At long last, my book Capitalism: A Treatise on Economics has been converted to Kindle format. (Click on the title to see it at Amazon.com.) Until recently, I had thought that the book's two-column format and full page diagrams made such conversion impossible. But, thankfully, I was wrong. The book has been converted just about perfectly, and it's now fully readable not only on any ordinary Kindle device but even on a smartphone. And most surprising, even the most complex of its diagrams can be read on a smartphone (though the use of the zoom feature is helpful in such instances).
The conversion was accomplished by eBookArchitects, an outstanding firm in this field.
Sunday, May 20, 2012
Tuesday, May 01, 2012
The Luddite-Statist Attacks on Amazon by Gen LaGreca
Imagine you’re living in the 15th Century. You’re witnessing a revolution that will profoundly change the world. This revolution doesn’t involve swords and cannons, but rather words and books. The cause of this upheaval is the most important invention in more than a thousand years: the printing press, by Johannes Gutenberg.
Within a few decades of its launch, you see the printing press transform the field of bookmaking in ways previously unimaginable. Printed books are far easier, faster, and less costly to produce than the books that had preceded them, which had to be laboriously copied, one page at a time, by hand. In the time it took to copy one page by hand, the printing press could turn out hundreds or thousands of copies of that same page, thereby making it possible for the first time in history for almost anyone to own books. Within a century of its creation, the printing press will spread throughout Western Europe, producing millions of books, spurring the economic development of industries related to it, such as papermaking, and spreading literacy and knowledge around the world. The printing press will make possible the rapid development of education, science, art, culture—and the rise of mankind from the Medieval period to the Early Modern age.
Let us further imagine that not everyone in the 15th Century is happy about this innovation. Unable to match the benefits of the printing press, the producers of hand-copied books are outraged. The scribes are being put out of business. The penmanship schools that train the scribes, the quill makers that supply their pens, and the manufacturers of the stools and drafting tables that literally support them are seeing a drop in sales. The hand-copied books are now priced too high to compete with the Gutenberg press, so their publishers are experiencing no growth, with no new capital coming into their industry. The sales force for the hand-copied books is also in despair, with their customers now ordering the new printed books from the Gutenberg people, and their lost income being money they can no longer put into their communities. Alas, the monopolistic monster, the printing press, is taking over.
The hand-copied book interests complain bitterly to the Great Sages at their Hallowed Council of Justice. “Sires,” they cry, “you must stop the predatory pricing and scorched earth policies of the Gutenberg press. It’s wiping out the competition. How can this be in the public interest?”
Fast-forward to the 21st Century, and we see another revolution that is turning the book industry topsy-turvy—the transformation from printed books to electronic ones. This revolution is spearheaded by a modern-day Gutenberg, Amazon.com, the pioneer of the e-book, the Kindle device for reading it, and the online marketplace for publishing and selling it.
What Amazon has accomplished is truly amazing. With Kindle, it has eliminated the industry middlemen that come between the writer and reader of a book—from agents to publishers to distributors to wholesalers to brick-and-mortar bookstores. Kindle has also eliminated the need for a physical inventory of books, with its high printing, warehousing, and shipping costs. These innovations have resulted in far less expensive books now available to consumers. And the new marketplace of e-books has been especially advantageous for small and self-publishers unable to get their books accepted through the traditional channels, who now have an avenue open to them for reaching customers directly.
The popularity of these ground-breaking innovations is enormous, with Kindle books now outselling the combined total of all paperback and hardcover books purchased from Amazon.
Without any middlemen or gatekeepers, with virtually no costs involved, and with self-marketing possible through social media and other Internet channels, electronic publishing is creating a robust market for new writers and books. For example, one novelist who was unable to find an agent or publisher has self-published two of her novels on Kindle. With her books priced at $2.99 and with a 70-percent royalty from Kindle, she earns approximately $2 per book. She is selling 55 books per day, or 20,000 books per year, which amounts to sales of $60,000 and royalties to her of $40,000. (As a simple comparison, without getting into the complexities of book contracts, this author might earn a royalty of approximately 10-percent from a traditional publisher, which would require her to achieve sales of $400,000 to earn as much money as she does self-publishing on Kindle.) Other authors are doing even better, including two self-published novelists who have become members of the Kindle Million Club in copies sold. These writers started with nothing—they were not among the favored few selected by agents and trade publishers, and they had no publicists or book tours—yet, thanks to electronic publishing, they are making a living, with some achieving stunning success.
The low-pricing of e-books, scorned by the traditional publishing interests, is the emerging writer’s new ticket of admission into the book industry. While readers may be highly reluctant to risk $25 in a bookstore to try a new writer’s hardcover work, they are buying the e-books of new writers priced at or around $2.99 on Kindle. Writers are finding their fans and making money at these prices, and readers, judging by Amazon’s “customer reviews,” are happy with these low-cost books.
The writer-publisher in America dates back to our founding, promoting vigorous free speech and intellectual entrepreneurship. Benjamin Franklin’s “Poor Richard’s Almanac” and Thomas Paine’s “Common Sense,” both best sellers in their day, were self-published. If the American Dream is to start with nothing but one’s own talent, motivation, and hard work, and from that achieve success, then in recent times this dream was essentially closed to writers who failed to win the favor of the agents and trade publishers. Prior to the e-book revolution and online marketing spurred by Amazon, there was a stigma attached to self-publishing, despite its long and distinguished tradition in America. The major trade reviewers would not consider a self-published book, which meant that libraries and bookstores, which order based on the reviews, would not carry it. Now, e-books are not only taking the stigma out of self-publishing, but arguably making it the preferred route. Amazon has opened the avenue to pursuing the intellectual’s American Dream once again.
Yet the same medieval attacks projected above against the printing press are now being launched against Amazon, with the attackers imploring the modern-day “sages” at the Justice Department to stop the new menace called Amazon.
Leading the charge back to the Middle Ages is The New York Times. Two articles appearing on the front page of its business section on April 16, 2012 illustrate what happens when the Luddites, i.e., those hostile to technological development, meet the statists, i.e., those who look to achieve their ends through government force.
“Daring to Cut Off Amazon” by David Streitfeld praises a publisher-distributor for pulling its printed books out of Amazon. (Not only does Amazon discount e-books, but also the printed books it so successfully sells.) The company is Educational Development Corporation, whose CEO Randall White laments, “Amazon is squeezing everyone out of the business. . . . They’re a predator. We’re better off without them.”
One of Mr. White’s concerns was that his sales people were losing business because their customers were buying the company’s books cheaper from Amazon. Sales consultant Christy Reed comments about her local customers: “Yes they got the books for less [from Amazon]. But my earnings go back into our community. Amazon’s do not.” It apparently didn’t occur to her that by buying books cheaper on Amazon, her former customers have more money to spend in her community, and the Amazon staff who replaced her have more money to spend in their communities. But where spending does or doesn’t take place is not the main economic point. The real point is that for the same total spending in the economic system as a whole, people now obtain more books and have money left over to buy more of other things.
“Book Publishing’s Real Nemesis” by David Carr cites the recent antitrust suit brought by the Justice Department against five publishers and Apple, charging they engaged in the price-fixing of e-books. Instead of condemning this police action against production and trade, Mr. Carr bemoans the fact that the strong arm of the law didn’t go far enough to grip the “monopolistic monolith” Amazon, which “has used its market power to bully and dictate.” Mr. Carr considers it bullying and dictating when a private company (Amazon) sets its terms, and other players (the publishers) are free to do business with it or not. But it’s not bullying and dictating when the compulsory power of the state intervenes to set economic terms and punish businesses arbitrarily?
Mr. Carr quotes Authors Guild president and best-selling author Scott Turow, who worries that the club of authors and publishers will shrink. (Really?) “It is breathtaking to stand back and look at this and believe that this is in the public interest,” complains Mr. Turow about Amazon’s success. He also wonders if Amazon will drive the price of books so low that there will be “no one left to compete with them.” Apparently the “public interest” doesn’t include the millions of customers who choose to buy the mother load of affordable e-books from Amazon and who may not welcome his solicitous concern over the low prices they’re paying. And apparently the “public interest” doesn’t include the fresh crop of new authors now sprouting through e-books, without the benefit of the major publishers and lucky breaks that he had.
The Luddite tone of the attacks against Amazon rings like the following: The electric light will replace the candle. The car will replace the horse-and-buggy. The cure for tuberculosis will put the sanatoriums out of business. The computer will replace the typewriter. The statist element lies in the attackers’ desire to enlist the police power of the state to stifle the competition and artificially prop up their businesses.
