Episode Transcript
Speaker 0 00:00:01 Yeah, I loved your gratitude for our email that we're sending out next week. Oh yeah. Okay. Well you want to get started?
Speaker 1 00:00:45 Sure. I thought I would spend some time. The topic is profit and really, um, I think this is a very important, uh, issue, not only in economics, but in moral theory. And I wanted to simultaneously go through a bit of the history to give some context, but also mainly focused on what I consider to be pretty good news about recent treatments of profit, mostly coming from, uh, objectivist thinkers, both in philosophy and economics. Now, you know, as far back as 2005, when I wrote probably the lengthiest thing I've ever written on profits, it was called the false profits of antitrust. So it was in an anti-trust book and a book calling for the abolition of antitrust. But I thought I would go at it from the standpoint of why profits are so distrusted and therefore, therefore, why some of the most profitable companies are targeted, uh, under antitrust.
Speaker 1 00:01:46 And the opening line of that essay that chapter was for was quote for more than two centuries economists have been at a loss to explain profit. I thought that was a pretty clever line, but so the chapter goes through, um, a couple of things you should know about the very first economists were called physiocrats. They were French. They were the first ones to see the economy as a systemic systematic thing, but they thought all value came from agriculture from the farming sector. So they were suspicious of other sectors like manufacturing, trade and finance. Now, when you fast forward to people like Adam Smith, who was basically known in 1776 with the wealth of nations, as giving rise to the whole field of political economy, uh, even Smith had this, uh, suspicion of profit in the sense that he believed in what's called the labor theory of value.
Speaker 1 00:02:39 So the labor theory of value is the view that, uh, well, not in this case, not farmers, but laborers and manufacturing, manual laborers, mainly not so much skilled or mental one were the primary creators of value. So you had the same problem. Namely, you had an economist trying to explain the wealth of nations, but not yet bringing in intelligence or certainly not bringing in the idea of a call it a white collar worker who doesn't get her hands dirty. Like what role is she playing? And so the labor theory of value would also give some suspect to suspicion, to anyone other than a manual labor. And that gave rise to things like, well, there were a robber barons, and apparently these people are no different than from the feudal Lords that have proceeded them. Now, perhaps the most fit, not by the way. The labor theory of value was held by Adam Smith who was considered a free marketer.
Speaker 1 00:03:33 So also for David Ricardo, who was considered a free marketer in 1817 book, James mill and John Stuart mill, his son, same thing, the only person, the only economist in that entire stretch of time, um, to I'm talking about 1776 to 1870, who thought of profit as legitimate and coming from intelligence, which is basically the objectivist view was John baptize say. So that's one reason that he's one of my favorites. He was also not coincidentally the first one to come up with, uh, entrepreneur theory, a theory of the entrepreneur Smith. You may know, thought of, um, the great wealth of nations as caused by what he said, something like an invisible hand overseeing at all. Well, that, that very idea of the hand being invisible, not as visible as the entrepreneur, it didn't really have any theory of the entrepreneur because he had this labor theory of value.
Speaker 1 00:04:29 So, and even the division of labor, which he gave great, uh, attention to which he should have the division of labor and the specialization of labor, you know, really does create the wealth of nations, but, but who organizes labor who hires labor, who, um, divides it. And in fact, then reunites it, well, this is the, this is the missing person, uh, up until very recently, this is the entrepreneur or the capitalist. Now Marx is known in the 1840s, fifties, and sixties. Uh, Mark's is of course best known for just taking the labor theory of value instead of giving it a benevolent turn, which Smith did gave it a malevolent turn and said, these are bloodsucking parasites. If, if he says, if you guys are right, meaning Smith, Ricardo mill, if you guys are right in the manual, laborers are the sole creators of wealth. And then you can't explain why these others are accumulating wealth.
Speaker 1 00:05:21 So they're not only getting well wealthy, the mental workers, so to speak that capitalist seemed to be richer than anyone. So their thought there, and that was becoming more apparent apparent in the mid 18 hundreds, much more so than in the late 17 hundreds. So mark set up this system by basically saying, well, they are really, really thieves, huge grand larcenists. Um, by the way, it wasn't until about the 18 seven days that the picture turned a bit brighter in what today is called. And for years have been called the Neo classical economists. So Neo means new. They were trying to revive, uh, Adam Smith's case for free markets, but the neoclassicals wanted to properly reject the labor theory of value. So they came up with what they call the utility theory of value. It really had been borrowed from Jean-Baptiste say, but the whole idea of well value is determined by the utility or the satisfaction that consumers get from buying things.
Speaker 1 00:06:17 And it's not the quantity of labor that goes into making things okay. That was an important shift, but many of the, uh, classical economists were still in a defensive mode. They were in a defensive mode and trying to say, listen, Marx is wrong. This is not really exploitation. Uh, that is the source of profits, but then they really didn't have their own theory of profits. I mean, some of them talked about the entrepreneur again, Mangere did was one of the first Austrian economists in the 1870s, Carl manga, but they came up with something that is more common today, which is the idea that profits are okay if they motivate someone to create something, including a business or an industry or a product, but they really should be temporary. They really should be transitory. They're not, they're not really normal. There's there is something that just kind of spurt out of the ground when some new creation occurs.
Speaker 1 00:07:07 Now there is creation associated with profit and the profit motive, but, um, it was really a weak argument for a profit and a defensive one, a morally defensive one. And that led up until about 19 to 1920s or so to another famous person on profit. Now this is from the Chicago school of economics. So they're known for free markets as well, but a hundred years ago, a guy named Frank Knight wrote a book called risk uncertainty and profit. And this was really just terrible in the sense of he's the one who brought up the, what is now common in my economic courses, the litney and list of what's called pure and perfect competition. So that may not seem to relate in any way to profit, but the pure and perfect competition model effectively says there should be no permanent profits that there's some market failure associated with that, that it's either charging customers too much or paying labor too little paying labor, too little would be the old Marxist view underpaying labor.
