TOS Blog: Daily Commentary from an Objectivist Perspective

The Justice of Income Inequality Under Capitalism

Sears_TowerMany “Occupy Wall Street” protesters oppose the bailouts of failed banks and financial institutions. They are right to do so: such bailouts violate rights by forcibly transferring wealth from some people to others via taxes, deficit spending (future taxes), and monetary expansion (hidden taxes). At the same time, however, many Occupiers call for even more forced wealth transfers for things such as unemployment payments, student loans, mortgage support, government schools, and “green” energy. Why do many Occupiers oppose some forced wealth transfers and advocate others?

The answer may be found in the popular “occupation” phrase: “We are the 99 percent.” As Vanity Fair explained earlier this year, “The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent.” The 99 percent, then, consist of everyone else. According to the typical Occupier, politicians should forcibly seize wealth, so long as they seize it from the relatively wealthy and give it to those with less. “Tax the Rich” (even more), many protest signs read. Vanity Fair compares America’s wealthy to Middle Eastern theocratic dictators: “Americans have been watching protests against oppressive regimes that concentrate massive wealth in the hands of an elite few.” The magazine predicts that “even the wealthy will come to regret” the income inequality in this country. While some in the “Occupy Wall Street” movement may attempt to make good on that threat, if income inequality is their concern, they should instead consider some history.

True, throughout most of human history, great income inequality arose when the political class looted the masses. Slaves labored in Egypt to build elaborate burial pyramids for their jewel-crested Pharaohs. In the socialist Soviet Union, the “dictators of the proletariat” lived lavishly even as they starved millions to death while selling grain to other countries (for details, see the film The Soviet Story). Thus, while some Occupiers call to replace capitalism with socialism (see the Denver college professor and “born-again Trotskyite” or the Los Angeles Occupier calling for bloody revolution) if successful their strategies would in fact create another kind of income inequality.

But the income inequality under tyranny is fundamentally different from that under capitalism. One arises from looting and forcing; the other from producing and thinking. Looters seize available wealth. They add nothing to the supply of wealth, opting instead to smash things, divert human effort to the task of looting, and squash the incentive of their victims to produce much of anything. Thus, even if looters could achieve income equality, doing so would constitute a moral atrocity. Producers create new wealth: They restructure their own resources—their land, machinery, seeds, and minerals—to create goods and services that benefit human life. Producers earn money by trading voluntarily with those who also benefit from the exchange. Often producers hire others, improving the lot of employer and employee alike.

Looters win (in their own short-sighted view) at the expense of others. Producers win as they help others win. At worst, a looter takes your life; at best, he steals what you produce. At worse, a producer leaves you alone; at best—and most typically—he greatly enriches and expands our lives.

America’s capitalists have nothing in common with dictators in the Middle East or with any other type of looter. (I mean actual capitalists, not those pretenders in business who wield political power to seize subsidies and hamstring their competitors.) Steve Jobs did not earn a fortune by attacking others or stealing from them; he grew wealthy by building remarkably advanced machines that dramatically improve the lives of tens of millions of people. Whatever wealth Jobs personally gained, he added enormously more value to his customers’ lives. The same can be said of any of America’s business leaders, whether the energy producer George Mitchell, retailer Jeff Bezos, software developer Bill Gates, internet visionary Mark Zuckerberg, or anybody else who lives by thinking and producing at whatever scale. Producers trade goods and services for money, and the exchange benefits both parties. A producer’s wealth indicates the scope of his mutually beneficial exchanges.

From the economic point of view, as Ludwig von Mises wrote in a 1955 letter: “Destitution is in a feudal society the corollary of income inequality, but not in a capitalist society. The fact that there is ‘big business’ does not impair, but improve[s] the conditions of the rest of the people.” Mises writes here of productive business in a free economy, not politically-connected “business” that seeks reward in handouts and special favors. To the degree that today’s economy has brought some closer to destitution, the cause is not productive big business, but instead the looting mentality of inflationary government spending, political support for irresponsible mortgages, bailouts for banks and unions, out-of-control entitlements, corporate welfare, and the like. In short, the cause is government interference in the economy.

From the moral point of view, forcibly seizing wealth from producers violates their rights. The relevant moral distinction is not between the 99 percent and the wealthiest one percent, but rather between the producers and the looters on any scale. The great producers of our society do not deserve envious snarls and threats to forcibly seize their property. Instead, they deserve our gratitude and admiration.


Image: Wikipedia Commons

Posted in: Individual Rights and Law, The Left

Comments are welcome so long as they are civil.
  • Steven Moros

    It is unjust that capitalists and business people have had to suffer throughout history; you’re absolutely correct in saying that they need our admiration.

