New Kindle Book by Reisman

Labor Unions, Thugs, and Storm Troopers is now available as a Kindle book from Amazon.com, for 99¢. It comes with no "digitial rights management," which means that it's not copy protected and that you can send copies to whomever you like, without any additional charge. Here's its cover Please be sure to note the caption under the drawing.

 



Labor Unions, Thugs, and Storm Troopers

1. New York Times Columnist Eduardo Porter on How to Raise Wages

The following three paragraphs are a quotation from the article "Unionizing the Bottom of the Pay Scale" by New York Times columnist Eduardo Porter. The article appeared on the front page of the business section in the December 5, 2012 National Edition. The subject of the article is the present attempts going on to unionize the employees of such establishments as fast-food restaurants and Walmart, whose workers are at the low end of the general wage scale in the US.

Union leaders know they are fighting long odds — hemmed in by legal decisions limiting how they can organize and protest, while trying to organize workers in industries of low skill and high turnover like fast food. But they hope to have come upon a winning strategy, applying some of the tactics that workers used before the Wagner Act created the federal legal right to unionize in 1935.

“We must go back to the strategies of nonviolent disruption of the 1930s,” suggests Stephen Lerner, a veteran organizer and strategist formerly at the Service Employees International Union, one of the unions behind the fast-food strike. “You can’t successfully organize without large-scale civil disobedience. The law will change when employers say there’s too much disruption. We need another system.”

In the 1990s and 2000s, the S.E.I.U. unionized tens of thousands of mostly Latino janitors from Los Angeles to Houston, including thousands of illegal immigrants, who were until then considered impossible to organize because of their legal status. It did so by putting pressure not only on the building maintenance contractors but also on the building owners who hired them, often resorting to bare-knuckle tactics. In 1990, the union asked members to mail their trash to Judd Malkin, the chairman of the company that owned buildings in the Century City complex in Los Angeles, printing his address on garbage bags. Mr. Malkin met Mr. Lerner soon thereafter.

Porter believes, wrongly, that labor unions are able to improve the standard of living of wage earners throughout the economic system and that they do so by means of securing increases in money wage rates. He, along with almost everyone else, commits the fallacy of assuming that because earning more money is obviously an intelligent policy for an individual wage earner to pursue, it follows that it must be an intelligent policy for all wage earners taken together to pursue. He is totally ignorant of the fact that increases in money wage rates obtained by labor unions reduce the quantity of labor demanded and thereby cause unemployment, less production, higher prices, and an added burden of supporting the unemployed. He is ignorant of the fact that what serves to increase money wages without causing additional unemployment is merely the increase in the quantity of money and consequent increase in the volume of spending in the economic system. But this phenomenon serves equally to raise prices and thus does not improve the standard of living of wage earners.

To state these points in the customary terminology of demand and supply, the only way that wage rates can rise is either if there is less supply of labor, which means unemployment, or more demand for labor, which will also mean more demand for consumers’ goods and thus higher prices of consumers’ goods. Thus, however surprising it may be, we must conclude that higher money wages, whether obtained through less supply of labor or more demand for labor based on a larger quantity of money, simply do not raise the standard of living of the average wage earner. We must conclude that if they really wish to raise the standard of living of the average worker, the unions are utterly misguided in making the increase in money wages their goal. But that is their goal and they have no other comparably major goal.

I want to acknowledge that there is a way that an increase in the demand for labor can raise wage rates without increasing the demand for consumers’ goods and prices. And that is insofar as it takes place as the result of an increase in saving. What would contribute to this would be reductions in government spending accompanied by equivalent reductions in  taxes that are paid out of funds that would otherwise be heavily saved and invested. In this category are the corporate income tax, the progressive personal income tax, capital gains taxes, and inheritance taxes. The additional savings that resulted would be expended in substantial measure in paying additional wages. The wage earners would be in a position to increase their consumption spending correspondingly. This would not represent an increase in overall, total consumer spending, because it would be financed by an equivalent, indeed, more than equivalent reduction in consumer spending on the part of the government. Thus, while wages rose, nothing would be present to make prices rise. Of course, such tax reductions are absolutely anathema to the labor unions and their supporters.

What does improve the standard of living of wage earners is increases in the productivity of labor, i.e., the output per unit of labor. This serves to increase the supply of goods relative to the supply of labor and thus to reduce prices relative to wage rates. It can be accompanied by prices actually falling while wage rates remain unchanged. Or, when the effects of an increase in the quantity of money and volume of spending going on at the same time are allowed for, by prices staying the same while wage rates rise, or by both prices and wage rates rising but with prices rising by less than wage rates.

I must point out that an essential foundation of a rising productivity of labor is a sufficiently high degree of spending to produce capital goods rather than consumers’ goods. This outcome too is supported by reductions in government spending accompanied by equivalent reductions in  taxes that are paid out of funds that would otherwise be heavily saved and invested.

Porter and almost everyone else is totally unaware of these facts. Above all they are ignorant of the fact that the wage earners' standard of living does not rise from the side of wage rates rising but from the side of prices falling. As indicated, the fall in prices need not be an absolute fall. But it must at least be a relative fall. That is, prices must fall at least in comparison with what they otherwise would have been if the only factor operative were an increase in the quantity of money and volume of spending.

When one grasps the fact that the standard of living of wage earners rises from the side of prices falling rather than wages rising, it is but a short step to the conclusion that labor unions are not only utterly ignorant about how to raise the standard of living of wage earners in general, but operate in diametric opposition to the interests of wage earners in general.

Labor unions can raise the standard of living of narrow groups of workers, by gaining monopolistic privileges that limit the number of workers who can be employed in a given line of work or by causing or maintaining an artificial need for the services of workers of given types. But in these cases they reduce the standard of living of other workers.

The workers who are barred from working in the unionized fields must find work in other fields, where their added numbers serve to depress wages. If minimum wage laws prohibit that fall in wages, then the workers displaced end up simply as unemployed or take the jobs of other workers who become unemployed.

Compelling the continued employment of more workers than are needed to produce a product despite the fact that economic advances have made their employment in that line of work no longer necessary, has the effect of maintaining a product price that is unnecessarily high and thereby of depriving wage earners throughout the economic system of the funds they would have had available as the result of a lower price to spend on other products. And, it should be realized, the production of those other products, previously not affordable because of lack of available funds, would have required the employment of an amount labor equal to the labor initially displaced.

In the light of these facts, one can understand how the productivity of labor over the last 225 years or so has risen by enormous multiples with a comparably enormous positive effect on real wages and the general standard of living and no negative effect whatever on the overall rate of unemployment. Indeed, the total number of wage earners employed has also increased enormously, in line with the increase in population made possible by the rise in the productivity of labor and consequent rise in the standard of living.

The only contribution of the labor unions to this process is to impede it. At every step of the way, they fight the rise in the  productivity of labor whenever it threatens to reduce the number of jobs available for their members. Indeed, they openly pride themselves on "making work" rather than making goods, apparently incapable of grasping that making work by requiring more labor to produce a good than is necessary, serves to prevent the production of other goods, that would have been available in addition to the one, particular good they are concerned with.

Labor union membership in private employment has greatly declined over the decades, from about 35 percent in the mid 1950s to about 7 percent today. The reason is the fact that unionization imposes artificially high costs on firms. It does so in the form of above-market union wage rates and reduced efficiency and quality of product resulting from union hostility to improvements in productivity, arbitrary work rules, and the difficulty or even impossibility of firing incompetent workers.  Under such conditions, firms cannot meet the competition of other firms, foreign or domestic, that are non-union, and thus sooner or later must go out of business. The most recent large-scale example is that of Hostess Brands. It finally had to close when one of the major unions it had to deal with was unwilling to accept a wage reduction, with the result that 18,000 workers became unemployed. This kind of story, repeated hundreds of times over, explains the decline in union membership.

To continue in existence, labor unions need "fresh blood" to drain. Their most fruitful source in recent decades has been government employees, who now account for about half of their overall membership. By making huge contributions to the political campaigns of corrupt politicians, and having their members vote for those politicians en masse, the public-employee unions can secure outlandish wage and pension benefits for their members, financed by the taxpayers. In the face of governmental bankruptcies or impending bankruptcies, this process has encountered growing opposition and, hopefully, may now be nearing its end.

I must briefly comment on the specific main subject of Porter's article, the current attempt to unionize the lowest-paid workers in the economic system. If successful, it may well serve to improve the standard of living of those workers in this group who keep their jobs. They will receive higher wages.

But the rise in price of things such as hamburgers and other fast foods, and the kind of goods that Walmart sells, that will be necessary to cover the higher costs imposed by the rise in wages, will result in a reduction in the quantities of these goods that buyers can afford to buy. This in turn must result in a reduction in the number of workers who are employed in producing or distributing these goods. These workers will then either be unemployed or drive down wage rates elsewhere in the economic system.

In addition, the real wages—the standard of living—of workers throughout the economic system who buy these products will be reduced because of the need to pay higher prices for them, including, of course, the very considerable part of this group who are themselves low-income earners. And the prices that they pay will be higher not only because of the union-imposed rise in wage rates, but also because of the union-imposed reductions in the productivity of labor.

Can this outcome really be Porter's and the unions' idea of economic improvement for the poor?

And now I come to one point on which Porter is right, the point that appears in the final paragraph that I quoted from his article. It is Porter's realization that to achieve their goals, labor unions must rely on tactics of intimidation and thus, implicitly, on force and violence. This is the meaning of the "bare-knuckle tactics" that he lauds as having proved successful in union organizing efforts in the past. Porter refers only to "the union ask[ing] members to mail their trash to Judd Malkin, the chairman of the company that owned buildings in the Century City complex in Los Angeles, printing his address on garbage bags." He does not mention such things as preventing access to factories and stores by mass picketing, physically assaulting non-union workers, setting off stink bombs in factories, and shooting out truck tires. But the implication is clear. It is does not go away by using the word “nonviolent” before “disruption.”

Intimidation, force, and violence, that is Porter's and the unions' s theory of how to raise the standard of living of the average wage earner. It is the theory of those whose heads are as empty of knowledge of economics as were the heads of our apelike ancestors.

2. The California Federation of Teachers Incites Hatred Against the Rich

The California Federation of Teachers describes itself, on the home page of its
web site as "the statewide affiliate of the American Federation of Teachers. The CFT represents faculty and other school employees in public and private schools and colleges, from early childhood through higher education."

The CFT is a labor union. Its parent organization belongs to the AFL-CIO. As such, it is an organization founded on precisely the same kind of ignorance of economics that I have just described. The effects of its operation on the quantity and quality of the product of its members and their employers (principally the California Department of Education) are what one would expect from the influence of a powerful labor union. Namely, in this case, very low performance on the part of the students and graduates, who generally rank near the bottom nationwide in math and English test scores.

However, when it comes to matters of knowledge of economics, and all that depends on knowledge of economics, such as understanding much of modern history and modern literature, current events, and contemporary public policy, the effect of its existence is even worse. This is because in these areas, it and many, if not most, of its members, work to fill the minds of young students, who are in school to gain knowledge, with worse ignorance than that with which they came to school. Its and its members' ignorance of economics serves to produce hordes of ignorant malcontents who are hostile to the capitalist economic system, individual rights, economic freedom, and the founding principles of the United States.

