For Society to Thrive, The Rich Must Be Left Alone
Contrary to Paul Krugman and his friends, economic inequality that results from economic freedom is in the material self-interest of everyone. It is the foundation of rising real wages and a rising standard of living. How can we reconcile the apparent side-by-side existence of greater economic inequality with economic stagnation or outright decline? Some of it is mythical; the part that is not is due to interventionism. FULL ARTICLE
Comments (50)
George makes some very important points in this article. I have read Krugman long enough to know that he does not understand capital -- which is typical of Keynesians and leftists in general. Krugman thinks of economic growth simply as a function of aggregate demand. Under his way of thinking, as long as aggregate demand remains high, economic growth will occur.
However, if there is an inequity of wealth, then there will be surpluses of money on behalf of wealthy people that will not be spent. Thus, aggregate demand falls, and the economy tanks. The way to change (and improve) that picture is for the government to take from wealthy people via taxation and either spend it or give it to poorer people so they can spend it.
While this is nonsense, it is so fixed in the minds of academic economists that we are forced to deal with it again and again. The textbooks are full of this stuff, as most "macro" courses are based upon Keynesian claptrap.
George has performed a good service in reminding us once again of the importance of saving, investment, and capital formation. George is a hero; Krugman is beyond hope.
Published: March 2, 2006 8:48 AM
I've any hardly economic knowledge.. but I have a feeling that
Yes, they should be left alone.
Here, in ARGENTINA, people who make a hard-earned and honest Million USD make plan to leave for Europe or U.S. to spend/live freely and safely (this doesn't mean plans are carried out, there's family & friends). . . . but it does, at least I believe so, influence the Capilists Energy and Vision to go for 'more' or leave as it is.
Doesn't this go for 'more' make the world go round (better)?
Published: March 2, 2006 9:03 AM
The best analysis of inequality is have read is ON THE GAP BETWEEN THE RICH AND THE POOR by Young Back Choi (January 2004), available at AIER.org.
Published: March 2, 2006 9:42 AM
The New York Times article the author links to is accessible only to $ubscribers. For free, you can get much more (106 pages), and much less (it's nowhere near as readable as Krugman, but it's fully as radical statist [see its conclusion]). Because I don't have the requisite NYT subscription (and find Krugman's rantings quite unworthy of any of my money), I don't know if he cites this article, but if he cites anything, then this would be it: http://www.brookings.edu/es/commentary/journals/bpea_macro/forum/200509bpea_gordon.pdf
I needn't say, this stuff is dangerous and destructive, and we need a thousand Reismans just to hold the dam against it all.
Published: March 2, 2006 9:42 AM
You know, I was thinking about this the other day. Because I understand that the US economy has more debt than it can ever pay off at face value, and because I understand that the Fed is lying to people about the value of their money - I can and have taken measures to protect myself, like silver and gold. But many poor people, and many people who have bought houses under huge ammounts of credit are simply going to go like cows to the slaughter. I really feel sorry for them. Going into that kind of debt is not only unhealthy, but our own government policy trained them to do so.
Also, because I understand that Social Security is a pnozi scheme and a fraud, and just immoral - I take measures to secure my own families retirement (which BTW is much harder to do when SSI takes a huge chunck out of my paycheck both before and after I get paid). But many ignorant people think that that money they were forced to pay is actually going to be there for them. I feel sorry for them too, they will also get slaughtered.
Also, I have my kid home-schooled and privately schooled. Many people put their kids in public schools and assume that the system will train them to think and to be successfull. Many people have no choice, because they're forced to pay huge amounts of taxes to support this sewage - so people who pay for private schools are actually paying for school twice. I really feel sorry for all those kids who are stuck in "programs" that have no accountability so in truth basically guarantee kids to be failures. Have you ever noticed how they always talk about programs, but never accountability.
Even worse is how people who are forced into thesee systems often think they're somehow obligated to be loyal to them. And other's practically volunteer to be economic slaves to the system. And others struggle away to try and make the system "work", pre-destining themselves to be burnt out if not corrupted.
Anyhow, my point is that poverty is not "ment ot be", there are simple choices people can make and beliefs people can have today that have a huge impact tommorow.
Renember how the people in New Orleans freaked when they figured out that the government wasn't going to be there for them. Well pretty soon, the US economy is going to fall off a hyperinflationary debt cliff. I know a lot of people are probably going to die when it collapses, and feel helpless to convince them. The whole thing really makes me sick to my stomache - this was never ment to happen and a few honest beliefs and a few honest choices could have saved all of us a lot of pain. In my mind, those who are responsible for imposing these programs are murderous liars who are long overdue for justice and people who are poor are long overdue to make some good choices.
Published: March 2, 2006 9:58 AM
The only time Paul Krugman opens his mouth is to put his other foot in, or to read a script handed to him by the power elite (sympotmatically they appear to be the same).
Paul Krugman is an economics shill for the Eastern Establishment that so dearly loves Keynesian economics (it is after all the basis of their power).
He has the facade of seriousness, a PhD, an important title, professor of something or other, but the facts show that he is consistently wrong on all of his economic viewpoints.
Like all shills he hustles the rubes to pick their pockets, and as long as he toes the party line his bosses will let him keep his position.
Published: March 2, 2006 12:09 PM
Dr. Reisman, sound thinking as always.
I'm not sure "Keynesian" isn't too generous a term for Krugman, the Marxist roots of Keynesianism seem to be at full bloom within him.
