XIX. The Influence of the Division of Labor on the Institutions of Capitalism II: Economic Inequality

A. The Nature of Economic Inequality Under Capitalism

1. The prevailing view: “the rich get richer, the poor get poorer”—one man's gain is another man's loss.

2. Fact: the division of labor allows for constant increase in the total of what is produced. One man's gain resulting from an increase in the total of what is produced is not another man's loss—the example of Crusoe and Friday.

3. How the gain of the one easily leads to the gain of the other: productive emulation.

4. The fallacy of unjust “distribution,” when what is actually involved is an inequality of production.

5. How in a division-of-labor society, one man's gain typically implies the gain of others: productive emulation—present in competition; the nature of free exchange and the sharing of the growing gains from the division of labor.

6. The especially important case of the origin and disposition of fortunes: the earning of a high rate of profit over a long period of time, with most of the profit constantly being plowed back. The high rate of profit reflecting the introduction of repeated improvements in production of benefit to the buyers; the plowing back of the profit resulting in growing means of production employed to the benefit of the buyers.

7. Illustration of point 6 in American economic history: the cases of Carnegie, Rockefeller, and Ford.

B. The Marxian Doctrine on Economic Inequality: A Critique

1. The claim that inequality under capitalism is an extension of inequality under feudalism and slavery and that socialism is the culmination of political democracy and will represent the establishment of a classless society.

2. The injustice of comparing capitalist with feudal inequality: productive contribution and general benefit versus force and loss.

Position of the feudal aristocrats not based on any economic role, such as land ownership, but on governmental power: they lacked essential rights of ownership (such as ability to sell their land, compete for the workers of others, and fire their own workers) and possessed powers far beyond those of any property owner: i.e., tax collection, “low and high justice.”

3. Marxist and Galbraithian equivocation on freedom: the doctrine of “wage slavery” and “nominal” freedom (see J. K. Galbraith, The New Industrial State, Second Edition, New American Library, New York, 1971, p. 141—quoted in Capitalism, p. 331.)

a. “Having” to work for a capitalist, even a hundred and fifty years ago, at very low wages, not a violation of freedom; the vital importance of being able to choose for which specific employer one works.

b. Capitalists (businessmen) not responsible for workers feeling the pain of hunger, as Galbraith implies, but for paying wages to alleviate the hunger.

c. Opposite character of freedom and slavery shown in the simple fact that a slave is held at his work by force, while it takes force to keep the poor but free worker of the capitalist from his work.

4. Inequality under socialism (see Capitalism, Chapter 8, Part B).

a. The observed existence of “the new class”—special stores, clinics, schools, housing, and transportation for the party and government elite.

b. The existence and servile character of inequality under socialism deducible from the leading moral-political premise of socialism that the individual is not an end in himself (as he is acknowledged to be under capitalism), but is the means to the ends of “society”—which ends the rulers interpret.  It is also implied by the powerlessness of the plain citizen in his capacity as a consumer—only the values of the rulers count.

5. Socialism versus democracy (free government)—see Capitalism, Chapter 8, Part B.

C. The Equality-of-Opportunity Doctrine: A Critique

1. A fallback position for egalitarianism.

2. Some unpleasant implications of the equality of opportunity doctrine: Platonic orphanages, eugenics, tearing down advantages.

3. Observations on the nature of opportunities.

a. The meaning of an opportunity.

b. Their fundamental superabundance.

c. Their creation by the individual.

d. The room for all to rise in the context of a division of labor society.

e. The need for the freedom of opportunity, not the “equality” of opportunity.

f. How individuals beginning under extreme disadvantages overtake others who begin with the greatest advantages—the self-made man.

XX. The Influence of the Division of Labor on the Institutions of Capitalism III: Economic Competition

A. The Nature of Economic Competition under Capitalism

1. The prevailing view: law of the jungle, survival of the fittest, dog eat dog, etc.

2. Actual nature: not the grabbing off of limited, nature-given necessities, but competition in the positive creation of new and additional wealth for the market—the inherent general gain; no genuine losers.

3. Competition and the survival of all: e.g., the effects of competition among farmers, eyeglass manufacturers, pharmaceutical makers, etc., on the hungry, the weak, and the disabled.

4. How even the apparent losers gain: e.g., the effects of the competition of the automobile on the horse and buggy makers.

5. The short-run loss periods; differing effects on unskilled and skilled workers; the effects on the losers of fortunes.

6. How opposition to free competition implies the advocacy of the law of the jungle.

7. Economic competition and economic security.

a. Competition and the physical security of having goods—the paradox of the guild system.

b. Competition and job security—the need for fully free competition; the seniority system and the artificial lengthening of the short-run loss periods.

8. More on competition and the “weak”: the law of comparative advantage and the room for all in the division of labor. Statement of the law: Even if one party is productively superior to the other in every respect, it still pays them to engage in division of labor, with the productively superior party concentrating on his area(s) of greatest superiority and the productively inferior party concentrating on his area(s) of least inferiority.

a. The boss and the secretary, the lady lawyer and the maid.

b. International applications: England and Portugal, the US and Brazil.

c. How both cases work out in terms of money.

d. The implied dependence of international free trade on a free labor market domestically.

e. The competitive damage to the less able of attempting to force the market to pay them the wages of the more able.

9. The pyramid of ability principle: To the degree that the more able obtain the higher positions in the economic system, the productivity and standard of living of the less able are increased—e.g., the case of the engineer and the mechanic, the foreman and the worker, the great industrialist and the average person.

10. The integration of the law of comparative advantage and the pyramid of ability principle: the gain from the existence of other people; the greater gains from the existence of the more able—even janitors can have automobiles and television sets.

B. Competition and the Population Question

1. The Malthusian specter of overpopulation: the implied competitive conflict over land and natural resources.

2. Applies only to non-division-of-labor societies; in a division-of-labor society more population means a more intensive division of labor (Adam Smith's principle that the division of labor is limited by the extent of the market) and the realization of more economies of scale—manufacturing, the advantages of cities, the case of the medical school and all other sources of new knowledge;  more people and more productive geniuses.

a. The implicit case for worldwide free trade.

b. Partial explanation of the higher standard of living in the US compared to Western Europe.

c. Explanation of the effects of the Common Market.

3. Unlikely problems of too high a ratio of children to adults and of labor to capital.

4. The case for free immigration into a capitalist society: the general benefit from others' possession of freedom—the bringing of talent to freedom, where it can flourish.