Granted, it may be disappointing and painful for those whose jobs are thinning out or becoming obsolete due to technological advancements, but that can’t justify government intrusion. Morality is on the side of the people engaged in voluntary trade and against those who urge the Justice Department’s encroachment into their industry. The charges levied against Amazon—as a predator, monopolist, bully, etc.—actually do not apply to a company engaged in voluntary trade, no matter how big its market share, but rather to those trying to preserve their interests through government action. In the case of Amazon, the ones trying to restrain trade are the attackers, themselves. Moreover, not only is morality on the side of Amazon, but so too are the long-run material self-interests of everyone in the economic system. Everyone working will earn money, but, thanks to Amazon, and every other innovator of better products or more efficient methods of production, the buying power of the money he earns will be greater. The enemies of productive innovators are, by the same token, anti-social enemies of the general buying public.
The complaints lodged against Amazon would be harmless if the complainers could not use the government to advance their cause. But they can, through antitrust laws. These laws give the state the power to evaluate the price of a company’s product in relation to its competition and to punish companies—severely and arbitrarily—for prices deemed to be unacceptable. If a company’s price for its goods is deemed to be too low, it can be punished for being predatory and destructive of competition. If the price is deemed to be the same as its competitors, it can be punished for collusion and price-fixing. If the price is deemed to be too high, it can be punished for being monopolistic.
Using antitrust laws against the book industry poses an additional grave danger over and above their use against other industries. Because the book industry represents the dissemination of knowledge and ideas, an attempt to regulate the price of books abridges the free flow of ideas and violates our First Amendment right to freedom of the press.
Anyone interested in the survival of a robust book industry—or any other industry—with the free flow of products, the creativity of new business methods, and the preservation of economic freedom and property rights, must support the repeal of these oppressive laws.
The market—comprising the voluntary decisions of millions of free people—determines the pricing of books, the form a book will take, the device it will be read on, the winners and the losers of the competition. If the market chooses an innovative technology and a new direction, then so be it. Let the Medieval bookmakers copying their books by hand and their contemporary counterparts using needless paper and ink, warehouses, delivery trucks, and bookstores, adopt the advances or quit! Totally unlike competition in the animal kingdom, in which the losers are eaten or die of starvation, the losers of an economic competition do not die. At worst, they must relocate in the economic system at a lower level. But in an economic system free enough rapidly to progress, as ours has been for most of the last two and a half centuries, even the lowest paid workers enjoy a standard of living that surpasses that of the kings and emperors of earlier ages. This is why the Gutenbergs of the world must be left free to dream, to create, and to trade without fear of punishment.
Economist George Reisman contributed to this article.
Gen LaGreca is the author of Noble Vision, a novel that won a ForeWord magazine Book-of-the-Year Award and was a finalist in the Writer’s Digest International Self-Published Book Awards. After being rejected by dozens of agents and unable to find a trade publisher, it now enjoys steady ranking in the Top 100 Best Sellers in medical and political genre fiction on Kindle.
Copyright © 2012 by Genevieve LaGreca. Permission to reproduce is granted with attribution.
Within a few decades of its launch, you see the printing press transform the field of bookmaking in ways previously unimaginable. Printed books are far easier, faster, and less costly to produce than the books that had preceded them, which had to be laboriously copied, one page at a time, by hand. In the time it took to copy one page by hand, the printing press could turn out hundreds or thousands of copies of that same page, thereby making it possible for the first time in history for almost anyone to own books. Within a century of its creation, the printing press will spread throughout Western Europe, producing millions of books, spurring the economic development of industries related to it, such as papermaking, and spreading literacy and knowledge around the world. The printing press will make possible the rapid development of education, science, art, culture—and the rise of mankind from the Medieval period to the Early Modern age.
Let us further imagine that not everyone in the 15th Century is happy about this innovation. Unable to match the benefits of the printing press, the producers of hand-copied books are outraged. The scribes are being put out of business. The penmanship schools that train the scribes, the quill makers that supply their pens, and the manufacturers of the stools and drafting tables that literally support them are seeing a drop in sales. The hand-copied books are now priced too high to compete with the Gutenberg press, so their publishers are experiencing no growth, with no new capital coming into their industry. The sales force for the hand-copied books is also in despair, with their customers now ordering the new printed books from the Gutenberg people, and their lost income being money they can no longer put into their communities. Alas, the monopolistic monster, the printing press, is taking over.
The hand-copied book interests complain bitterly to the Great Sages at their Hallowed Council of Justice. “Sires,” they cry, “you must stop the predatory pricing and scorched earth policies of the Gutenberg press. It’s wiping out the competition. How can this be in the public interest?”
Fast-forward to the 21st Century, and we see another revolution that is turning the book industry topsy-turvy—the transformation from printed books to electronic ones. This revolution is spearheaded by a modern-day Gutenberg, Amazon.com, the pioneer of the e-book, the Kindle device for reading it, and the online marketplace for publishing and selling it.
What Amazon has accomplished is truly amazing. With Kindle, it has eliminated the industry middlemen that come between the writer and reader of a book—from agents to publishers to distributors to wholesalers to brick-and-mortar bookstores. Kindle has also eliminated the need for a physical inventory of books, with its high printing, warehousing, and shipping costs. These innovations have resulted in far less expensive books now available to consumers. And the new marketplace of e-books has been especially advantageous for small and self-publishers unable to get their books accepted through the traditional channels, who now have an avenue open to them for reaching customers directly.
The popularity of these ground-breaking innovations is enormous, with Kindle books now outselling the combined total of all paperback and hardcover books purchased from Amazon.
Without any middlemen or gatekeepers, with virtually no costs involved, and with self-marketing possible through social media and other Internet channels, electronic publishing is creating a robust market for new writers and books. For example, one novelist who was unable to find an agent or publisher has self-published two of her novels on Kindle. With her books priced at $2.99 and with a 70-percent royalty from Kindle, she earns approximately $2 per book. She is selling 55 books per day, or 20,000 books per year, which amounts to sales of $60,000 and royalties to her of $40,000. (As a simple comparison, without getting into the complexities of book contracts, this author might earn a royalty of approximately 10-percent from a traditional publisher, which would require her to achieve sales of $400,000 to earn as much money as she does self-publishing on Kindle.) Other authors are doing even better, including two self-published novelists who have become members of the Kindle Million Club in copies sold. These writers started with nothing—they were not among the favored few selected by agents and trade publishers, and they had no publicists or book tours—yet, thanks to electronic publishing, they are making a living, with some achieving stunning success.
The low-pricing of e-books, scorned by the traditional publishing interests, is the emerging writer’s new ticket of admission into the book industry. While readers may be highly reluctant to risk $25 in a bookstore to try a new writer’s hardcover work, they are buying the e-books of new writers priced at or around $2.99 on Kindle. Writers are finding their fans and making money at these prices, and readers, judging by Amazon’s “customer reviews,” are happy with these low-cost books.
The writer-publisher in America dates back to our founding, promoting vigorous free speech and intellectual entrepreneurship. Benjamin Franklin’s “Poor Richard’s Almanac” and Thomas Paine’s “Common Sense,” both best sellers in their day, were self-published. If the American Dream is to start with nothing but one’s own talent, motivation, and hard work, and from that achieve success, then in recent times this dream was essentially closed to writers who failed to win the favor of the agents and trade publishers. Prior to the e-book revolution and online marketing spurred by Amazon, there was a stigma attached to self-publishing, despite its long and distinguished tradition in America. The major trade reviewers would not consider a self-published book, which meant that libraries and bookstores, which order based on the reviews, would not carry it. Now, e-books are not only taking the stigma out of self-publishing, but arguably making it the preferred route. Amazon has opened the avenue to pursuing the intellectual’s American Dream once again.
Yet the same medieval attacks projected above against the printing press are now being launched against Amazon, with the attackers imploring the modern-day “sages” at the Justice Department to stop the new menace called Amazon.
Leading the charge back to the Middle Ages is The New York Times. Two articles appearing on the front page of its business section on April 16, 2012 illustrate what happens when the Luddites, i.e., those hostile to technological development, meet the statists, i.e., those who look to achieve their ends through government force.
“Daring to Cut Off Amazon” by David Streitfeld praises a publisher-distributor for pulling its printed books out of Amazon. (Not only does Amazon discount e-books, but also the printed books it so successfully sells.) The company is Educational Development Corporation, whose CEO Randall White laments, “Amazon is squeezing everyone out of the business. . . . They’re a predator. We’re better off without them.”
One of Mr. White’s concerns was that his sales people were losing business because their customers were buying the company’s books cheaper from Amazon. Sales consultant Christy Reed comments about her local customers: “Yes they got the books for less [from Amazon]. But my earnings go back into our community. Amazon’s do not.” It apparently didn’t occur to her that by buying books cheaper on Amazon, her former customers have more money to spend in her community, and the Amazon staff who replaced her have more money to spend in their communities. But where spending does or doesn’t take place is not the main economic point. The real point is that for the same total spending in the economic system as a whole, people now obtain more books and have money left over to buy more of other things.
