The definitions of the terms we use have consequences for our ability to think and communicate clearly.
Imagine for a moment that your friend told you that he defines “carpenter” as “one who shapes wood by shooting it with a gun.” You’re baffled and you ask him what word he uses for someone who shapes wood by other means, such as a saw, lathe and sander. He says that he really has no word for this. He has a couple of synonyms for “carpenter,” but they also carry the implication that the person shaping the wood used a gun.
Hopefully, you can see that the problem with this hypothetical situation is not merely that you and your friend are using terms differently: shooting wood with a gun is a terribly impractical way of shaping it into useful forms. If the only concepts you have of wood shaping mean using a gun to do it, then you can’t really talk about those who shape wood using the practical methods in their profession.
Ayn Rand held that the common concept of “selfishness” is in an exactly analogous position to your hypothetical friend’s use of “carpenter.” At root, “selfishness” means pursuing one’s own interests and well-being. But the common use today adds in a second element: “pursuing your interests/well-being by means that are shortsighted and hurtful to others.” In today’s culture, the approximate synonyms of “selfishness,” such as “egoism” and “self-interest,” tend to be regarded with the same connotations of shortsightedness and harmfulness, so they are not much different.
Yet Ayn Rand rejected the idea that being shortsighted and hurtful to others is inherent in pursuing one’s interests and well-being. In fact, she recognized that the pursuit of one’s genuine interests in everyday life is specifically the opposite of “shortsighted and hurtful to others.” An individual’s genuine interests require long-term planning to fulfill, and his well-being is not served by doing harm to others. Attempting to pursue one’s self-interest by shortsighted and hurtful means is like trying to shape wood into a beautiful chair by shooting it with a pistol: utterly doomed to failure.
Imagine you could genetically engineer a creature, and you chose to omit a brain, opting instead for local controls that cause each part to do whatever it does, while generally ignoring the state of the other parts. Would this creature be an effective actor in the world, capable of sustaining itself by its own action? I think you would find that it would die pretty quickly, because each part is pulling in a different direction, without any coordination between the parts.
Such would tend to be the fate of a large business without the central control of a chief executive. He/she along with other executives, serves as the “brain” of the company. He provides the overall direction of the company and works to keep its parts coordinated to accomplish major goals. Without executive guidance, the decisions and goals of the various departments would often conflict. (1) The body manufacturing division of a car company, for example, may think that the company should be producing more sports cars, and start shifting its production to sport car bodies. But the engine manufacturing section may think that vans and SUVs are on the rise in the market, and so start shifting production to big-block engines for trucks. The mismatch between the vehicle bodies and engines will waste resources and stop the company from selling as many vehicles to dealers as they otherwise would.
What is needed to avoid such problems is a party to provide overall direction and coordination to the company. This role is filled by the executives, especially the CEO.
For a CEO to guide the company effectively in a free market, he needs to have a great deal of knowledge about his industry, past and present. This knowledge, along with an active, creative mind, is necessary so that he can have a viable vision for the future of his company. He also has to have a solid grasp of the organization, attributes and capabilities of his company. He has to keep all of his company’s moving parts in mind as he makes crucial, high-stakes decisions. One wrong decision can doom the company and cost him his job, potentially making him unemployable as a CEO in the future. A series of right decisions can make the company very successful and very profitable. Being a CEO is hard, stressful, mental work and involves very long hours.
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.
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 →