(Of course, here and there, one might find a member of the CFT who would disavow all of its destructive beliefs and activities and agree with the principles I've expressed. But can anyone believe that he would be allowed freely to teach those principles? That he would not encounter overwhelming pressure not to do so and that his life would not be made very difficult, to say the least? Whatever else it might be, the CFT is almost certainly not an organization devoted to supporting free inquiry and open discussion that would constitute a challenge to the basis of its very existence. The fact that it uses dues paid by its members to advance its political agenda, irrespective of the convictions and choice of the individual members, is confirmation of this fact.)

It should almost go without saying that in addition to teaching the same kind of pro-union ideas that Porter propounds, the CFT and its members also teach much of the rest of the Marxist body of doctrine, above all, the exploitation theory. This is the belief that capitalists and the rich (in today’s jargon, “the 1 percent”) systematically steal from and impoverish the great mass of the people (i.e., “the 99 percent”).

The vacuum-filled heads of the Marxist “teachers” contain absolutely no awareness of the fact that under capitalism the wealth of the rich is accumulated through the repeated introduction of new and improved, more efficiently produced products that serve to raise the standard of living of everyone. And that as that wealth is accumulated, it does not stand as a giant pile of food on the plates of gluttonous capitalists but as capital, i.e., as means of production that produce the products that everyone—capitalists and non-capitalists alike—buys and that provide the foundation of the demand for the labor of all those who are wage earners. The wealth of the capitalists—the “rich”—in other words, is the source of the supply of goods that non-capitalists buy and of the demand for the labor that the non-capitalists sell. Everything that reduces this wealth, reduces the demand for labor and the supply of products. In both ways, it reduces real wages and the general standard of living.

Thus, contrary to the beliefs of the ignoramuses of the CFT, taxing the wealth of the rich does not serve to transfer food from the plate of a glutton to the plate of a starving person, or to provide benefits of any kind to the poor that in any sense are free. On the contrary, it serves to make people poorer, by reducing the demand for their labor and the supply of products available for them to buy.

In the light of this background, one should consider the animated cartoon video that the CFT released the other day and that is now prominently featured on its web site. The video is titled “Tax the Rich.” It is narrated by Ed Asner, a Hollywood actor.

I urge readers to watch this video in full and listen carefully to Asner's commentary. It is a work not only of ignorance but of the kind of malicious ignorance with which one would try to incite a mob—the kind of ignorance that under the Russian Czars was used to foment pogroms and that under Hitler was used to set off the infamous Krystallnacht, i.e., the night in November of 1938 when Jewish-owned stores across Germany were attacked and wrecked by Nazi mobs.

Hitler depicted the Jews, who comprised not quite 1 percent of the German population, as a sneaky, gluttonously greedy conspiratorial group working to better themselves at the expense of the 99 percent or more of the German people who were non-Jews. He blamed the Jews for Germany’s defeat in World War I, for the hyperinflation that followed, and for the Great Depression. In the same way, the CFT and Asner depict our 1 percent—“the rich”—as another sneaky, gluttonously greedy conspiratorial group working to better themselves at the expense of the 99 percent or more of the American people who are not “rich.”

They blame “the rich” for the bubbles and crashes in the stock market and real estate market, and for people’s loss of their jobs and homes. Again and again, they claim that the suffering of 99 percent has been caused by the deliberate evil of 1 percent. So malicious is their propaganda, that in their attempt to ridicule the productive contribution of “the rich,” which the left has long been in the habit of mocking as “the trickle down theory,” their video shows a rich man urinating on members of the 99 percent. (It’s possible that this frame has now been removed from the video in response to complaints. But it is reproduced here.)

This is the kind of class hatred the California Federation of Teachers is peddling to the American people and which is being taught to the intellectually helpless children in the classrooms of its members. How long will it take if 99 percent of the people become convinced that all of their problems in life are the result of the evil of 1 percent of the people, before the 99 percent turns on the 1 percent in an orgy of hatred and destruction?

That is the outcome that the CFT, Ed Asner, and all the rest of the mindless left are preparing. They are in process of organizing the persecution of a highly productive and provident minority of 1 percent of the population by an increasingly miseducated and manipulated 99 percent.

*****

The first portion of this article showed how the success of labor unions in imposing their demands depends on the activities of thugs. Thugs are needed by the unions to perform such activities as mailing garbage to employers otherwise unwilling to deal with them and for creating "too much disruption" for employers to stand. Their tactics, "bare-knuckle," as Porter describes them, or brass knuckle, as one in fact should say, are required if the unions are to have their way. The thugs make offers, that in the terminology of The Godfather, employers "can't refuse."

The California Federation of Teachers and its members are pursuing policies that go far beyond the employment of thugs every now and then. Their policies and their day-to-day teaching are serving to manufacture a generation of hate-filled, mindless zombies, who know nothing but leftist propaganda and who will be readily available to serve as storm troopers in a future war against capitalism and "the rich." Their claim to knowledge will be little more than their ability to chant that they are part of the 99 percent and that they hate the 1 percent.

So long as the California Federation of Teachers controls most education in California, a foremost civic duty of every legislator and every voter in California is to take every opportunity to vote to cut the budget of the California Department of Education insofar as it is used directly or indirectly to promote the doctrines of class hatred and class warfare espoused by the CFT and its members.

An excellent opportunity to do this was offered in last month’s elections. A proposition was on the ballot in California, Proposition 30, that threatened a $6 billion cut in funding for public education unless the voters approved $6 billion in new and additional taxes. The voters clearly should have rejected the proposition and urged that whatever cuts that were to be made, be made above all in the funding for courses serving to spread the hate-filled ideology of the CFT and its members. Such spending cuts are as necessary in the body politic as is the surgical removal of malignant cancer tissue in the body of a human being.

At the present time, the public should demand apologies from the CFT, Ed Asner, and the producers of their disgraceful animated video. While its production was not a crime, the class hatred it espouses, along with all the class hatred regularly inculcated in students by the CFT and its members, serves to produce an intellectual climate in which crime—on a massive scale—will certainly be the result.


Copyright 2012 by George Reisman. This article may be reproduced electronically provided this note is included in full. George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics, Senior Fellow at the Goldwater Institute, and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996; Kindle Edition, 2012). He is also the author of The Government Against the Economy, Warren Buffett, Class Warfare, and the Exploitation Theory, and The Benevolent Nature of Capitalism and Other Essays. His website is www.capitalism.net. His blog is georgereismansblog.blogspot.com. See his Amazon.com author’s central page.




 

Dishonesty on Front Page of New York Times

The November 30, 2012 National (print) Edition of The New York Times' main front page story is titled "Complaints Aside, Most Face Lower Tax Burden Than in the Reagan '80s."


The story takes up a sixth of the first page and spans an additional full two and a third pages inside the paper. It is clearly meant to convey something major and that at the same time happens to provide support for the Obama Administration’s current efforts to raise taxes. Namely, the proposition that accepting Obama’s tax increases will still leave most people with lower taxes than they paid under Reagan.

Unfortunately, for The Times and its prodigious propaganda effort, throughout the article “the Reagan ‘80s” turn out to mean just the year 1980, which was not at all part of the Reagan ‘80s, but was the last year of the Carter Administration. (Reagan did not take office until January 20, 1981.)

Perhaps it will be the case that if Obama’s tax increases are enacted, the tax burden will still not be as great as it was under Carter. But that is certainly not a basis for claiming that it will not be greater than it was under Reagan, who sharply reduced the tax rates inherited from Carter. Nowhere in the vastness of its verbiage does The Times’ article bother to mention that under Reagan, the maximum surtax rate in the federal income tax was 28 percent, compared with today’s 35 percent, and which Obama wants to raise to almost 40 percent.

Interestingly, The Times may have already been told that its headline was blatantly dishonest. Its online version of the same article carries the title “Tax Burden Is Lower for Most Americans Than in the 1980s.” The Times apparently thinks that it can get away with its dishonesty simply by removing the reference to Reagan. But the article is still dishonest. Carter’s 1980 does not serve to describe Reagan’s 1981-1988.

Copyright 2012 by George Reisman. This article may be reproduced electronically provided this note is included in full. George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics, Senior Fellow at the Goldwater Institute, and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996; Kindle Edition, 2012). He is also the author of The Government Against the Economy, Warren Buffett, Class Warfare, and the Exploitation Theory, and The Benevolent Nature of Capitalism and Other Essays.  His website is www.capitalism.net. His blog is www.georgereismansblog.blogspot.com. See his Amazon.com author’s central page.

New Kindle Book by Reisman: The Benevolent Nature of Capitalism and Other Essays

I have a new e-book on line at Amazon.com. It’s titled The Benevolent Nature of Capitalism and Other Essays. It sells for just $2.99. Clicking on the title will take you to its location on Amazon, in a separate window. To pique the interest of potential readers, here's my book's table of contents:

PREFACE

I. THE BENEVOLENT NATURE OF CAPITALISM

II. FREEDOM

     Freedom and Government

     Freedom as the Foundation of Security

    The Indivisibility of Economic and Political Freedom

    The Rational Versus the Anarchic Concept of Freedom

    The Decline of Freedom in the United States

III. CAPITALISM: THE CURE FOR RACISM

    A. The Accusations Against Capitalism

    B. Capitalism: The Cure for Racism

        1. Capitalism and Justice for the Black Worker

        2. Black Competition and White Living Standards

        3. Capitalism and Justice for the Black Consumer

    C. Forcible Obstacles to Black Progress: The Mixed Economy

        1. Introduction

        2. Antiprofit Legislation and Business Timidity

        3. Prounion Legislation

        4. Minimum Wage Legislation

        5. Public Welfare Laws

        6. Child Labor Legislation

        7. Compulsory, Tax Supported Education

    D. The Mixed Economy and the Living Conditions of Blacks

        1. Government Intervention in Housing

        2. Municipally Socialized Medicine

        3. Municipally Socialized Sanitation Services

        4. Franchise and Licensing Laws

        5. The Mixed Economy and the Higher Crime Level in Black Slums

    E. Conclusion: Capitalism Is the Cure for Racism

IV. EDUCATION AND THE RACIST ROAD TO BARBARISM

    The Nature of Western Civilization

    The Universalizability of Western Civilization

    The Standard for Judging a Civilization: the Objective Superiority of Western Civilization

    The New Racism

    The Devaluation of Knowledge

    Western Civilization and the State of Education

V. WHERE WOULD GENERAL MOTORS BE WITHOUT THE UNITED AUTOMOBILE WORKERS UNION?

VI. GENERAL MOTORS, RIP

VII. THE MYTH THAT LAISSEZ FAIRE IS RESPONSIBLE FOR OUR FINANCIAL CRISIS

    Government Intervention Actually Responsible for the Crisis

    The Laissez-Faire Myth and the Marxism of the Media

VIII. HOW THE 1 PERCENT PROVIDES THE STANDARD OF LIVING OF THE 99 PERCENT

IX. FREE SPEECH AND OCCUPY WALL STREET

X. GUN CONTROL: CONTROLLING THE GOVERNMENT’S GUNS

ABOUT THE AUTHOR

NOTES

Sandy: A Hurricane with Price Controls

Hurricane Sandy caused the closing of a majority of the gasoline stations in the New York City area, did major damage to petroleum terminals, and reduced the ability of barges carrying fuel to reach their docks. All of this represented a substantial reduction in the supply of gasoline and other petroleum products in the New York metropolitan area. None of it was the cause of a shortage of gasoline or any other petroleum product, a shortage which New York’s Mayor Bloomberg can think of no better means of alleviating than by means of imposing a system of gasoline rationing. (See The New York Times, Nov. 9, 2012.)