“Book Publishing’s Real Nemesis” by David Carr cites the recent antitrust suit brought by the Justice Department against five publishers and Apple, charging they engaged in the price-fixing of e-books. Instead of condemning this police action against production and trade, Mr. Carr bemoans the fact that the strong arm of the law didn’t go far enough to grip the “monopolistic monolith” Amazon, which “has used its market power to bully and dictate.” Mr. Carr considers it bullying and dictating when a private company (Amazon) sets its terms, and other players (the publishers) are free to do business with it or not. But it’s not bullying and dictating when the compulsory power of the state intervenes to set economic terms and punish businesses arbitrarily?
Mr. Carr quotes Authors Guild president and best-selling author Scott Turow, who worries that the club of authors and publishers will shrink. (Really?) “It is breathtaking to stand back and look at this and believe that this is in the public interest,” complains Mr. Turow about Amazon’s success. He also wonders if Amazon will drive the price of books so low that there will be “no one left to compete with them.” Apparently the “public interest” doesn’t include the millions of customers who choose to buy the mother load of affordable e-books from Amazon and who may not welcome his solicitous concern over the low prices they’re paying. And apparently the “public interest” doesn’t include the fresh crop of new authors now sprouting through e-books, without the benefit of the major publishers and lucky breaks that he had.
The Luddite tone of the attacks against Amazon rings like the following: The electric light will replace the candle. The car will replace the horse-and-buggy. The cure for tuberculosis will put the sanatoriums out of business. The computer will replace the typewriter. The statist element lies in the attackers’ desire to enlist the police power of the state to stifle the competition and artificially prop up their businesses.
Granted, it may be disappointing and painful for those whose jobs are thinning out or becoming obsolete due to technological advancements, but that can’t justify government intrusion. Morality is on the side of the people engaged in voluntary trade and against those who urge the Justice Department’s encroachment into their industry. The charges levied against Amazon—as a predator, monopolist, bully, etc.—actually do not apply to a company engaged in voluntary trade, no matter how big its market share, but rather to those trying to preserve their interests through government action. In the case of Amazon, the ones trying to restrain trade are the attackers, themselves. Moreover, not only is morality on the side of Amazon, but so too are the long-run material self-interests of everyone in the economic system. Everyone working will earn money, but, thanks to Amazon, and every other innovator of better products or more efficient methods of production, the buying power of the money he earns will be greater. The enemies of productive innovators are, by the same token, anti-social enemies of the general buying public.
The complaints lodged against Amazon would be harmless if the complainers could not use the government to advance their cause. But they can, through antitrust laws. These laws give the state the power to evaluate the price of a company’s product in relation to its competition and to punish companies—severely and arbitrarily—for prices deemed to be unacceptable. If a company’s price for its goods is deemed to be too low, it can be punished for being predatory and destructive of competition. If the price is deemed to be the same as its competitors, it can be punished for collusion and price-fixing. If the price is deemed to be too high, it can be punished for being monopolistic.
Using antitrust laws against the book industry poses an additional grave danger over and above their use against other industries. Because the book industry represents the dissemination of knowledge and ideas, an attempt to regulate the price of books abridges the free flow of ideas and violates our First Amendment right to freedom of the press.
Anyone interested in the survival of a robust book industry—or any other industry—with the free flow of products, the creativity of new business methods, and the preservation of economic freedom and property rights, must support the repeal of these oppressive laws.
The market—comprising the voluntary decisions of millions of free people—determines the pricing of books, the form a book will take, the device it will be read on, the winners and the losers of the competition. If the market chooses an innovative technology and a new direction, then so be it. Let the Medieval bookmakers copying their books by hand and their contemporary counterparts using needless paper and ink, warehouses, delivery trucks, and bookstores, adopt the advances or quit! Totally unlike competition in the animal kingdom, in which the losers are eaten or die of starvation, the losers of an economic competition do not die. At worst, they must relocate in the economic system at a lower level. But in an economic system free enough rapidly to progress, as ours has been for most of the last two and a half centuries, even the lowest paid workers enjoy a standard of living that surpasses that of the kings and emperors of earlier ages. This is why the Gutenbergs of the world must be left free to dream, to create, and to trade without fear of punishment.
Economist George Reisman contributed to this article.
Gen LaGreca is the author of Noble Vision, a novel that won a ForeWord magazine Book-of-the-Year Award and was a finalist in the Writer’s Digest International Self-Published Book Awards. After being rejected by dozens of agents and unable to find a trade publisher, it now enjoys steady ranking in the Top 100 Best Sellers in medical and political genre fiction on Kindle.
Copyright © 2012 by Genevieve LaGreca. Permission to reproduce is granted with attribution.
Friday, December 23, 2011
New York Times Runs Pro-Capitalist Article
I never thought I would live to see it, but The New York Times has run an article that puts capitalism in an extremely favorable light. The article is titled "Scaling Caste Walls With Capitalism's Ladders."It appeared on the front page of this last Thursday's (December 22, 2011) National Edition. It was written by Lydia Polgreen. (The Times' has retitled the article on the internet. There, when one does a search under the author's name, it appears as "India's Boom Creates Openings for Untouchables." A tribute to capitalism was evidently news that at least some at the Times thought simply didn't comply with its slogan "All the news that's fit to print," and so they tried to bury it.)
In any case, the article features the story of a now very wealthy and highly productive Indian businessman who was born in extreme poverty, as a member of the caste of the "Untouchables." It stresses the role of capitalism in making possible his success.
I can only hope that the author will be able to keep her job after this article.
A Romanian Translation
Mr. Alexander Orsov has translated the home page of http://www.capitalism.net/ into the Romanian language. Thank you, Mr. Orsov.
In any case, the article features the story of a now very wealthy and highly productive Indian businessman who was born in extreme poverty, as a member of the caste of the "Untouchables." It stresses the role of capitalism in making possible his success.
I can only hope that the author will be able to keep her job after this article.
A Romanian Translation
Mr. Alexander Orsov has translated the home page of http://www.capitalism.net/ into the Romanian language. Thank you, Mr. Orsov.
Thursday, December 15, 2011
Free Speech and Occupy Wall Street
The Occupy Wall Street protesters were allowed to remain in New York’s Zucotti Park for two months, against the will of its private owners. They were clearly trespassers, indeed, much worse than garden variety trespassers, who almost always quickly leave. They were there prepared to stay indefinitely. In effect, they were literally attempting to steal the park from its lawful owners.
Nevertheless, they were allowed to remain, in the belief that to eject them would somehow constitute a violation of their freedom of speech. They had seized the park in order to denounce capitalism. Ejecting them, would have ended their use of the park for that purpose and thus, according to virtually everyone with a public voice, from New York’s Mayor to the lowliest media reporter, would have violated their freedom of speech.
A major lesson to be learned from the occupation is that hardly anyone nowadays understands the meaning of freedom of speech. Contrary to the prevailing view, freedom of speech is not the ability to say anything, anywhere, at any time. Actual freedom of speech is consistent with respect for property rights. It presupposes that the speaker has the consent of the owners of any property he uses in speaking, such as the land, sound system, or lecture hall or radio or television studio that he uses.
Had the owners of Zucotti Park invited the protesters to camp on their land and propound their ideas, and then the police had ejected them, the protesters’ freedom of speech would in fact have been violated. But that was not the case. The only actual violation of freedom present was the protesters’ violation of the freedom of the owners of Zucotti park to use their property for their own purposes. The protesters did not violate specifically the freedom of speech of the owners, but they certainly did violate their freedom in general with respect to the use of Zucotti Park. Had the owners wanted to invite some other person or group for the purpose of speaking, then the protesters would have violated the freedom of speech specifically, by means of their presence and their activities.
Nevertheless, by the logic of the prevailing view of freedom of speech, protesters in the future will be able to storm into lecture halls and/or seize radio and television stations in order to deliver their message and then claim that their freedom of speech is violated when the police come to eject them, even though the police in such cases would in fact be acting precisely in order to uphold the freedom of speech. Indeed, since the days of the so-called Free Speech Movement at Berkeley, back in the 1960s, disruptions of speeches delivered by invited guests have occurred repeatedly on college campuses, in the name of the alleged freedom of speech of the disrupters. No attention has been paid to the actual violation of the freedom of speech of the invited speakers.
The prevailing view of freedom of speech is a major threat to freedom of speech. Not only does it provide justification for actual violations of freedom of speech of the kinds just mentioned, but it also makes freedom of speech appear to be a fundamental enemy of rational communication. Speakers cannot address audiences, professors cannot lecture to students if disrupters are permitted to drown them out and then hide behind the claim that they do so in the name of freedom of speech. If the prevailing view of freedom of speech were correct, the ability of speakers to speak and professors to lecture would require accepting the principle of the need to violate freedom of speech.
Of course, the prevailing view is totally incorrect. Actual freedom of speech, based on respect for property owners’ rights to use their own property as they see fit, is the guarantor of rational communication. If the property rights of the owners of parks, lecture halls, and radio and television stations are respected, the disrupters will be ejected and very soon will no longer even bother to appear. Rational communication will then proceed without incident.