Speaker 1 00:08:11 But you see this idea that they, that that night and the Chicago school, by the way, the Chicago school that gave rise to Milton Friedman and others could not explain even a hundred years ago in the 1920s, what profit was, whether it was legitimate or not, uh, who made it and, uh, should there be any limits to it? Um, so to this day in microeconomics courses, they'll, we'll teach, what's called the perfect competition model. And the, and they'll say that's a checklist of six or seven things. There must be many, many sellers, not a few. They must all have a very small market share. They must have no pricing power, but really on the issue of PR no product differentiation, no advertising. So it's one of these platonic egalitarian imposed upon economic analysis. And, uh, and, and as I said, in profits, they would say the ideal market, the ideal industry would have no profits.
Speaker 1 00:09:05 So there's obviously still there's this assumption that profits must be a zero sum game. And therefore the, the ideal would be not to have them at all. And, uh, so that's still in the textbooks that used for trust, busting and regulation and a whole bunch of things. How do they do it if you ask them? Well, this model is unreal. They'll say, of course, it's unreal. And if you say, why do you have this unreal thing? They'll say, well, it's the ideal. And then if you say, well, what's its purpose. Um, you know, just to confuse a undergraduate, no, the purpose is to use as an instrument to guide government policy. And so it's not like they run around and trust, bust every company they can find, but there's this constant presumption that there's massive guilt going on. If there's big companies that so big becomes bad, uh, and big is, you know, very profitable, very sustained profitability over time.
Speaker 1 00:09:59 And that's just seen as in a suspicious way. Um, now I just want to shift to what I think is the good news. Cause I think I want to leave some time for discussion back and forth and questions as well. Um, in the, uh, broader scope of things, uh, just to put a positive note on it, um, I would say profits are the net production of wealth. That's it? That's the shortest answer I can give there a gain in economics. Now, the net production of wealth, what is well welded something that's valuable to us materially to enhance our lives either to, to survive and or flourish. So everyone knows pretty well. What welfare is, they see the production of wealth or the relationship of profits. Profit means you produce something above and beyond what you use up in the process of production. And we do do that.
Speaker 1 00:10:53 When you make stuff, you use other things up and then you make something. And if there isn't a quote net gain from doing that, you've effectively created no wealth. Um, interestingly, Isabel Patterson, there was a close friend of mine, ran on an intellectual in the twenties and thirties wrote in the God of the machine. She used this example of, uh, the potato farmer. Now this is a good example because there's no money involved. She says, everybody knows that if you put potatoes in the ground and wait long enough, you'll get potatoes. And she said, what is profit? If you put a potato in the ground and get five potatoes, what your net profit for four extra potatoes. But the first data of course, went into the ground and is lost so to speak. And so it was a very clever way of concretizing Patterson. Um, the idea that profit is production, but it's net production.
Speaker 1 00:11:46 Now, if that's true, it is true by the way, imagine how that would totally transform the idea of profit. If profit is production, you would never one come out against profit. You would say, that's the basis of everything we actually have today. Then if there had not been profit, we would literally not see the capital, the products and all the things that we use today they came about because someone created a value above and beyond the value used up in the process of production. Now for you accountants out there, you know, that just means revenues minus costs. And that's kind of a boring way of looking at it, but revenues are sales, you know, times a certain price, and that's where you get your revenues. And the costs of course, are the costs it takes to make things. So again, that just brings it back to this idea of net production.
Speaker 1 00:12:37 So that's what it is. And until that's understood, there's going to be continued hostility toward profit, continued hostility toward capitalism and entrepreneurs and capitalists, which embody this whole system. Now I want to say something else about how unique objectivism is regarding profit. Um, the main thing is, uh, other than this idea that profit is net production. The three or four main ideas are wealth comes from intelligence. It does not come from physical labor does not come from muscles. Now, of course, we're not disembodied souls. We're not just minds walking around. We are integrated mind and body, but it's just a plain fact that certain people are more intelligent, more creative, more conceptual, more innovative than others. And when they bring this, um, set of talents to the commercial world, they're the ones who are creating profits. There's the ones who are starting businesses. They're the ones who inventing a new products and new methods and new designs.
Speaker 1 00:13:39 So the, the issue of, uh, not manual labor, not physical, but mental as the source of wealth is very, very crucial. Um, the other important thing is the, uh, what I call the <inaudible> rankled, the pyramid of ability. So that's in Atlas shrug, and it's this idea that there's a harmony of interests among different people who are differently productive. It's not necessary for everyone to be equally productive. They can work together, but the pyramid is the idea that the further up you go, the rarer it is to find people who can run whole enterprises, a rarer. It is, these are precious people, so to speak and they deserve to be paid well and compensated well. But there's no exploitation of those below, uh, Iran's point was really flipping marks on his head. Was those down Ballou actually benefit enormously from those up above the ones up above can do the jobs down below.
Speaker 1 00:14:36 Um, uh, but the ones below cannot do the jobs up above. So that's another key principle that, um, contributes to a more rational profit theory. Another important one is rational egoism. So assuming this audience knows Iran's case for rational egoism, the profit motive is the commercial manifestation of that ethic. That's it? It's the commercial manifestation of wanting to gain for yourself or for your compatriots or for your associates in a business enterprise. So, um, always remember that that, that, um, the profit motive and one of the reasons it's, uh, rejected or despised is similarly the rejection and despising a rational legalism. So most people know, and they recognize even the critics of business that businessmen are very, and, and ladies are very rational calculators and they, you know, they, they have profit margins and they want to crunch the numbers and they, they, they play with interest rates and have, and costs and associate and things like that.
