Marian Tupy disabuses American socialists of their economically ignorant belief that successful entrepreneurs steal their wealth from workers and consumers

From Cafe Hayek.

"Marian Tupy disabuses American socialists of their economically ignorant belief that successful entrepreneurs steal their wealth from workers and consumers. Two slices:

Early economists, such as James Mill and David Ricardo, theorized that the physical labor exerted to create a good is the real measure of its value. Karl Marx took the concept to its extreme: If labor creates all value, then profit must require unpaid labor, making every employer an expropriator and every fortune a crime.

Then, beginning in 1871, economists countered the labor theory of value. Carl Menger, William Stanley Jevons and Léon Walras demonstrated independently that value resides not in hours of toil but in the judgments of consumers. Writing a 500-page novel takes the same amount of physical labor as typing out 500 pages of the word “banana” repeatedly. Only the novel commands a price. Value is created whenever someone rearranges the world into a shape that others want. It is measured by the buyer, not the worker.

Entrepreneurs are the arrangers. Economist Israel Kirzner argued that entrepreneurship is alertness — noticing an opportunity that nobody else has found. The entrepreneur sees that resources combined in a certain way and priced at a certain level can be recombined into something consumers will value even more. The gap between the two is profit. Nothing is taken from workers, who are paid the wage they agree to, or from customers, who buy the product only when the purchase leaves them better off.

…..

A movement that believes wealth is stolen will tax it, cap it and make everyone poorer. Ideas drive growth, and ideas come from people who can profit from them. A world that cherishes entrepreneurs will enjoy advanced chips and revolutionary cures. A world that punishes its innovators will at least enjoy plenty of slogans."

Steven Pinker on the disaster of communism

From Twitter.

"I spoke with @LaulPatricia about Marxism:

One is: What’s remarkable is that Marxism has been tried. Now, of course, defenders of Marxism say it hasn’t really been tried anywhere, but certainly the people who implemented it claimed they were implementing Marxism. 

And this is a massive experiment—a global experiment—with a very clear outcome. Namely, the Soviet Union was a disaster. The imposition of communism on Eastern Europe was a disaster. The imposition of communism in Venezuela was a disaster. The imposition of communism in Maoist China was a disaster. Disaster in terms of both poverty and oppression and genocide and stupid wars. So the world has told us what happens under communism, and it’s a sign of how out of touch intellectuals can be that there are still people who defend it despite the entire world giving a very clear-cut answer.

One more is: would you rather live in North Korea or South Korea? Would you rather live in the old East Germany or West Germany? We have an experimental group and a matched control group in terms of culture, language, and geography, and the answer is crystal clear. So this is a sign of, I think, the pathology of intellectual life—that Marxism can persist.

The other is, you did call attention to one of the appeals of Marxism, though, and more generally of heavy, strong influence of government guided by intellectuals, which is that there are certain kinds of reforms that you can state as principles. You can articulate them verbally as propositions—like equality, human rights, democracy—but there’s other kinds of progress that take place in massive distributed networks of millions of people, none of whom implements some policy. But collectively, there is an order, an organization that’s beneficial.

So that can happen organically through, for example, the development of a language. No one designed the English language. It’s just hundreds of millions of English speakers. They coin new words. They forget old words. They try to make themselves clear. And we get the English language and the other 5,000 languages spoken on earth.

Likewise, a market economy is something where knowledge is distributed. You don’t have a central planner deciding how many shoes of size 8 will be needed in a particular city, but rather information is conveyed by prices, which are adjusted according to supply and demand. And you’ve got a distributed network of exchange of information that can result in an emergent benefit.

Now, intellectuals tend to hate that. They like rules of language—of correct grammar. They like top-down economic planning. They like cultural change that satisfies particular ideals described by intellectuals. And so rival sources of organization, like commerce, like culture—traditional culture—tend to be downplayed by intellectuals.

And this can be magnified by the fact that many dictatorships give a privileged role to intellectuals, which may be why, over the course of the 20th century, and probably continuing to the present, there has not been a dictator that has not had fans among intellectuals—including the mullahs and ayatollahs of Iran, but also the communist dictators: Mao and Castro, even Stalin in his day. And every other dictator has had, actually, often fawning praise from Western intellectuals."

A lot of educated people, especially if they’ve read Marx, have heard about enclosures. Most of what they know ain’t so.

Tweet from Deirdre McCloskey. Excerpts:

"Enclosures increased the number of workers in villages."