In a free market, the effect of a good’s becoming scarcer is not to cause a shortage of it, but a rise in its price. The rise in price serves to reduce the amount of the good buyers seek to buy to a point that is within the limit of the reduced supply available. However much the supply of oil and oil products was reduced by the hurricane, it was certainly not reduced to anywhere even remotely near the normal, everyday degree of scarcity in the supply of such things as gold or diamonds. And yet there is no shortage of gold or diamonds. Whoever is willing and able to pay the market price of these goods has no difficulty in obtaining them. But if our government officials, inspired perhaps by some such belief as that everyone should be able to obtain gold and diamond jewelry at an affordable price, decreed that the price of gold and diamonds should be cut in half, say, then, indeed, there would be shortages of gold and diamonds alongside the present shortages of gasoline in New York and New Jersey.

Even goods of which there is just a single specimen, such as a Rembrandt painting, are not in a state of shortage. When such a good is put up for auction, its price rises as high as necessary to reduce the number of bidders to just one. In the face of the high price, all the other bidders give up and walk away. They do not remain in the auction room for hours still waiting to buy the painting. They know that the price is just too high for them. But imagine an auction in which the auctioneer was prohibited from progressively raising the price until only one buyer remained. Imagine that he was compelled to hold to his first or second offer. In that case, the auction room might remain packed indefinitely.

What all this implies is that the shortages of gasoline now being experienced in the New York metropolitan area and elsewhere in the path of destruction left by Hurricane Sandy, simply do not need to exist. They could be made to disappear very quickly, within a matter of hours. All that would be necessary is to remove the threat of prosecution of gas station owners, and all others in the chain of supply of gasoline, for raising their prices to the extent necessary to reduce the quantity of gasoline demanded to conform with the reduced supply of it available.

Confronted with such a price—possibly one as high as $10 or $20 a gallon, or even higher, given the apparent extent of the reduction in the supply of gasoline—many of the drivers of the cars presently waiting in line at gas stations, would simply drive off, park their cars, and make arrangements for alternative means of transportation, whether car pooling, bicycle riding, or whatever. Almost everyone would curtail his driving commensurate with the higher cost of driving. No one would drive into a gas station who was not prepared to pay the then prevailing very high price of gasoline. The people who needed gasoline for such urgent purposes as getting to work, but who could not afford to pay such a sharply higher price, would not be in nearly as bad a position as needing gasoline to get to work and being simply unable to find it, or find it only after waiting in line for three hours. Such people could car pool and spread the high price of gasoline over as many of them as could reasonably fit in an automobile. The environmentalists, who seem to desire that such arrangements become a normal, everyday occurrence, should welcome this chance to see the achievement of their goal, however temporarily.

What caused the shortages and stops them from being overcome in this way is the fact that the necessary rise in prices is illegal. It is against the law. According to a Bloomberg news release of November 9, 2012, “New Jersey law defines price gouging as an `excessive price increase,’ or of 10 percent or more, during a declared state of emergency.” The same news article also reports that “New York law prohibits selling goods or services for an ‘unconscionably excessive price’ during `abnormal disruption of the market.’”

Thus State laws are what make it impossible for the market immediately to put an end to the shortages. It is these State laws that allowed the shortages to come into existence in the first place, by prohibiting the immediate rise in prices that would have prevented them, and that then make the shortages persist.

The same State laws make it impossible for the market speedily to restore supplies to their normal level, which would serve quickly to bring down prices from their abnormal heights.

If prices were allowed to be “unconscionably” high, it would be possible to bring in vital supplies that are more costly. For example, gasoline from more remote refineries. At prices of $10 to $20 per gallon, it would pay for tanker trucks to bring in gasoline from several hundred miles away. This would serve to spread the loss of supplies caused by the hurricane over a much wider area, with a corresponding reduction in the severity of loss experienced in the area of the hurricane’s path.

The price of gasoline would rise in the areas from which the additional supplies came. That rise in price would pull in replacement supplies to those areas from still more remote regions. Thus, for example, while refineries in Pittsburgh and Cleveland were helping to supply New York and New Jersey, other refineries in the Chicago and Detroit areas would be helping to resupply Cleveland and Pittsburgh. The effect would be that the loss of supplies of gasoline in the New York metropolitan and New Jersey shore areas would be spread across much of the country, thereby resulting in a substantially reduced percentage of loss in the New York/New Jersey areas. Instead of those areas experiencing the effects of a 50 or 75 percent reduction in supply, a much broader area would experience the effects of perhaps only a 5 or 10 percent reduction in supply. The rise in price of gasoline would quickly diminish, reflecting this greatly reduced percentage of loss of supply.

The “unconscionable” rise in the retail price of gasoline that made it possible for the gas stations to pay higher prices to their wholesalers and distributors bringing in gasoline from remote refineries, would also cover the high costs of speedy repairs, such as entailed in round-the-clock repair work, using extra crews, and paying premium wage rates. Thus, in the absence of the price controls, in very short order New York/New Jersey area refineries, terminals, and docks would be repaired, and the gas stations now closed would reopen. This would serve to achieve a full restoration of supplies, along with a return of the gasoline distribution system to normal. These results would quickly bring gasoline prices down to their normal level.

All of this is prevented for no other reason than that our government officials are utterly ignorant of economic law. They believe that prices have no connection with reality and can be dictated by them with no effect other than to make supplies less expensive—for people who can’t get the supplies, because the supplies don’t exist, and who are led to waste endless hours, day after day, trying to get the supplies that don’t exist. By what standard is this a more reasonable arrangement than allowing prices to be “unconscionably” high, for what would certainly be a very short time, and thereby quickly fixing the problem?

The press is as much to blame as the government officials. With rare exceptions, the reporters are as ignorant of economic law as the politicians. Both are unqualified for their jobs. They just don’t know what they’re doing.

The ultimate responsibility, of course, rests with the general public and with the educators who failed to provide people with even the most rudimentary knowledge of economic law.

In a society in which economic law was widely understood, legislators and prosecutors who sought to prevent price increases in cases of emergencies would be regarded as public enemies and barred from office. They would be barred not by a mere lack of support, but by a lack of support manifested in the utmost public contempt and ridicule for their ignorance and destructiveness.

These laws should immediately be overturned. They are in violation of the Ninth and Fourteenth Amendments to the US Constitution. The Ninth Amendment states that "The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people." Obviously, the people retain the right to take the steps necessary to cope with catastrophes, such as Hurricane Sandy. These laws fly in the face of that right. They make it illegal for people to take those steps. The Fourteenth Amendment makes the provisions of the US Constitution applicable to the states.

A panel of Federal judges should be convened at once and asked immediately to render these laws null and void. New York and New Jersey are in an emergency situation. It is intolerable that their people be made to suffer the effects of disastrous legislation piled on top of a natural disaster and thereby needlessly enlarging and extending the effects of that disaster.


Copyright 2012 by George Reisman. This article may be reproduced electronically provided this note is included in full. George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics, Senior Fellow at the Goldwater Institute, and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996; Kindle Edition, 2012). He is also the author of The Government Against the Economy, Warren Buffett, Class Warfare, and the Exploitation Theory, and the recently published The Benevolent Nature of Capitalism and Other Essays.  His website is www.capitalism.net. His blog is www.georgereismansblog.blogspot.com. See his Amazon.com author’s central page.

Gun Control: Controlling the Government’s Guns

The recent mass shootings in Aurora, Colorado and then in Oak Creek Wisconsin have led to renewed demands for “gun control” aimed ultimately at depriving the individual citizen of his Constitutional right to keep and bear arms. It is believed that if the individual were deprived of this right, such shootings would not take place, because of the sheer lack of available weaponry.

Let me say immediately that I too believe in gun control. However, I do so in the light of the knowledge that by far the largest number and the most powerful guns and other weapons are in the possession of the government. First and foremost, of course, the federal government, which has atomic and hydrogen bombs, as well as ballistic missiles with which to deliver them, fleets of warships, and thousands upon thousands of tanks, planes, artillery pieces, machine guns, and lesser weapons. State and local governments also possess considerable weaponry, though less than the federal government. But just the revolvers, rifles, shot guns, clubs, tear gas, and tasers in their possession are capable of causing serious injury and death, and frequently do so.

Moreover, the threat of deadly force is implicitly present in every law, regulation, ruling, or decree that emanates from any government office, at any level. The threat of such force is what compels obedience on the part of the citizens. Even such an innocuous offense as a parking violation is capable of resulting in death if a person persists in not paying the fine imposed and, when ultimately confronted with arrest, resists by physically defending himself.

Literally everything the government does is ultimately a threat to point a gun at someone and use it if necessary. If this were not the case, the law, regulation, ruling, or whatever, would be without force or effect. People would be free to ignore it if they wished. Because of the government’s implicit threat to use deadly force to uphold its decisions, any meaningful program of gun control must above all focus on strictly controlling and regulating the activities of the government.

The government possesses overwhelming power to respond to the use of force by common criminals. That is its basic domestic function. The very existence of laws against such crimes as murder, robbery, and rape serves as a control on the use of force, including the use of guns, by the potential perpetrators of such acts, because it constitutes a deterrent to them. The more efficient the government is in apprehending the perpetrators of such acts and the more certain is their appropriate punishment, the greater is the deterrent, and thus the more effective is the implicit gun control.

Our entire Constitution and Bill of Rights are essential measures of gun control—this time, gun control directed against the government. For example, the First Amendment prohibits the government from using its guns to abridge the freedoms of speech or press. The Second Amendment prohibits the government from using its guns to abridge the freedom of the citizen to keep and bear arms.

Indirectly, the Second Amendment also operates to limit the government’s use of its guns to abridge freedom in general. This is because, in our system of checks and balances, an armed citizenry constitutes a check on the possibility of the government becoming tyrannical and attempting to use its power to threaten the citizens’ lives and property. It should be understood as protecting a balance between the power remaining in the hands of the people and the power they have delegated to their government. Indeed, the language of the Second Amendment¬—“A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed”—should be understood in this way.

The average American of today is intellectually so far removed from his forebears that instead of regarding government with apprehension, he is more likely to regard it as a virtual parent, concerned only with protecting and helping him. Evil, he believes, can come only from uncontrolled private individuals, notably greedy businessmen and capitalists and, now and then, psychopaths such as the murderers in Aurora and Oak Creek. And in these cases, of course, the solution is believed to be still more government power—power to tax, regulate, and control the businessmen and capitalists to the point of extinction and power ultimately to deprive private individuals of the right to own guns.