Speaker 1 00:15:45 There it's a very mathematical, if you will rational calculating reckoning system. Um, but it's also the motive of gaining, not losing, uh, growing, not shrinking. So that's another thing that objectivism, I think, contributes, um, to profit theory. Um, finally, I guess the trader principle, that, that goes back to my point about the rejection of the idea that this is a zero sum game, that in a free society, people trade because they expect mutual advantage and mutual benefit, and the benefits don't have to be identical. Of course, that's, what's Miguel Attarian report would require the benefit. Benefits can be unequal, but as long as the exchange is voluntary, there's mutual satisfaction going on there. So that's also arguing against the zero sum game idea and pushing away from the idea that profit, uh, is theft. Um, I just wanted to go through quickly four or five Objectivists writings on profit over the last few decades.
Speaker 1 00:16:48 You might be surprised to learn that there isn't actually that much on it. And, um, that's, uh, something worth rectifying. And I've tried to do that, but just as a quick survey, there's actually very little discussion of profit in, uh, capitalism, the unknown ideal. There, there are a couple of essays by Greenspan that refer to profit, but profits not even in the index, which is, I think is interesting. It's also not even in the Iran lexicon. So that was put together in 1986, by benzo hangar and scoured the entire Corpus for key concepts and profit doesn't come up there either in the capitalism, the unknown ideal that the discussion of some of the antitrust cases does refer to the fact that the most successful companies are usually the most profitable, but there's just not a profit theory in there. Now, fast forward a bit to peacock's book on objectivism, the philosophy of Iran, there is an entire chapter on capitalism, chapter 11.
Speaker 1 00:17:48 It's a very good chapter. Um, and it has a couple of references, a couple of very incisive, although brief mentions and discussions of profit. So one of them is from three 90 to 91 and another one is on the profit motive from 400 to 400. And one, I, I won't quote from that because it'll take up too much time, but there are three or four pages in there where he's very good about explaining what I call the Isabel Patterson theory of profit is production. And then on the moral point and why, by the way, he also says profits are objective under a system of capitalism. And from that, he gets the idea. He derives that from the idea that prices themselves are objects, meaning they're not just dictated by the price setter. Uh, so they're neither a nor are they intrinsic. So they're neither subjective nor intrinsic, but our objective and competition has something to do that with that.
Speaker 1 00:18:46 But if that's true, if you believe that prices are objectively determined under capitalism, well, profit is basically the difference between two sets of prices, uh, revenues and costs. I've already talked about that. So there's a kind of derived argument for the objectivity of profits there, but then also Peikoff says quite rightly, if this is true, there would be no reason for speaking of obscene profits or abnormally high profits or excessive profits, if it's net production and it's moral. Well, the more, the better he also does in the section on the profit motive, make the point that, uh, it connects up with Iran's argument for rational egoism. So that's a good source to go to now, another 1, 19 96, George Reesman a famous objectivist economist wrote, uh, uh, capitalism, a treatise on economics 1996. Now the, the thing about that is, uh, he obviously rejects the labor theory of value and he has a really good critique of the exploitation theory of value of profit by marks, but he, but Reesman has a very odd consumption of profit.
Speaker 1 00:19:54 And I think it's partly influenced by, uh, Meeses who was his mentor as well. But it just, in brief, he says that profit comes from the net consumption of capitalists. It's a very odd, instead of focusing, in other words, on the productive prowess of entrepreneurs or capitalists, he comes up with an accounting system that tries to suggest that, uh, odd as this may sound, the more capitalists spend on their own private consumption, the more they contribute to profit. It's a very odd, and I think unsatisfying on satisfactory account of profit. I don't want to diminish it because there's a lot more to it than that, but I have a critique of it in my essay, and that's what I'll turn to next. I have a chapter called the false profits of antitrust in a book called the abolition of anti-trust and that's 2005. And I think that book is out of print by now, which is a shame, but I'm going to try to revive this chapter and possibly turn this into a larger book and project, which is one of the reasons I'm talking about it today.
Speaker 1 00:20:56 But there I go through the entire history of profit theory, and then I do jump to the more modern ones. Reesman the Austrians, the free marketers, and finding that even among free marketers today, there's a real weakness in describing and defending profits. Um, but I, I consider that myself as an objectivist economist, a contribution to reviving and improving profit theory, I also contributed to the new textbook of Americanism a couple of years back in a book, uh, edited by Jonathan Hoenig. And that was interesting because that was a book that tried to finish the questions. Iran ran, never got around to finishing when she did the textbook of Americanism in the forties. I think it was, she set out a number of questions she had about capitalism and morals and things like that, and American history, and she didn't finish the project. So Amy Peikoff and others, a few years back said, let's take her final questions and try to go to specialists and answer them.
Speaker 1 00:22:00 And one of the things she Iran asked herself was what is the mark from memory here? What is the Marxist argument about production for profit versus production for use? Again, the Marxist view was production for profit is theft, and we should only be producing things to use them not to gain. And she didn't really have an answer to that. So I did answer it briefly, uh, in that volume. So you might want to pick up that volume, um, net the next level, two more books, and then I'll stop. There was a real, there's a really great book in 2011 from, uh, objectivist business professor Yana, whoa, whoa, shit was so will session. So it's hard to pronounce w O I C E S H Y E N. She and I met many, many years ago. I gave a talk up at Calgary where she taught for many years.