Upholding freedom of speech and rational communication requires a policy of no tolerance for the occupation of property against the will of its owners. Any such occupation is in violation of the owners’ freedom, including their freedom of speech. Protester-occupiers are enemies of freedom, including, above all, freedom of speech.
Copyright © 2011 by George Reisman. George Reisman, Ph.D. is Pepperdine University Professor Emeritus of Economics, a Senior Fellow at the Goldwater Institute, and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996). His website is www.capitalism.net and his blog is georgereismansblog.blogspot.com.
Nevertheless, they were allowed to remain, in the belief that to eject them would somehow constitute a violation of their freedom of speech. They had seized the park in order to denounce capitalism. Ejecting them, would have ended their use of the park for that purpose and thus, according to virtually everyone with a public voice, from New York’s Mayor to the lowliest media reporter, would have violated their freedom of speech.
A major lesson to be learned from the occupation is that hardly anyone nowadays understands the meaning of freedom of speech. Contrary to the prevailing view, freedom of speech is not the ability to say anything, anywhere, at any time. Actual freedom of speech is consistent with respect for property rights. It presupposes that the speaker has the consent of the owners of any property he uses in speaking, such as the land, sound system, or lecture hall or radio or television studio that he uses.
Had the owners of Zucotti Park invited the protesters to camp on their land and propound their ideas, and then the police had ejected them, the protesters’ freedom of speech would in fact have been violated. But that was not the case. The only actual violation of freedom present was the protesters’ violation of the freedom of the owners of Zucotti park to use their property for their own purposes. The protesters did not violate specifically the freedom of speech of the owners, but they certainly did violate their freedom in general with respect to the use of Zucotti Park. Had the owners wanted to invite some other person or group for the purpose of speaking, then the protesters would have violated the freedom of speech specifically, by means of their presence and their activities.
Nevertheless, by the logic of the prevailing view of freedom of speech, protesters in the future will be able to storm into lecture halls and/or seize radio and television stations in order to deliver their message and then claim that their freedom of speech is violated when the police come to eject them, even though the police in such cases would in fact be acting precisely in order to uphold the freedom of speech. Indeed, since the days of the so-called Free Speech Movement at Berkeley, back in the 1960s, disruptions of speeches delivered by invited guests have occurred repeatedly on college campuses, in the name of the alleged freedom of speech of the disrupters. No attention has been paid to the actual violation of the freedom of speech of the invited speakers.
The prevailing view of freedom of speech is a major threat to freedom of speech. Not only does it provide justification for actual violations of freedom of speech of the kinds just mentioned, but it also makes freedom of speech appear to be a fundamental enemy of rational communication. Speakers cannot address audiences, professors cannot lecture to students if disrupters are permitted to drown them out and then hide behind the claim that they do so in the name of freedom of speech. If the prevailing view of freedom of speech were correct, the ability of speakers to speak and professors to lecture would require accepting the principle of the need to violate freedom of speech.
Of course, the prevailing view is totally incorrect. Actual freedom of speech, based on respect for property owners’ rights to use their own property as they see fit, is the guarantor of rational communication. If the property rights of the owners of parks, lecture halls, and radio and television stations are respected, the disrupters will be ejected and very soon will no longer even bother to appear. Rational communication will then proceed without incident.
Upholding freedom of speech and rational communication requires a policy of no tolerance for the occupation of property against the will of its owners. Any such occupation is in violation of the owners’ freedom, including their freedom of speech. Protester-occupiers are enemies of freedom, including, above all, freedom of speech.
Copyright © 2011 by George Reisman. George Reisman, Ph.D. is Pepperdine University Professor Emeritus of Economics, a Senior Fellow at the Goldwater Institute, and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996). His website is www.capitalism.net and his blog is georgereismansblog.blogspot.com.
Wednesday, October 19, 2011
How a Highly Productive and Provident One Percent Provides the Standard of Living of a Largely Ignorant and Ungrateful Ninety-Nine Percent
The protesters in the Occupy Wall Street Movement and its numerous clones elsewhere in the country and around the world chant that one percent of the population owns all the wealth and lives at the expense of the remaining ninety-nine percent. The obvious solution that they imply is for the ninety-nine percent to seize the wealth of the one percent and use it for their benefit rather than allowing it to continue to be used for the benefit of the one percent, who are allegedly undeserving greedy capitalist exploiters. In other words, the implicit program of the protesters is that of socialism and the redistribution of wealth.
Putting aside the hyperbole in the movement’s claim, it is true that a relatively small minority of people does own the far greater part of the wealth of the country. The figures “one percent” and “ninety-nine” percent, however exaggerated, serve to place that fact in the strongest possible light.
What the protesters do not realize is that the wealth of the one percent provides the standard of living of the ninety-nine percent.
The protesters have no awareness of this, because they see the world through an intellectual lens that is inappropriate to life under capitalism and its market economy. They see a world, still present in some places, and present everywhere a few centuries ago, of self-sufficient farm families, each producing for its own consumption and having no essential connection to markets.
In such a world, if one sees a farmer’s field, or his barn, or plow, or draft animals, and asks who do these means of production serve, the answer is the farmer and his family, and no one else. In such a world, apart from the receipt of occasional charity from the owners, those who are not owners of means of production cannot benefit from means of production unless and until they themselves somehow become owners of means of production. They cannot benefit from other people’s means of production except by inheriting them or by seizing them.
In the world of the protesters, means of production have the same essential status as consumers’ goods, which as a rule are of benefit only to their owners. It is because of this that those who share the mentality of the protesters typically depict capitalists as fat men, whose plates are heaped high with food, while the masses of wage earners must live near starvation. According to this mentality, the redistribution of wealth is a matter merely of taking from the overflowing plates of the capitalists and giving to the starving workers.
Contrary to such beliefs, in the modern world in which we actually live, the wealth of the capitalists is simply not in the form of consumers’ goods to any great extent. Not only is it overwhelmingly in the form of means of production but those means of production are employed in the production of goods and services that are sold in the market. Totally unlike the conditions of self-sufficient farm families, the physical beneficiaries of the capitalists’ means of production are all the members of the general consuming public who buy the capitalists’ products.
For example, without owning so much as a single share of stock in General Motors or Exxon Mobil, everyone in a capitalist economy who buys the products of these firms benefits from their means of production: the buyer of a GM automobile benefits from the GM factory that produced that automobile; the buyer of Exxon’s gasoline benefits from its oil wells, pipelines, and tanker trucks. Furthermore, everyone benefits from their means of production who buys the products of the customers of GM or Exxon, insofar as their means of production indirectly contribute to the products of their customers. For example, the patrons of grocery stores whose goods are delivered in trucks made by GM or fueled by diesel oil produced in Exxon’s refineries are beneficiaries of the existence of GM’s truck factories and Exxon’s refineries. Even everyone who buys the products of the competitors of GM and Exxon, or of the customers of those competitors, benefits from the existence of GM’s and Exxon’s means of production. This is because GM’s and Exxon’s means of production result in a more abundant and thus lower-priced supply of the kind of goods the competitors sell.
In other words, all of us, one hundred percent of us, benefit from the wealth of the hated capitalists. We benefit without ourselves being capitalists, or being capitalists to any great extent. The protesters are literally kept alive on the foundation of the wealth of the capitalists they hate. As just indicated, the oil fields and pipelines of the hated Exxon corporation provide the fuel that powers the tractors and trucks that are essential to the production and delivery of the food the protesters eat. The protesters and all other haters of capitalists hate the foundations of their own existence.
The benefit of the capitalists’ means of production to non-owners of means of production extends not only to the buyers of the products of those means of production but also to the sellers of the labor that is employed to work with those means of production. The wealth of the capitalists, in other words, is the source both of the supply of products that non-owners of the means of production buy and of the demand for the labor that non-owners of the means of production sell. It follows that the larger the number and greater the wealth of the capitalists, the greater is both the supply of products and the demand for labor, and thus the lower are prices and the higher are wages, i.e., the higher is the standard of living of everyone. Nothing is more to the self-interest of the average person than to live in a society that is filled with multi-billionaire capitalists and their corporations, all busy using their vast wealth to produce the products he buys and to compete for the labor he sells.
Nevertheless, the world the protesters yearn for is a world from which the billionaire capitalists and their corporations have been banished, replaced by small, poor producers, who would not be significantly richer than they themselves are, which is to say, impoverished. They expect that in a world of such producers, producers who lack the capital required to produce very much of anything, let alone carry on the mass production of the technologically advanced products of modern capitalism, they will somehow be economically better off than they are now. Obviously, the protesters could not be more deluded.
In addition to not realizing that the wealth of the so-called one percent is the foundation of the standard of living of the so-called ninety-nine percent, what the protesters also do not realize is that the “greed” of those who seek to become part of the one percent, or to enlarge their position within it, is what serves progressively to improve the standard of living of the ninety-nine percent.