It simply doesn’t occur to many people nowadays that government could be the source not only of massive economic ills but of human deaths on a scale dwarfing the deaths caused by the worst individual psychopaths. The number of murders attributable to governments around the world in the 20th Century, including those resulting from government-caused famines in places such as the Ukraine and Communist China, is estimated to exceed 260 million. Of this total, Communist China is responsible for more than 76 million, the Soviet Union for almost 62 million, and Nazi Germany for almost 21 million. (R. J. Rummel, Death By Government [New Brunswick, N.J., Transaction Publishers, 1994], n. 1.) Of particular note, approximately 2 million of the murders committed by Nazi Germany were in the form of mass shootings, similar in nature to those in Aurora and Oak Creek, but performed on a scale commensurate with the size of military units.

These were the dreaded SS Einsatzgruppen, sent into Soviet Russia behind the advancing German armies for the express purpose of murdering as many Jews as they could find. Organized into units ranging in size from platoons to battalions, approximately 3,000 government-employed psychopathic killers were set to work in a program of systematic mass murder. Unlike the recent horrors committed by the two American psychopaths, the horrors committed by these government-employed psychopaths were not limited to one time in just one day before they came to an end. No. They were repeated many times in a day, day after day, for months on end.

Again and again, hundreds and thousands of defenseless people, including women and children, were shot down, often machine-gunned in front of trenches they had been made to dig and into which they fell dead, in mass graves. Such murders came to an end only when replaced by the more efficient method of mass murder represented by gas chambers, which accounted for 4 million more murders of Jews added to the 2 million carried out by mass shootings.

If only the victims had been armed! If the 6 million murdered Jews had been armed, and ready to fight for their lives when the Nazis came for them, they might have been able to make at least one Nazi pay with his life for each Jewish family taken away. That would have worked out to roughly a million Nazis. The anticipation of such an outcome might well have been enough to prevent or at least abort the Nazi’s policy of mass extermination. It would have been an enormous illustration of the principle that guns in the hands of victims serve as a control on guns in the hands of murderers or would be murderers, or aggressors of any kind. In Aurora, in the movie theater where the murders took place, if members of the audience had been permitted to have guns in their possession, the number of victims would almost certainly have been far less. Anyone sitting near the killer and in possession of a gun, would have been able quickly to stop him.

The last thing the United States needs is “gun control” in the sense of depriving its citizens of their right to own guns. What it does need is control over the use of guns by its government.

The people of the United States and their elected representatives have literally lost much of their control over their government and its use of its weapons. Since 1945, the United States has been engaged in four wars—Korea, Vietnam, Afghanistan, and Iraq—not declared by Congress, despite the fact that the Constitution clearly provides that Congress shall have the power to declare war. The same process of growing government power, concentrated in the Executive Branch, that has eliminated the need for Congress to declare war, has removed judicial protection for economic freedom and thus practically all restraint on the power of Congress to interfere in economic activity.

This has resulted in Congress possessing far more power than it is directly capable of exercising, with the further result that it has had to delegate most of its additional law-making powers to dozens of independent regulatory agencies. As of December, 2010, these agencies, located in the Executive Branch, had written a total of 75,000 pages of regulations, each carrying the force of law. The regulatory agencies, moreover, exercise legislative, executive, and judicial power. They act as prosecutor, judge, and jury. Thus, we now have dozens of unelected, unaccountable bodies writing the equivalent of laws and authorizing the use of guns to enforce them. Gun control requires the abolition of such agencies.

The government and its use of its weapons are falling increasingly out of the control of the American people and their elected representatives. A government whose activities are beyond the capability of an intelligent, conscientious Representative or Senator to understand, is a government that is out control. Those in charge of it do not, and cannot, know what they are doing, despite the fact that they are doing it with guns. Most of them do not even read and carefully study, let alone fully understand, most of the bills they are called to vote upon. Routinely, they enact laws whose consequences they do not know, and whose essential terms they cannot even define. To put it mildly, this is an extremely dangerous state of affairs.

Genuine gun control, not the variety urged by the leftist dominated media, requires a radical roll back in government activity. The rollback must proceed to the point of the government having the authority to use its weapons only against those who have committed acts of aggression, i.e., the initiation of physical force, against the person or property of others. This, of course, includes the use of defensive and retaliatory force against foreign governments that have committed acts of aggression against the United States and its citizens.

Failure to stop and reverse the advance of government power and our and other governments’ increasingly uncontrolled threat to use their guns is capable of resulting in a number of people murdered by their governments later in this century far exceeding even the total recorded for the 20th Century. The more than a quarter of a billion people murdered by their governments in the last century may well be exceeded by billions of people being murdered by their governments in this century.

Who might want to murder billions of people? Who are the waiting mega-Communists and mega-Nazis of this century that would put such plans into effect if they should ever come to power? They are the people who share such sentiments as those expressed by Britain’s Prince Philip when he wrote, “I just wonder what it would be like to be reincarnated in an animal whose species had been so reduced in numbers than it was in danger of extinction. What would be its feelings toward the human species whose population explosion had denied it somewhere to exist.... I must confess that I am tempted to ask for reincarnation as a particularly deadly virus.”

The murder of billions of people is implied in the thinking of anyone who holds the belief that there are “too many” billions of people. The billions who constitute the “too many”—the allegedly “surplus,” “unnecessary,” “environmentally destructive” billions—they are the potential targets of a future mega-holocaust.

True, such a holocaust is not inescapably implied. Population might fall simply as the result of a voluntary fall in the birth rate. Indeed, this has actually taken place in many of the world’s advanced economies. And if population does not fall as the cumulative result of voluntary individual choices, or fall “sufficiently” to satisfy the likes of Prince Philip, moral abominations short of mass murder, might also achieve the goal of mass depopulation. Compulsory sterilization and forced abortions, such as practiced in Communist China, come readily to mind. But add a strong enough dose of psychopathic hatred for mankind, plus uncontrolled government power in the hands of the haters, and murder on the scale of billions becomes a definite possibility.

This is the year 2012. How many people in 1912 could have foreseen that in just two years, the world would be plunged into generations of mass killing and mass murder, inspired for the far greater part by the collectivist ideologies of nationalism and socialism? Is it impossible that the world of the years ahead will similarly be marked by the rise of environmentalist dictatorships dedicated to the eradication of the billions, native or foreign, whose existence they perceive as destroying the “environment” or as standing in the way of the living standards of those who will be allowed to remain?

Have the anti-human ideologies already at the fore in the early 20th Century been replaced by an ideology of individual rights and economic freedom? Is the world moving away from collectivism and socialism and toward laissez-faire capitalism, or, to the contrary, is even the slightest trace of economic freedom described as laissez-faire and blamed for the existence of the present economic crisis, thereby impelling the world toward still more government control and still less economic freedom?

There is clearly a potential threat to human life and well-being looming on the horizon that is of unprecedented proportions. It is present in the openly expressed hate-filled, murderous ideas of many people. Sooner or later, in response to this or that crisis or series of crises, these ideas will be translated into physical action if not overcome by other, pro-human ideas. The likelihood of a catastrophic outcome is steadily increased by the continuing increase in government power and corresponding reduction in individual freedom. With each passing decade, the United States resembles less and less the country of its founders and more and more a country such as Nazi Germany or Soviet Russia. If the trend of the last several generations continues, it is only a question of time before the United States will become indistinguishable from a totalitarian dictatorship.

To be secure against the threat of a totalitarian regime with a policy of mass murder, or the threat of tyranny of any kind, the American people must retain their right to keep and bear arms and restore it wherever it has been abridged. They must reestablish control over their government. Congress must regain its exclusive right to declare war and its exclusive right to legislate. The courts must be required to uphold economic freedom. The government must be reduced in size and scope to the point that conscientious legislators can understand its operations in detail and be in a position intelligently to enact laws designed to control them. That is what is required to establish genuine, meaningful gun control.

The American people must not allow themselves to be misled into giving up their right to own guns by the occasional, and almost always avoidable, tragedies that accompany gun ownership, such as a small child finding its way to a loaded gun and pulling the trigger. On the basis of such a standard, people would also have to give up driving cars, to avoid the tragedies that often accompany automobile accidents, and also even using horses and buggies, in order to avoid the tragic accidents that can result in connection with them. What must always be kept in mind is the incomparably greater potential danger of untold numbers of children losing their parents and their own lives to government-employed murderers unleashed on a disarmed population.

To impose gun control on their government, the American people need in addition to arm themselves in a way that is more fundamental than merely possessing physical weapons. They need to arm themselves intellectually and morally as well, by reading and studying the works of the great modern defenders of freedom, above all, Ludwig von Mises and Ayn Rand. This will enable them to counter and overcome the vicious ideas that underlie the misuse of government power and its continuing growth. An armament of physical weapons combined with knowledge and moral conviction will ensure that the American people will never find themselves in the position of helpless, terrified people being led as sheep to the slaughter. They will never allow themselves to be either the victims or the perpetrators of a holocaust, for they will have regained control over their government and its use of its weapons. They will have achieved the kind of gun control that secures their lives and property and threatens the lives and property of no one else.

Copyright 2012 by George Reisman. All rights reserved except that this article may be reproduced electronically provided that this note is included in full. George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics, Senior Fellow at the Goldwater Institute, and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996; Kindle Edition, 2012), The Government Against the Economy, and Warren Buffett, Class Warfare, and the Exploitation Theory.  His website is www.capitalism.net. His blog is www.georgereismansblog.blogspot.com. See his Amazon.com author’s central page.

George Reisman in Swedish

Per Olof Samuelsson the translator of Ayn Rand's Anthem and Capitalism: The Unknown Ideal into Swedish has started an impressive new blog dedicated to publishing his translations of my articles and essays. The first essay to appear is "The Toxicity of Environmentalism." More are scheduled to appear soon.

The world should know that Per-Olof has also translated both Ayn Rand's The Virtue of Selfishness and The New Left: The Anti-Industrial Revolution, but has been prohibited, under threat of legal action, from publishing them or even showing them to anyone else by Leonard Peikoff, who controls her estate and who apparently places the value of communicating Ayn Rand's ideas in an intellectually important country such as Sweden below considerations of personal pique.

I thank Per-Olof and applaud him for his persistence in the face of needless, absurd obstacles created by those who are supposed to be his intellectual allies.

The Government Against the Economy Is Now In Kindle Format

I'd like everyone to know that The Government Against the Economy is now available from Amazon.com in Kindle format, at a price of $2.99.

The book's description on the Amazon site reads as follows:

Originally published in 1979, and later incorporated into the author’s magnum opus, Capitalism: A Treatise on Economics as Chapters 6-8, this is a powerful and convincing book which explains the essential principles of free-market price theory along with leading applications of those principles. Again and again, it illustrates the economic coordination of a free economy by contrasting it with the chaos produced by price controls and, as the ultimate culmination of price controls, socialism.

