A Journal for Western Man-- Issue VIII
Dr. George Reisman
6) As von Mises has shown, in a market economy, which, of course, is what capitalism is, private ownership of the means of production operates to the benefit of everyone, the nonowners, as well as owners. The nonowners obtain the benefit of the means of production owned by other people. They obtain this benefit as and when they buy the products of those means of production. To get the benefit of General Motors' factories and their equipment, or the benefit of Exxon's oil fields, pipelines, and refineries, I do not have to be a stockholder or a bondholder in those firms. I merely have to be in a position to buy an automobile, or gasoline, or whatever, that they produce.
Moreover, thanks to the dynamic, progressive aspect of the uniformity-of-rate-of-profit or rate-of-return principle that I explained a moment ago, the general benefit from privately owned means of production to the nonowners continually increases, as they are enabled to buy ever more and better products at progressively falling real prices. It cannot be stressed too strongly that these progressive gains, and the generally rising living standards that they translate into, vitally depend on the capitalist institutions of private ownership of the means of production, the profit motive, and economic competition, and would not be possible without them. It is these that underlie motivated, effective individual initiative in raising the standard of living.
7) A corollary of the general benefit from private ownership of the means of production is the general benefit from the institution of inheritance. Not only heirs but also nonheirs benefit from its existence. The nonheirs benefit because the institution of inheritance encourages saving and capital accumulation, to the extent that it leads people to accumulate and maintain capital for transmission to their heirs. The result of the existence of this extra accumulated capital is more means of production producing for the market, and thus more and better products for everyone to buy.
The effect of additional capital, of course, is also an additional demand for labor, and thus higher wage rates. The demand for labor, it should be realized, is a major means by which all privately owned means of production operate to the benefit of nonowners. Capital underlies the demand for labor as well as the supply of products.
8) Under capitalism, not only is one man's gain not another man's loss, insofar as it comes out of an increase in overall, total production, but also—in the most important cases, namely, those of the building of great industrial fortunes—one man's gain is positively other men's gain. This follows from the fact that the sheer arithmetical requirements of building a great fortune are a combination of the earning of a high rate of profit on capital for a prolonged period of time, and the saving and reinvestment of the far greater part of the profits earned, year after year.
As we have seen, the earning of a high rate of profit for a prolonged period of time, in the face of competition, requires the introduction of a series of significant innovations. These innovations represent better and less expensive products for the consumers. The saving and reinvestment of the profits earned on the innovations constitute the accumulation of means of production, which also serves the consumers. Thus both in their origin, in high profits, and in their disposition, in the accumulation of capital, great industrial fortunes represent corresponding gains to the general consuming public. For example, old Henry Ford's starting with a capital of $25,000 in 1903 and ending with a capital of $1 billion in 1946 was the other side of the coin of the average person becoming enabled to buy a greatly improved, far more efficiently produced automobile—produced largely in factories representing Ford's billion.
9) As von Mises has shown, the economic competition that takes place under capitalism is radically different than the biological competition that prevails in the animal kingdom. In fact, its character is diametrically opposite. The animal species are confronted with scarce, nature-given means of subsistence, whose supply they are unable to increase. Man, by virtue of his possession of reason, can increase the supply of everything on which his survival and well-being depend. Thus, instead of the biological competition of animals striving to grab off limited supplies of nature-given necessities, with the strong succeeding and the weak perishing, economic competition under capitalism is a competition in who can increase the supply of things the most, with the outcome being practically everyone surviving longer and better.
Totally unlike lions in the jungle, who must compete for a limited supply of animals such as zebras and gazelles, by means of the power of their senses and limbs, producers under capitalism are in competition for a limited supply of dollars in the hands of consumers, which they compete for by means of offering the best and most economical products their minds can devise. Since such competition is a competition in the positive creation of new and additional wealth, there are no genuine long-run losers as the result of it. There are only winners.
The competition of farmers and farm-equipment manufacturers enables the hungry and weak to eat and grow strong; that of pharmaceutical manufacturers enables the sick to recover their health; that of eye-glass and hearing-aid manufacturers enables many who otherwise could not see or hear, to do so. So far from being a competition whose outcome is "the survival of the fittest," the competition of capitalism is more accurately described as a competition whose outcome is the survival of all, or at least of more and more, for longer and longer and ever better. The only sense in which only the "fittest" survive is that it is the fittest products and fittest methods of production that survive, until replaced by still fitter products and methods of production, with the effects on human survival just described.
As von Mises has also shown, with his development of Ricardo's law of comparative advantage into the law of association, there is room for all in the competition of capitalism. Even those who are less capable than others in every respect have a place. In fact, in large measure, competition under capitalism, so far from being a matter of conflict among human beings, is a process of organizing that one great system of social cooperation known as the division of labor. It decides at what point in this all-embracing system of social cooperation each individual will make his specific contribution—who, for example, and for how long, will be a captain of industry, and who will be a janitor, and who will fill all the positions in between.
In this competition, each individual, however limited his abilities, is enabled to outcompete all others, however superior to him in their abilities they may be, for his special place. Quite literally, and as an everyday occurrence, those with abilities no greater than required to be a janitor are able to outcompete, hands down, without question, the world's greatest productive geniuses—for the job of janitor. For example, Bill Gates might be so superior an individual that in addition to being able to revolutionize the software industry, he might be able to clean five times as many square feet of office space in the same time as any janitor now living, and do it better. But if Gates can earn a million dollars an hour running Microsoft, and janitors can be found willing to work for, say, $10 an hour, their readiness to perform the job at one one-hundred thousandth of the hourly rate Gates would require, so far dwarfs their lesser abilities that it is they who are "hors de concours" in this case.
At the same time, because productive geniuses are free to succeed in revolutionizing products and methods of production, those with abilities no greater than required to be janitors are able to enjoy not only food, clothing, and shelter, but even such products as automobiles, television sets, and personal computers, products whose very existence they could probably never have even dreamed of on their own.
The losses associated with competition are at most short-run losses only. For example, once the blacksmiths and horse breeders put out of business by the automobile found other lines of work on a comparable level, the only lasting effect of the automobile on them was that they too, in their capacity as consumers, came to enjoy the advantages of the automobile over the horse. Similarly, farmers using mules, who were driven out of business by the competition of farmers using tractors, did not die of starvation, but simply had to change their line of work, and when they did so, they along with everyone else enjoyed both a more abundant supply of food and of other products as well, which other products could be produced precisely on the foundation of labor released from agriculture.