The Economics and Egoism of Profit

[00:00:00] Speaker A: Hello everyone. Welcome to morals and markets. Glad to see everyone here tonight. Just as a reminder, before we get started, please keep yourself muted while Doctor Salzman is giving his opening remarks so we don't have any background noise breaking up the talk. Also, you can utilize the chat at the bottom of the screen to make comments or ask questions about specific parts of Doctor Salzman's talk. There's also a reactions button on the bottom right hand corner of the zoom screen in order to click the raise hand symbol if you want to get in line for the Q and A at any point. And then we've got an abstract for tonight's meeting which I'll be posting in the chat, which includes sources and supplementary readings that Richard put together. With that, I'll go ahead and throw it over to Richard for the economics of egoism and profit. [00:00:49] Speaker B: Scott thanks very much David. Others, Michael Martin for joining. Clark, I see you're here as well. Thank you very much for joining. As usual, this is a 90 minutes session and it's intended to be somewhat of a more academic presentation of material, but also want participation from those of you to the extent you want to join in. I started this with Duke students who I taught, and then they left Duke and said, can we still have sessions with the professor? So it is a student list mostly. But we welcome older folks too, because I'm an older folk, why not the title tonight and I'll do the abstract so you get the official description of it is the economics and egoism of profit. In the past, I've sometimes presented this as the economics and ethics of profit. But you can see why this would be perfect for a morals and market session, because they deal with the economics and the ethics of it. Well, here's my description on the Atlas Society website. For more than two centuries, economists have been at a loss to explain profit. Smith, Marx and the classical economists said that capitalists profited by unfairly underpaying laborers. Starting in the 1870s, the neoclassical economists attributed profit to monopoly power. So there was the idea that the firms were overcharging consumers or customers. And they said that ideally, profit should be zero in a kind of platonic, perfect competition world. Some of you econ students will remember that phrase, policed by trust busters. So we still have that today. Disdain for profit reflects a deeper distrust of its ethical essence, rational self interest. That'll be my main theme tonight. Profit is crucial to capitalism, but even in our personal, non commercial lives, I would say the injunction is maximize profits, maximize cost benefit analysis, and everything you do, including your romances. I'm riffing here a little bit. We're rational and right to maximize the benefits versus the costs of our action. So, on economic, ethical and personal grounds, profit deserves our unabashed allegiance and admiration. Now, just from the start, for those of, you know, the more conventional view, this is very unconventional. So I'm going to do a couple of things, but I got to start with this great quote from Spinoza. David, you may know it. This is from the ethics. Spinoza wrote in the 17th century, late 16 hundreds. The primary. This is from the ethics. The primary and sole foundation of virtue, or of the proper conduct of life, is to seek our own profit, unquote. I love that. It's from the ethics. It's not a treatise on political economy, it's on ethics. But even then, the word was being used. In a way, it sounded like gain. Well, that's what profit is. But if it's gain, why does it have this kind of nefarious reputation? Well, let's move on. I always like to start with etymology. Where does this word come from? What does profit even mean, by the way? The fact that in business life, they speak of profit and loss statements suggests that the opposite of loss is gain. You know that profit is gain. So the first thing you have to think about is, why would anyone oppose gain? If you gain happiness, if you gain wealth, if you gain love and romance, of course you don't want to gain weight. Most of us don't want to. There's not always an unalloyed virtue. But look at this from the etymology dictionary, prophet as a noun, mid 13th century, that didn't apparently arise. I suppose it's not in Aristotle and the ancients, because they're saying 13th century, quote, income derived from an office, property or transaction. So the first word you hear is income. That sounds good. That's not even an expense. Then it says benefit, spiritual benefit. I don't know what that means. Advantage. And then from the old french proof, porphy, profit, gain. Their gain comes up again from the latin profectus. Look at these words. Now, growth, advance, increase, success, progress. I don't know about you, but these words sound great. I want these things further on accomplish. I'm just extracting phrases from this description to make progress, to be useful, to do good. Pro means forward, forward, not backwards. Progress, profit. I won't belabor the point, but I think the first impression I get, I hope you get, is, where are all the nefarious words like theft or vice or loss or not benefit, but hazards? It has all these great words in it. So it's kind of a mystery, isn't it? It's kind of a puzzle, at least just to start with the meaning of the word as to why it has nefarious connotations. Now this slide is a bit wordy, but I wanted to give you upfront my positive statements tonight, but broken down into the two categories, economics and ethics, really, economics and egoism. This is what I'll really be saying in some cases, because it's going to be quick kind of asserting. Here's the, and I'll give the negative arguments against this, but here's the economic point. Profit is the net production of wealth. I'll repeat that, profit is the net. This is