Speaker 1 00:22:52 I believe she's now retired, but she wrote a great book called how to be moral and profitable 2011. Make sure you get your hands on that. I would say it's not so much an argument on the economics of profits, but that's okay. Her focus was on giving almost like a hand book, a guide to CEOs. And of course, future CEO, she taught at a business school, uh, that they should be aware that profit was value creation, that they shouldn't feel guilty about it. That profits should not be seen as immoral or even amoral. And the importance of this book is not only coming from an objectivist with some very good premises and some very good arguments, but in the field of business ethics, which has really eroded badly over the years. So when we worry about woke CEOs and we worry about corporate suites going the wrong way is because of decades and decades of corporate future corporate people being taught to feel guilty about not only their business enterprises, but profit, and then to feel especially guilty about the what's called the shareholder model of corporate governance, which is that the owners or the shareholders should be the beneficiaries, the primary beneficiaries of the company's success, including the company's profits.
Speaker 1 00:24:12 And that the goal of the managers should be to maximize profits and maximize shareholder value. That's been totally over well, not totally, but it is being eroded and overthrown by something called the stakeholder model. That model based much more on altruism, which says, oh, I'm not the owners of the company, but others are non-owners who will, who we will call stakeholders. This comes by the way from law schools and business schools, either stakeholders could be employees, suppliers, local politicians I've heard even the earth thrown in there, or the earth is a stakeholder and has some, a future generations. There's like there's dozens of quote unquote stakeholders that these sort of business ethics professors have come up with over the years. Anyway, the one session book is, uh, argues against that and makes a really nice case for the morality of profits geared to, um, future business executives.
Speaker 1 00:25:10 And of course, existing business executives can read the book with profit, no pun intended. And lastly, I want to name someone. This is now more recent. Uh, Robert White, Robert White got his PhD in moral and political theory from the university of Auckland. And that was a, do you know, that's in New Zealand and he's written a fabulous book, which just came out last year called the moral case for profit maximization. Now white is an objectivist. So in addition to the post session book where we're beginning to get the beginnings of a, a little library here, not very big so far, but of Objectivists who know philosophy and business ethics and economics enough to be writing books geared to defending and explaining profit and the profit motive. Um, so I highly recommend that book. I got through, uh, reading it a couple months back. It's really very good.
Speaker 1 00:26:10 Um, he's at the universities at the American university in Bulgaria right now believe he's a totally of course, English speaking, but it's a really good book. He also some of the early excerpts of that, what appeared in that book showed up in the journal of Iran studies. And now one of the nice things that Robert White does in that book is he says, he says a prophet is an abstract concept. There's no doubt about it. And then he spends many pages and really nice work, uh, concretizing it more, bringing it down to well, where to prop what is profit come from? And he discusses economic goods and services and the creation of value and value judgments. So now these will sound a lot. They are economic things, but he's got the benefit of the objective is to piss demolish where he's recognizing that one of the reasons people do not understand profit is they have not tied the concept to reality and large parts of this book do just that.
Speaker 1 00:27:07 And it's just fabulous. I have some differences with them on things here and there, but it's a very good book. It's a very substantial book it's put out by Lexington publishers and, you know, an academic publisher. So that's good as well. So I just wanted to, uh, kind of, I think I'll end with that as probably enough material there for you folks to chew on. If I were to sum up my point, it would be profit and the profit motive, or really crucial not only to economic prosperity, but to the case for capitalism 0.1 0.2. It really has not been until recently that there have been decent discussions of explanations of, and moral defense, economic and moral defenses of capitalism. Point two 0.3 yield. You be surprised how many free market economists cannot defend profits. And I think it's because of this moral uncertainty they have about a moral, uh, qualms they have about it.
Speaker 1 00:28:10 They, they know that it's really rational egoism. So to the extent they are going to question that, they're also going to question, I think profits and the profit motive. So sad to say, but NIS is, believe it or not says, profits are not normal. They come from disequilibrium. And when the economy gets back to normal, the profits go away. Schumpeter, who was one of my favorite also can be considered an Austrian economist as a great theory of the entrepreneur and the disruptor and the, uh, process of what he calls creative destruction. But he too, in the end, comes down to the idea that profits are not, are just a transitory thing. And if they last longer than that, there's something wrong with the markets. And then my final point, I think the three or four things I said that Iran contributed to, um, what ultimately contributes to profit. There are very important and there's a lot of ground to be mined there. There's a lot of good stuff to still do on profit theory. So I'll leave it there. I hope that's interesting enough for tonight.
Speaker 0 00:29:14 No, that was fantastic. Richard, thank you. Um, I brought Scott up because he always has great questions. I also want to recognize a few people in the room. We have a few people from the Atlas society staff. Aaron is our director of programs, Vanessa with associate dot Atlas, director of outreach, Lawrence, our editor. And, uh, and I see a few people I recognize in the audience knew to clubhouse, but definitely not new to objectivism. So I want to invite anyone in the audience. Just raise your hand if you'd like to just jump in. If you have a comment on what Richard just shared or a question we'd love to hear from you,
Speaker 2 00:30:02 Thank you. A good subject matter. Uh, appreciate it. Um, yeah, it's great to see that you're, you know, talking about people from across the objective of spectrum as well. I know what Jonathan Haney, uh, just did a book about, uh, you know, price being primary. But when I think about, uh, profit, you know, I, I did a stint working for a contractor, a concrete contractor, and, you know, the profit for him was he had the bid job based on how much concrete he'd need, what the space was. And then, you know, just for the risk or whatever was going to go wrong. He had to take that into account. And I just think in, you know, in the real world, uh, I mean, that's what, you know, necessitates the need for profit that so people will endeavor to start a project to begin with.