Of course, this does not apply to wealth which has been acquired by such means as obtaining government subsidies or preventing competition through protective tariffs and other forms of government intervention. These are methods which are made possible to the extent that the government is permitted to depart from a policy of strict laissez-faire and thereby arbitrarily reward or punish firms.
Apart from such aberrations, the way that business fortunes are accumulated is by means of the high profits generated by the introduction of new and improved products and more efficient, lower-cost methods of production, followed by the heavy saving and reinvestment of those high profits.
For example, the $6 billion fortune of the late Steve Jobs was built on a foundation of Mr. Jobs having made it possible for Apple Computer to introduce such new and improved products as the iPod, the iPhone, and the iPad, and then heavily saving and reinvesting the share of the profits that came to him.
Two closely related points need to be stressed. First, the fortunes that are accumulated in this way generally serve in the larger-scale production of the very sort of products that provided the profits out of which their accumulation took place. Thus, for example, Jobs’ billions serve largely in the production of Apple’s products. Similarly, old Henry Ford’s great personal fortune, earned on the foundation of introducing major improvements in the efficiency of automobile production, which brought down the price of a new automobile from about $10,000 at the beginning of the 20th Century to $300 in the mid 1920s, was used to make possible the production of millions of Ford automobiles.
Second, the high rates of profit earned on new and improved products and methods of production are temporary. As soon as the production of the new product or use of the new method of production becomes the norm in an industry, it no longer provides any exceptional profitability. Indeed, further improvements again and again render earlier improvements downright unprofitable. For example, the first generation of the iPhone, which was highly profitable just a few years ago, is or soon will be unprofitable, because further advances have rendered it obsolete.
As a result, the accumulation of great business fortunes generally requires the introduction of a series of improvements in products or methods of production. This is what is required to maintain a high rate of profit in the face of competition. For example, Intel’s ability to maintain its high rate of profit over the years has depended on its ability to introduce one substantial improvement in its computer chips after another. The net effect has been that computer users have gotten the benefit of improvement after improvement not only at no rise but a drastic decline in the prices of computer chips. Insofar as high profits rest on low costs of production, competition drives prices down to correspond to the lower level of costs, which necessitates the achievement of still further cost reductions to maintain high profits.
The same outcome, of course, applies not only to Intel and microprocessors but also to the rest of the computer industry, where gigabytes of memory and terabytes of hard drive data storage now sell at prices below the prices of megabytes of memory and hard drive data storage just a couple of decades ago. Indeed, if one knows how to look, the principle of ever more and better products for less and less applies throughout the economic system. It is present in the production of food, clothing, and shelter as well as in the high tech industries, and in virtually all industries in between.
It is present in these industries even though the government’s inflation of the money supply has caused the prices of their products to rise sharply over the years. Despite this, when calculated in terms of the amount of labor the average person must expend in order to earn the wages needed to enable him to buy these products, their prices have sharply fallen.
This can be seen in the fact that today, the average worker works 40 hours per week, while a worker of a century or so ago worked 60 hours a week. For the 40 hours he works, the average worker of today receives the goods and services comprising the average standard of living of 2011, which includes such things as an automobile, refrigerator, air conditioner, central heating, more and better living space, more and better food and clothing, modern medicine and dentistry, motion pictures, a computer, cell phone, television set, washer/dryer, microwave oven, and so on. The average worker of 1911 either did not have these things at all or had much less of them and of poorer quality.
If we describe the goods and services received by the average worker of today for his 40 hours of labor as being 10 times as great as those received by the average worker of 1911 for his 60 hours of labor, then it follows that expressed in terms of the amount of labor that needs to be performed today in order to be able to buy goods and services equivalent to the standard of living of 1911, prices have fallen to two-thirds of one-tenth of their level in 1911, i.e., to one-fifteenth of their level in 1911, which is to say, by 93 1/3 percent.
Capitalism—laissez-faire capitalism—is the ideal economic system. It is the embodiment of individual freedom and the pursuit of material self-interest. Its result is the progressive rise in the material well-being of all, manifested in lengthening life spans and ever improving standards of living.
The economic stagnation and decline, the problems of mass unemployment and growing poverty experienced in the United States in recent years, are the result of violations of individual freedom and the pursuit of material self-interest. The government has enmeshed the economic system in a growing web of paralyzing rules and regulations that prohibit the production of goods and services that people want, while compelling the production of goods and services they don’t want, and making the production of virtually everything more and more expensive than it needs to be. For example, prohibitions on the production of atomic power, oil, coal, and natural gas, make the cost of energy higher and in the face of less energy available for use in production, require the performance of more human labor to produce any given quantity of goods. This results in fewer goods being available to remunerate the performance of any given quantity of labor.
Uncontrolled government spending and its accompanying budget deficits and borrowing, along with the income, estate, and capital gains taxes, all levied on funds that otherwise would have been heavily saved and invested, drain capital from the economic system. They thus serve to prevent the increase in both the supply of goods and the demand for labor that more capital in the hands of business would have made possible. They have now gone far enough to have begun actually to reduce the supply of capital in the economic system in comparison with the past.
Capital accumulation is also impaired and can ultimately be turned into capital decumulation, through the effects of additional government regulation in raising the costs of production and thus reducing its efficiency. This applies to practically all of the regulations imposed by the Environmental Protection Agency, the Occupational Safety and Health Administration, the Consumer Product Safety Commission, the National Labor Relations Board, the Food and Drug Administration, and the various other government agencies. The effect of their regulations is that for any given amount of labor performed in the economic system, there is less product than would otherwise be produced.
Now anything that serves to reduce the ability to produce in general, serves also to reduce the ability to produce capital goods in particular. Because of such government interference, any given amount of labor and capital goods devoted to the production of capital goods results in a smaller output of capital goods, just as any given quantity of labor and capital goods devoted to the production of consumers’ goods results in a smaller output of consumers’ goods. At a minimum, the reduced supply of capital goods produced serves to reduce the rate of economic progress. A reduction in the supply of capital goods produced great enough to prevent the addition of any increment to the previously existing supply of capital goods, and thus to put an end to capital accumulation, brings economic progress to a complete halt. A still greater reduction, one that renders the supply of capital goods produced less than the supply being used up in production, constitutes capital decumulation and thus a decline in the economic system’s ability to produce. As indicated, the United States already appears to be at this point.
The problem of capital decumulation has been greatly compounded as the result of massive credit expansion induced by the Federal Reserve System and its policy of easy money and artificially low interest rates. This policy led first to a great stock market bubble and then a vast housing bubble, as large quantities of newly created money poured into the stock market and later the housing market. Between these two bubbles, trillions of dollars of capital were lost. In both instances, vast overconsumption occurred as people raced to buy such things as new automobiles, major appliances, vacations, and all kinds of luxury goods that they would not have believed they could afford in the absence of the effects of credit expansion, often incurring substantial debt in the process.
In the one case, it was the artificial rise in stock prices that misled people into believing that they could afford these things. In the other, it was the artificial rise in home prices that produced this result. The seeming wealth vanished with the fall in stock prices and then again, later, with the fall in housing prices. In the housing bubble, moreover, millions of homes were constructed for people who could not afford to pay for them. All of this represented a huge loss of capital and thus of the ability of business to produce and to employ labor. It is this loss of capital that is responsible for our present problem of mass unemployment.
Despite this loss of capital, unemployment could be eliminated. But given the loss of capital, what would be required to accomplish this is a fall in wage rates. This fall, however, is made virtually illegal as the result of the existence of minimum-wage laws and pro-union legislation. These laws prevent employers from offering the lower wage rates at which the unemployed would be reemployed.
Thus, however ironic it may be, it turns out that virtually all of the problems the Occupy Wall Street protesters complain about are the result of the enactment of policies that they support and in which they fervently believe. It is their mentality, the Marxism that permeates it, and the government policies that are the result, that are responsible for what they complain about. The protesters are, in effect, in the position of being unwitting flagellants. They are beating themselves left and right and as balm for their wounds they demand more whips and chains. They do not see this, because they have not learned to make the connection that in violating the freedom of businessmen and capitalists and seizing and consuming their wealth, i.e., using weapons of pain and suffering against this small hated group, they are destroying the basis of their own well being.
However much the protesters might deserve to suffer as the result of the injury caused by the enactment of their very own ideas, it would be far better, if they woke up to the modern world and came to understand the actual nature of capitalism, and then directed their ire at the targets that deserve it. In that case, they might make some real contribution to economic well being, including their own.
Copyright © 2011 by George Reisman. Permission is hereby given to reproduce this article via electronic transmission, including republication on other websites.
George Reisman, Ph.D. is Pepperdine University Professor Emeritus of Economics, a Senior Fellow at the Goldwater Institute, and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996). His website is http://www.capitalism.net/ and his blog is georgereismansblog.blogspot.com. Note: since its orginal publication on this blog, this article has also appeared under the title “In Praise of the Capitalist 1 Percent.”
