Round One of The Great Debate
"Government is not the solution; goverment is the problem!" President Ronald Reagan, First Inaugural, 1981.

    The first step toward solving the problem of government requires challenging, and then changing the simplistic thinking of voters who accept the flawed premise put forward by most politicians, "Government should tax the rich so that it can help the poor and the less fortunate," when in fact, nothing can be farther from the truth.

    Economist, Dr. George Reisman, introduces the last chapter of his epic book, CAPITALISM: A Treatise on Economics, with this statement, "The principles and theories presented in this book call for a society of laissez-faire capitalism.... If such a society is to be achieved, a political movement pursuing a long-range program will be necessary,"1 but it is in Chapter 9 where Dr. Reisman shares the vital message needed to defeat the socialists. As is so often the case, in order to get the correct answer, it is necessary to ask the correct question. In this case, who actually gets or enjoys the benefit of the wealth owned by the rich?

The following is excerpted from CAPTIALISM: A Treatise on Economics2, pages 296-299.

"1.  The General Benefit from Private Ownership of the Means of Production
    "The influence of the division of labor on the institution of private ownership of the means of production is almost universally ignored. Typically, people think of privately owned means of production in terms that would be appropriate only in a non-division-of-labor society. That is, they think of them in the same way that they think of privately owned consumers’ goods—namely, as being of benefit only to their owners. They believe that before the nonowners can benefit from the means of production, they must first become owners.1
    "This belief underlies the popularity of all forms of 'redistributionism' and socialism.2 People believe that so long as wealth remains concentrated in the hands of a relatively small number of capitalists, the capitalists alone benefit from it. For the great mass of noncapitalists to benefit, it is believed, the wealth of the capitalists must first be taken away and given to the noncapitalists, or be held by the government and used for the collective good of all....
"The Benefit of Capital to the Buyers of Products
     "The first thing that must be realized is that in a division-of-labor society, all private property that is in the form of means of production—i.e., of capital—serves everyone, nonowners as well as owners. In a division-of-labor society, the means of production are not used in producing for their owners’ personal consumption, but for the market. They are used in producing goods that are sold. The physical beneficiaries of this private property—and it is the far greater part of the capitalists’ wealth—are all those who buy the products it helps to produce. In other words, it is the general buying public who are the physical beneficiaries of the capitalists’ capital.
    "Consider, for example, the question of who are the physical beneficiaries of the auto plants of General Motors.... Almost 100 percent of General Motors’ auto output goes to people who do not own a single share of its stock or a single one of its bonds. The same is true of every other business enterprise....

    "Thus, the overwhelmingly greater part of the physical benefit derived from the privately owned means of production in a capitalist economic system goes to nonowners of the means of production—to wage and salary earners.
    "It cannot be stressed too strongly: the simple fact is that in a division-of-labor society, one does not have to own the means of production in order to get their benefit. One has only to be able to buy the products. In a division- of-labor society, one gets the benefit of means of production owned by others—every time one appears in the market as a customer. Indeed, it is of the very essence of a division-of-labor society that one obtains the benefit of others’ means of production, just as one obtains the benefit of others’ labor and knowledge, and that this occurs by means of the purchase of products in the market. It is only in a non-division-of-labor society, in which there is little or no production for the market, in which the producer and the consumer are almost always one and the same person, that privately owned means of production benefit only their owners, or virtually only their owners.
    "Implicitly, it is such a society that the enemies of capitalism have in mind. They have not yet woken up to the fact that capitalism is a division-of-labor society. They are unaware that in a division-of-labor society, the means of production serve everyone who buys products, and that thus, under capitalism, there is a general benefit from the capital owned by the capitalists—a benefit which everyone shares in his capacity as a buyer of products, even if he himself does not own any means of production or capital.
    "This general benefit, it should be realized, applies to all of the means of production, not merely to those which are employed in the direct production of consumers’ goods. The benefit of the steel mills that produce the steel that enters into GM’s cars goes to the buyers of the cars, along with the benefit of the auto plants, as does the benefit of the iron mines that contribute to the production of that steel, and the benefit of the factories that produce iron-mining equipment. The benefit of the land that grows wheat goes to the buyers of bread, as does the benefit of the tractors used in the growing of wheat, and the benefit of the factories which produce those tractors, along with the benefit of the flour mills that make the wheat into flour, and of the bakeries that finally turn out the bread.

