The Christmas season makes us unusually conscious that we live in times of relentless innovation. It’s true that we can be overwhelmed by it all, but would we have it any other way? Unfortunately, some would. They oppose the free-market process that makes improvement possible. They seize on some innovation that they don’t like, and instead of declining to buy, seek to deny that opportunity to others by passing laws against free exchange and economic progress. FULL ARTICLE
Source link: http://blog.mises.org/6042/entrepreneurship-and-social-progress/
Entrepreneurship and Social Progress
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I can usually count on Lew to provide some simple, easily overlooked insight. In this case, the point about the relationship between philanthropy and entrenpreneurship.
Were it not for the tendency of philanthropies to undo much of the good of the entrepreneurs by becoming collectivist in nature. Far better, I think, to use the money to foster more entrepreneurship by investing accordingly and teaching one’s heirs to.
In fact, here’s a little ditty I wrote some years ago, which my later mother was particularly fond of:
Your inheritance, my child,
My eager heir apparent,
Is the tools of thought
I trust I’ve taught,
Or I’m not, my heir,
A parent.
Excellent article! Not only does a one-to-one correlation exist between entrepreneurship and philathropy, but between entrepreneurship and job creation, poverty elimination, tax revenue, quality of roads, etc.
The problem with the left is they don’t see entrepreneurs as the source of those funds. To them, workers, not entrepreneurs create all value; government creates jobs, etc. They don’t see entrepreneurs as creative, but as greedy.
I think the left places so little value on the entrepreneur because they see his job as being very easy, something anyone can do. The government creates jobs and the workers create all of the value, so who needs entrepreneurs? They’re just scabs!
But there’s a lot of envy on the left, too. They see themselves (especially those in the fine arts, government, non-profits or professors) as being far more intelligent than business people, yet they make far less money, and they see that as very unfair.
RogerM:
On the other hand, there’s Wall Street making obscene profits off a stock market that would have to be over 14,000 to reach its inflation-adjusted high in 2000, to say nothing about what gold has done in the interim.
And as euphoric as New York is about all the conspicuous consumption that obscenity will spawn, it’s really just a tale of how the financial economy continues to suck the life out of the real economy.
What schmucks most investors are, and how we will all have to pay for it, as the dollar goes the way of the dodo bird.
Not meaning to digress or otherwise disagree with Lew’s excellent piece (hey, I’m an entrepreneur myself!), regarding my point about the parasitic nature of the financial economy, here’s a recent quote from Michael Lewis of “Liar’s Poker” fame:
“There are at least two sets of rules — one for the rich and well-connected, another for the middle class, the Wall Street proletariat … The upper class is now serviced by a vast and growing industry, loosely called Private Equity. The job of the private-equity investor is — again, speaking loosely — to exploit the idiocy of the ordinary investor, and the corporate executives and mutual-fund managers who purport to serve him … the relationship between the upper class and the proles more explicitly parasitical than it usually is … the smartest, best-connected money has separated itself from the rest of the stock market, and has gone into the business of trading against that market. It seeks to buy from the stock market cheap, and sell to the stock market dear, and if you need evidence that this is possible you need only look to the returns on private equity, which have been running three times the returns of the public stock market.â€
http://www.financialsense.com/fsu/editorials/2006/1220.html
“I think the left places so little value on the entrepreneur because they see his job as being very easy, something anyone can do. The government creates jobs and the workers create all of the value, so who needs entrepreneurs? They’re just scabs!”
Very good point, RogerM, and one worth remembering. It puts the anti-capitalist circuit into the same class subsuming anyone who thinks they can leap into a field without much preparatory training and make a permanent name for themselves – and hold on to that belief regardless of accumulated evidence to the contrary. In fact, the anti-entrepreneur is not dissimilar to a math or physics crank.
I’m not trying to imply that these kind of people are stupid; far from it. Many of them are actually quite clever. Unfortunately, the clever ones are also quite benighted, thanks to a relatively easy ride in the school system that they never quite shook free from. The benightment of those not so clever comes from the same source: plain taking it easy when in school.