In the 1700s "Inefficient growing of wheat was replaced by efficient growing of wheat.

"The factories were in the North of England, not in the South, where the enclosures actually happened. No one moved from the South to the North. The Workers in the factories came from Ireland or the North-which were areas with no enclosures." 

The “1619 Project”, Six Years On

By Phillip W. Magness. Excerpt:

"Commentators from across the political spectrum have long looked to the American Founding not for its historical insights, but as a political weapon to be wielded in the present day. Unfortunately, politicized accounts of the Founding not only neglect historical accuracy, but also cultivate alternative political narratives about the past, often intentionally so.

This was the stated purpose of the New York Times’s 1619 Project. When it launched exactly 6 years ago today on August 14, 2019, the newspaper boldly declared that the Project “[aimed] to reframe the country’s history, understanding 1619 as our true founding” in the place of 1776 by constructing a new “national narrative” about a country allegedly founded on slavery. This line proved a bit too candid for the newspaper’s readers and immediately attracted backlash. The Times’s editors later stealth-edited it off their website to dampen the criticism, but the argument has remained a central theme of the 1619 Project ever since. Drawing upon this theme, 1619 Project creator Nikole Hannah-Jones doubled down on her political aims in the present day: a crusade against American capitalism, rooted in calls for income redistribution and a $13 trillion slavery reparations program.

Hannah-Jones framed her argument by attempting to recast the American Revolution as a struggle between an anti-slavery British Empire and pro-slavery Colonists in North America. She opened her case by declaring “that one of the primary reasons the Colonists decided to declare their independence from Britain was because they wanted to protect the institution of slavery.” The impetus for this separation allegedly arose from economics. “By 1776, Britain had grown deeply conflicted over its role in the barbaric institution,” she continued, with “growing calls to abolish the slave trade” coming from London. “This would have upended the economy of the colonies, in both the North and the South,” Hannah-Jones concluded. Indeed, it was the “wealth of slavery” and its “dizzying profits” that allegedly “empowered” the Americans to challenge the British Empire.

Slavery certainly intersected with the American Founding, just not as Hannah-Jones described. Instead, the institution cut across both sides of the conflict. The American Revolutionaries included several prominent anti-slavery men among their ranks, among them Benjamin Franklin, James Otis, and Thomas Paine. Drawing upon the philosophical principles of the Revolution and slavery’s contradictions with the same ideals, almost every northern colony abolished the institution by the end of the 18th century. So did the new state of Vermont, by constitutional decree in 1777, as well as the future states of the Midwest under the Northwest Ordinance of 1787.

It is true that the Founders also included slaveowners, among them leading figures such as George Washington and Thomas Jefferson. Yet both men spoke out against the slave trade by declaring it a barbarous imposition on the New World from the Old—a direct contradiction of Hannah-Jones’s claims. We can still examine the inconsistencies and hypocrisies over slavery in Washington and Jefferson’s lives, but there is no evidence that an economic defense of this hideous institution motivated them to the Revolutionary cause, as Hannah-Jones claimed. Indeed, Jefferson drafted a protest against Britain in 1774 that stated the exact opposite: “The abolition of domestic slavery is the great object of desire in those colonies, where it was unhappily introduced in their infant state.” That same year, Washington petitioned the Crown for “an entire Stop for ever put to such a wicked cruel and unnatural Trade” in slaves.

British forces split on the issue as well. Sir Guy Carleton, the British commander who led the withdrawal of the Crown’s forces from New York City in 1783, gave cover for more than 3,000 slaves by transporting them to freedom in Nova Scotia. One would be hard pressed to reconcile other British officials to Hannah-Jones’s narrative, though, and she tripped more than once while trying to do so. Attempting to salvage her narrative from criticism, she made a hero out of Lord Dunmore, the last Colonial governor of Virginia who, in November 1775, made a last-ditch effort to reclaim the colony for the Crown by offering freedom to the slaves of rebellious plantation owners in exchange for joining his militia. Hannah-Jones omitted the fact that Dunmore exempted loyalist slaveowners from his decree—as well as the fact that Dunmore himself owned a large plantation outside of the capital of Williamsburg. In a further complication to her original argument, Hannah-Jones attempted to claim that George Washington only converted to the Revolutionary cause after taking umbrage at Dunmore’s order. In reality, Washington was appointed commander of the Continental Army some five months earlier on June 15, 1775.

