eventually drove him to fly his MiG-25 to Japan, seeking asylum in the United States–the very heart of the “Dark Forces” he had been taught to fear.

The following incident is from Lt. Belenko’s time as a MiG-25 pilot stationed at Chuguyevka in Southern Siberia. Belenko’s thoughts at the time are represented in {green braces.} Again, I stress that this book is nonfiction; as in, this actually happened:
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