“It seeks to buy from the stock market cheap, and sell to the stock market dear, and if you need evidence that this is possible you need only look to the returns on private equity, which have been running three times the returns of the public stock market.â€
With all respect to Mr. Lewis, I believe that buying low and selling high is the goal of any investor who actively trades, not just the private equity managers. Also, any talk of returns without some measure of the associated risk is misleading. However, establishing a measure of risk is not easily accomplished.
I would argue that investors incur the biggest losses or relative under-performance as a result of chasing “hot” trends very late in the cycle and by paying high investment fees.
Dennis:
I think his point is that the big money is being made in the private equity markets at the expense of investors in the public markets, who end up paying too much for too little (as I expect they’re going to find out all too soon).
I do not see how it is “big monies” fault for the laws and regulations that government creates that ostensibly creates these two classes of investors. If anything, it is the mutual funds and politicians that drive the regulations that keep the most innovative products and strategies away from the non-wealthy investor.
Regards,
TDL
Unfortunately the guy in the financialsense link is a confused socialist. Management can’t buy out the company or sell the company to private equity unless a majority of shareholders agree to sell at the offered price! If it’s “at the expense of investors”, then all those investor’s need do is simply not sell. And they can fire the management to boot as well if they thought their offer was akin to an underpriced looting. Nobody can force them to sell. Likewise, nobody can force an investor to buy an IPO either. They simply need not buy.
He rambled paragraph upon paragraph without barely wondering where private equity and the banks were getting the money with which to bid.
rtr:
For what it’s worth, I quoted Michael Lewis, merely citing the source.
If you want to talk about where the money comes from, you might want to start with the Federal Reserve and its ability to print money out of thin air and then charge interest on it, allowing banks the same privelege through fractional reserve.
Thus does the financial economy inevitably trump the real economy, so that entrepreneurs like me have to fight over the scraps.
Um, so you’re saying that the Fed is buying private equities, and that’s causing investors in public stocks to lose out?
I’m guess I’m missing your point.
… The upper class is now serviced by a vast and growing industry, loosely called Private Equity. The job of the private-equity investor is — again, speaking loosely — to exploit the idiocy of the ordinary investor, and the corporate executives and mutual-fund managers who purport to serve him …
I believe it is the constant inflationary erosion of the value of his savings when invested in ordinary financial instruments such as savings accounts, term deposits, government bonds, etc., which leads the ordinary Joe into the jaws of the private equity investors.
Similarly, I believe that it was the acceleration of inflation in the last 3 or so decades which led to an explosion of the lottery and gambling industries. When you destroy people’s dreams of becoming rich (or merely comfortable) through hard work, small-scale entrepreneurship and saving, they will inevitably adopt more desperate strategies.
Larry N. Martin:
I’m saying that being able to create money out of thin air and charge interest on it, together with similar abilities elsewhere around the world, so corrupts money that it creates artificial markets that produce no wealth and thus suck the life out of the real economy.
Just look at the tillions of dollars traded every day in the currency markets, for heaven’s sake, and tell me that this serves any real economic purpose.
Similarly, the stock markets are just casinos in which the odds are stacked heavily in favor of the house — i.e., House of Goldman, House of Morgan, etc. — which is to entrepreneurialism what prostitution is to love.
History will laugh off the 1920s as child’s play.
I don’t get the part of philanthropy(/charity?). How is it that an entrepreneur is supposed to go from making money through hard work and reinvestment to one of giving money away for ‘the betterment of society’? Isn’t the concept of money going from a place of necessity and profitability to a place where the ‘have-nots’ reside elsewhere referred to ‘Socialism’?
I would have thought if poverty was disappear then giving money away wouldn’t help as the old saying goes: ‘easy come, easy go’. People who get money quickly with no work nor financial experience (including a lottery win) tend to squandor it.
Surely if capitalists want to eradicate poverty then that would mean reinvestment into building more profitable businesses which would employ the most amount of unemployed. Simply giving money is a leak heading towards Socialism, you know, something for nothing, even if it is voluntary?
Sorry, above is a failed attempt to post a picture of a pretty funny/apropos bumper sticker.