Written for the intelligent layman who may have no previous knowledge of basic economic theory, this book not only shows where government policy went wrong in imposing price controls, it also shows how free-market prices are essential to the success of our economic system in producing for the benefit of everyone. Included are explanations of how a free market would progressively reduce the cost of energy, along with that of all other goods; why the Arab oil embargo would not have been a threat to a free economy; how price controls actually raise prices; how partial price controls lead to universal price controls; how universal price controls represent de facto socialism; why Nazi Germany was a socialist country; and why socialism, rather than representing any kind of genuine economic planning, is in fact chaotic and necessarily tyrannical.

For those who want to understand how a free-market economy really works and how price controls and socialism create chaos and poverty, this book is mandatory reading.

Here is what two of the most famous advocates of the free market have said about this book:

“Every commentator on current affairs who is not a fully trained economist ought to read this book if he wants to talk sense. I know no other place where the crucial issues are explained as clearly and convincingly as in this book.”
- F. A. Hayek,
Nobel Laureate, in Economics for 1975

“This is one of the most powerful and convincing books I know. Its explanations are brilliantly clear; its analyses are lethal; it is uncompromising. Readers who come to it without any previous knowledge of basic economic theory will find it a luminous introduction. If any book can slow down the economic destructionism of our age, this could be it.”
- Henry Hazlitt,
Economist, Author, former Newsweek columnist
and New York Times financial editor

As was initially the case with my recently published very short book on Warren Buffett and class warfare, there are not yet any readers' reviews. Any that you care to submit would be more than welcome. (There are now 5 very nice reviews of the Buffett book.)

Speaking of the Buffett book, I've greatly improved the cover. It's now a glaring red and contains side-by-side photos of Buffett and Marx. Please be sure to see it here.

New Kindle Book by Reisman

I've just published a new book. It's as short as Capitalism is long, i.e., 59 pages. Its title is Warren Buffett, Class Warfare, and the Exploitation Theory. It appears in Kindle format on Amazon.com and sells for 99¢.

The book consists of two parts. The first is my recently published article "An Open Letter to Warren Buffett on the Subject of Class Warfare," which is a critique of Buffett's views on the subjects of taxation and The Giving Pledge, as well as class warfare. The second part is a section of my book Capitalism: A Treatise on Economics, titled "Correcting the Errors of Adam Smith: A Classical-Economics Based Critique of the Conceptual Framework of the Exploitation Theory." While a critique of the exploitation theory is present in the Buffett article, this part goes deeper and seeks to completely overturn the foundations of Buffett’s and most other people’s ideas concerning the relationship between profits and wages.

At least since the time of Adam Smith, it has been believed that profits, interest, and all other income that is not wages (or salaries) is a deduction from what is naturally and, by implication, rightfully, wages. This view is the starting point of the Marxian exploitation theory, which seeks to explain what determines the extent of this alleged deduction and finds the answer in a distorted version of the classical economists’ labor theory of value. But this same view is no less the starting point of the most important critic of the Marxian exploitation theory, namely, the great Austrian economist Eugen von Böhm-Bawerk, who differs from Marx in concluding that, because of time preference, profits (interest) are a justified deduction from what is originally all wages.

In opposition to Smith, Marx, Böhm-Bawerk, and all who share their ideas, the theory that I propound is that the original, primary form of income is not wages but, however ironically, profits. Developing the implications of this major finding and anticipating and answering the questions that come to mind in connection with it occupies a substantial portion of both parts of this book, but especially the second part, which is completely given over to this task. The most important of these implications is the demonstration of a harmony of the self-interests of wage earners and capitalists. This, in turn, has enormous implications for the way people view such major economic issues as capitalism versus socialism, economic freedom versus government controls, income and inheritance taxation, and labor and social legislation. This little book offers an unprecedentedly powerful defense of capitalism and economic freedom in the space of a comparatively few pages. It is offered as an introduction to the author’s major work Capitalism: A Treatise on Economics, which is a state of the art defense of capitalism and economic freedom in virtually all of their aspects.

Readers' reviews of my book on the Amazon site would be most welcome.

Write to Buffett

A reader has been kind enough to tell me Buffett's office address, which I've incorporated into my "Open Letter" to him. Perhaps if enough readers send him copies of my letter, he'll read it.

An Open Letter to Warren Buffett on the Subject of Class Warfare

Mr. Warren Buffett
3555 Farnam Street
Suite 1440
Omaha, NE 68131

Mr. Buffett:

You have been quoted time and again, without any denial on your part that I am aware of, as having said, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”

In view of the seriousness of this statement, I have to ask you some questions.

Do you intend to be taken seriously when you speak? Do you know the meaning of the words you use? Do you know the source and implications of the doctrines you espouse?

The doctrine of class warfare is a derivative of the exploitation theory, whose best-known proponent is Karl Marx. According to the exploitation theory, profit and interest, indeed, any income other than wages, is an unjust deduction from what naturally and rightfully should be wages.

What makes possible the existence of incomes other than wages, according to Marx, is the same basic fact that makes it possible for a slave owner to gain by owning a slave. Namely, the fact that a worker is capable of producing the necessities he requires in order to have the strength and energy to work a full working day, in less than a full working day.

To use one of Marx’s own examples, a worker is capable of producing in 6 hours the food and other necessities that he requires in order to be able to work 12 hours. The 6 hours, or whatever the number of hours may be that the worker requires to produce his necessities, Marx calls “necessary labor time.” The hours that the worker works over and above the necessary labor time, Marx calls “surplus labor time.”

Just as surplus labor time is the source of the slave owner’s gain, so too, according to Marx, is it the source of the profit and interest of the capitalist. When the worker works 12 hours for a capitalist, his labor, according to Marx, adds a commodity value corresponding to 12 hours of labor to the materials and other physical means of production used up in producing the resulting products. If those materials and other means of production required 48 hours of labor in their own production, the product that results will contain those 48 hours of labor plus the 12 additional hours of fresh labor performed. It will have a value corresponding to 60 hours of labor in all.

Thus, the process of production, according to Marx, has resulted in a value added corresponding to 12 hours of fresh labor time. That value added will be divided between the wage earner and the capitalist in the form of wages on the one side and profit/interest on the other. What the capitalist must pay as wages, says Marx, is determined by the application of an allegedly universal principle of commodity valuation, namely, the labor theory of value. The capitalist will pay the wage earner a wage corresponding to the hours of labor required to produce his necessities, which by assumption is 6 hours, and will pocket the value added by the worker’s performance of 12 hours of labor. His profit/interest is what remains after deducting the worker’s wages, and corresponds exactly to the worker’s surplus labor time.

This example can easily be translated into monetary terms, simply by assuming that to every hour of labor performed in the production of a product there corresponds $1 of product value. Thus the materials and other produced means of production were worth $48 and the products that result from the application of 12 hours of fresh labor are worth $60. The 12 hours of fresh labor adds $12 of new and additional product value.

The capitalist’s profit/interest allegedly results from the fact that for the 12 hours of fresh labor added, with its corresponding additional product value of $12, the capitalist pays a wage of only $6, the sum corresponding to the labor time required to produce the necessities that enable the worker to perform his 12 hours of labor. The capitalist’s profit/interest thus represents “surplus value,” which corresponds to “surplus labor time.”

The ratio of surplus value to wages, or of surplus labor time to necessary labor time, Marx calls “the rate of exploitation.” In this illustration it is 100 percent, i.e., $6/$6 or 6 hrs./6 hrs.

A combination of greed and of forces otherwise tending to reduce profit/interest relative to capital invested, says Marx, drives the capitalists to step up the rate of exploitation. If the workers are able to work 18 hours a day on the basis of necessities produced in only 6 hours per day, then the working day will be increased to 18 hours. If the wages the capitalists pay their adult male workers are sufficient to enable them to support a wife and two replacement children, the capitalists will reduce those wages and thereby drive women and children into the factories, giving the capitalists the benefit of still more surplus labor time and surplus value. The capitalists will allegedly also strive to cheapen the worker’s diet, substituting potatoes or rice for wheat, say, thereby reducing the necessary labor time and increasing the portion of the working day that is surplus labor time. Working conditions, needless to say, will be horrific, since their improvement would generally come at the price of a reduction in surplus value.

This alleged state of affairs of subsistence, indeed, sub-subsistence wages, inhuman hours and working conditions, down to small children laboring in the mines, is the outcome of the operation of capitalism and the profit motive, says Marx, on the basis of his exploitation theory.

Class war is the result of the fact that in the light of the exploitation theory capitalists are to be regarded as the mortal enemies of the overwhelming majority of mankind, deserving to be stood against a wall and shot, which is exactly what has happened time and again, when Marxists have seized power.

Where Does This Put You, Mr. Buffett?

Based on this account of the origins and nature of alleged class warfare, I have to ask how you see your place in the world, Mr. Buffett. Are you an exploiter of labor? Has your life’s work consisted of the accumulation of wealth in a manner fundamentally indistinguishable from that of a slave owner? Has the accumulation of your billions been the result of your systematic theft of workers’ rightful wages? Has your life consisted mainly of efforts tending to impoverish still further the workers you employ, and been prevented from doing so only to the extent of the existence of such measures as pro-union, minimum wage, and maximum-hours legislation?

By your view of things, Mr. t, are you and your fellow capitalists truly enemies of the rest of the human race—vile, blood-sucking parasites who deserve to be killed for what Marx’s exploitation theory claims they have done and every day try to do to an even greater extent? Are you attempting to escape what you implicitly recognize as your just punishment by urging President Obama merely to raise your taxes and parade you before the country as his “house capitalist” as he names an alleged rule of taxation—“the Buffett rule”—after you? Have you been running to fetch the whip with which he will beat you, in the hope of avoiding what you regard as the more just punishment of your being shot?

What You Need to Know, Mr. Buffett

I’d like you to know, Mr. Buffett, that what you believe about the nature of capitalism and profit/interest has absolutely no connection with the actual nature of capitalism and profit/interest. Despite all your great accomplishments in the realm of investment, you are as ignorant of these things as the average labor-union member or the average professor of literature.

I hope you are interested in correcting your errors and misconceptions in this vital area. Frankly, I don’t see how you can live with yourself in the face of your views about the nature of your economic activity. The fact that, according to your "Giving Pledge," you plan to give away more than 99 percent of your wealth would not atone for your crimes if the exploitation theory and the doctrine of class warfare were correct. There would still be not only the deadweight loss of everything that you and your family have personally consumed over the years that was stolen from others, from the occasional ice cream soda you reportedly like to your private jet. There would also be the fact that whatever you might now give away would not be any compensation to your actual victims, many of whom have passed away by now or are too old to enjoy it as they might have at the time they earned it and you robbed them, and who would receive nothing at all to the extent that you give your wealth away to completely different people.

If, on the other hand, you succeed in correcting your mistakes in this area, then you will almost certainly be able to regard yourself in a strongly positive light, as a highly productive individual, whose self-interested economic activities and resulting great accumulated wealth have served to improve the lives of others rather than harmed them. Someone who has accomplished as much as you actually have, should not have to carry a massive burden of unearned guilt, as you apparently do.