You comment on this in your piece somewhat, but I don't think the insidious impact of inflation can be stated stronlgy enough. Perhaps the greatest result of capitalism is continual increases in productivity that lower the amount and difficulty of work required for a successful existence for everyone, benefitting those on the "bottom" the most, on a relative basis. Inflation effectively "steals" the value of those productivity gains, diverting them pimarily to government and politically connected elites. This suppresses progress on the bottom (let alone increasing their debt burden) and accelerates it at the top. Of course, capitalism gets the blame for the government's greed and dishonesty, and people buy off on it.
Published: March 2, 2006 12:18 PM
Don,
I was involved in a debate recently in which it was claimed that inflation chiefly hurts the wealthy, and, thus, we needed more of it, not less.
Published: March 2, 2006 12:59 PM
An interesting test for Dr Krugman would be to see if he supports the elimination of the deductablity of State and local income tax from income that is taxed by the Federal income tax.
Presently rich "liberals" in New York City (and other places) can support the Welfare State confident in the knowledge that they can avoid some of its taxation (the above tactic is only one of a number of ways this is done).
Of course if Dr Krugman is really upset about financial oligarchy he would support the elimination of the Federal Reserve Board - which would (along with proper enforcement of the laws of contract) lead to the collapse of the credit bubble fractional reserve financial system - and the magic circle of politically active corporations that it supports.
However, I rather doubt that Dr Krugman would support a financial system that was not based on a mixture of government threats and government backed credit bubbles.
Published: March 2, 2006 2:35 PM
Yancey, I hope you won the debate (assuming you were on the side I presume you were!)
I'm sure the investment bankers who made billions in the tech stock bubble are really hurting while the people who got wiped out financially from their stock investments or lost their jobs and homes, etc. in the aftermath are really sitting pretty.
Published: March 2, 2006 4:17 PM
A disgusting pile of elitist rubbish from George Reisman disguised as "free market" economics.
He says
"The truth, which real economists, from Adam Smith to Mises, have elaborated, is that in a market economy, the wealth of the rich—of the capitalists—is overwhelmingly invested in means of production, that is, in factories, machinery and equipment, farms, mines, stores, and the like. This wealth, this capital, produces the goods which the average person buys, and as more of it is accumulated and raises the productivity of labor higher and higher, brings about a progressively larger and ever more improved supply of goods for the average person to buy"
This is complete bunk.
Take our current uncompetitive market economy.
The wealth of Bill Gates comes from a monopoly license to copy Windows software and prevent competition. Gates uses this privilege to take real wealth from computer users who are forced to pay too much for a computer operating system. A competitive market would have multiple operating systems in competition with one another.
When rich people like Gates use their wealth to buy real capital - such as the Pan American Silver mines, they take ownership of capital which they did not create or put any effort into creating.
Real capital also exists in the realm of working people. eg A cleaner has capital in their body and their cleaning skills and their broom and bucket. Of course the factory that makes electric scrubbers also contributes to society, but not as much as the cleaner himself. If a rich person owns the scrubber factory but low paid underlings run the whole show then how can it be claimed that the rich person deserves the credit for anything?
Elitists like Reisman seem to think the only way to have investment capital is to give everything to a few rich people, hope it is too much for them to consume and so some will be left over for investment in production. This is bunk. Even poor people such as cleaners have capital such as their skills, brooms and buckets. Poor tradesmen have trucks full of tools accrued over the years from their meagre wages. Many inventions come from humble home garages. Even the poorest farmers keep seed-corn. This is real capital and it is not the exclusive domain of the rich.
It is stunning arrogance to claim that a society's real capital is better managed by a handful of super-rich capitalists rather than the people at the coalface such as the cleaners, trademen and farmers I mentioned. That is the attitude of communist central planners.
He says:
"Of course, not all the high incomes earned in our economy are of this [noble] character. There are also high incomes earned as the result of government subsidies and government harassment of competitors."
What Reisman does not get is that 99% of high incomes are the result of govt created uncompetitive situations. Competitive markets do not spew great fortunes to any one person because they are COMPETITIVE. Equal opportunity does not spew great inequality. Even semi-competive markets don't.
Reisman does not understand markets.
The reality is for society to thrive the rich must be examined and the rort behind 99% of their wealth should be destroyed by the implementation of a competitive market.
Competitive markets creates both greater overall wealth and less equality. Moderate inequality is to be expected in a world where each human is unique, but gross wealth inequality is a sign of market failure, not market success.
Why should a majority of average people support uncompetitive markets that disadvantage them in a gross fashion? They should not.
Reisman, I suggest you brush up on your understanding of markets.
Published: March 2, 2006 6:41 PM
The leftist rant above was a wind-up wasn't it?
Published: March 2, 2006 8:14 PM
If we had a free market, Reisman's screed would be useful. We don't, and it isn't.
- Josh
Published: March 2, 2006 8:47 PM
"They are the incomes of the great innovators of our time, such as Bill Gates, Michael Dell, Steve Jobs, and Sam Walton—the men whose efforts have transformed important parts of our economic system and who could not have done it had they not been free to earn and then save and invest extraordinarily high incomes."
Sam Walton an innovator?
Check.
Michael Dell an innovator?
Check.
Bill Gates an innovator?
Negative!
Bill Gates is hardly an innovator. His entire product exists solely based on unjust force from the state.
Published: March 2, 2006 8:47 PM
David,
"It is stunning arrogance to claim that a society's real capital is better managed by a handful of super-rich capitalists rather than the people at the coalface such as the cleaners, trademen and farmers I mentioned. That is the attitude of communist central planners."
