Marx Was Mistaken About the Power of Capitalists In Markets

From Don Boudreaux.

"In “The Middle-Class Squeeze” (Sept. 26) Charles Moore mixes genuine insight with hackneyed myths.  Among the myths is his claim that “[t]he owner of capital decides where money goes, whereas the people who sell only their labor lack that power.  This makes it hard for society to be shaped in their interests.”

First, in free markets, owners of capital remain owners of capital only if they use their capital to serve others.  And the greater the number of others they serve, the greater the amount of capital they own.  The Walton family’s enormous capital was created – and its value maintained – only by that family’s continuing success at serving hundreds of millions of consumers.  Consumers’ voluntary spending choices play at least as large a role in determining “where money goes” as do the investment and managerial decisions of capitalists.  (Were the Waltons to put all of their money into factories that manufacture caramel-covered anchovies, they would quickly lose all of their capital.)

Second, as my colleague Alex Tabarrok explains, “[f]irms buy labor and they are competing primarily not against workers but against other firms.  When firms are thinking about wages what they are thinking about is the threat from other firms.  When a firm is hiring it knows it must pay the worker at least as much as other firms are willing to pay.”  In short, capital competes for labor and, in doing so, empowers it.  So the greater the supply of capital, and the freer it is to compete (yet without special privileges) in both output and input markets, the greater the power of even the poorest consumers and workers to determine “where money goes.”

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030"