Capitalists, Not Wage Earners, Are the Primary Producers

You do not realize it, Mr. Buffett—hardly any one does yet—but the wage earners that you and all the other alleged capitalist exploiters employ are not the primary producers of the products the exploitation theory attributes to them. Just as Columbus was the discoverer of America, not the sailors who manned his ships and who were his helpers in the achievement of his—Columbus’s—plans and projects, so too, Mr. Buffett, you are the primary producer of the products produced by your firm Berkshire Hathaway and any other firms that you may own and whose actions take place under your initiative and control. Your employees, Mr. Buffett, are accurately described as “the help” in the production of your products. Your profits or interest are not a deduction from what rightfully belongs to them as wages. They are what you have earned, on the basis of your mainly intellectual labor of thinking, planning, and decision making. And the same, of course, applies to all of your fellow alleged capitalist “exploiters,” past and present, who are producing their products, albeit with the help of others whose labor they employ for the purpose of implementing their plans and thus producing their products. Thus, for example, old Henry Ford was the primary producer at the Ford Motor Company, Rockefeller, at Standard Oil, and now Gates at Microsoft, and Bezos at Amazon, along with you at Berkshire Hathaway.

Marx had one major idea that in itself was entirely correct and which can shed further light on this discussion. That was his distinction between what he called “capitalistic circulation” and “simple circulation.” Marx, unfortunately, completely ignored and contradicted the actual implications of this idea.

What you and all the other alleged capitalist exploiters are engaged in is capitalistic circulation. Capitalistic circulation, as Marx described it, is the expenditure of money, M, for the purchase of commodities, C, which are to be used in producing products that are to be sold for a larger sum of money, M'. Capitalistic circulation, in short, is M-C-M'. If you and all the other alleged capitalist exploiters did not exist, and capitalistic circulation disappeared from the world, what was left of those who now are able to work as wage earners would have to live in a world of simple circulation, i.e., C-M-C. That is, without making any initial outlays of money, they would attempt straightaway to produce commodities, C, which they would sell for money, M, which in turn they would use to purchase other commodities, C.

Capitalists Are Not Responsible for the Phenomenon of Profit, But for the Phenomena of Wage Payments and Costs

Marx, like Adam Smith before him, mistakenly assumed that in a world of simple circulation, which Smith called “the early and rude state of society,” all income would be wages and that profit/interest came into existence only with the appearance of capitalistic circulation and then was a deduction from what originally had all been wages. The truth is that in a world of simple circulation what is absent is not profit/interest but the monetary outlays—the initial M—that pay wages and buy capital goods and that then show up as costs of production.

A world of simple circulation would be a world without money costs of production. It would be a world in which the expenditures for commodities with money received from the sale of other commodities, or from the mining of new and additional money, would constitute sales revenues to sellers who had no money costs to deduct from those sales revenues because they had made no prior outlays of money to bring in those sales revenues. It would thus be a world in which labor was the sole source of income, but in which the income of the workers was profit, not wages. It would be a world of workers producing products, however, primitive and meager, for which they received sales revenues from which they had no money costs to deduct and which therefore
represented pure profit.

The appearance of capitalistic circulation is thus not responsible for any deduction of profit/interest from wages. On the contrary, it is responsible for the coming into existence of wage payments, expenditures for capital goods, and money costs of production to be deducted from sales revenues, which had previously been entirely profit. The more economically capitalistic the economic system, in the sense of the higher the degree of capitalistic circulation, i.e., the higher the ratio of M to M', the higher are wages and other costs relative to sales revenues and the lower are profits relative to sales revenues. At the same time, the economic system’s greater concentration on the buying and thus the production and supply of capital goods serves to raise the productivity of labor and increase the overall ability to produce. The supply of products grows relative to the supply of labor and thus prices fall relative to wages, with the result that real wages rise and continue to rise so long as the productivity of labor continues to increase.

Thus, the truth, Mr. Buffett, concerning the relationship between capitalists and wage earners is the exact opposite of what is claimed by the exploitation theory. Namely, capitalists do not deduct profits from wages, but are responsible for the positive existence of wages. As a cost of production, wages are a deduction from sales revenues, which in the absence of capitalists would be pure profit. Thus capitalists are responsible for increasing wages relative to profits and reducing profits relative to wages. At the same time, through increasing the production and supply of goods and thereby reducing prices, they increase the buying power of the wages they pay. This is not any exploitation of wage earners but their massive and progressive economic betterment.

The Economic Good You Have Done Without Realizing It

Over the course of your life, Mr. Buffett, you have accumulated a massive amount of capital. The capital you have accumulated serves as the foundation of the demand for a very large quantity of labor and is thus a source of higher wage rates in the economic system than would otherwise exist. At the same time, it is the source of the supply of a considerable quantity of goods and services, the effect of which is to make prices lower than they would otherwise be. So, it seems to me, Mr. Buffett, contrary to your beliefs about the nature of your economic activity, you have actually done a significant amount of good in the world. You have made a significant positive contribution to the standard of living of the people of the United States and the rest of the world.

You appear not to understand the positive effect on others of the way you have earned most of your wealth, which has been mainly in the purchase and sale of securities. You characterize your work merely as detecting the “mispricing of securities.” Correcting this mispricing is actually very important to the economic system. In buying securities that are underpriced, you help to raise their price, thus reducing the mispricing that is present. In selling securities that are overpriced, you help to reduce their price, thus again reducing the mispricing that is present. To the extent your judgment is right, you earn profits, and to the extent you save those profits, you are in a position to buy and sell securities on a larger scale and thus to correct errors of mispricing on a larger scale.

In raising the price of their securities, the effect of your action is to help firms raise capital that should be able to raise capital; in reducing the price of their securities, the effect of your action is to make it more difficult for firms to raise capital that should not be able to raise capital. As you know, the price of securities functions in this way because it determines what percentage of ownership in a firm needs to be given up in order to raise a given amount of capital or how much capital can be raised by giving up a given percentage of ownership. In other words, you are facilitating the raising of capital by firms that will use it well and impeding the raising of capital by firms won’t.

Of course, even your best efforts, along with those of many others working in the same way, are not sufficient to counter the fresh massive errors of mispricing again and again introduced into the securities markets by the Federal Reserve System. The Fed’s massive creation of money and credit and manipulation of interest rates correspondingly inflates securities prices, which then begin to collapse as soon as its stimulus ends. In the meanwhile, it misdirects economic activity to the areas where the new and additional money is preponderantly spent.

The General Social Benefits Accompanying the Accumulation of Great Fortunes

The general social benefits accompanying the accumulation of a great fortune are easier to see in the typical case. Here, as in your case, the fortune is made by a combination of the earning of a high rate of profit accompanied by a high rate of saving out of that rate of profit. This determines the rate of growth of the fortune. A high rate of growth continued over many years turns initially small sums of capital into immense sums.

What provides the high rate of profit is successful innovation, i.e., the introduction of new and improved products or more efficient methods of producing existing products, or correct anticipation of changes in the pattern of consumer demand. Your activity contributes to this process by facilitating the raising of capital on the part of firms that can be successful in one or more of these ways and denying capital to those that cannot. The effect is an increase in overall production in the economic system and thus an increase in the general standard of living.

Again and again, competition erodes the high profits that accompany successful innovations. In order to continue to earn a high rate of profit, a whole series of successful innovations must be made. Perhaps the most dramatic illustration of this is the case of Intel. In the early 1980s, it earned high profits on the strength of what was then the most advanced personal computer chip: the 8086. But verysoon, competition took away those profits and to continue to be exceptionally profitable, Intel had to develop the 80286.

Then the same story was repeated with the necessity of replacing the 286 with the 386, this with the 486, then the 586, and an equally large further series of advances after that. The end result has been tens (world wide, hundreds) of millions of people each with more computing power on his desk than was available fifty years ago from a computer occupying a whole room or more, and at a price equivalent to a tenth of one percent or less of the price of the computers of fifty years ago. And all or practically all of the capital that Intel accumulated in its incredible process of innovation and accompanying earning and saving of high profits is employed in producing the computer chips it now sells or in developing the still more advanced chips that it will sell in the years ahead.

Though perhaps not often as dramatic as in the case of Intel, the same pattern has prevailed in the capitalist economic system in virtually every industry since the start of the Industrial Revolution. High profits were made in producing cotton, using the cotton gin, and cloth, using power looms, and, later, in using sewing machines to produce ready-made clothing. Competition soon took away those high profits, and to make further high profits in these fields, further advances had to be made. Meanwhile, the high profits were largely plowed back into the larger scale production of cotton, cloth, and clothing. The end result was that the average person in the Western World got new and better clothing more and more affordably.

The same story was repeated in shoe production, grain production, steamships, railroads, coal mining, iron and steel production, natural gas production, petroleum production, meat packing, electric light and power, running water hot and cold, flush toilets, central heating, telephones, automobiles, motion pictures, radios, refrigerators, air conditioners, television sets, antibiotics, all manner of other medications, diagnostic equipment, prosthetic devices, and even artificial limbs, plus a vast number of other advances. In each case, the end result was that the average person got the benefit of products or methods of production that, left to himself, he could not even have imagined, and at prices he could more and more afford.

And in every case in which fortunes were accumulated, the high profits earned were heavily saved and invested and used in producing either a larger quantity of the very products whose production had generated them, or a larger quantity of other products. At the same time the capital represented by the fortunes provided wages for the average member of the economic system high enough to be able to afford these products, along with funds to finance the research and development required for further improvements.

The Marvelous Results of Fortune Building

The end result has been an economic system in which the average person today enjoys a standard of living far above that of kings and emperors of a few generations ago, a standard of living far higher not only than that of Alexander the Great, Julius Caesar, Louis XIV, and Napoleon, but even Queen Victoria, who lived into the 20th Century. The hated capitalist “exploiters” have produced an economic system in which the enjoyment of scientific and technological marvels is a normal feature of daily life. An economic system in which the average person can travel in an automobile at 70 miles an hour, listening to the world’s finest music if he wishes, and in air conditioned comfort. And when he reaches his house or apartment, he can flood darkness with light at the flick of a switch, enjoy food from across the country and around the world, in season and out, with not terribly much more effort than is required to open his refrigerator door. And while he is eating, he can press a button or two and watch events taking place 10,000 miles away or, with the press of another few buttons, talk to someone on the phone not just nearby but practically anywhere in the world. And, of course, now and then he can fly through the air at 30,000 feet, watching a movie while drinking a martini if he likes, and in the course of a few hours travel distances that a few generations ago required months to traverse.

People prattle about “stopping and smelling the roses.” I have a better suggestion. Now and then, everyone should stop and try to look at our world of technological marvels through the eyes of someone born in an earlier century. They should imagine that some historical figure they admire could somehow come forward and be their guest for a brief tour of the modern world. How great would be his astonishment, awe, and amazement! From time to time, we ourselves need to stop and experience that astonishment, awe, and amazement. We need to realize that our world, despite all of its problems and flaws, is, as far as its material products are concerned, truly amazing and wonderful.