So much wisdom. So much knowledge. Let the workers own "society's" capital. You speak of syndicalism. Pure genius! Except for one little tinny weensie problem. It doesn't work! Mises says, "Syndicalism has never been anything else than the ideal of plundering hordes." (See chapter 16 part 4 of Socialism by Ludwig von Mises, http://www.mises.org/books/socialism/part2_ch16.aspx)
Published: March 2, 2006 9:12 PM
Actually, David Van Der Klauw's post cannot be qualified as entirely leftist rant because he rightfully points that a lot of the current crop of super-rich benefitted from using the governments as enforcers of their "intellectual property" and other legalized ways to reduce competition by coercion. To add insult to injury, the cost of this enforcement was bourne by the general taxpayers.
Now, to leap from that fact to the conclusion that all rich must be scoundrels is too much, and so is demagoguery about George Reisman's understanding of markets.
David's passionate defense of the capital in form of skills of the proletariat merely shows that he had little or no dealings with the actual proletariat. These skills worth, well, next to nothing - they're abundant, easy to acquire, and, by and large, totally useless without material capital - in the form of the abovementioned brooms, cars to get them from home to work, and the office and industrial buildings to sweep.
Published: March 2, 2006 9:17 PM
Uh oh. The Bill Gates haters are coming out of their sleep.
Zed: "Bring out the Gimp."
Maynard: "But the Gimp's sleeping."
Zed: "Well, I guess you're gonna have to go wake him up now, won't you?"
Published: March 2, 2006 9:20 PM
"Actually, David Van Der Klauw's post cannot be qualified as entirely leftist rant because he rightfully points that a lot of the current crop of super-rich benefitted from using the governments as enforcers of their "intellectual property" and other legalized ways to reduce competition by coercion."
Yes, it qualifies as a leftist rant. Those who don't support property rights, intellectual or otherwise, can be qualified as leftist.
Published: March 2, 2006 9:25 PM
"If we had a free market, Reisman's screed would be useful. We don't, and it isn't."
- Josh
That's like saying, "if their wasn't any wind resistance Sir Isaac Newton's Law of Gravity would be useful. But since we don't have ideal conditions, the Law of Gravity isn't useful."
Published: March 2, 2006 9:32 PM
I wish somebody would means test these rich folks. I refer to Franz Oppenheimer's distinction between economic means and political means: http://www.franz-oppenheimer.de/state1.htm
How did the Bush and Cheney cabal get rich? I wonder what Tom DeLay invests in?
Published: March 3, 2006 12:16 AM
Tom,
Any article which talks about how the rich are so awesome and beautiful because they provide all the jobs, without examining the relationship between power and access to capital, is useless.
How is it that the same people (no, I don't mean "Jews") own the world's central banks? How did the banks acquire their original capital? What is the relationship between land appropriations and the wage-earning class? What is the relationship between the state's barring access to land and wage labour? Who is the beneficiary of the modern corporate state? Why is the tax system regressive? And so on.
- Josh
Published: March 3, 2006 12:33 AM
I said "the rort behind 99% of their wealth should be destroyed by the implementation of a competitive market"
Now someone accuses me of not supporting property rights. Hello! A competitive market is based upon property rights.
Who hates Bill Gates? Bill Gates is a successful businessman, great software developer, runs a charity and is a hell of a nice guy. But if he uses the profits from his software monopoly to buy an existing silver mine, don't expect me to praise him for the silver it brings out of the ground.
All rich are not scoundrels. What a silly thing to say. But just about all of them are beneficiaries of market flaws that can and should be corrected by competitive markets based on sound definition of property rights, not elitist definitions as we currently have.
I was accused of being leftist. How silly. Leftist don't understand markets and don't want widespread use of competitive markets as I do. I was also accused of speaking of syndicalism and accused of being a plundering horde. Do plundering hordes support competitive markets?
Competitive markets will generate only a limited wealth inequality because as soon as one person gets rich other competitors will move in. These competitors drive down the profit, drive down prices to the benefit of consumers, but also prevent any one from getting obscenely rich. Rich people owning all the capital is proof of uncompetitive markets.
What annoyed me particularly about this article is that it takes examples of market failure (rich few controlling most of the capital) and praises this as a wonderful case of market success.
Let me explain by way of example. If my neighbour pays for the installation of a fancy underground garden watering system and the next day finds a giant jet of water coming up in his garden and says to me "isn't my new system wonderful? Look at this jet of water that waters my garden. For my garden to thrive, this jet must be left alone". I'd say to him "No dopey, the excess of water means it is broken, you need to get it fixed."
Now George Reisman sees markets in action and says "Look at how a few rich control all the capital, look how wonderful they are. For society to thrive the rich must be left alone."
I say to George. "No dopey, the excessive wealth means it is broken, we need to get it fixed."
Published: March 3, 2006 2:36 AM
David, could you define excessive wealth? I keep hearing it from various communists and fascists, and can't for the life of me work out what is excessive.
Published: March 3, 2006 3:18 AM
So David, instead of allowing capitalists to control wealth, presumably you propose intervention & legislation to impose your competitive markets? In your markets the "low paid underlings", "poor tradesmen" and cleaners would own the factories & companies?
If it walks like a leftist & quacks like a leftist etc....
Published: March 3, 2006 3:54 AM
Forgive, me but I think I might agree with much of what David is saying in regards to excessive wealth (often) being a symptom of market distortions. I think you guys are possibly jumping to conclusions about him. Has he said anything in favor of state intervention? It's late and I can't get into it tonight, but I look forward to seeing this discussion unfold.
Published: March 3, 2006 4:42 AM
Ah, no, looking back I see now that David's first post is almost teeming with bad ideas. But there are some good thoughts, like:
"The wealth of Bill Gates comes from a monopoly license to copy Windows software and prevent competition. Gates uses this privilege to take real wealth from computer users who are forced to pay too much for a computer operating system."