“Irony is Andrew Jackson on a Central Bank Note”
Sam
The difference between philanthropy and socialism is vast. For a start, socialists embrace coercion, compulsion and force. They take the entrepeneur’s money for supposedly charitable reasons (they say that their thieving will help people). Secondly, the socialists embrace dishonesty, fraud and evasion. They spend the stolen money on themselves, assembling and protecting their powerbase, bribing and/or misleading (especially the soft-minded), granting special favours and priviledges to themselves and their cronies.
Philanthropy is a matter for the individual entrepeneur to determine. He can determine whether he will donate or not. He can determine to whom and on what conditions. He can apply caveats and restrictions on his donations. For example, it may well be sensible to treat a philanthropic donation as an investment in a particular person’s (the recipient’s) future. Perhaps some specific performance obligations need to be applied. In such a case a little due diligence, care in setting terms, conditions and obligations for the recipient etc. may be the best approach. Of course, how to do this or whether to do it at all should be up to the philanthropist to decide. He needs no socialists or government to order him about in this regard.
Final point. Giving a person some money is not socialism. Giving money voluntarily to someone is a different occurance from them stealing it, coercing it or receiving it as stolen property. For example, I have given money to people as gifts (I received not nothing for this, but thanks). I have given money to people who have serious illnesses (so they could improve their circumstances by obtaining equipment or better treatment- I felt good about doing that). I have spent unpaid time lecturing at the university about topicws I want people to know about (completely in my self-interest to do that). I have taken on and trained apprentices (one or other of whom may buy a company off me in years to come- who knows?). I have done favours to help people (and one day they may do me a favour, who knows? – like last week a lady I know invited the whole of us Vatu clan over for a big bar-b-que at her place).
Giving someone something and socialism are not the same. It’s a matter of context.
talofa!
Sione
To Sione:
I’m not arguing with individual, private, personal acts of kindness. I’m asking if mindless charity is as bad as welfare. When people criticise welfare (apart from the tax bit) they argue about money for nothing, the welfare-poverty trap, etc. If someone gave large sums of money to a charity how do they know they are not funding an effectively private-welfare organisation. What of charities who would give goods to any one who asks? Isn’t that something for nothing? What difference does it make if someone is getting handouts from a charity or welfare office? ANd, of course, of the argument between ‘broke’ versus ‘poor’?
Sam
You wrote: “I’m asking if mindless charity is as bad as welfare.”
Absent theft, assuming we accept the key descriptor “mindless”, and further assuming a situation where an entrepeneur donates his money to without any thought about how it is to be used by the recipient organisation, then the answer MAY well be that the charity is bad. In those cases the administrators of the charity are the real “beneficiaries”. They take far more than do the “poor” for whose benefit the money was donated.
It’s an interesting issue, as one would expect an entrepeneur to be careful with his allocation of resources directed to philanthopy, just as he would be with important decisions in his business dealings. These days it is an unfortunate fact that there are many social pressures mobilised and targetted against wealthy entrepeneurs. Perhaps certain of ill judged donations can be understood in the light of that (or even that the entrepeneur believes some of the well promoted socialist lies.)
You also asked: “If someone gave large sums of money to a charity how do they know they are not funding an effectively private-welfare organisation.”
They should undertake a due diligence prior to comitting to donate. That way they can address your question. They’d know the nature of what they were dealing with. Then should they donate the money it can be according to conditions that must be met OR ELSE. That’d be my advice.
In my experience it is far superior to donate to individuals in need of assistance directly. Only deal with organistaions when you are utterly certain of their nature (and even then you should know and trust the people involved personally). Keep it direct and then problems are avoided.
Talofa!
Sione
Perhaps there a point in not supporting charities that you aren’t involved in personally, especially the large ones. Perhaps if a rich person wanted to do good with his/her excess money then maybe they should donate their time as well. I cannot help but wonder how many ‘charities’ could spin a good sob story, take honest folks money and disappear . . .
“Capitalist entrepreneurs are blessed with a special power of discernment that enables them to make prescient judgements concerning the future, … ” (Original text, paragraph
Er, … no. Try this reformulation.