Further Note: Please disregard all links to the web site "Fun With Gravity." They are unwelcome, but I am presently unable to get rid of them.
Putting aside the hyperbole in the movement’s claim, it is true that a relatively small minority of people does own the far greater part of the wealth of the country. The figures “one percent” and “ninety-nine” percent, however exaggerated, serve to place that fact in the strongest possible light.
What the protesters do not realize is that the wealth of the one percent provides the standard of living of the ninety-nine percent.
The protesters have no awareness of this, because they see the world through an intellectual lens that is inappropriate to life under capitalism and its market economy. They see a world, still present in some places, and present everywhere a few centuries ago, of self-sufficient farm families, each producing for its own consumption and having no essential connection to markets.
In such a world, if one sees a farmer’s field, or his barn, or plow, or draft animals, and asks who do these means of production serve, the answer is the farmer and his family, and no one else. In such a world, apart from the receipt of occasional charity from the owners, those who are not owners of means of production cannot benefit from means of production unless and until they themselves somehow become owners of means of production. They cannot benefit from other people’s means of production except by inheriting them or by seizing them.
In the world of the protesters, means of production have the same essential status as consumers’ goods, which as a rule are of benefit only to their owners. It is because of this that those who share the mentality of the protesters typically depict capitalists as fat men, whose plates are heaped high with food, while the masses of wage earners must live near starvation. According to this mentality, the redistribution of wealth is a matter merely of taking from the overflowing plates of the capitalists and giving to the starving workers.
Contrary to such beliefs, in the modern world in which we actually live, the wealth of the capitalists is simply not in the form of consumers’ goods to any great extent. Not only is it overwhelmingly in the form of means of production but those means of production are employed in the production of goods and services that are sold in the market. Totally unlike the conditions of self-sufficient farm families, the physical beneficiaries of the capitalists’ means of production are all the members of the general consuming public who buy the capitalists’ products.
For example, without owning so much as a single share of stock in General Motors or Exxon Mobil, everyone in a capitalist economy who buys the products of these firms benefits from their means of production: the buyer of a GM automobile benefits from the GM factory that produced that automobile; the buyer of Exxon’s gasoline benefits from its oil wells, pipelines, and tanker trucks. Furthermore, everyone benefits from their means of production who buys the products of the customers of GM or Exxon, insofar as their means of production indirectly contribute to the products of their customers. For example, the patrons of grocery stores whose goods are delivered in trucks made by GM or fueled by diesel oil produced in Exxon’s refineries are beneficiaries of the existence of GM’s truck factories and Exxon’s refineries. Even everyone who buys the products of the competitors of GM and Exxon, or of the customers of those competitors, benefits from the existence of GM’s and Exxon’s means of production. This is because GM’s and Exxon’s means of production result in a more abundant and thus lower-priced supply of the kind of goods the competitors sell.
In other words, all of us, one hundred percent of us, benefit from the wealth of the hated capitalists. We benefit without ourselves being capitalists, or being capitalists to any great extent. The protesters are literally kept alive on the foundation of the wealth of the capitalists they hate. As just indicated, the oil fields and pipelines of the hated Exxon corporation provide the fuel that powers the tractors and trucks that are essential to the production and delivery of the food the protesters eat. The protesters and all other haters of capitalists hate the foundations of their own existence.
The benefit of the capitalists’ means of production to non-owners of means of production extends not only to the buyers of the products of those means of production but also to the sellers of the labor that is employed to work with those means of production. The wealth of the capitalists, in other words, is the source both of the supply of products that non-owners of the means of production buy and of the demand for the labor that non-owners of the means of production sell. It follows that the larger the number and greater the wealth of the capitalists, the greater is both the supply of products and the demand for labor, and thus the lower are prices and the higher are wages, i.e., the higher is the standard of living of everyone. Nothing is more to the self-interest of the average person than to live in a society that is filled with multi-billionaire capitalists and their corporations, all busy using their vast wealth to produce the products he buys and to compete for the labor he sells.
Nevertheless, the world the protesters yearn for is a world from which the billionaire capitalists and their corporations have been banished, replaced by small, poor producers, who would not be significantly richer than they themselves are, which is to say, impoverished. They expect that in a world of such producers, producers who lack the capital required to produce very much of anything, let alone carry on the mass production of the technologically advanced products of modern capitalism, they will somehow be economically better off than they are now. Obviously, the protesters could not be more deluded.
In addition to not realizing that the wealth of the so-called one percent is the foundation of the standard of living of the so-called ninety-nine percent, what the protesters also do not realize is that the “greed” of those who seek to become part of the one percent, or to enlarge their position within it, is what serves progressively to improve the standard of living of the ninety-nine percent.
Of course, this does not apply to wealth which has been acquired by such means as obtaining government subsidies or preventing competition through protective tariffs and other forms of government intervention. These are methods which are made possible to the extent that the government is permitted to depart from a policy of strict laissez-faire and thereby arbitrarily reward or punish firms.
Apart from such aberrations, the way that business fortunes are accumulated is by means of the high profits generated by the introduction of new and improved products and more efficient, lower-cost methods of production, followed by the heavy saving and reinvestment of those high profits.
For example, the $6 billion fortune of the late Steve Jobs was built on a foundation of Mr. Jobs having made it possible for Apple Computer to introduce such new and improved products as the iPod, the iPhone, and the iPad, and then heavily saving and reinvesting the share of the profits that came to him.
Two closely related points need to be stressed. First, the fortunes that are accumulated in this way generally serve in the larger-scale production of the very sort of products that provided the profits out of which their accumulation took place. Thus, for example, Jobs’ billions serve largely in the production of Apple’s products. Similarly, old Henry Ford’s great personal fortune, earned on the foundation of introducing major improvements in the efficiency of automobile production, which brought down the price of a new automobile from about $10,000 at the beginning of the 20th Century to $300 in the mid 1920s, was used to make possible the production of millions of Ford automobiles.
Second, the high rates of profit earned on new and improved products and methods of production are temporary. As soon as the production of the new product or use of the new method of production becomes the norm in an industry, it no longer provides any exceptional profitability. Indeed, further improvements again and again render earlier improvements downright unprofitable. For example, the first generation of the iPhone, which was highly profitable just a few years ago, is or soon will be unprofitable, because further advances have rendered it obsolete.
As a result, the accumulation of great business fortunes generally requires the introduction of a series of improvements in products or methods of production. This is what is required to maintain a high rate of profit in the face of competition. For example, Intel’s ability to maintain its high rate of profit over the years has depended on its ability to introduce one substantial improvement in its computer chips after another. The net effect has been that computer users have gotten the benefit of improvement after improvement not only at no rise but a drastic decline in the prices of computer chips. Insofar as high profits rest on low costs of production, competition drives prices down to correspond to the lower level of costs, which necessitates the achievement of still further cost reductions to maintain high profits.
The same outcome, of course, applies not only to Intel and microprocessors but also to the rest of the computer industry, where gigabytes of memory and terabytes of hard drive data storage now sell at prices below the prices of megabytes of memory and hard drive data storage just a couple of decades ago. Indeed, if one knows how to look, the principle of ever more and better products for less and less applies throughout the economic system. It is present in the production of food, clothing, and shelter as well as in the high tech industries, and in virtually all industries in between.
It is present in these industries even though the government’s inflation of the money supply has caused the prices of their products to rise sharply over the years. Despite this, when calculated in terms of the amount of labor the average person must expend in order to earn the wages needed to enable him to buy these products, their prices have sharply fallen.
This can be seen in the fact that today, the average worker works 40 hours per week, while a worker of a century or so ago worked 60 hours a week. For the 40 hours he works, the average worker of today receives the goods and services comprising the average standard of living of 2011, which includes such things as an automobile, refrigerator, air conditioner, central heating, more and better living space, more and better food and clothing, modern medicine and dentistry, motion pictures, a computer, cell phone, television set, washer/dryer, microwave oven, and so on. The average worker of 1911 either did not have these things at all or had much less of them and of poorer quality.
If we describe the goods and services received by the average worker of today for his 40 hours of labor as being 10 times as great as those received by the average worker of 1911 for his 60 hours of labor, then it follows that expressed in terms of the amount of labor that needs to be performed today in order to be able to buy goods and services equivalent to the standard of living of 1911, prices have fallen to two-thirds of one-tenth of their level in 1911, i.e., to one-fifteenth of their level in 1911, which is to say, by 93 1/3 percent.
Capitalism—laissez-faire capitalism—is the ideal economic system. It is the embodiment of individual freedom and the pursuit of material self-interest. Its result is the progressive rise in the material well-being of all, manifested in lengthening life spans and ever improving standards of living.