I still look forward to further discussion.
Published: March 3, 2006 4:50 AM
David,
Just curious- can you think of someone wealthy whom you would consider an example of true free market success? Or do you think the market is so distorted that there really isn't any such thing nowadays?
Published: March 3, 2006 10:26 AM
If David were proposing the elimination of state preferences, then I would not label him a Leftist. Based on what he has written, I would have to withhold judgment. He is correct that political power is brought to bear to benefit certain wealthy over others, but my problem with many to my left are that they often define unfettered markets as "unfree". For example, the derogatory comments about Bill Gates and Microsoft's success- in what ways has Microsoft brought government power to bear to aid it's success? The only thing I can come up with is their use of patent and copyright laws, but I suspect that is not what many are complaining about.
Published: March 3, 2006 10:35 AM
I am ambivalent about Gates and MS, though I am very glad I have a computer with a lot of other compatible platforms out there being invested in. IP is not a market distortion or unfair practice, simply because governmnet recognizes it and protects it. Government also recognizes the house you build or have someone build for you and (in general) prevents someone from taking it from you, granting you an effective monopoly on that piece of ground and those building materials. Does the fact that government enforces property rights make them illegitimate? Whether it is the product of your mind or your hands, it is the same thing. And if you own something by right, you own it forever. The anti-IP crowd are modern day Luddites who don't understnad that the mind is the ultimate resource. One man's ideas are not a monopoly on anything. In a free market, another idea will eventually unseat, or, if it ends up being the best idea for a very long time, so be it and shame on the rest of us for not being good enough to create something better.
The primary error I see in David's analysis of markets (and I'll even assume he's pro-market as he claims, though it seems open to debate) is that there is a sort of "perfect competition" infection in the thought process. He dscounts the imapct of marketing, brand loyalty, etc. in allowing for superior returns over time, not to mention just being good at what you do (ala Wal Mart and Micro Soft). Before the techies get upset about my saying MS is good at what they do, I am not referring to the software or platform excellence, per se, thought it is reasonably good and getting better all the time. But that isn't what makes a company great. Running a company successfully is a combination of anumber of factors. Gate's great achievements aren't really technical, they are the processes and approaches he utilized in taking his product to market. That's what made him successful. McDonald's food stinks, but they are number one in the hamburger crowd, because of their overall model and marketing savvy, not because of the food.
Back to my original point on IP, a point I meant to make, the more fascist an ecomony becomes, as ours is, the less capital is formed and the slower it moves, effectively "locking in" certain market players for longer than they otherwise would. Factors that affect this are the SEC (#1), other regulatory burdens, wage controls (min/max), licensing schemes, etc. Removethese barriers and things will move faster and more and better ideas will surface and prevail more often. But no matter what, there will still be massive wealth created, there would just be much more of it created by more people at every level.
Also, David, you may want to sit down and read Dr. Reisman's Capitalism, or for a lighter read , The Government Against the Economy. Dr. Reisman, whether you agree with him or not on any given issue, is one of the most thoughtful, clear thinkers out there on issues economic.
Published: March 3, 2006 11:14 AM
I had forgotten that some people still believe in IP and consider themselves free market proponents. Hopefully we can avoid another grand rehash of that issue, and focus on other examples of people becoming or remaining rich with government help. I believe that such examples are everywhere, as most areas of business are made artifically hard to enter by burdensome regulations. It's been discussed here many times that such regulations have the dual effect of impoverishing small businesses and securing the profits of large ones. This, for example, seems to be the most likely reason for Wal-Mart's support of raising the minimum wage some time ago. The state, especially when it pretends to be capitalist, is effectively wielded by the very rich for their own further enrichment, or even the very survival of their businesses.
That is as far as my agreement with David goes. Beyond that, he has some very wrongheaded ideas about capital formation and such.
Published: March 3, 2006 1:32 PM
David asks:
If a rich person owns the scrubber factory but low paid underlings run the whole show then how can it be claimed that the rich person deserves the credit for anything?
Because the rich person is the one placing his investment at risk - it is HIS scrubber factory; HE is the one selling the scrubbers to distributors; HE is the one paying for ad campaigns and publicity and HE is the one who must deal with the competition and outmaneuver them. One false move and HIS investment goes down the hole - the low paid underlings just loose that job; they can always get another.
Published: March 3, 2006 2:21 PM
There is no such thing as "intellectual property". This euphemism's true meaning is "the posession of government-granted monopoly rights".
Of course, this posession is valuable... as long as there are tax-fed government thugs to enforce it.
Without the government "intellectual property" has no value whatsoever. (Let's not confuse IP with knowledge).
The RIAA's brouhaha of "intellectual property" rights enforcement have conclusively demonstrated that in order to do so the government needs a way to spy and intrude into privacy of homes of all its subjects. I suspect that even neo-conish minarchist would not want to advocate anything like that.
It follows that support for "intellectual property" rights is incompatible with libertarnism, be it anarcho-capitalist or minarchist variety.
Published: March 3, 2006 5:42 PM
Chris,
In this discussion "excessive wealth" is anything that should attract a competitor but has not because govt does not allow competition for some reason. A rule of thumb would be 3 times the average wage. eg You show me someone getting 3 times average wage and I can readily identify the govt-granted privilege behind it in 99% of cases.
Roy,
I do not have wrongheaded ideas about capital formation, I never discussed capital formation. Real capital comes from real savings. Foregone real consumption. Von Mises had a pretty good understanding of capital formation.
Lisa,
You asked if I could think of someone wealthy who is an example of free market success.
Every consumer is wealthy and an example of competitive market success. I don't acknowledge the validity of the term free market.