    Also, average people who seek to better themselves through their work are also harassed to the point of giving up under this climate of cynicism.

    The capitalism haters cannot see that the benefits that they enjoy is provided by the free market system. If they want someone to blame for their woes, they should look within.

  • Thomas Watts

    There is no evidence slave labor was used for building the pyramids. For some of the pyramids, the labor contracts still exist. 

  • Cameron Westhead

    This blog post does eloquently espouse the essence of capitalism from the perspective of the owners of the means of production. However, you fail to mention the importance of the other part of the equation, which is the laborers. Your dichotomous labels of “producers” and “looters” is a misnomer. The true “producers” are actually the laborers. Perhaps “owner” is a better term for what you label as “producer”. The owners contribute a very small percentage of labor and time to generate profit, yet have complete control over the profit and how it is used. In this scenario, the laborers are treated as “things”. Were it not for the efforts of the laborers, the owners would have nothing. I think what this blog posts misses, in its rage against the notion of inequality, is that laborers must be paid a fair share of the profits that their labor has produced, otherwise they are treated as slaves. Fair wages and working conditions are a necessary means of wealth distribution in order for the owners to survive and generate capital. Owners would not be among the wealthy 1% if it were not for the sweat and blood of the laborers, a fact that is not mentioned in this article. Laborers are not looking to become rich, or “loot” as you proclaim. Rather, they want a fair share of the profits their efforts generate. When laborers see CEOs and senior executives raking in obscene salaries and bonuses, while they are asked to take wage concessions does not sit well. The efforts of the laborers to generate the profit must be acknowledged, otherwise the labor will cease.

  • Larry McNeilis

    Cameron, in your comment above, you make the assertion that the author “fail[s] to mention the importance of the other part of the equation, which is the laborers. [This] dichotomous labels of “producers” and “looters” is a misnomer.” but what you fail to realize(acknowledge?) is that laborers are “producers” in the sense that they sell a product or service to the business that employs them! 

    They have negotiated a what they considered fair price for their product – their labor/skill/time/etc., as is evidenced by the fact that they accepted the job offer at that price!  This fact is indirectly admitted by the last line of your comment – “The efforts of the laborers to generate the profit must be acknowledged, otherwise the labor will cease”! The fact that the individual laborer is there and has not moved on to other employment indicates that each laborer still choosing to accept and remain in employment with that business at the wages paid is evidence that the wage they recieve is adequate compensation for their work output! 

    If the wage is below market pricing for the quality, output and skill level of their work, they could (and SHOULD) move on to an employer willing to pay adequate compensation if their current will not match market pricing. 

    If the wage being paid exceeds market pricing, they should realize that a low-price competitor WILL eventually move into the market and they will have to either lower their price or increase the value of their product!  In this instance, to the extent their wage exceeds market value, the laborer is “looting” the company – taking money that exceeds the value of the product or service they sold to the company! 

    If the value of the laborer’s “product” matches their compensation, then – by definition - they are being “fairly” compensated!!!  In this case, if the laborer is not receiving what they would LIKE to receive for their product, they need to find a way to improve that product through increasing their skill set, their education or their output.  Then their “product” can command a higher price!

    As far as “overpaid” Executives and CEOs, IF the owners of the company – this would include shareholders of corporations – feel they are receiving adequate value for the compensation paid, then “no harm/no foul” – their compensation is “fair” as far as the ONLY people who have any real, valid, interest in what it costs to retain them as employees.  If their compensation exceeds their contribution, just as any other employee of the firm, they become “looters”! 

    BUT, they are NOT looting the laborers – they are looting the OWNERS of the company!!!  Therefore, any ‘profits’ generated by adjusting this inequity should flow to the owners (which the author refers to as ‘producers’) and not to labor, since shifting the plunder from one set of employees (management) to another set of employees (labor) does not stop the looting, it merely changes the which ‘looter’ is taking the ‘producer’s’ rightful profits!!!

  • Geoff6751

    It seems to me that there is a fatal flaw in the pro-capitalist or market economic model. And it is to do with the language of growth. Politicians rattle on about ‘growing the economy’ ignoring the fact that we are finite people living in a finite world. As a teenager, I remember being part of discussions about human creativity. As human beings we don’t create anything of a material nature. One line of argument suggested that we cannot create a new colour, only manage the colours we are given. We are not creators in the sense of making any new material ‘thing’, just managers, manipulators or stewards of the physical world. Until we grasp that reality, the obsession with ’so-called growth’ means that we exploit the physical resources of the world, and to some extent or another we may exploit one another as we try to surround ourselves with possessions. The really big challenge is about the one area of life where there is room for growth or better ‘maturing’ – and that is developing the ability to live at peace with one another and with our planet.