The economic system which has produced all these wonderful results, on the foundation of the countless individual advances in products and methods of production achieved by profit-motivated capitalists—this is the economic system to which you have the audacity to apply the concept of “class warfare,” as though those who again and again raise the standard of living of the masses were at war with them. It’s simply incredible that someone as astute as you are can be so utterly blind to the facts here and do such a monstrous injustice to a class not of exploiters but innovators and benefactors.

What You Need to Do and Undo, Mr. Buffett: The Giving Pledge

I think it’s clear, Mr. Buffett, that when it comes to the most fundamental matters of economic theory and economic policy, you are as much an ignoramus as you are a genius in the field of securities trading. You badly need to correct yourself and rescind your outrageous statement about class warfare.

You need to do much more. You need to undo the harm you’ve done in preying upon the unearned guilt of your fellow billionaires whom you have misled into thinking that to atone for their alleged sins they need to give away at least half of their wealth. Here I’m referring to the so-called “Giving Pledge,” in which this is promised by the signatories. You and your fellow signatories of “The Giving Pledge” appear to want to abandon the institution of inheritance (at least to the extent of 50 percent) and its transmission of accumulated wealth to heirs in favor of a policy of atonement for fictitious sins that fly in the face of the accomplishment of actual massive good.

Incredibly, you’ve managed to help persuade more than 80 billionaires, whose billions reflect their having given to their fellow men the benefit both of whole series of important innovations, along with the daily benefit of the wealth accumulated by virtue of those innovations, that they have been given their fortunes gratuitously, in exchange for nothing. And that now they need to give back at least half of their allegedly unearned wealth. You, and they, need to understand that they’ve already given and daily continue to give, by virtue of what they’ve accomplished and by virtue of the capital they’ve accumulated as the result of their accomplishments.

Indeed, if they actually did give away their capital for the alleged sake of supporting the poor, the result would be a serious reduction in the general standard of living. It would mean capital decumulation, which is a process of eating the seed corn on the scale of the economic system. It would mean that the demand for labor and wage rates would be lower along with the demand for and supply of capital goods. The reduced supply of capital goods and the consequent reduced ability to produce would mean a reduction not only in the subsequent supply of consumers’ goods but also in the subsequent supply of capital goods, whose production also depends on the existing supply of capital goods. At a minimum, the rate of further economic progress would be reduced. Capital consumption on a sufficient scale would be followed by economic retrogression. What you are advocating with your support for The Giving Pledge, Mr. Buffett, is a policy of capital decumulation and economic destruction, albeit one engaged in voluntarily. You should withdraw from The Giving Pledge and urge all the other signatories to do likewise.

But you do not stop with urging merely voluntary destruction. You want the government to raise the taxes of those who earn the highest incomes and who save and invest the most heavily. You thus want to reduce the demand for labor and capital goods by force.

Why Your Taxes Are Too High, Not Too Low, Mr. Buffett

You prattle on and on about the alleged injustice of the taxes paid by your secretary constituting a larger percentage of her income than the vastly higher absolute amount of taxes paid by you constitute of your income. To correct this alleged injustice, you want President Obama to raise your taxes.

Actually, Mr. Buffett, your taxes are already far too high. What makes your overall tax rate the 17.4 percent reported by ABC News, while your secretary’s rate is 35.8 percent, is the fact that almost all of your income reflects dividends or capital gains. These types of income were taxed at 15 percent in the tax year in question. A 15 percent tax rate on dividends is not a low rate; it is actually part of a very high rate of taxation on corporate profits. Dividends are taxed at 15 percent despite the fact that the profits out of which those dividends are paid are themselves taxed, at a rate as high as 35 percent at the federal level plus an additional 4.2 percent on average at the state level. Indeed, according to CNN, the United States now has the highest overall corporate income tax rate in the world.

To the extent that you or anyone else owns shares of stock, the corporate income tax is indirectly part of your and their tax burden, in each case in proportion to the percentage of ownership an individual has in any given company. Thus, for example, if you own 5 percent of a hypothetical Company X that earns a $1 billion of profit and pays $392 million of corporate income taxes, you indirectly have $50 million of income and $19.6 million of taxes that need to be included in the calculation of your tax burden. The dividends you receive from this company are counted in the $50 million, but the taxes you pay on those dividends are an addition to your overall taxes. So, if the company paid you a dividend of, say, $10 million, the $1.5 million of taxes you had to pay on that dividend would be added to the $19.6 million of corporate income taxes that already are being paid by the company on your account. Your actual percentage of tax as far as this example goes, is not 15 percent of $10 million, but the percentage found by dividing $21.1 million of tax payments by $50 million of corporate profit, i.e., more than 42 percent. This, of course, is a higher percentage of tax than your secretary pays. And, of course, such results apply to all of your dividend-paying stocks.

Before going into the issue of capital gains taxation and why your taxes are already too high because of it as well as the taxation of dividends, let us take a moment to appreciate the difference between the amount of taxes you pay and the amount of taxes your secretary pays that is consistent even with the 17.4 percent rate that you believe describes the extent of your tax burden.

Your net worth has been reported as having been about $47 billion in 2010. Let’s accept that figure and assume that you had a fairly good year in 2011,earning 6 percent in capital gains on that sum. The amount of your capital gains income would then be on the order of $2.82 billion. That income, of course, is taxed only to the extent that it is realized through sales of securities at prices higher than those paid. Let’s assume that all of that income were in fact realized. At 17.4 percent, the taxes you paid would then be $490.68 million. I don’t know how much you pay your secretary, but let’s assume it’s $200,000 a year, which is extremely high for practically any secretary. In that case, your secretary’s taxes at 35.8 percent would amount to $71,600. The taxes you paid, however, would be 6,911 times as great as the taxes she paid. (Indeed, they’d be substantially larger, because any accurate accounting of them would include your share of the taxes paid by the corporations you own, which, as we’ve seen, is not included in the 17.4 percent figure.) But even this enormous multiple would not be enough for you, merely because the percentage of the taxes your secretary pays is higher than yours.

In the ABC news report, your secretary is quoted as saying, “Everybody in our office is paying a higher tax rate than Warren.” If one ignores the failure to include payments of corporate taxes on your behalf, that’s true. But even if that were a legitimate calculation, which it isn’t, so what? What is the percentage of their income that your secretary and everyone else in your office pays for anything, from a pound of apples to a pound of zinc, compared to the percentage of your income that you must pay? Isn’t it typically higher, to the precise extent that your income is higher? Do you want an arrangement in which everyone pays the same percentage of his income for everything? Is that your concept of fairness? That would be a system of perfect egalitarianism, in which everyone was perfectly equal in terms of buying power to everyone else. I’m sure that the truth is that if you ever had an experience in which your secretary was charged $5 for something that you were charged $35,000 for, you’d consider it a case of very serious “mispricing” and wouldn’t accept it for an instant. Why are you ready to accept it in the case of taxation? A considerable part of the taxes paid by your secretary and other employees is for social security and Medicare. You have no need of either. Why should you be compelled not only to pay for both but to pay thousands of times as much for them as your employees pay?

The fact that normally you pay a lower percentage of your higher income for everything that both you and your employees buy is precisely what allows you to buy more than them; it’s what leaves over the funds required to buy your private jet and all the additional securities and other investments you add to your holdings. Surely, you accept this. You’re not a communist, are you?

Capital Gains as the By-Product of Inflation

Now we can turn to the subject of capital gains specifically. What creates capital gains throughout the economic system, most importantly in the stock market and the real estate market, is the government’s continuous expansion of the money supply. More money and more spending operate to raise prices. Insofar as the rise in prices applies to stocks or real estate, capital gains are created.

These gains should not be taxed at all. They are not genuine gains. The proof that they are not genuine can be seen in the fact that after paying the capital gains tax, the seller of an asset whose price has risen is only able to buy less of other assets whose price has risen comparably than he could have bought before the rise in prices. For example, when someone bought 1,000 shares of stock at $100 per share, he had the ability to buy 1,000 shares of any stock selling for $100 per share, or 2,000 shares of any stock selling at $50 per share, and so on.

Now, if inflation of the money supply succeeds in doubling stock prices, our buyer sells the 1,000 shares he bought for $100,000, for $200,000. But after paying a 15 percent capital gains tax, he is left with $185,000. With this sum he can longer buy 1,000 shares of another stock that previously was $100 per share and is now $200 per share. With $185,000 he can now buy only 925 shares of that stock, not 1,000 shares. And the same principle applies to the purchase of anything else whose price has increased to the same extent as the price of his assets that are subject to capital gains taxation. In terms of what he can buy, the earner of capital gains is impoverished in such a case. The combination of inflation and capital gains taxation is a racket that puts money into the government’s hands at the expense of its citizens.

The citizens’ expense is by no means limited just to the expense of those who must pay the capital gains tax. It is also at the expense of wage earners throughout the economic system who are faced with a demand for labor and thus wage rates that cannot keep pace with the rise in prices, because the capital gains tax holds down the increase in the supply of capital funds that pay wages. It is also at the expense of the general consuming public insofar as smaller supplies of capital goods and thus a smaller production of consumers’ goods contribute to prices rising more than they otherwise would have.

It should be obvious that in the face of inflation, there should be zero capital gains tax. Indeed, if one understands the role of capital in making possible both the demand for labor and the supply of consumers’ goods, there should never be a capital gains tax. Taxation should avoid as far as possible standing in the way of capital accumulation and the efficient use of capital. A capital gains tax does both.

The Interests of Wage Earners Are Far Better Served by Reducing Your Taxes, Mr. Buffett, than Your Secretary’s

I sympathize with your secretary and everyone else whose income is ravaged by the income tax. But however much I welcome a reduction in her taxes, when I consult my own material self-interest, and the material self-interest of every other wage earner in the economic system, I must conclude that a reduction in the taxes that you pay is more to my self-interest than a reduction in the taxes that she pays. This is because when you and your fellow billionaires and those on the way to becoming billionaires pay lower taxes, the main effect is an increase in saving and investment, which serves to increase the demand for the labor that I sell and the supply of consumers’ goods that I buy. Lower taxes on your secretary have little or no such effect.

The way to reduce the burden of taxation in the economic system is to start with the reduction of the taxes that land most heavily on saving and investment. This includes the capital gains tax, the inheritance tax, the progressive income tax, and the corporate income tax. Every reduction in these taxes, provided they are accompanied by equivalent reductions in government spending, moves the economic system in the direction of greater economic progress and rising real incomes. In such conditions, any given initial burden of taxation will become progressively smaller as time goes on and real incomes rise more and more.

Renewed Capital Accumulation and Economic Progress Also Require a Radical Reduction in Government Regulation

This program of tax reduction will not be sufficient by itself. There must also be a massive reduction in the laws and regulations that undermine the efficiency of production. What undermines the efficiency of production undermines capital accumulation as much as does taxation that prevents saving and investment.