Competitive markets do not generate very rich sellers in terms of dollars in their pocket. They generate wealthy buyers who can buy tremendously useful goods with the few dollars they earn as sellers. What I mean is you might only get paid $500 but you can buy goods that you "would have" paid $5000 for if you had to. You marvel at what you get for your money. You don't marvel at the money you get for your product.
I claim that 99% of super rich are the result of a govt privilege - an uncompetitive market created by govt. This implies that 1% of the super rich are the exception. I thought hard about your question and came up with James Dyson the inventor as an example of the 1%. He made his fortune by inventing. His market was apparently competitive, yet had no competitors because everyone else was too stupid to invent those things. Therefore his uncompetitive market was not the fault of govt.
I hope this answers your questions. All consumers are wealthy via purchasing power. James Dyson got very rich in dollars via markets without govt privilege.
Colin asks: [instead of allowing capitalists to control wealth, presumably you propose intervention & legislation to impose your competitive markets? In your markets the "low paid underlings", "poor tradesmen" and cleaners would own the factories & companies?]
Colin,
Govt should create competitive markets instead of creating uncompetitive markets. I don't propose intervention, but you should know that all markets are imposed by the legislation that defines the property rights that define what may be bought and sold.
Competitive markets would result in far fewer super-rich owning big chunks of everything. I would not prevent capitalists from controlling wealth and I would not expect cleaners to own factories. A competitive market generates a more even monetary wealth which citizens are free to spend as they see fit.
When govt creates a market it ceeds partial control of resources to citizens via the market. When govt prevents citizens (eg capitalists) from controlling a factory and gives it to other citizens (eg cleaners and trademen) this is not a market at all, but a more direct form of resource control. A bad form.
Francisco,
I do understand the concept of capital at risk and a fair return. My point was badly made. What I meant to say was that if someone obtains a fortune from a govt privilege and uses this fortune to buy a productive asset like a factory then this person does not deserve credit for the production from the factory.
A few general comments.
I do not hate Bill Gates, I only used him as an example because Reisman used him as an example.
I think Reisman is an elitist who does not understand markets and who deserved to be bagged. That's why I bagged him.
I read these daily Mises articles and every second day these Mises people are complaining about how govt has spoiled the markets. Yet when I go onto this forum and say that I think govt has spoiled the markets producing the super-rich who Reisman praises, I am bagged as a fool. I am called a leftist, a Bill Gates hater, a demagogue, a non-supporter of property rights. What I say is a rant, a wind-up, syndicalism, teeming with bad ideas, etc.
It is as if most of you people believe that the current markets are already perfect and must not be criticised. If you believe this then why not lobby to shut down the whole Mises.org website. The job is already done. Go home.
I don't expect to write more on this topic, but will read other people's comments. I will keep reading those daily Mises articles and if I detect another one that has more elitist bunk than I can stand, then I will write again. Cheers.
Published: March 4, 2006 2:47 AM
David, you have made no argument that could in any way prove your point, and you've not defined "excessive wealth".
You also assume that there is such a thing as a perfect competition.
"Competitive markets do not generate very rich sellers in terms of dollars in their pocket."
This is a blanket statement without any basis in logic. You cannot know what the results of competition will be.
The only thing you've pointed to as an example of government privilege is copyright, and patents.
Published: March 4, 2006 4:35 AM
I just have a question about Microsoft's ip. Whenever someone loads the software onto their computer don't they have to agree to a license agreement? The agreement says they cannot copy the software. So it is a contract that both parties consent to, hence, there is no real problem with Microsoft's ip. Besides, no one gets their toes axed off for using Macintosh or Linux.
Besides, the real value in using Microsoft is not just the OS, but the way they integrate all of their programs (Office, server database stuff, etc.).
Published: March 4, 2006 5:32 AM
End User License Agreements are part of all Microsoft products, even their updates. Joel is correct.
Published: March 4, 2006 6:58 AM
EULAs are not revealed until after the purchase. In the context of a retail sale, once the cashier has my money, the time for negotiation is over.
If there were no copyright laws, I could simply copy the software before ever reading the EULA, or even make EULA-free copies and hand them out freely. If MS wanted to prevent this, they could have their own stores that require each customer to sign some sort of NDA before obtaining a copy of the software. That would be far preferrable to the current mess of "IP."
Published: March 4, 2006 8:08 AM
A "license agreement" is not a contract. You cannot foist a one-sided contract on another person by stealth, after the sale is done.
Nor is Microsoft's "license agreement" a license. A license is permission to do something that is otherwise illegal or immoral. You don't need a license to use products you've purchased. Whether you click the stupid button so you can use your purchase is immaterial.
Published: March 4, 2006 10:50 AM
You cannot install Windows or any program that I know of without first agreeing to abide by the license agreement. They are not selling you the software, but the right to use it. If Microsoft thought they were selling you the right to copy and distribute Windows you would not be paying $100.00, but magnitudes higher. I believe, but am not sure, if you do not agree to abide by the license Microsoft will be more than happy to give a full refund. I don't see that as a stealth contract, nor do I see anything necessarily evil about license agreements. The same thing applies if your rent a car or buying an airplane ticket (i.e. fine print). Just because you don't physically sign a piece of paper does not mean the license agreement is toilet paper.
Published: March 4, 2006 1:49 PM
Strictly speaking, Microsoft isn't selling me anything--the retailer is. So not only is MS attempting to rewrite a contract that was already settled at the time of purchase, they are attempting to do so in a transaction that didn't even involve them originally.
Putting aside the fact that people have tried to do exactly this and been denied, what right does the original manufacturer of a product have to veto any downstream sale? Does this right apply only to software or to anything?