Capitalist entrepreneurs are a hugely diverse bunch of weirdos – no , let me be more polite, -a diverse population of dreamers and seers, who dare to put their money where their mouths are, and most of whom are revealed to be idiots: or, if you prefer, plain unlucky; or before their time, or get it all nearly right, but with one tragic error, so that a basically wonderful scheme goes pear shaped, and someone else steps in and scoops the pool, or gets trod on by (more or less corrupt) government red tape (ask me about canned beer in Denmark when you have half an hour to spare) … there are many ways to fail, and failed entrepreneurs are to be found everywhere, but only if you look. The only visible entrepreneurs, officially recognised as such (BY THE TAXMAN – who else ?) are the very few who succeed. Their success is uncanny, almost miraculous, suggesting Divine guidance -(are blessed with a special power of prescience, or some such) – when really they are just the lucky survivors in a very risky casino – the market. The left (Statist government bureaucrats,politicians, professors in tenured positions, writers, artists, con-men all) just do not see the many who try and fail, they only tax (they only CAN tax) the few who succeed and prosper.
Then follows a long discussion of entrepreneurship and philanthropy – ? – wake up, guys, the successful entrepreneurship IS the philanthropy – if I can sell enough gizmos to make me rich (obscenely rich?) then I must have put something in the market that brings a lot of good to a lot of people – and they ought to love me for it. The millions in my bank account are a measure of how much they love, well, not me in person, but what I have done for them. Do I then have a duty/obligation/whatever to give this money away to people in need ? Like Hell I do!
“Capitalist entrepreneurs are blessed with a special power of discernment that enables them to make prescient judgements concerning the future, … ” (Original text, paragraph
Er, … no. Try this reformulation.
Capitalist entrepreneurs are a hugely diverse bunch of weirdos – no , let me be more polite, -a diverse population of dreamers and seers, who dare to put their money where their mouths are, and most of whom are revealed to be idiots: or, if you prefer, plain unlucky; or before their time, or get it all nearly right, but with one tragic error, so that a basically wonderful scheme goes pear shaped, and someone else steps in and scoops the pool, or gets trod on by (more or less corrupt) government red tape (ask me about canned beer in Denmark when you have half an hour to spare) … there are many ways to fail, and failed entrepreneurs are to be found everywhere, but only if you look. The only visible entrepreneurs, officially recognised as such (BY THE TAXMAN – who else ?) are the very few who succeed. Their success is uncanny, almost miraculous, suggesting Divine guidance -(are blessed with a special power of prescience, or some such) – when really they are just the lucky survivors in a very risky casino – the market. The left (Statist government bureaucrats,politicians, professors in tenured positions, writers, artists, con-men all) just do not see the many who try and fail, they only tax (they only CAN tax) the few who succeed and prosper.
Then follows a long discussion of entrepreneurship and philanthropy – ? – wake up, guys, the successful entrepreneurship IS the philanthropy – if I can sell enough gizmos to make me rich (obscenely rich?) then I must have put something in the market that brings a lot of good to a lot of people – and they ought to love me for it. The millions in my bank account are a measure of how much they love, well, not me in person, but what I have done for them. Do I then have a duty/obligation/whatever to give this money away to people in need ? Like Hell I do!
Sorry all, pressed the “POST” button twice, caused by total lack of response from the screen. If there is anyone there who can, please delete one of the messages (and this one, too!) But I suppose there isn’t .. Sorry again.
Isn’t Dr Faustus’ article what I said before? Isn’t the only real way to honestly reduce poverty is to free the market? In a truly free market wouldn’t this allow for maximum investment, maximum business creation and maximum employment?
And hence isn’t any money redistributed to the poor bad as they hadn’t worked for it? Something for nothing? Even if the ‘haves’ voluntarily gave that money it would do more harm than good in the long run?
Sam:
This gets back to the difference between giving a man a fish and teaching him to fish, which is all the difference in the world. Not that you deny the starving man a fish but that entrepreneurship and philanthropy, properly speaking, minimize the need to give while maximizing the ability to teach, the division of labor being no less than an endless learning process that improves the lot of mankind accordingly.
Dr. Faustus:
How right you are about entrepreneurs and the wonder that any of them (us) succeeds amid a system that, despite its name, goes out of its way to deprive them of the capital upon which they, and thus society, depend. Indeed, this is my point about the financial economy in that it is now based on credit money rather than commodity money — false rather real money — and finances the real economy not through savings but through debt. And as savings, properly speaking, are nothing other than delayed consumption, the failure to save is the failure to provide for the future. And how anyone can look at our debt-ridden, increasingly producer-less society and not know this is beyond me.