In a further complication to Hannah-Jones’s claims, the main anti-slavery voices in British Parliament, including Charles James Fox and Edmund Burke, sided with the rebellious American Colonists. After losing the war, Banastre Tarleton, Lord Cornwallis’s famous and feared cavalry commander, took a seat in Parliament as a leading pro-slavery voice and successfully blocked Fox’s bill to abolish the slave trade. History is complicated, and in her zeal to weaponize the past for her own political ends, Hannah-Jones missed basic facts that undermined her story."

A Specter Is Haunting America’s New Right

Marxism in any form should be consigned to the dustbin of history

Letter to The WSJ. 

"Jacob Berger suggests that a subtle philosophical kinship links the Trump movement to an unlikely ally, Karl Marx (“Why MAGA Folks Should Read Marx,” Review, Jan. 25). He detects an anticapitalist undercurrent in the MAGA movement and suggests the right’s economic anxieties make them receptive to Marx’s doctrines.

Mr. Berger’s diagnosis contains a kernel of truth, but his proposed solution of studying Marx assumes that Marx offered a useful solution to economic problems. As most economists have known since the late 19th century, Marx built his system on an erroneous theory of value. He prophesied the coming immiseration of the working classes under a perpetual state of capitalist exploitation, making violent revolution their only recourse. Instead, industrial capitalism delivered an unprecedented rise in living conditions and economic abundance for the masses.

Marx owes his salience today not to the validity of his theories but to the fluke success of the Bolshevik coup d’état in 1917. Vladimir Lenin rescued Marxism from a state of relative obscurity and absolute economic error, then deployed the full resources of the Soviet treasury to spread its gospel. Yet as Friedrich Hayek observed, Marx’s doctrine “has never and nowhere been at first a working-class movement.” Instead, the intellectual elites in university humanities departments took up the charge and presumed to speak on behalf of a working class they barely knew.

By reading “Das Kapital” (1867) certain “postliberal” intellectuals on the right will almost certainly find commonalities with the Marxist left’s disdain for capitalism. But that disdain is still the product of what John Maynard Keynes described as “an obsolete textbook . . . without interest or application for the modern world.”

Phillip W. Magness

The Independent Institute

Oakland, Calif."

‘To Overthrow the World’ Review: Communists in Control

Long before the founding of the Soviet Union, communist thinkers became convinced that without violence they would never achieve power

By Nicholas Clairmont. He reviewed the book To Overthrow the World: The Rise and Fall and Rise of Communism by Sean McMeekin.

Mr. Clairmont is the Life and Arts editor of the Washington Examiner Magazine. Excerpts:

"In 1797, as the revolution in France cooled down following the Reign of Terror, François-Noël “Gracchus” Babeuf stood trial for organizing a putsch against the governing directorate running Paris at the time."

"what he had in fact done—recruit insurrectionists from the ranks of the police and military units to join his so-called Conspiracy of the Equals, with the intent to seize weapons and food stores, take control of Paris neighborhood by neighborhood, and execute France’s new rulers, along with any foreigners, royalists and other named enemies."

"he introduces us to some nonviolent utopian socialists. Robert Owen, for instance, sought to set up a planned community in 1820s Indiana that would have abolished all private possession, including marriage. It failed."

"“communists nowhere came to power through the ballot box.”"

"there were other, earlier revolutions, notably those across many parts of Europe in 1848 and in Russia in 1905, that, while not ending in successful communist takeovers, revealed to Europe’s communist thinkers that without violence they would never achieve power."

"“The real secret of Marxism-Leninism,” he tells us, “was not that Marx and Lenin had discovered an immutable law of history driven by ever-intensifying ‘class struggle,’ but that Lenin had shown how Communist revolutionaries could exploit the devastation of war” to seize and maintain power. Here the death count becomes eye-watering: Hundreds of thousands of kulaks—a name coined to scapegoat those peasants who had failed to turn over enough grain—are killed; a famine beginning in 1921, exacerbated by poor central planning, leaves so many dead that it is impossible to accurately calculate the toll to the nearest million. All this before Stalin takes over."

"nearly 23,000 Polish elites and military officers purged, their bodies deposited in a Russian forest; more than 34,000 Latvians killed or disappeared by the Soviet secret police."

"“Many famous Soviet ‘public works’ projects,” Mr. McMeekin points out, “were built by conscripted, unpaid workers—that is, slave laborers. Children worked, too, particularly on the collective farms, where the twelve-hour day was common for farmhands under fourteen"

"The story of communism is more accurately read as a history of violence than as a history of ideas." 