The lack of a signature is not the issue. My objection is the lack of assent before the point of sale.
Published: March 4, 2006 3:36 PM
When govt creates a market it ceeds partial control of resources to citizens via the market.
Wow! Now that's hard-core statism! The State is God. Government creates markets. Government is the proper owner of everything, that it can "cede partial control to citizens". What a nice government!
But if the state is God, owning everything and creating markets out of the goodness of its heart, etc., what possible objection can you have to the state deciding in favor of certain people or businesses, "creating uncompetitive markets"?
Published: March 4, 2006 8:19 PM
[sarcasm start]
OK, you have convinced me of my error. I was wrong to want competitive markets. That makes me a statist. Now I've decided to push for uncompetitive monopolies run by super-rich capitalists who can centrally-plan all capital allocation in the economy because they own it and are the only people that can be trusted to accrue and control capital. I will ask George Reisman to select them for me.
[sarcasm end]
Peter, you did not define statism, you did not define God, you did not define proper, you did not define owner. Yet these terms are central to your rant.
Imagine that a school playground is poorly controlled by the teachers (potential most powerful force) and instead a big bully takes over. This bully allocates playtime on the swings according to his preference and allows this "ownership" of the swing time to be traded in a market.
The bully also allows weaker children to trade their lunches if he can take a 10% cut. This arrangement benefits the bully and his mates, who eat well and swing well.
This example shows how the most powerful force (the bully) ceeds partial control of a resource (the swing) to citizens (weaker children) via a market. The most powerful force could control the resource in many other ways. In this case he chooses to implement a market.
This does not mean that the bully is God. It does not mean that he created the market out of the goodness of his heart. And if I was one of the weaker children I would object to the whole scheme and I would object to the bully deciding in favour of certain other children thereby creating uncompetitive markets.
Substitute bully for govt and country for playground and you might understand markets a little bit better.
The trouble with you Mises people is that you have turned markets into a form of religion, and you worship any market artifact (eg very rich people) and you curse any non-believer (eg me).
A market is merely a part of human life that can be understood without reference to God and without possessing any religious beliefs. It is about people interacting and how resources are controlled.
It became clear to me that George Reisman does not understand markets. Now it is clear that most posters to this forum also don't understand markets.
Published: March 4, 2006 9:51 PM
David, I have a feeling I might almost entirely agree with you if it weren't for these little slips that make you seem like a statist. Could you give some a priori reasoning for the assertion that uber-rich people would be less common in a truly free market? I think I have a vague idea of your reasoning, and with some thought I may agree, but you haven't spelled out your logic. Please do.
Published: March 5, 2006 12:41 AM
(I don't mean the above as an insult. You have given an outline of your thoughts, but this thread has been all over the place and I'm having a hard time seeing the full picture of your reasoning.)
Published: March 5, 2006 12:45 AM
Peter, you did not define statism, you did not define God, you did not define proper, you did not define owner. Yet these terms are central to your rant.
You didn't define "did" or "not" or "define" or "statism", etc., either. What is with this insistence on "defining" every word, as if you don't know what they mean (note: if you really didn't, it wouldn't be possible to define them to your satisfaction anyway!).
You said "government creates a market", and then "ceeds(sic) partial control of resources to citizens". The fact is, whatever market exists, exists despite government; it's not created by the government, nor even enabled by the government, and government is not the rightful owner of all (or, in fact, any) resources, so talk of government "ceding control" of resources to anyone is meaningless - it only snatches control of resources away from the rightful owners (and perhaps gives them to someone else). Your implication is that any property the government leaves to the rightful owners is a grant by the government (e.g., your bully "allows" children to trade their lunches when he refrains from interfering to prevent such trade).
Nobody here disagrees with you that currently existing markets are distorted by government action. Only with your supposition that you understand the specifics of those distortions, and have the idea that "something should be done" (something other than simply getting rid of the distorting influence, i.e., the use of force by the state) to "correct" for them ("government should create competitive markets", etc. Government cannot "create competitive markets"; to the extent markets are not competitive, they're not competitive because of government. To advocate more of the same as a corrective is just plain silly)
Published: March 5, 2006 1:23 AM
In a long-standing, absolutely free-market, with long-standing, universally recognised property rights, where the only way one could get or keep wealth was through honest trade and exchange,Prof. Riesman's observations about the rich would be unimpeachable.
Unfortunately, such a society and economy is something for the future, perhaps the distant future.What we have today is, with very rare exceptions, tragically different. The market environment which Prof. Riesman discusses and the one which exists is,unfortunately, as different as the sex resulting from love is different from the sex which results from rape! A few examples below should suffice.
The rich are overwhelmingly a collection of politically connected oligarchs, who get and keep their fortunes through sundry non-market and anti-market interventions. Media shills, whose corporation are owned by and managed by these same Oligarchs,like Comrade Krugman are merely stooges to justify these interventions as being in the "public interest". From the income tax (and its politically contrived exemtions and deferments) to market price distortions caused by Land-use and so-called "pollution abatement" regulation which Real-estate moguls and their corrupt politicians profit from at the expense of the rest of us, fromt tariffs and import and export controls lobbied by those same kind of "rich", the "Labor laws" i.e. trade union monopolies,supposedly enacted to protect the "workers" according to the Paul Krugmans of the world, but protecting the privileges of sundry gangsters, trade-union bureaucracies, and elected officials who pass the laws favoring the corporate monopolies and multinationals to begin with,Federal reserve and central (Fractional reserve) banking eroding the purchasing power available to the rest of us, while making limitless amounts of money available to those oligarchs and their politicians' pet boondoggles. The compulsory attendence at government public "schools" scam, beloved by the oligarchy, since it grants them in a sense a monopoly on politically subsidized and regulated mass ignorance mislabled as "education",the endless race-relations management,which may be perhaps better called race-conflict management in the pursuit of a compulsory "equality". Decades (or even generations) of war and war preparation sustained by advertising driven mass-media heavily subsidized through cheap inflation-driven credit (as with Housing, automobiles, and the pharmaceutical poisons that international drug companies manufacture and sell, in the process bankrupting the health management systems structured by government-regulated
insurance companies and HMOs while using the FDA and its overseas counterparts to keep real cures off the market for years at a time, contrived "energy crises" that government regulated and privileged multinational oil conglomerates use in conjunction with Utility monopolies to suppress technology, raise prices, and incite war, with its horrifying destruction and loss of life and property,its shattering of families and communities and its titanic financial corruption and boondoggling both among "victors" and among "vanquished".