The essentials of what is required for capital accumulation in the economic system can be understood by considering the conditions of a self-sufficient farmer. For such a farmer, seed can be taken as representing capital goods. In producing his crop, he consumes seed. He replaces the seed consumed in producing his crop, out of that crop. Given the size of the crop, some definite portion of it must be set aside to replace the seed consumed in its production and thus to have seed available to produce the same sized crop the next year. This portion can be termed the “maintenance portion.” To the extent that more than the maintenance portion of seed is set aside, the farmer will have more seed available for growing his crop in the next year than he had this year. And so he will be able to produce a larger crop next year. The extent to which a year’s crop is set aside for serving in the production of the next year’s crop represents the role of saving and investment in the economic system.

The second determinant of capital accumulation is the efficiency of production, which can be illustrated in terms of the ratio of the bushels of crop produced to the bushels of seed consumed in producing it. If only 2 bushels of crop could be produced for every bushel of seed consumed in producing them, then fully half the crop would be required to replace the seed consumed in producing it. That would be the maintenance portion. If, however, 4 bushels of crop could be produced for every bushel of seed consumed in producing them, the maintenance portion would be only 25 percent instead of 50 percent. In that case, devoting half the crop to seed would result in the ability to produce twice the seed required for maintenance and thus, potentially, a doubled crop. While this is all highly simplified, it nevertheless follows that anything that serves to reduce the efficiency of production serves to reduce the amount of capital goods produced no less than the amount of consumers’ goods and thus to hold down production in the future.

All laws and regulations that needlessly increase the costs of production have this effect. They all serve to require more input to produce the same output and thus result in less output for the same input. That lesser output means a smaller supply of capital goods produced along with a smaller supply of consumers’ goods. This smaller supply of capital goods in turn servesto further hold down the output of both consumers’ goods and capital goods in the future.

To understand the decline in the rate of progress in our economic system, one must take into account such things as ever more extensive environmental regulation. Such regulation again and again increases costs of production merely in order to satisfy the arbitrary and largely religious demands of the environmental movement. In doing so, it necessitates employing more input to produce the same output, and thus reduces the overall output that can be produced with the same input. A good example is requiring three garbage trucks to collect the same amount of garbage as one would suffice for, in order to satisfy requirements for arbitrarily imposed “recycling”. The same situation has been repeated in industry after industry, in the production of one good or service after another.

The worst thing, Mr. Buffett, would be to raise your taxes and those of your fellow billionaires to provide funds to finance the imposition of still more laws and regulations that undermine economic efficiency.

In conclusion, Mr. Buffett, you should keep your money and go on saving and investing your profits as heavily as ever. Don’t volunteer to finance still more economic destruction.

The Wealth of the Rich Does Its Greatest Good to Others While It’s Still Theirs and Serves as Capital

Of course, your money is yours. And you should certainly be free to give it away if you wish. Perhaps you can do some actual good to others by doing so. Andrew Carnegie, whom you have chosen as your mentor, certainly did. But what needs to be realized and never forgotten is that you are already doing good with your money, just by using it as capital. The good that Carnegie did for others did not begin with his giving to charities. It was underway and then continued on an increasing scale with his founding and progressive expansion of the Carnegie Steel Company, which provided many thousands of people with gainful employment and tens of millions with iron and steel products. That good was certainly as great or greater than the good that came from his giving away his wealth. And to avoid the loss of such good, it would be helpful if those who wished to give their wealth away did so in the form of giving endowments. This would finance their charitable activities out of income rather than out of capital.

Give up the attitude that all you have to do to lead public opinion is to have good intentions. That’s not enough. You also need to know what you’re talking about. If you don’t, then you’re a force working for economic destruction, and all your good intentions are worthless. Good intentions cannot be allowed to serve as cover for going through the economic system with a wrecking ball. But that is our situation today. For the last 75 years the Supreme Court has abandoned its role as the protector of conomic freedom, allowing ignorant Congressional majorities to do practically anything they like, however destructive their actions may be.

Driving under the influence of alcohol and other substances that impair judgment is dangerous and illegal. Legislating under the influence of Marxism, without Constitutional safeguards that serve to make such legislation illegal, is much more dangerous. It represents the unleashing of physical force against innocent victims: the threat of being dragged off to jail by armed officers for doing what serves one’s peaceable pursuit of self-interest and for refusing to do what one believes to be against one’s self-interest. If you want to know why our economic system is in trouble and getting in worse and worse trouble, Mr. Buffett, it’s because the government is more and more stopping people from doing what’s in their self-interest and more and more compelling them to do what’s against their self-interest. It’s that simple. And when it stops those who are capable of revolutionizing the economic system through the introduction of great new products and methods of production and the founding of whole new industries from pursuing their self interest, its action is an assault on the self-interest of everyone.

Concluding Advice

You need to educate yourself in the economic theory and political philosophy of capitalism, Mr. Buffett. You, your fellow billionaires, and practically the whole rest of the country have been steeped in an intellectual environment that is incredibly one-sided and biased in its treatment of businessmen and capitalists. Ideas such as those I have presented you with in this letter are virtually unheard of. Marxist ideas have had a virtual intellectual monopoly.

As illustration of this, consider the meanings of the words “socialist” and “capitalist.” A socialist is supposed to be a disinterested intellectual who believes, on the basis of his understanding of economics, history, philosophy, and perhaps other subjects as well, that socialism is an economic system operating in the interest of all mankind (other than the capitalist exploiters). But what is a capitalist? A capitalist is not any kind of thinker or intellectual, who advocates the capitalist system based on his knowledge and convictions. No. A capitalist is an owner of means of production. You and your fellow billionaires are capitalists. You and the other capitalists are assumed to be the only possible advocates of capitalism, based not on any consideration of the interests of mankind, but on the basis of your alleged narrow class interest in the exploitation of labor and the commission of harm to the rest of mankind. And, of course, even you and most capitalists are not in fact advocates of capitalism, because you and they have accepted the essentials of Marxism along with almost everyone else.

Thus, we have a situation in which there are two ostensible economic and social systems, Socialism and Capitalism, but allegedly only one set of disinterested thinkers: socialists. At the same time, the socialists are driving us toward ever more government control of our lives, a process which, if not checked, will end in enslavement and mass murder, as history has repeatedly shown, in such cases as Soviet Russia, Nazi Germany, and Communist China.

This is a situation that must be changed. There are pro-capitalist intellectuals. They are still few in number but intellectually they are far more powerful than the socialists. They have the potential to change the world in the diametrically opposite direction of the socialists, i.e., in the direction of individual freedom and the security of person and property. You badly need to become acquainted with their writings.

If you wish to do so, then I recommend above all that you study the works of Ludwig von Mises, especially his major classics, Socialism, Human Action, and The Theory of Money and Credit. Along the way, his shorter books would also be helpful, such as his Planning for Freedom, Bureaucracy, and Liberalism, as would be the writings of Henry Hazlitt and Frederic Bastiat. The writings of some of Mises’s predecessors in the Austrian School of economics, most notably Eugen von Böhm-Bawerk and Carl Menger, also contain major contributions. (There is valuable material in the writings of the old classical economists as well, in particular, Smith, Ricardo, James Mill, Say, McCulloch, Senior, and John Stuart Mill, but the great truths in their writings have generally been badly vitiated by the appearance of their being precursors to Marx.) In addition, you should be sure to read Ayn Rand’s Atlas Shrugged, The Virtue of Selfishness, and Capitalism: The Unknown Ideal. And finally, I recommend that you read my book Capitalism: A Treatise on Economics. A unifying theme, explicit or implicit, of all of these works is the demonstration of a harmony of interests between rich and poor and between capitalists and wage earners under laissez-faire capitalism, and thus the total absence of the exploitation of labor and class warfare under laissez-faire capitalism.

I’d like to close, Mr. Buffett, by making a final suggestion. If you read and study the authors I’ve just named, above all Mises and Rand, and reach the point of concluding that what they have to say at least deserves to be heard, then I would urge you to take a step along the path laid out by Carnegie. As I’m sure you well know, Carnegie founded thousands of free lending libraries, which served to bring enlightenment to vast numbers of people. What I would urge you to do is to contribute a substantial sum for the purchase of e-book versions of the works I’ve referred to, on behalf of libraries throughout the United Statesand the rest of the world, including university, college, and secondary school libraries, and public libraries. The goal would be to make these books accessible to students and intelligent members of the general public everywhere, including faculty members at all levels of education, journalists, lawyers, professionals of all descriptions, and, of course, businessmen. With today’s technology, people could read them on their laptops, i-Pads, or even smart phones. In the case of institutions of higher learning, enough copies should be bought to make possible the assignment of these books to large numbers of students at the same time, in order to be able to provide for instances in which portions of them would be recommended or required readings in courses but students were not required to purchase them.


Today’s educational establishment prides itself on its love of “fairness,” “level playing fields,” and “diversity.” This would be a chance for its members to prove it, by making students aware of these books as providing a serious and cohesive alternative to their own political and economic philosophy and assigning the relevant portions of them on a course by course basis in their liberal arts and business programs and in all other programs insofar as they contained courses that could be characterized as belonging to the liberal arts. You and your fellow billionaires should make this policy on the part of the colleges and universities an absolute condition of receiving donations or bequests from you for any purpose. You could think of it, perhaps, as the “Fairness for Capitalism Pledge.”

The success of this project would bring about a state of affairs in which much larger numbers of college and university students, and intelligent people generally, were exposed in depth to pro-capitalist ideas, as propounded by capitalism’s best defenders. Businessmen and capitalists are regularly vilified, denounced, and harassed in our society, not only to their loss, but to the loss of the entire society, insofar as such a climate again and again throws up obstacles in the way of further economic progress. The process emanates from the classroom, led by professors who are steeped in Marxism. This project will counteract that malignant and powerful influence.

Criminal suspects are advised of their right to an attorney. You and your fellow billionaires are regularly perceived as criminal suspects in the court of public opinion, where you are not only vilified, denounced, and harassed, but more and more made subject to actual criminal prosecution. In addition to the regular attorneys you all must employ, what you all need are attorneys before the court of public opinion. These authors are those attorneys. With their help, the great majority of you will be judged not only not guilty, but positively righteous in the eyes of the public.

The further, longer-run effect of global exposure to these authors could be a world of respect for property rights and all other actual individual rights. This would mean a world of free trade, freedom of investment, and ultimately the free movement of people from everywhere to everywhere. Such a world would be a world in which no motive would exist for territorial aggrandizement on the part of any country, since its citizens would already be able to gain everything they might wish from the territory of any other country simply by buying its products, investing in it, or living in it. In this way, the world-wide education of intellectuals in the economic theory and political philosophy of a capitalist society would be the foundation for a peaceful and ever more prosperous world.

Your substantial participation in this project, Mr. Buffett, would far more than wipe clean the harm you have up to now caused with your pronouncements on the subject of class warfare. I hope both for the sake of the advancement of capitalism as an intellectual movement and for your personal sake as well, that you will do the right thing and help to launch this project.

Yours sincerely,
GEORGE REISMAN


Copyright © 2012, by George Reisman. All rights reserved. George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics, Senior Fellow at the Goldwater Institute, and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996; Kindle Edition, 2012). His website is www.capitalism.net.