Speaker 1 00:30:58 Yeah, I agree with that. I think the, I think the level I'm aiming at, although it's not inconsistent with the level you're referring to here, if we're just trying to understand the economics of it, um, I mean they refer to profit margins. So the idea of, uh, what is the difference between revenues and costs and, and yes, risks are involved as well because there's no omniscience about how projects or companies or products will do. And so people have these different risks, risk profiles. That's, that's true as well. So some of them will require a wider margin of profit than not. But I think the, I think that's not, what's holding back, um, profit theory. I think what's holding it back as moral arguments. And, uh, and then I think, uh, that may sound odd to someone like me coming, coming at it from the economics perspective, but I know that morality and sometimes even politics drive the economics of this. So, um, yeah, the, the mechanics of what you're talking about are there, and they're important, but that, I don't think that is really the source of the hostility toward it. And to put it positively, if we're going to get applause, if we're going to get a plotting of success and profit making, we're going to have to make this moral argument that it's a matter of, um, as I put in a commercial manifestation of rational legalism, the other thing that
Speaker 0 00:32:29 A little bit muted. So
Speaker 1 00:32:33 Frankly, I think the other problem that people have, which I did not mention is they'll say that it's due to luck. So that's out there as well. It's not just, there's not just the exploitation theory, uh, which has become really crude to the point where that's, that's more easily dismissed, more easily dismissed as people think about things like the information economy when they hear things like that, they think, wow, okay. Yeah. Wealth is created by, you know, not just by tangible things, but by information and people who can generate information, but the idea of luck, it comes in there as well. And if the idea is, well, someone just profited because they're lucky, um, it's still contributes to a view that it's undeserved. And if it's undeserved, then it's, it's either unjust or are not just as a lot easier to go punitively tax someone or trust bus them. If you say that the results of their efforts are, are basically random. So I wanted to throw out that as well. And, and so people are often looking at it anecdotally, they'll say, well, I can, I can give you a case where this guy is an idiot and he's still made a fortune. So please explain,
Speaker 2 00:33:40 I'll say it's his privilege?
Speaker 1 00:33:42 Oh,
Speaker 0 00:33:44 Linda Linda
Speaker 3 00:33:46 Question. Um, I came in a couple of minutes late, so I may have missed this. Uh, is there a online or printed list of the books that you entertain did orally here? I didn't have, I wasn't in a place where I could write fast. Is there a list of the titles? Okay.
Speaker 1 00:34:06 Well, I don't, I don't know if they're in one specific place, but the ones I can repeat for those who want to take them down is, uh, whoa. Session w oh, I see
Speaker 0 00:34:17 Richard. Why don't, why don't you repeat that? And we'll have, uh, maybe Lawrence on our staff can take it down and send it to Linda.
Speaker 1 00:34:24 Oh, okay. I think what I'll do is to save time. I'll send that to Lawrence. I'm done the list.
Speaker 0 00:34:31 Great.
Speaker 3 00:34:33 Thank you. That would be great.
Speaker 1 00:34:35 You're welcome, Linda. Thanks.
Speaker 2 00:34:38 One thing I've found in, uh, you know, debating even a socialist is they'll pay lip service to the idea that wealth is created in the pike spans, but then in reality, I mean, once you really understand that, then expanding the pie is the most important thing. And even though they pay lip service to it, they really just still want to redistribute and don't accept it in reality.
Speaker 1 00:35:09 Yeah, of course the whole pie thing strikes me is, um, some, uh, somewhat collectivist approach, but here's another way of thinking about it. Um, if I said, what is the income to an land owner? Uh, people will say rent. If I say, what is the income to a quote unquote labor? I hate that word as well, because it suggests that mental labor isn't labor. So they'll say wages. They say, what about a lender, uh, interest. So now, if, and, and most of those, although the lenders held in suspicion as well as a parasite. But, um, if, if, if the world got used to thinking, well, who owns, who makes profit? What is, what is the functionary, if you will, but you know, the equivalent of the landowner, the labor and the lender, and the answer I would say is the capital list. Maybe no surprise there, but sometimes it will be described as the entrepreneur.
Speaker 1 00:36:06 Now, to me, the entrepreneur or the CEO is really rare, valuable high priced labor. Um, I have no problem with the word labor. I often teach it as a manual labor, skilled labor and mental labor as you go up as you go up the pyramid, so to speak. Uh, but when you think about profit, it's earned by a company. And to the extent they pay out dividends a perfectly fine word for a portion of the profits, they go to the owners, they literally go to the shareholders. And I think this is another difficulty people have a shareholder to them, could be, well, it could be like a grandmother holding the shares of a Tesla, you know, in her pension plan. And nobody thinks of that grandma as productive. So they're wondering why she gets profits, you know, so, so that's another thing that the pro capitalist argument will have to deal with this it's this partitioning and, uh, assigning of legitimate income to legitimate functions, um, without getting it without getting all snarled up in these confusions about who's doing what and why this, by the way, I remember this came up with Romney running in 2012, he was a, basically a finance here for being capital.
Speaker 1 00:37:25 And he, uh, therefore didn't really come from the manufacturing business. He came from the finance side and all his competitors in the primaries, all the Republicans, including, uh, uh, Newt Gingrich and others were calling him a vulture capitalist, not a venture capitalist, but a vulture capitalist. So, so on the right, even there was this suspicion of who's this guy running for office, and how did he become a millionaire and why is his tax rates so low? And he hasn't gotten its hands dirty in a long time. And, and that kind of bias and that kind of prejudice is just terrible. And I would say by the way, Trump, one of the reasons I believe Trump succeeded in ways that Romney didn't is that he builds buildings. He, he builds things with his name on it that are tangible and visible to all, and most Americans love skyscrapers. And I think that actually helped him in the sense of not being targeted as, as a Robert Barron or financier.