This reply would not be complete without noticing that much of the capital of the rich, Rockefellers,Rothschilds,Guggenheims,Duponts, Belmonts, Astors, et.al. is devoted to foundations who routinely subsidize the very ideas you find so objectionable. If you doubt this, look at the credits to almost any show on so-called Public Television. That many of these fortunes were accumulated in the days before the Federal income tax is food for thought.
I could go on, but I think that I have made my point. Professor Riesman, The free market would indeed enormously improve our society at every level, especially for those at the bottom. However, libertarians such as yourself would strengthen your case for it, and for its underlying commitment to property rights, if a clearer and rigorously consistant distinction was made against the thoroughly defective and pathological status quo, whatever the Comrade Krugmans of the world say.The rich(for the most part) are a group of criminal oligarchs who got, and who kept, their immense wealth through PREDATION,not PRODUCTION and are deserving of the loathing not so much of Comrade Krugman, who is a hired shill for them in any event, but any decent person!
Published: March 5, 2006 11:07 AM
I see that "David K.Meller" has posted an impressive critique of the original article. If he had posted earlier I would not have bothered with my post.
Anyway I wish to answer those who asked for more details and finish up on this topic.
Peter,
Statists believe that govt should largely control all resources directly.
By contrast I believe that govt should largely cede control of resources to citizens via markets it defines and enforces.
In many ways I am the opposite of a statist. I'm prepared to wear the statist cap when it fits, but it doesn't fit at this point when I try to define what a market is.
I said "When govt creates a market it cedes partial control of resources to citizens via the market."
I still believe this to be a good description. I need words that describe how the most powerful gang must choose not to take control of certain resources, at least partially.
Eg The NAZI govt in 1940 was more powerful than Dutch peasants and it took possession of [formerly their] cars, barges and houses for its purposes. Now in 2006 the Dutch govt cedes partial control of cars and houses to Dutch citizens via markets. These citizens may drive cars if they follow govt rules and these citizens may possess houses provided they follow govt rules.
For a market to exist govt must take less than the maximum possible control. It must make room for partial citizen control via govt-defined property rights. And if other citizens then steal or otherwise disobey these govt-made rules, the govt must step in with force to enforce the rules of the market.
You said that markets exist despite govt. I absolutely disagree with this. Theoretical markets can exist in your head or my head, but the only markets that actually can exist on earth require the support and ceding of control of the most powerful gang in that area. In our countries, the most powerful gang is govt. Therefore no market for any resource exists without govt support and without govt choosing to not take full control of that resource. I used the word cede to describe that behaviour.
This topic itself deserves a long essay itself.
I thank you for correcting my spelling mistake (ceeds/cedes), and I'd be interested in seeing your short definition of how to create a market (using words that don't identify you as a hard-core statist).
Roy, I think the full reply to you would be at least one full size article. Sorry, I haven't written it yet. But in short it revolves around the purpose of the market being to meet consumers wants which is a big gap between what they would have paid and what they actually paid. The market should not meet producers wants - a big gap between cost they could sell at (cost of production) and what they actually sell for.
Markets should exist to yield cheap products, not fat profits. Things like govt tariffs and govt licenses please producers. When a market is warped to please producers things are arse-about. Competition is what prevents this. In a competitive situation the sellers are competing against each other, these are the best sellers of that product in the world. Like top people at any field, their competency is usually tightly clustered. eg the top swimmer never beats the second swimmer by a huge margin.
If you show me professional sport with a huge winning margin I will show you a crooked game. Similarly if you show me a market producing uber-rich, I will show you a crooked market. Exceptions are rare. eg James Dyson is one exception. Another exception is Warren Buffett.
I really don't want to write much more at this point.
CEO's and fund managers are another example of an uncompetitive market. Read what Warren Buffett has to say about them
http://www.smh.com.au/articles/2006/03/05/1141493544763.html?page=fullpage#contentSwap1
Should govt go anything about overpaid fund managers and overpaid CEO's. I say No and Yes. But that topic can wait for another day.
Published: March 6, 2006 5:41 AM
Yes, leave the rich alone, and the middle class also, and any other saver.
I found this a very interesting article. Those who object to its contents make the mistake to think that 'the rich' are a very limited class of people.
I myself have written an article for www.libertarian.nl, which contains exactly the same point as Reisman makes, but I think I make it far more clearly.
This article is in Dutch, so I shall translate the gist of the argument. Maybe it is interesting to see how somebody else than Reisman writes about the same subject.
My article begins with a definition of consumerism. It is this:
The economy is formed and maintained solely out of consumer spending.
This statement is completely false! The economic contribution of consumers is not only zero, but even negative!
This is what I hear everywhere in the news, mostly implicitly, when people talk about 'consumer trust in the economy'. This is what I hear that many economists say.