No, I take that back: that anyone could have figured this out amid our all-pervasive cult of false prosperity (thus does our president admonish us not to produce but to “go out and consume”) is the real wonder. And the real tragedy.
David White, would you have been one of the ones who would have sided against Henry Ford’s $5 a day idea? Thanks to technology the actual production is done by the minority and now we are in a primarily consumer society. Think how many people live on farms. Think how many island nations rely primary on tourism. Like it or not a lot of people income derive from other people’s spare money.
Sam:
I’m sorry, but I don’t get your point. Are you saying that because we have moved from a savings-based producer society to a borrowing-based consumer society that we can somehow manage to have “spare money,” in perpetuity, to buy the things that other people now make and thereby provide for their incomes?
And as for Henry Ford, however he is to be commended for paying above-market wages (at shareholder expense), he was also an elitist who had no problem at all with the corruption of money that would turn America into a nation of debt slaves:
“It is well enough that the people do not understand our monetary and banking system, for if they did, I believe there would be a revolution by tomorrow morning.”
David,
“It is well enough that the people do not understand our monetary and banking system, for if they did, I believe there would be a revolution by tomorrow morning.”
- ???
David,
I should have been more specific. I am asking for the author of the quote. Thanks.
Kevin, I was quoting Henry Ford himself, if not quite verbatim:
http://www.brainyquote.com/quotes/quotes/h/henryford136294.html
Indeed some people are reliant on other’s income. How can the film and tourism industries be self-reliant? They can only exist if other people have spare change to see a film or go on a holiday. But I never said anything about going into debt nor should people be forced to spend their spare change if they don’t want to.
Sam, no, you didn’t say that, but it lies at the root of the answer to your question about having “spare money” to support other people’s incomes.
Furthermore, beyond mere subsistence, and on account of the division of labor, we are ALL reliant on other people’s incomes, since we are all reliant to one or extent or another on the goods and services which other people are paid to produce — even at slave wages and even if paid for on with borrowed money, the relevant question being how long such an arrangement can last.
Well I suppose those who don’t like trading can always try to become sulf-sufficient.
Sam,
It’s not a matter of not liking traking — as Adam Smith wrote, it is natural for man to “truck and barter” — it’s a matter of trading with sound money, not the corruption thereof that has made debt slavery a way of life and thus self-sufficiency (as in financial independence) the province of the few.
David White, making a economy based solely on production (good honest hard work) as opposed to consumerism (creating big bad businesses based on honest producing folks’ spare money) means that mass-production therefore should be shunned at all costs.
When farming is low-tech most people have to be farmers as an individual with simple tools isn’t going to provide a big enough surplus to allow many folks the ability to do something else other than farming. Whereas large-scale farming thanks to modern technology allows few farmers creating a huge food suplus which allow everyone else with a lot of spare time to do something else, whatever that is.
It is interesting to note where then does production-type businesses end and consumer businesses begin?
I’m presuming that production businesses supply products that fulfil people’s needs. And I’m presuming consumer businesses are supplying people’s wants. And I’m still stumped as to see how consumer businesses can survive without other folks’ spare change. If TV-making companies ceased to exist, for some-reason, would it have any impact to a producer with spare change? I don’t think so. More likely a producer would have more spare change to reinvest or save.
Sam:
I don’t know what you mean by “consumer businesses” (retail?), but in any case, all I’m taking about is savings/production-based wealth vs. the borrowing-to-consume that is the very opposite thereof.
Granted, consumption is the end of all economic endeavor, which is true even for an economy based on berry-picking. But wealth creation — the production of goods that are either to be consumed later or can be used to produce goods — is based not on consumption but on the deferral thereof, else mere subsistence would be the order of the day, and civilization as we know it would not exist.
That said, however, it is because of the corruption of money — and the concomitant belief that borrowing-to-consume can lead to prosperity — that now has our civilization teetering on the brink of bankruptcy, all the more so for how oblivious the people are of this fact. (Recall the Henry Ford quote.)