The UK’s Orwellian sounding Equality Act 2010 is strikingly Marxist

See Equality Act 2010 by Alex Tabarrok.

"The UK’s Orwellian sounding Equality Act 2010 is strikingly Marxist. It demands equal pay for work of equal value where these are defined as follows:

A’s work is equal to that of B if it is like B’s work, rated as equivalent to B’s work, or of equal value to B’s work.

A’s work is like B’s work if A’s work and B’s work are the same or broadly similar, and such differences as there are between their work are not of practical importance in relation to the terms of their work.

…A’s work is rated as equivalent to B’s work if a job evaluation study— gives an equal value to A’s job and B’s job in terms of the demands made on a worker

…A’s work is of equal value to B’s work if it is neither like B’s work nor rated as equivalent to B’s work, but nevertheless equal to B’s work in terms of the demands made on A by reference to factors such as effort, skill and decision-making.

In short, supply and demand have been replaced by judges and labor boards with the authority to deem which jobs are “equal” and therefore should be paid equally. And the labor boards do so based on vague and subjective considerations that do not change with changing circumstances. Imagine replacing “jobs” with “condiments” and having judges decide whether ketchup and mustard should be priced equally because they are similar, broadly comparable, or rated equivalent in terms of the effort, skill, and decision-making that went into their production.

You think I am joking. I am not. Here’s an example of a case just decided in the UK.

More than 3,500 current and former workers at Next have won the final stage of a six-year legal battle for equal pay.

An employment tribunal said store staff, who are predominantly women, should not have been paid at lower rates than employees in warehouses, where just over half the staff are male.

The tribunal ruled that retail workers and warehouse workers were “equal” and thus had to be paid equally. Next replied that they paid everyone market wages. Verboten!

Next argued that pay rates for warehouse workers were higher than for retail workers in the wider labour market, justifying the different rates at the company.

But the employment tribunal rejected that argument as a justification for the pay difference.

According to the tribunal’s ruling, between 2012 and 2023, 77.5% of Next’s retail consultants were female, while 52.75% of warehouse operators were male.

The tribunal accepted that the difference in pay rates between the jobs was not down to “direct discrimination”, including the “conscious or subconscious influence of gender” on pay decisions, but was caused by efforts to “reduce cost and enhance profit”.

It ruled that the “business need was not sufficiently great as to overcome the discriminatory effect of lower basic pay”.

No one is alleging that male and female warehouse workers were paid unequally or that male and female retail workers were paid unequally or that there was any direct or indirect discrimination. The only claim is that warehouse workers, who are less likely to be female than retail workers, earn more than retail workers. And since these jobs have been judged “equal,” the company has violated Equality Act 2010.

Who could have predicted that jobs as disparate as warehouse and retail jobs might one day be deemed “equal.” Yet because Next failed to foresee such lunacy they are now required to pay millions in back wages to their retail employees. Software engineers, particularly in AI, are currently in high demand. A British firm looking to hire them may hesitate to raise wages, fearing that a future ruling could classify software engineers as “equal” to a larger, lower-paid group like HR administrators. Such a decision could easily push the firm into bankruptcy.

The warehouse workers were almost 50% female (47.25%). So females were not barred from the higher paying jobs. The fact that 77.5% of the retail workers were female suggests that retail work has special appeal to females relative to males and thus that there are compensating differentials. Any of the three female plaintiffs could have taken jobs in the warehouse. If the jobs are equal and the warehouse jobs pay more this is, on the plaintiffs’ theory, “puzzling”. [Or, as Ayn Rand would say, blank out.]

In fact, the court case reveals that Next was struggling to fill the warehouse positions and offered any retail employee—including the plaintiffs—the opportunity to switch to warehouse work. On cross-examination, one of the plaintiffs admitted that, given the unpleasant conditions in the warehouse—described by the court as “the drone of machinery,…vibration, alarm sirens and the screeching of machinery, wheels and rollers, continuously present in all areas”—the warehouse job “did not seem particularly attractive” compared to the greater autonomy and more appealing environment of the retail job. The plaintiff added that she would only have considered the warehouse job if it paid “a lot more money.”