Speaker 0 00:38:31 You have Jayla pear chairman of the board of the Atlas society in the room and up on stage. And he actually also builds things and manufactured.
Speaker 4 00:38:43 Yeah, thanks. I'm sorry. I'm so late up, got actually stuck on a business call with all things. Um, the, the, the kind of question of, as you get more abstract, somehow you can change those elements without impacting the other elements as if some parts of productive and some are not, is that where you've just been discussing? And then the second is what happens to profits when, when you don't improve, given that the standard of living has continued to elevate that the, the only that I can see only win-win when relationships that exist, that are scalable, our business, there's, there's nothing else that can scale and that if business doesn't improve it's whatever advantage it had, whatever profit it makes gets liquidated. I'm sorry to be so late, but it just seems, this is such a fascinating subject and a great subject to me. I was just eager to see if those have been covered
Speaker 1 00:39:47 Well, that's great. Thank you, Jay. Now they have really have not been covered, but I would say that, um, the fact that a capitalist system, uh, would have both profiting companies and losing companies, and it would, by the way, uh, it makes it ver makes it even all the more fascinating because each learns from the other. Uh, but I suppose that's true generally in life. If you said, you know, my marriage failed or succeeded, or my friendships did, or my vacation plans did, or didn't, uh, you learn from others, what works and what does not work and in a capitalist system, yes, the whole point of a business enterprise that has a particular mission, as you know, they have a mission statement. So there's a purpose associated with it. It's a, the corporation is a perfectly legitimate vehicle for doing this limited liability. For those of you who know the financial legal aspects of it.
Speaker 1 00:40:43 And, uh, but it's possible because we're not omniscient. And because it takes enormous intelligence to be able to project out how a, a product or a process or an industry will go there, there will be losers. And, and by losers, I mean, if they have losses, they're literally destroying wealth. Now, I don't mean they're Neal lists, but, and it's inadvertent, but just as profit is the net production of wealth, a loss as the net destruction of wealth. And notice, by the way, how there's moral significance given to nonprofit organizations. Why, why, why are they, what are they moral? Because the presumption is the profit is theft, and here are there, here they are nonprofits. And of course they're getting their money from other profit-making enterprises. But, uh, if that's what you're at, I, I that's how I've explained it. And I would say it's an, it's a really important part of the, the process of learning under capitalism, what businesses succeed and not.
Speaker 1 00:41:42 And so actually I was too negative, maybe about business schools or apprenticeships, uh, business administration and business entrepreneurs does have to be taught. Uh, you can start your own business without getting an MBA that's for sure, but it does become a science. Uh, once these business enterprises get huge and, and the bigger they are, I mean, the multinationals that are multi billion dollar companies, uh, very difficult to run, um, why? Cause it takes enormous conceptual, um, prowess to do it, uh, prowess and energy, just to do it over long periods of time and judging people in the management team you hire and the whole hierarchy. So some companies, you know, can get bloated. Uh, so there are economies of scale that you get when you get bigger, but then sometimes bigness you're too big. GE just decided to split itself into three parts, why it was getting too big, it was getting unmanageable and unprofitable. So this is how, this is how it works. It's a good dynamic system if it's a free system, but we're moving away from this, especially with the stakeholder model
Speaker 4 00:42:53 One follow-up Richard that's, that's tangential to that was made the point that profits are theft. You think that the primary driver or you think that profits are also, or primarily tainted because they're done for self-interest. You see a lot of conversations about, you know, uh, uh, stakeholder capitalism is noble, but, you know, profit profit capitalism is not, um, as if value creation is, is somehow possible without taking care of stakeholders. And then that language enables people to say, see, where we're not really above profits are a by-product. We didn't go in to make profit. We were just make profits because it's part of what allows us to take care of stakeholders.
Speaker 1 00:43:42 Yeah, that's absolutely a very strong influence of late. I would have laid and they really the last three or four decades, um, I, I think the, the theft argument has faded. It's harder to make that argument with the vast creation of wealth. It's harder to make a zero sum game argument when the wealth of the world is rising because it had to come from somewhere. And, and so that's, it's not gone that view, uh, but it's, it's faded, but the new view and I, and I think the reason the stakeholder approaches gaining credence and sadly, especially among businessmen and CEOs, they used to press against this. Uh, and now they've accepted it. It is totally altruism. It's the feeling of guilt. Like we shouldn't be profiting our shareholders. We should be helping others. And some will say, yes, will you still need to make profits so you can give it away.
Speaker 1 00:44:35 So you can be a corporate, you know, corporate social responsibility, that kind of argument. You see it in the differential treatment of bill gates, who, when he was making the wealth was despised and trust busted. But then when he quit Microsoft and turned to philanthropy, he's blind eyes and seen as a noble, or at least by some people that, that same thing, the idea that creating of wealth is no great thing or a bad thing, but the giving away of it as that's the whole point. And sometimes you'll see conservative saying, let's defend the profit motive and profits. So we have something to give away. That is obviously a totally lame approach because these people are just, if they say, listen, if we are deserving of this, then give it to us now, what are we, what are we waiting for? Let's take it, take it while we can.