Then it stands to reason then, D. White, that large, hi-tech societies apparently don’t last long because only a tiny percentage of the population are addressing needs: food, water, clothing, shelter.
Your previous entry keeps making me think that Libertopia is only possible in small low-tech, sulf-sufficient villages that probably existed 1,000 years ago.
BTW D. White. My definitions:
Consumer businesses: business that only exist because others have spare money. e.g. film, TV, tourism, fashion clothes, gaming computers, etc. In other words, businesses that cannot exist in their own right. Suppose an island’s only industry is tourism, i.e., visitors with spare money to visit the pretty place. If everyone stopped visiting the island, tourism income would collapse, island people in deep trouble, but we wouldn’t notice much.
Production business: I am therefore presuming means businesses that fulfil, directly or indirectly, people needs. E.g. agriculture, basic clothes making, water filtering/piping, business computers, mining, etc. Perhaps the difference is that these industries are necessities. If all farmer went on strike then we’d all get very hungry very quickly. Hence production is the backbone of societies whereas consumer business could/do disappear all the time and we would hardly even notice.
Sam, I’m afraid your economics is so confused as to barely warrant the name, including and especially your notion of “spare money.” You might want to go back to basics with something like Henry Hazlitt’s classic Economics In One Lesson.
As for “LIbertopia,” there is absolutely no reason why a society based on libertarianism — the non-aggression principle and governance restricted to the protection of life, liberty, and property — wouldn’t produce a long-lasting high-tech (i.e., highly innovative) economy far more advanced than our present one and with far less conflict.
Yes, D. White, I read the link and it’s analysis made for an interesting conclusion with regards to philanthropy/charity/welfare or whatever you want to call distributing wealth from ‘haves’ to ‘have-nots’ whether voluntary or not.
And that conclusion is that the only help is the one I related to earlier: have the market running at maximum efficiency, have the maximum amount of investments and businesses which in turn will create the maximum amount of employment.
To give anything else to the unemployed must therefore do more harm than good because it can destroy self-sufficiency and diverts resources away from business production which should be using those resources to hire them anyway. And most of all, starvation and disease will allow the surplus population to die off, preventing the umemployed from taking jobs off workers because they are willing to do the work for less. After all working for half-pay would seem better than full-pay to someone who has no pay at all.
Perhaps a more palatable question perhaps is one of what sort of socialistic practice has allowed some folks to have spare money to allowed for holidays? Or maybe those who go on holidays should be investing for old age and the possibility for poor health? Do those who squandor their money allow for vice industries and those who save and invest allow for virtuous industries?
Mr. Rockwell the article, Entrepreneur & Social Progress is/could be a tool to re-culcate our thinking and in-fact cause us to celebrate our innovation and then resulting commerce.
Until I read the paragraph containing “politian…Social Security…Iraq War…failure” coupled with the quote you authored; “A dramatic change in the political and social landscape can happen nearly overnight. When does it happen? When the ideological conditions are right. At that point, no power on earth can stop it.”
This quote is absolutely true. Like me, you and I often ‘over-teach’ and in reality splatter our most worthy thought communications on our audience and thereby loose a portion of the audience. The SS and Iraq paragraph had the effect of killing my emotion to your intended cause of communication.
For example, we know that Social Security was a government intended replacement of conscripted saving accounts for those who choose not to do so. However the politian in Roosevelt saw that pool of money and… In raping the SS fund Roosevelt sustained his power and we also let him suspend our Constitution as a reward for saving my ancestors.
Yet, as is, Social Security payments have created a portion of our economy; it has not been a failure for many so there will be many who will not become emotional and cause change. Every day SS is failing to meet your and my idea of highest and best use of marketplace financial freedom.
The Iraq War; academic economist taught about “war economies” when I was a government school student in the 1950-60′s. War economies were a part of the revolution that causes our so-called intelligence to double every 18 months. Enough said…
Therefore I will not transfer the Social Progress article or request for celebration without editorial.
As to the “quote” above; I believe the negative emotion to “IRS” [that is taxes] will cause a tool or facet such as “fair tax” to become an economic revolution, a wave to catch for social tsunami.
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