Thank goodness for the men and women who were willing to take such jobs for only a little more money! It should not shock that different people have different preferences over jobs, just as they have different preferences over ice cream. In particular, it will perhaps surprise only the judges to learn that men tend to be more wage-focused and “women are relatively more attracted to employers with low pay but high values of nonpay characteristics (NBER 32408).” The court, however, recoiled from this idea, noting that if they were to take demonstrated preferences seriously this would be tantamount to applying “an unfettered free market model of supply and demand.” The horror.

Now consider how the jobs were deemed “equal”. On the left is the job evaluation report for claimant Amanda Cox. The specific categories and numbers are not important; what is important is that the jobs are rated across 11 categories, and the point-scores are then added to get a total score at the bottom.

Amusingly, the evaluators emphasize that they use equal weighting across the categories. Of course, they did—because “equal” is synonymous with fair, right? An unequal weighting would surely be discriminatory!

I am not making this up:

Any scheme which has as its starting point – “This qualification is paramount” or that “This skill is vital” is nearly always going to be biased or at least open to charges of bias or discrimination.

Thus, if you think that a skill is vital for a job, that’s discrimination!

(Notice also that equal weighting is just another form of weighting. Given the subjective nature of both the categories and the points assigned, equal weighting holds no inherent superiority or objectivity.)

But no matter—we have yet to get to the best part. The evaluators selected three warehouse workers and assessed them using the same metric. For example, Amanda Cox was compared to warehouse worker Calvin Hazelhurst, resulting in the table on the right.

Can you spot something surprising in this table? I’ll give you a moment.

The obvious conclusion any reasonable person would draw from this table is that the jobs are clearly not equal. Amanda’s total score is 440, while Calvin’s is 340. 440 ≠ 340. Not even close! In nearly every category—except (no surprise!) physical demands and working conditions—the retail job requires more points, aka “skill and responsibility”.

At this point, most people would stop and ask some critical questions. If the jobs differ so much across multiple dimensions, isn’t it clear that they are not equal? And why do jobs that seemingly require less “skill” pay more? Could it be that our point-score rating system is oversimplified? Maybe the market is telling us something that this crude scoring system isn’t capturing? Is it time to check our premises?

But not the evaluators! Oh, no. The evaluators are thrilled–because the fact that the jobs are unequal proves that they are equal!

War is peace, freedom is slavery, ignorance is strength. UNEQUAL IS EQUAL.

Adam Smith had a much better understanding of wages in 1776 than UK judges have today.

Adam Smith had a much better understanding of wages in 1776 than UK judges have today.

The wages of labour vary with the ease or hardship, the cleanliness or dirtiness, the honourableness or dishonourableness, of the employment. Thus in most places, take the year round, a journeyman tailor earns less than a journeyman weaver. His work is much easier. A journeyman weaver earns less than a journeyman smith. His work is not always easier, but it is much cleanlier. A journeyman blacksmith, though an artificer, seldom earns so much in twelve hours, as a collier, who is only a labourer, does in eight. His work is not quite so dirty, is less dangerous, and is carried on in day-light, and above ground. Honour makes a great part of the reward of all honourable professions. In point of pecuniary gain, all things considered, they are generally under-recompensed, as I shall endeavour to shew by and by. Disgrace has the contrary effect. The trade of a butcher is a brutal and an odious business; but it is in most places more profitable than the greater part of common trades. The most detestable of all employments, that of public executioner, is, in proportion to the quantity of work done, better paid than any common trade whatever.

Today, the UK would convene a labor board to rule that the tailor and the weaver must be paid equally because they DO WORK OF EQUAL VALUE. Case closed.

Labor boards will inevitably lead to the misallocation of labor, diminishing both wealth and fairness. Severe misallocation may lead to further intervention, in the worst scenario, even to the allocation of labor by fiat. Politicization breeds division, rent-seeking, and a stagnant, unpleasant society.

More generally, it pains me that there is no recognition that the market is a discovery procedure, including the discovery of the value of different skills and people’s preferences over different jobs. No recognition that the market harnesses tacit knowledge and knowledge of particular circumstances of time and place–knowledge that is difficult to quantify, communicate, or communicate in a timely manner–and that “society’s economic problems are primarily related to adapting quickly to changes in these circumstances.” No recognition that a price is a signal wrapped up in an incentive.

I despair when I consider that these fundamental ideas are the foundation of our liberal, global, and prosperous civilization. On economics, as on free speech, the UK has entered the great forgetting.

Addendum: A special hat tip to Bruce Greig who brought this to my attention and had the receipts."