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Wealth is produced

By Gennady Stolyarov II
web posted January 9, 2006

Special interest groups often attempt to expropriate others, justifying their actions by claiming “their share of the economic pie.” They are able to get away with violating genuinely productive individuals’ property rights by exploiting a widespread fallacy.

This fallacy is the zero-sum view of wealth, perpetrated since at least the days of regulated Mercantilist economies. Its advocates view the amount of wealth in the world as static: what one man gains, another must lose. The “economic pie” was always there, and it was always the same size. The only question for the advocates of the zero-sum view is how to distribute that pie—how to “slice it up” among the different factions and pressure groups warring for possession of it.

Under this premise, socialist and mixed-economy governments everywhere pursue the “redistribution of wealth,” lest some people become “too wealthy”—which for the regulators necessarily implies that they had seized too much of somebody else’s pie.

But the zero-sum view is deficient beyond remedy. It presumes that there exists a static “economic pie.” But how did that pie come into being? Blank-out. If one answers logically, stating that the pie had to be baked, then the entire zero-sum view is demolished. If one pie can be baked, so can two; so can three; so can five billion—if somebody desires that many pies. Every pie—and every good whatsoever—had to be produced, and produced by some particular individuals. Wealth is not a static sum; it can be and must be created.

Imagine a blacksmith, living in an area with abundant forests and iron deposits. As they are in the state of nature, the trees and iron deposits are of little value to anyone. One can neither consume them nor use them to produce other goods. But if a miner extracts the iron ore and a smelter refines it, if a lumberjack cuts down some trees and a carpenter refines them, if the blacksmith then takes the resultant wood and iron and combines them into a hammer—wealth has been produced. The hammer did not exist in the state of nature; it might have never existed were it not for the creative minds of each of the individuals who saw it as desirable and produced it. In the making of the hammer, wealth was created. The world now has one more hammer; everyone is potentially better off, and nobody is deprived of anything.

But what will happen if the local town council, under the zero-sum view of wealth, decides that the “distribution of wealth” is inequitable and seeks to remedy it by taking away the blacksmith’s new hammer and giving it to the town beggar? The beggar, after all, does not have a hammer of his own, which implies that his “slice of the pie” is smaller. Will there be any reason for the blacksmith to produce any more hammers, knowing that they will be taken away from him and given to the “less fortunate,” who will likely use them as weapons in drunken bar riots?

Furthermore, what if the town council decides that there is a need to “equitably distribute” all the more basic goods that go into the hammer—the iron and wood? What if it confiscates these goods from their producers, the miners and smelters and lumberjacks and carpenters, to give equally to anyone who “needs” the goods? Will these individuals have any more incentive to mine and smelt and chop and refine wood? Why would they, if they receive no reward for the wealth they produce—a reward which entitles them to the fruits of other men’s production? Would hammers even be made at all, if the blacksmith’s suppliers were not allowed to sell their own goods to him?

Under the zero-sum view of wealth, the production question does not even exist; distribution is the sole concern. Under the creation view of wealth, however, production is the primary issue; distribution directly follows from it. Man is a volitional being who can interact with reality solely through the use of his reasoning mind. Only those who invested their minds in the production process are entitled to its rewards. The blacksmith—provided that he produced the hammer entirely on his own—is entitled to full ownership of the hammer and the prerogative to do with it what he will. His suppliers also have full sovereignty over the basic materials they extracted and refined; these were the products of their minds, and the producers have the right to sell them or use them or even throw them away if they so please. If anybody else attempts to force them to act contrary to their wishes, this will be tantamount to coercing the minds of the producers.

It is crucial to note that the man who invests sheer manual labor in the production of a good is not necessarily entitled to the full rewards of that process. Labor is not the primary root of production; the mind is. The mind determines what to produce, how to arrange the production process, and what labor to use. To the extent that labor requires a mental component to be performed, the laborer should be compensated. Every human manual laborer has to think about the task he performs and deliberately orchestrate his movements; this is why he gets paid. On the other hand, sheer mechanical labor deserves no compensation; this is why robots on assembly lines receive no wages.

The man who expends the most mental effort in producing anything is the entrepreneur—the individual who conceives of the product to be made and plans the process of making it. The entrepreneur is the creator, the organizer, and the indispensable source of all production. Whether he is a blacksmith choosing to design and make his own hammer or a CEO of a multinational corporation choosing to produce a new oil platform, computer, medical drug, or skyscraper, the entrepreneur has full rights to the fruits of his production—once he has compensated everyone else he has hired for the value of their contributions.

The creation view of wealth is indispensable to capitalism. Under capitalism, private property is inviolate; any attempt to “equitably redistribute” it is deemed unjust and rightly resisted. But the validity of this system presupposes a certain view of wealth—a view clearly stating that any “redistribution” of wealth by anyone but the producers themselves would only be detrimental, because the producers would be harmed. This presupposes again that there is such a process as production and such people as producers, who engage in it.

Only if the possibility of wealth’s creation is recognized can the premises underlying capitalism be correct. Of course, it is quite elementary to recognize—if one observes overwhelming evidence for it in reality. Does there exist more wealth now than there was in the Paleolithic Period? If not, what explains the colossal technologies that people during the Paleolithic Period did not have, or the presence of thousands of times more food now than existed then? Unless one would make the ludicrous assertion that Paleolithic hunter-gatherers drove automobiles while listening to iPods, one cannot support the notion of a static “economic pie.”

The facts of reality are inescapable for those who choose to genuinely observe reality: there exists much more wealth today than there was five years before—not to mention fifteen millennia ago. What separates us from caveman savages is the creation of wealth—our own and that of illustrious minds before us. When somebody creates wealth, nobody loses. For every hammer Person X makes, Person Y does not magically lose one. Instead, everyone is potentially in a better position as that hammer might be used to build a machine Y will be interested in buying, or a facility Y will want to visit.

To all those who seek wealth through special interest group warfare, I say this: slice up all the pies you like, but bake them first. And keep your hands off mine!

G. Stolyarov II is a science fiction novelist, independent philosophical essayist, poet, amateur mathematician, composer, contributor to The Autonomist and Le Quebecois Libre. He is also Editor-in-Chief of The Rational Argumentator, a magazine championing the Western principles of reason, rights, and progress. Learn about Mr. Stolyarov's newest science fiction novel, Eden against the Colossus, here and about his comprehensive philosophical treatise, A Rational Cosmology, here.

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