Speaker 1 00:45:20 I think another challenge, Jay is the bigger companies get I said before, how difficult it is to manage some of these companies. I think people believe that it isn't obvious who gets paid, what, you know, that when you get an enterprise that's so big. Uh, but you see this just generally in group analysis, someone will say the bigger the group who knows who contributed what, and that is a very, uh, that's a very common critique. And of course, if you say, who knows, who created what, or, you know, the Liz Warren approach, you didn't build that, you know, you think you built your business, but didn't, you drive to work on public roads and, and that kind of thing. So, so the idea of, of severing effort and creativity from reward is a very big thing in this critique. They want to sever the two, they want to say, you know, we all did this together. So why are you getting a disproportionate share of the pie? That's a very common view to, that has to be rejected.
Speaker 4 00:46:18 Yeah. A thing that's a really great point. The, um, the value add that comes into poles, in collaboration as the world more and more specialized is huge. Uh, so, uh, but, uh, but quantifying that is a, is impossible. It's a little bit like, uh, like the NBA players, nobody seems to think it's a mistake when you pay someone a big contract and then they, and then they, and then they go bust. They don't, they don't develop well, but you didn't do it because you thought the person was gonna gonna, gonna flake out. You thought, no, this is gonna make my team, uh, it's the same principle.
Speaker 1 00:46:55 Yeah. It's also interesting that if, um, if we, if you have the shareholder model and, and in, in the book I just published, I, I say that shareholder capitalism is a redundancy. That is the only type of capitalism. That's really legitimate. So with the, and likewise stakeholder capitalism to me is a contradiction in terms, it's an oxymoron. And, and the reason for that is of course, capitalism is private ownership of the means of production. And, and if you see something happening, it's really like this, the Marxist could not get the workers to violently take over the means of production. They just couldn't, the workers were being treated well by capitalism and they gave that up. So then they went to the root of, well, instead of revolution, how about evolution and how, instead of militant, revolutionary socialism let's have democratic socialism. Let's just have people vote away the rights of the corporation gradually over time.
Speaker 1 00:47:47 Well, when you think about it, the stakeholder thing amounts to getting everyone in, on ownership of the company or control of the company, except the actual owners. And so it's a, it's like an indirect, it's really fascism because they're not noticed they're not technically nationalizing these companies. They're just guilting them into serving every other, uh, crony special interest out there, except the shareholders, except the people who actually own the company. Um, so that's going on as well. This is like backdoor fascism. If you will. Then the last chapter of my book is actually says, the stakeholder theory is fascistic. So that that's going on as well. And cotton companies are contributing to it just as they did invite her Germany. These corporations are totally caving to these demands.
Speaker 5 00:48:36 Yeah. Thank you. I'll
Speaker 1 00:48:37 Let others join. Thanks Jack.
Speaker 0 00:48:42 Brian,
Speaker 5 00:48:44 Hey, I really love that this has shifted towards that stakeholder shareholder. That's exactly why I came on stage to drill down and you guys have covered it, uh, brilliantly. I appreciate that. I would maybe move the topic forward a little bit. So what are the leverage points? What are the front lines? I mean, um, what are the front lines of these battles that, you know, we, as let's just say, common people can engage, you know, academia, politics, business, pop, culture, whatever. And then what are some of the, what are some of the tactics, you know, what are some of the, and you mentioned some of those, and I assume they're in some of the books you mentioned, but, uh, maybe a brief rundown.
Speaker 1 00:49:25 Well, when I think of Frontline's versus backlines and support and lines of support, the fundamental long-term answer is unless the business schools and the law schools change their teaching and start appreciating shareholder, the shareholder model again, uh, we're just going to keep going in this bad direction. Um, the shareholder, one of the nice things about the shareholder model also in the idea of maximizing profits is it's. So, um, singularly focused, once you start saying stakeholders and it becomes a long list of those you're supposed to be serving the corporation becomes, uh, basically, uh, dissipated and, and, and frankly, I think that's what happened to GE, but we don't have to talk about particular companies, but if you're talking about frontline and when they become dissipated, I mean, if any person lost their purpose in life, they would start drifting or they would start eroding over.
Speaker 1 00:50:24 They start losing their confidence. And maybe the critics of corporations know this. Um, I should mention, by the way, in, in terms of defense of the corporation, that was really a fabulous book called in defense of the corporation by Robert Hasson, um, an objectivist in 1979, which should go on the list as well. So it's not a book that particularly defended profit, but it definitely defended the shareholder model and critiqued. What was then beginning to arise as the stakeholder model. Now, Brian, if you mean more short, short term stuff, I think just as parents are going to school boards and complaining about the indoctrination of their children, I think shareholders should go to shareholder meetings. Uh, it doesn't take much to own shares in a company, but once you do, you can go to the shareholder meeting. They used to go to these in person.
Speaker 1 00:51:16 I don't know if they were all on zoom now, but you can go. Even if you have one share, you can go to a shareholder meeting and, and step up and say, crud and critique that senior management, or try to get a class action suit or something like that, where you say you're sacrificing our interests. You are literally violating your fiduciary responsibility to serve the shareholders. We own this place. You don't, I mean, you may own shares dear CEO, but why are you including in those you report to people like Nancy Pelosi or this labor union, or this more commonly green group who are effectively trying to dismantle you, and we need to put an end to that. So that is a, I don't know, I don't know how successful that can be, but there are some, there are some very wealthy investors who sometimes will take positions in companies just to try to affect management change. This was much more common in the eighties. Um, but there are various what they call activists, shareholder groups. Unfortunately, they mostly tend, mostly tend to be left wing, but if there could be, if there could be some right wing approach to this, if you will, that would, that would be nice. Go ahead.