This vision is completely and utterly wrong. I go even one step further than Rothbard with this position.
There appears to be one thing that is, I must say, much to my astonishment, completely overlooked. And that is the simple fact, that before something can be sold, it must first be created!
This means, that all sales are preceded by production!
And this implies, that the money used to create the consumption goods that are offered in exchange for money does not come from consumers, but it comes from savings, and savings alone!
Why? Because if the goods and services are created before they can be sold, then the money received from selling them cannot possibly contribute to the capital needed to create these very goods and services. You simply cannot spend money if you have not received it first, in whatever form. Even the fact that you can borrow money, loans, do not change this. You first must have money, either in actual possessing it, or in the form of control over it, before you can spend it.
Money has value, because you can exchange it against goods and services. You can only buy something if somebody else has not bough it already, and put into use. This simple statement implies, that if something is offered in exchange for money, but is not yet actually bought by somebody, it is not in use. It is not yet consumed, or in the process of consumption.
Since money is a medium of exchange, its value lies in just this function. The value of money, i.e., the service that money fulfills, at any moment in time, consists of all the goods and services that are obtainable in exchange for it. In other words, it consists of all the goods and services that are created but not yet put into use.
So the value of money consists of all goods and services that are not, or not yet, in a state of consumption. The value of money consists of all unconsumed goods and services.
This implies, that if you work, and earn money, but you do not spend all of your earnings on consumption, you produce more than you consume. This will always cause an increase in the amount of goods and services that can be exchanged against money. You do not even have to invest the money in bonds or stocks, or even have to bring the money you do not use for consumption to the bank.
Whenever somebody, anybody, earns more than he spends, this causes an increase, no matter how slight, into the total amount of unconsumed goods and services that are offered in exchange for money, and therefore an increase in the value of money.
I am amazed, that this simple train of thought is overlooked by so many people, especially economists. In particular it is a total refutation of consumerism. If these facts were generally understood, Keynes would not only be not taken seriously, but he would be shown to be a complete and utterly confused fool, and be laughed out of court!
The simple fact that goods and services first have to be created before they can be bought, while consumers only pay for goods and services that are already completely realized, implies that consumer spending does not contribute in any way to economy in the sense imagined by consumerism. Consumer spending does the exact opposite as what consumerism states. It always decreases the total amount of goods and services offered in exchange for money. It is always a force going against the value of money. It either causes a reduction in the growth of the value of money, or to a stand still of this growth, (by a complete counterbalance of consumption) or even to a reduction in the value of money. (Consumption of capital.)
If you understand this, then this is enough to see, that, for example, Keynes did not only have it wrong, but the exact opposite of what he says is what is actually happening.
His 'multiplication factor' does indeed exist, but works in exactly the opposite direction as what he imagined. The more people save, the more savings there are, no matter how savings are realized, the more means of production can be bought with a certain definite amount of money, and the more production itself is multiplied. (Physical production.)
This results in more goods and services that can be put against money, which means that more goods and services can be exchanged against a particular amount of money.
In other words, it makes money to have more value.
Speaking from this principled perspective, 'the rich' consists of the totality of people who do not spend their entire income on their own consumption, but who also save and invest. This includes both explicit investion, like in stocks and bonds, or in plain saving, by putting money in the bank or even in old socks or under the mattress, or implicit investion, like in buying goods and services to make money. So, according to this definition, each shop owner is one of the rich. Each person who has more money than he has used up in consumption is one of the rich. Everybody who is, on balance, debt free and has stashed some cash under his mattress is one of the rich.
These are the people, who are responsible for the capital structure that pays the wages, in fact that makes money to have value at all, and who should be left alone. Alas, these are the people, who are definitely not left alone. They are either robbed from their savings through taxes, or indirectly through inflation.
Note that Keynes both attacked savings, and favored inflation. So he was the theoretician who is responsible for much destruction of Capitalism, who is responsible for fiat money, and might very well become responsible for the total destruction of our society, if we forget the very simple facts I have described here. (The Romans were not aware of it. Inflation was the root cause of the destruction of their culture.
Reisman understands the same thing as I have explained above. Rothbard understood it also. And Eugen von Böhm Bawerk also understood this. But they did not put it into such simple statements as I have done in the above. They did not derive it from the most basic understanding about money you can have: that it is a medium of exchange that derives its value from those goods and services created by others, not yet bought, and therefore not yet consumed.
A rich person is, by definition, somebody who has more value to consume than he has actually consumed. The more value in his possession not yet consumed, the more consumption there is available for others. Consumption that can be obtained against money. This makes that the rich are the source of all value of money. Without the existence of the rich money would not have any value at all! This is why Communism does not work, and Soviet Russia collapsed. If all possible consumption has taken place, there would be not only no capital, but even no consumption goods that can be bought with money.
So if the total amount of money in circulation would be fixed, and all rich people decided to transform all of their savings and investment into consumption, this would result in a massive increase in the amount of money in circulation, and a massive decrease in the amount of goods and services offered against money. In other words, this would result in massive inflation.
Conversely, the more people save, the more rich people there are, the more society makes it possible for everybody to become rich the more capital there is. Since capital goods are a means to use the forces of nature to use to lift the burden of labor of everybody, it would cause a far more easy living for everybody, because it would extend a far larger physical production. This would reflect itself both in money to have more value and to be more easy to earn money.
Reisman has it totally right. In fact, I think he might be more right than he himself realizes.
Indeed. Leave the rich alone!
Published: March 15, 2006 5:26 AM
Konrad Swart,
I agree completely.
Published: March 15, 2006 8:55 AM
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Published: March 11, 2007 7:23 PM