    "Furthermore, if we are to acknowledge the truth, we must recognize that the general buying public, composed overwhelmingly of wage and salary earners, not only obtains the benefit of all of the means of production owned by the capitalists, but exercises real and decisive power over the ways in which those means of production are employed.... The buying public thus places the capitalists in a position in which, to make profits and avoid losses, they must produce what it wants to buy, and abstain from producing what it does not want to buy.4 In a division-of-labor, capitalist society, it is ultimately the consumers—composed, it cannot be stated too often, overwhelmingly of wage and salary earners—who determine not only the pattern of production, including the relative size of the various industries, but even the specific methods of production used in every industry. For the demand of the consumers determines the relative prices of the factors of production, such as the wages of skilled versus unskilled labor, or the price of copper versus the price of aluminum, and thus which methods of production are more economical in any given case.5
    "The power of the consumers under capitalism is such that businessmen and capitalists are constantly on the lookout for ways in which they might supply the consumers better. For example, a businessman or capitalist who has invested in a clothing store or clothing factory, in a restaurant, or in the manufacture of breakfast foods, or who is contemplating such an investment, is vitally interested in improving the clothing or the food he sells. He is interested not because he values the satisfaction of others’ needs for its own sake, but because he values his own wealth. The only way to increase his wealth, or prevent the competitive improvements introduced by others from decreasing it, is for him to serve his customers better and more efficiently. This, of course, applies to all branches of production that are privately owned and subject to the freedom of competition. It dictates the behavior not only of producers of consumers' goods, but also of suppliers at all stages of production, such as those who sell cloth to the clothing factories, and raw material to the factories which make the cloth. For the businessmen who sell to consumers seek to buy means of production that will enable them to produce products of the kind the consumers most want, and to do so at the lowest possible costs of production. The suppliers of these businessmen in turn are obliged to purchase means of production that produce products that best satisfy these criteria. The same principle guides the suppliers of these suppliers, and so on through all stages of production. In other words, the whole system operates so as to produce the best possible products for the final buyers, the consumers, and to do so at the lowest possible costs.
    "....Let there be any need or desire whatever for whose satisfaction a sufficient number of consumers are willing to pay profitable prices, and, as soon as they become aware of it, as soon as they have discovered it by a process of actively searching out its existence, businessmen and capitalists race to meet that need or desire. This, of course, is in sharpest contrast to conditions under socialism, where, in the nature of the case, no incentives exist for the rulers to serve the general public6....
"The Benefit of Capital to the Sellers of Labor
     "....The second [benefit] is in connection with the fact that capital constantly appears in the market as a demand—expenditure—by the capitalists for means of production, including labor. The capitalists begin their productive activities with outlays of money for labor, materials, and equipment. The revenues they subsequently take in from the sale of the products they produce are then almost entirely reexpended in the form of fresh outlays for labor, materials, and equipment. These outlays of the capitalists for labor are what make possible the purchase of products by noncapitalists. They are the incomes of the wage and salary earners....
    "It should be obvious that the more economically capitalistic the economic system is, in the sense of the capitalists expending a larger proportion of their sales revenues for means of production and a smaller proportion on their own consumption, the higher will be the income and consumption of wage and salary earners in comparison with the consumption of the capitalists. In other words, the more the capitalists abstain from consumption, in order to accumulate or maintain their capitals, the larger the share of the economic system’s output of consumers’ goods that goes to wage and salary earners, and the smaller the share that goes to capitalists.7
"The Direct Relationship Between the General Benefit from Capital and Respect for the Property Rights of Capitalists
    "There is a conclusion that follows from all this which will appear highly paradoxical to many people, because it totally contradicts all they have been mistakenly led to believe—by the educational system, by the media, and by our culture in general—but which is nonetheless perfectly logical and correct. That is, the more the private property rights of capitalists are respected, the greater are the benefits to noncapitalists. Because to the extent that their rights are respected, the capitalists are encouraged to save and accumulate capital; their own consumption is small in relation to their capital and grows only as their capital grows. In each year the demand for labor and for capital goods is correspondingly larger—because of the capitalists’ greater saving—and the share of consumers’ goods purchased by wage earners is likewise correspondingly larger....

    
"But what is most important of all in the long run, and subsumes all the other benefits, is that if the capitalists’ property rights are sufficiently respected, then from year to year the total production of consumers’ goods available to everyone tends to grow and thus the purchasing power of everyone’s income tends to rise. In other words, there is not only a general benefit from private ownership of the means of production, but a progressively increasing general benefit....
    "The conclusion should already be obvious that an individual is far better off as a nonowner of the means of production under capitalism than he is as an equal owner under socialism. For in his capacity both as a wage earner and as a consumer he obtains the benefit of the means of production owned by others. In a division-of-labor, capitalist society, others’ means of production are the source both of the demand for his labor and of the supply of the goods he buys. And his benefit in both capacities is the greater, indeed, becomes progressively greater, the more the property rights of those others are respected.
"Notes
  1. "Cf. Ludwig von Mises, Socialism (New Haven: Yale University Press, 1951), pp 40-42; reprint (Indianapolis: Liberty Classics, 1981). Page references are the Yale University Press edition; pagination from this edition is retained in the reprint edition.
  2. "For a discussion of its influence on the mentality of destructionism, see above, pp. 230-231.
  3. [Cf. von Mises, Socialism, pp 500-504.]
  4. "See above, p. 174. This, of course, is a leading theme of von Mises.
  5. "See above, pp. 201-212.
  6. "See above, pp 275-278 and 288-290.
  7. "For elaboration of the significance of this fact, see below, pp. 477-480. See also below, pp. 632-634."

References

  1. George Reisman, Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) p. 969. Copyright © 1996, by George Reisman. The quotations above from Capitalism appear with the permission of the author, Dr. George Reisman, who has graciously consented to the use of this copyrighted material.

  2. Ibid., pp. 296-299.

Back