Speaker 4 00:52:27 Let me, let me inject one point here. Cause it's a, it's a big one. Most of those companies are cowering because of, uh, the combination of regulations that they know they can't, they're fighting against. So, you know, you can look at it at everything from the, uh, the, the sort of reporting and all of that. And then also their licensing and permitting. And every, as, as government has in, you know, intertwined itself in the business, it becomes impossible to speak to power without hurting the shareholder interest, at least short-term. And that's a, that's a big deal with,
Speaker 1 00:53:10 Yeah, I totally agree with that. The, the fascistic model, if you will, the what's this called the corporatist model is, um, the, the fascist don't want a bunch of small businesses. They want a bunch of big businesses. And so if for those of you scratching your heads, like what, what, why are these woke? CEO's aligning with the left and CRT and stuff like that, that the, uh, the goal is to control them not to own them. And it's easier, just easier to control a handful of companies in each industry, uh, rather than a bunch of small ones. The other thing would be is if you own your own small business and you built it up and you were the entrepreneurial owner, uh, you would have a much greater appreciation, I think, for the profit motive. But now imagine instead your track is you go to Yale and then you go to Yale management school, and then you work your way up in this big corporation.
Speaker 1 00:54:02 I don't think I don't mean to be anti-big corporation or anti-business school, but that, that path I think is just, you're not going to feel like you own the place. You're a small piece in a big place. And even if you get to the top, yes, there's going to be a lot of guilt I think, associated with, why am I here at the top? What to did I really build GE no, I've worked up the corporate ladder to get to the head of GE. And then on top of that, you're heavily politicized because the bigger the companies are, the more the government engages with them, uh, for good or ill. Yes. So I think Misa is, or somebody else said at 1.1 of the problems with fascism, at some point, these companies basically become departments of the government. They become co-opted, uh, known only in voice, but in function. So you're absolutely right, Jay and a lot of these guys and gals, you could say, I can't really blame them because they're basically self-censoring or, you know, saying, and doing the dance to the tune of whatever the politicians want. It's very sad,
Speaker 0 00:55:07 Bruno, welcome to clubhouse and welcome to the animal society club on clubhouse.
Speaker 6 00:55:14 Yes. Thank you. Good evening to all of the panel, all the people that are listening. And I wanted to ask something to reach her because I'm from Portugal and we have a socialist government, a social socialist based economy. And I wanted to ask him if he has any insights on how can entrepreneurs and people who run businesses, deal with the increasing, uh, shrink of the profit margins we have because of the continuing growing Texas. It's all. Thank you. Yeah.
Speaker 1 00:55:56 Thank you. Bruno. That's a difficult one to answer. Um, someone once asked me it reminding me of this. They were in some sector of the economy and they said, ah, my sector is really being taken over and I'm being taxed to death and regulated to death. You have another sector I, that you know of that's freer that I could move to it. You know, w when a country is going down like that, there's almost no respite. There's almost no pocket of freedom that you could go to. And so if, if that were an answer, if you could find something like that, possibly, but then that means changing your whole, you know, human capital and history and stuff like that. But, but for example, it takes a while. It took a while for the U S government to start regulating Silicon valley. And, uh, you know, Silicon valley was growing and it really wasn't on the radar yet, and they hadn't made enough money yet to try to extort money from them and start trust, busting them.
Speaker 1 00:56:51 So possibly one answer would be to look for pockets in Portugal where it's freer, and you're literally under the radar. If, if, if that means anything, sometimes the tax rates are lower for smaller businesses or start-ups than they are for bigger ones, for the reasons I named before. Um, it's a much more radical thing to say. Um, I'm just going to leave the country and go to a freer country. You could do that, but if you really love Portugal, you know, want to leave, uh, I suppose the last thing I would suggest is in today's world, it's much more common to go online and do business. I don't know what your business is, but if, uh, it's, it's much easier for these oppressive governments to tax and regulate, uh, companies that can't move that are literally physically tied to some space or area. Um, and then of course that would be mining or manufacturing, pretty hard to move those things around. But if you can get into a business where it's really less, it's more mobile, so, so to speak, so you can work your way around these regulations. That'd be another suggestion, I think.
Speaker 6 00:57:54 Thank you. Thank you for your answer. Yes. Thank you.
Speaker 1 00:57:58 You're welcome. Bruno. Thanks
Speaker 0 00:58:00 And Bruno, uh, checkout. Well, you were a Portuguese speaker. I take it rather than a Spanish speaker, but I'm an associate Atlas. We have, um, a lot of resources, including Q and A's and Instagram, takeovers, and content in Spanish. And increasingly in Portuguese, would you have a few evolved, uh, videos translated into Portuguese, and we'd love to work with you and find others in Portugal to help grow that part of our society. So
Speaker 6 00:58:36 That's one of my objectives. It's to bring more people from here, uh, to go to the intellectual field and start learning more and strengthen their knowledge and character too, so that we can become better entrepreneurs and have better companies with more power over bore the in our country.
Speaker 0 00:59:04 Well, it starts somewhere. So let it start here. And, um, you you'd be surprised how much change you can affect, uh, with a few friends. So we're happy to have you with us. And that takes us to the top of the hour. So I want to thank professor Salzman as always spectacular session, um, and, uh, faith, the newcomers Bruno, uh, wonderful to see you here. Linda, we'll get you that list of, uh, resources, uh, that professor Salzman mentioned and, uh, want to direct all of you to the events section of the Atlas society website. So you can see what we've got on tap for the future, including next week, every Tuesday, we have a clubhouse with Rob Sinski and then Wednesday, we are going to be continuing with professor Stephen Hicks, a course on capitalism, the fourth session of that course. So, um, so this is terrific, and I will see you guys here next time. Thank you all for joining and thank you, Jennifer. Thank you. Thank you.