The economic stagnation and decline, the problems of mass unemployment and growing poverty experienced in the United States in recent years, are the result of violations of individual freedom and the pursuit of material self-interest. The government has enmeshed the economic system in a growing web of paralyzing rules and regulations that prohibit the production of goods and services that people want, while compelling the production of goods and services they don’t want, and making the production of virtually everything more and more expensive than it needs to be. For example, prohibitions on the production of atomic power, oil, coal, and natural gas, make the cost of energy higher and in the face of less energy available for use in production, require the performance of more human labor to produce any given quantity of goods. This results in fewer goods being available to remunerate the performance of any given quantity of labor.
Uncontrolled government spending and its accompanying budget deficits and borrowing, along with the income, estate, and capital gains taxes, all levied on funds that otherwise would have been heavily saved and invested, drain capital from the economic system. They thus serve to prevent the increase in both the supply of goods and the demand for labor that more capital in the hands of business would have made possible. They have now gone far enough to have begun actually to reduce the supply of capital in the economic system in comparison with the past.
Capital accumulation is also impaired and can ultimately be turned into capital decumulation, through the effects of additional government regulation in raising the costs of production and thus reducing its efficiency. This applies to practically all of the regulations imposed by the Environmental Protection Agency, the Occupational Safety and Health Administration, the Consumer Product Safety Commission, the National Labor Relations Board, the Food and Drug Administration, and the various other government agencies. The effect of their regulations is that for any given amount of labor performed in the economic system, there is less product than would otherwise be produced.
Now anything that serves to reduce the ability to produce in general, serves also to reduce the ability to produce capital goods in particular. Because of such government interference, any given amount of labor and capital goods devoted to the production of capital goods results in a smaller output of capital goods, just as any given quantity of labor and capital goods devoted to the production of consumers’ goods results in a smaller output of consumers’ goods. At a minimum, the reduced supply of capital goods produced serves to reduce the rate of economic progress. A reduction in the supply of capital goods produced great enough to prevent the addition of any increment to the previously existing supply of capital goods, and thus to put an end to capital accumulation, brings economic progress to a complete halt. A still greater reduction, one that renders the supply of capital goods produced less than the supply being used up in production, constitutes capital decumulation and thus a decline in the economic system’s ability to produce. As indicated, the United States already appears to be at this point.
The problem of capital decumulation has been greatly compounded as the result of massive credit expansion induced by the Federal Reserve System and its policy of easy money and artificially low interest rates. This policy led first to a great stock market bubble and then a vast housing bubble, as large quantities of newly created money poured into the stock market and later the housing market. Between these two bubbles, trillions of dollars of capital were lost. In both instances, vast overconsumption occurred as people raced to buy such things as new automobiles, major appliances, vacations, and all kinds of luxury goods that they would not have believed they could afford in the absence of the effects of credit expansion, often incurring substantial debt in the process.
In the one case, it was the artificial rise in stock prices that misled people into believing that they could afford these things. In the other, it was the artificial rise in home prices that produced this result. The seeming wealth vanished with the fall in stock prices and then again, later, with the fall in housing prices. In the housing bubble, moreover, millions of homes were constructed for people who could not afford to pay for them. All of this represented a huge loss of capital and thus of the ability of business to produce and to employ labor. It is this loss of capital that is responsible for our present problem of mass unemployment.
Despite this loss of capital, unemployment could be eliminated. But given the loss of capital, what would be required to accomplish this is a fall in wage rates. This fall, however, is made virtually illegal as the result of the existence of minimum-wage laws and pro-union legislation. These laws prevent employers from offering the lower wage rates at which the unemployed would be reemployed.
Thus, however ironic it may be, it turns out that virtually all of the problems the Occupy Wall Street protesters complain about are the result of the enactment of policies that they support and in which they fervently believe. It is their mentality, the Marxism that permeates it, and the government policies that are the result, that are responsible for what they complain about. The protesters are, in effect, in the position of being unwitting flagellants. They are beating themselves left and right and as balm for their wounds they demand more whips and chains. They do not see this, because they have not learned to make the connection that in violating the freedom of businessmen and capitalists and seizing and consuming their wealth, i.e., using weapons of pain and suffering against this small hated group, they are destroying the basis of their own well being.
However much the protesters might deserve to suffer as the result of the injury caused by the enactment of their very own ideas, it would be far better, if they woke up to the modern world and came to understand the actual nature of capitalism, and then directed their ire at the targets that deserve it. In that case, they might make some real contribution to economic well being, including their own.
Copyright © 2011 by George Reisman. Permission is hereby given to reproduce this article via electronic transmission, including republication on other websites.
George Reisman, Ph.D. is Pepperdine University Professor Emeritus of Economics, a Senior Fellow at the Goldwater Institute, and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996). His website is http://www.capitalism.net/ and his blog is georgereismansblog.blogspot.com. Note: since its orginal publication on this blog, this article has also appeared under the title “In Praise of the Capitalist 1 Percent.”
Further Note: Please disregard all links to the web site "Fun With Gravity." They are unwelcome, but I am presently unable to get rid of them.
Thursday, September 22, 2011
James Madison was Right About Property Rights—by Gen LaGreca & Marsha Enright
Constitution Day on September 17 celebrates the 1787 signing of the document that established the United States of America. But like the victim of a terrible accident, the government that was formed that historic day in Philadelphia is hardly recognizable today, and the heart that propelled it—the principle of individual rights—is on life support.
Ironically, what started as a government of radically limited powers now mandates that the nation’s schools “hold an educational program on the United States Constitution” on the holiday of its signing.
In fact, the best “educational program” comes from James Madison, the man who scoured political thought and history to create the blueprint for our government, earning him the title Father of the Constitution. He has a crucial lesson for us on property rights.
To prepare for his lesson, let’s contrast today’s treatment of our First Amendment rights with that of property rights.
People would be shocked if the President of the United States said: “I do think at a certain point you’ve made enough speeches,” or “you’ve given enough sermons,” or “you’ve authored enough books.” Virtually all Americans would protest such remarks and boldly assert that it’s a free country, so they can say, preach, or write whatever they please.
Yet the president can get away with saying: “I do think at a certain point, you’ve made enough money.” And he can get away with seizing and redistributing our money in order to “spread the wealth around,” with only a minority shouting in disbelief at the outrage. These dissenting voices have been unable to stop a century-long growth of the welfare state.
Consider the onslaught against property in recent years: The city of New London, Connecticut can seize Susette Kelo’s house and land to sell to a shopping mall developer. Congress appropriates billions of our dollars and redistributes them to the companies of its choice, including failing banks, auto manufacturers, and solar panels producers. And businesspersons like Warren Buffet blithely suggest that the wealthy be taxed more.
Are these attacks on our possessions accepted because the right to property is a lesser right, one that isn’t unalienable like the others?
In his article Property, Madison emphatically says no. He explains that our right to property is as untouchable as our freedom of speech, press, religion, and conscience. In fact, he views the concept of property as fundamental, pertaining to much more than merely our material possessions.
In the narrow sense, Madison says, “a man’s land, or merchandize, or money is called his property.” But in a wider sense, “a man has a property in his opinions and the free communication of them . . . in his religious beliefs . . . in the safety and liberty of his person . . . in the free use of his faculties and free choice of the objects on which to employ them.”
He then concludes: “[A]s a man is said to have a right to his property, he may be equally said to have a property in his rights.”
This statement represents a profound expression of the individual’s sovereignty over his possessions of every kind: spiritual, intellectual, and material. According to Madison, a human being is master of his mind and body, his beliefs and possessions, his person and property. It is all the province of the individual to create and control.
Madison argues that there is no parceling of rights. Our rights to life, liberty, and property are indivisible. The reason for this was explained with unusual clarity by Ayn Rand two centuries later: “The right to life is the source of all rights—and the right to property is their only implementation. Without property rights, no other rights are possible. Since man has to sustain his life by his own effort, the man who has no right to the product of his effort has no means to sustain his life.”
Government, according to Madison, is “instituted to protect property of every sort,” and is judged solely by this yardstick: “If the United States mean to obtain or deserve the full praise due to wise and just governments, they will equally respect the rights of property, and the property in rights.”
But what does our current government do? Instead of respecting our material property at least as well as it does our other rights, its redistribution of wealth, strangling regulations on business, and deeply ingrained entitlement mentality are blatant assaults on our right to property. As Ronald Reagan famously remarked: “Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
It’s as if Madison looked into the future as he observed: “When an excess of power prevails, property of no sort is duly respected.” That is precisely our current situation.
Today, the huge onslaught of regulations such as Dodd-Frank, Obamacare, and the EPA’s controls on energy production has brought us almost to the point of economic paralysis. Buying and selling homes, as well as autos, has all but halted. Companies are hoarding cash and not hiring as they fearfully watch the latest attempts by government to control them. The stock market is epileptic, with seizures up and down triggered by the latest political and economic news. With these curtailments on our right to acquire, use, and control our property in the economic realm, the very essence of our liberty—the right to free action—is lost.
And government’s violation of property rights isn’t limited to the economic realm. Because our rights are interconnected, it’s spreading to all aspects of life.
Consider the trial balloons we’ve already seen to limit free speech, such as the so-called “Fairness Doctrine” or “Net Neutrality.” Or consider the expanding government grip over deeply personal areas of our lives, such as regulations on what fats or sugars we eat, what physicians we see, what health insurance we buy, what treatments or drugs we’re allowed to have—and what our children may bring to school for lunch.
Because our rights can’t be divided, if we lose one, we could lose them all. That’s why we have to fight against government intrusion in the free market with the same moral certitude—and the same fire-in-the-belly—that we’d have if the government invaded our homes without a warrant, or forbade us to peacefully assemble. We have to treat the government’s encroachment on the economy as we would an encroachment on our opinions, beliefs, and conscience.
On Constitution Day, as well as on every other day, let’s remember Madison’s lesson on the full meaning of property—and fight for our right to property as if our life depended on it, because it does.
Gen LaGreca is author of Noble Vision, an award-winning novel about the struggle for liberty in healthcare today. Marsha Familaro Enright is president of the Reason, Individualism, Freedom Institute, the Foundation for the College of the United States.
All quotes from James Madison are taken from his essay Property, published March 29, 1792 in the National Gazette.
Copyright © 2011 by Gen LaGreca and Marsha Enright. Permission to reproduce is granted with copyright notice and author attribution.
Ironically, what started as a government of radically limited powers now mandates that the nation’s schools “hold an educational program on the United States Constitution” on the holiday of its signing.
In fact, the best “educational program” comes from James Madison, the man who scoured political thought and history to create the blueprint for our government, earning him the title Father of the Constitution. He has a crucial lesson for us on property rights.
To prepare for his lesson, let’s contrast today’s treatment of our First Amendment rights with that of property rights.
People would be shocked if the President of the United States said: “I do think at a certain point you’ve made enough speeches,” or “you’ve given enough sermons,” or “you’ve authored enough books.” Virtually all Americans would protest such remarks and boldly assert that it’s a free country, so they can say, preach, or write whatever they please.
Yet the president can get away with saying: “I do think at a certain point, you’ve made enough money.” And he can get away with seizing and redistributing our money in order to “spread the wealth around,” with only a minority shouting in disbelief at the outrage. These dissenting voices have been unable to stop a century-long growth of the welfare state.
Consider the onslaught against property in recent years: The city of New London, Connecticut can seize Susette Kelo’s house and land to sell to a shopping mall developer. Congress appropriates billions of our dollars and redistributes them to the companies of its choice, including failing banks, auto manufacturers, and solar panels producers. And businesspersons like Warren Buffet blithely suggest that the wealthy be taxed more.
Are these attacks on our possessions accepted because the right to property is a lesser right, one that isn’t unalienable like the others?
In his article Property, Madison emphatically says no. He explains that our right to property is as untouchable as our freedom of speech, press, religion, and conscience. In fact, he views the concept of property as fundamental, pertaining to much more than merely our material possessions.
In the narrow sense, Madison says, “a man’s land, or merchandize, or money is called his property.” But in a wider sense, “a man has a property in his opinions and the free communication of them . . . in his religious beliefs . . . in the safety and liberty of his person . . . in the free use of his faculties and free choice of the objects on which to employ them.”
He then concludes: “[A]s a man is said to have a right to his property, he may be equally said to have a property in his rights.”
This statement represents a profound expression of the individual’s sovereignty over his possessions of every kind: spiritual, intellectual, and material. According to Madison, a human being is master of his mind and body, his beliefs and possessions, his person and property. It is all the province of the individual to create and control.
Madison argues that there is no parceling of rights. Our rights to life, liberty, and property are indivisible. The reason for this was explained with unusual clarity by Ayn Rand two centuries later: “The right to life is the source of all rights—and the right to property is their only implementation. Without property rights, no other rights are possible. Since man has to sustain his life by his own effort, the man who has no right to the product of his effort has no means to sustain his life.”
Government, according to Madison, is “instituted to protect property of every sort,” and is judged solely by this yardstick: “If the United States mean to obtain or deserve the full praise due to wise and just governments, they will equally respect the rights of property, and the property in rights.”
But what does our current government do? Instead of respecting our material property at least as well as it does our other rights, its redistribution of wealth, strangling regulations on business, and deeply ingrained entitlement mentality are blatant assaults on our right to property. As Ronald Reagan famously remarked: “Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
It’s as if Madison looked into the future as he observed: “When an excess of power prevails, property of no sort is duly respected.” That is precisely our current situation.
Today, the huge onslaught of regulations such as Dodd-Frank, Obamacare, and the EPA’s controls on energy production has brought us almost to the point of economic paralysis. Buying and selling homes, as well as autos, has all but halted. Companies are hoarding cash and not hiring as they fearfully watch the latest attempts by government to control them. The stock market is epileptic, with seizures up and down triggered by the latest political and economic news. With these curtailments on our right to acquire, use, and control our property in the economic realm, the very essence of our liberty—the right to free action—is lost.
And government’s violation of property rights isn’t limited to the economic realm. Because our rights are interconnected, it’s spreading to all aspects of life.
Consider the trial balloons we’ve already seen to limit free speech, such as the so-called “Fairness Doctrine” or “Net Neutrality.” Or consider the expanding government grip over deeply personal areas of our lives, such as regulations on what fats or sugars we eat, what physicians we see, what health insurance we buy, what treatments or drugs we’re allowed to have—and what our children may bring to school for lunch.
Because our rights can’t be divided, if we lose one, we could lose them all. That’s why we have to fight against government intrusion in the free market with the same moral certitude—and the same fire-in-the-belly—that we’d have if the government invaded our homes without a warrant, or forbade us to peacefully assemble. We have to treat the government’s encroachment on the economy as we would an encroachment on our opinions, beliefs, and conscience.
On Constitution Day, as well as on every other day, let’s remember Madison’s lesson on the full meaning of property—and fight for our right to property as if our life depended on it, because it does.
Gen LaGreca is author of Noble Vision, an award-winning novel about the struggle for liberty in healthcare today. Marsha Familaro Enright is president of the Reason, Individualism, Freedom Institute, the Foundation for the College of the United States.
All quotes from James Madison are taken from his essay Property, published March 29, 1792 in the National Gazette.
Copyright © 2011 by Gen LaGreca and Marsha Enright. Permission to reproduce is granted with copyright notice and author attribution.
Sunday, September 18, 2011
Professor Brian Simpson of National University has asked me to make the following announcement:
National University of La Jolla, CA has a limited number of scholarships available for three online courses that focus on free-market economics and the philosophical foundations of capitalism. These scholarships are being funded by a grant from the Charles G. Koch Charitable Foundation. The scholarships cover the full tuition for the courses plus the application fee to NU. Two courses (ECO 401 and 402, Market Process Economics I and II, respectively) use Capitalism: A Treatise on Economics by George Reisman as the required textbook. One course (ECO 430 - Economics and Philosophy) uses Ayn Rand’s The Virtue of Selfishness and Capitalism: The Unknown Ideal as the required textbooks. These courses can be taken from anywhere in the world, as long as one has access to the internet. The courses incorporate live chat sessions in which the professor and students interact in a virtual classroom, much as they would in a traditional classroom. The courses run for the next time in the summer and fall of 2012. More information about the courses on the web can be found here, simply by clicking on the names of the courses:
ECO 401 – Market Process Economics I
ECO 402 – Market Process Economics II
ECO 430 – Economics and Philosophy
To apply for one or more of these scholarships, send your name, transcript from your high school or university, and an essay of no more than 750 words discussing why you believe you deserve a scholarship and your future education and career plans to Dr. Brian P. Simpson. Send them to bsimpson@nu.edu or 11255 North Torrey Pines Rd.; La Jolla, CA 92037. Please indicate which course or courses for which you are applying for a scholarship. You can apply for one to three scholarships, depending on how many courses you are interested in taking. Note that to receive a scholarship you will have to apply to National University and enroll in the course(s). If you have questions, please contact Dr. Simpson at the email address above or 858-642-8431.
ECO 401 – Market Process Economics I
ECO 402 – Market Process Economics II
ECO 430 – Economics and Philosophy
To apply for one or more of these scholarships, send your name, transcript from your high school or university, and an essay of no more than 750 words discussing why you believe you deserve a scholarship and your future education and career plans to Dr. Brian P. Simpson. Send them to bsimpson@nu.edu or 11255 North Torrey Pines Rd.; La Jolla, CA 92037. Please indicate which course or courses for which you are applying for a scholarship. You can apply for one to three scholarships, depending on how many courses you are interested in taking. Note that to receive a scholarship you will have to apply to National University and enroll in the course(s). If you have questions, please contact Dr. Simpson at the email address above or 858-642-8431.
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