after costs. We'll elaborate. Production of wealth, also known in the business literature as value added. That's why they call it value added. Above and beyond it's output that's of greater value than the wealth that's consumed in the process of production. All right, that's. .1.2. This is a little more technical. Now for the econ students, the rate of profit. Now I'm saying here, a percentage on the capital investment is a crucial gauge of success. This is one of the most important prices in the capitalist system. The profit rate, is it 5%? Is it 4%? Is it 10%? Is it 80%? The rate of profit is a crucial gauge of success. And a guide to business managers. And I would add investors, a signal to investors about how best to allocate savings. So we got two things. Profit is net production and there's such a thing as a profit rate. It's kind of like an interest rate, and it's all crucial. Now, a little more philosophically, profit is unique to the private property capitalist system. It's not part of socialism. It's not even really part of fascism to the extent fascists are telling you corporations what to do, not driven by the profit motive. So it's non existent in these other systems. It's diluted in mixed hybrid systems like the welfare state. And then finally another positive point. And again, this will sound like just assertions in the beginning, but I will elaborate later. Profit is created and produced by capitalists, by the owners of production. Now sometimes people will debate this. Is it the entrepreneurs? Is it the managers? I'm actually saying it's the owners, the capitalist owners of enterprises who do hire entrepreneurs. But we'll elaborate that more later. Now on the ethics of this, which I think is almost just as interesting as the economics of it. The profit motive is rational self interest manifested commercially. That is the most succinct way I can put it. The profit motive is but another way. Egoism. Commercially manifested bias against egoism and zero sum thinking, you would imagine, would fuel disdain for profit. It does. So I'll get into some of the polemics later, but I hope you see the connection there. Seeking gain, seeking benefits, seeking advantage, seeking success. It's very much related to self interest. Here's another point. Under ethics, profit is made possible by the consistent practice of key virtues, rationality. Businessmen have to be really rational. Business ladies as well. Independence, productiveness, obviously, productiveness, honesty, integrity, justice, pride. These are often deemphasized in the business ethics literature. They don't really fully, even in business schools, business ethics don't quite understand why. It is just not profitable to cheat. It is just not profitable to cut corners. It is just not profitable to be. Range of the moment, fly by night operator. Capitalism requires not faith, hope and charity, but reason, confidence and profit. All right, two more points under ethics. I already stressed this a bit already, but profit entails gain, progress and prosperity. They do go together. Now, you have to value these other things if you're going to value profit. Imagine someone who actually doesn't want prosperity. Imagine someone who's actually kind of a misanthrope, who doesn't really want us to shape the planet and be happy and live longer and live wealthier. You could see why they might be anti profit, because they know what we know. Namely, the profit goes hand in hand with gain, progress, net production, and prosperity. And then profit is justly earned. My last point here under ethic, justly earned. So the first thing I said under economics was it is created and produced by capitalists. That has to be proven, of course, and shown. But the ethical point was, therefore, it is justly earned. It is not unjust. It's nothing obscene, as they say, often the obscene prophets. Now, look at this contrast. I'm going to give you a contrast here between two giant figures of the 19th century, Martin Luther King and Ayn Rand. Look what king is saying. Now, King is not an economist, obviously, but definitely a moral figure. And notice what he says is very common, actually, among general viewers of prophet. He says, quote Martin Luther King, the profit motive, when it's the sole basis of an economic system, encourages cutthroat competition and selfish ambition that inspires men to be more concerned about making a living than making a life, unquote. Couple of things there. He does suggest the motive. Right? So we're, it's not just profit you know, revenues minus costs. People do recognize that there's a motive, that there's a motive power involved with this thing, the seeking of gain, the seeking of commercial gain. So there is a recognition that there's an ethical component to profit. But their view is, since self interest itself is dubious, so must the profit motive be dubious. Therefore, it would lead to throat cutting. Throat cutting, not reciprocity, not collaboration, not trade, not exchange, not the trader principle. Ayn Rand named win win situations, not win lose or lose win. No sacrifice. Ambition. Selfish ambition he speaks of. And why this dichotomy between making a living and making a life? Well, if all we're saying is our life is more than just going to work and making money, of course that's true. But you can make the argument that we should be selfish and profit motive oriented even in the non commercial realms of our lives, in the friendships we choose and the romances we engage in. I contrast here Ayn Rand, because around the same time he's saying this, she comes out with a book called the virtue of selfishness. So he's seeing selfishness in whether it's a religious or utilitarian sense of as selfishness, self interest, as a vice, she's seeing it as a virtue. Big contrast. So now see how she puts it a couple years later in capitalism, the unknown ideal. Now, it's interesting. If you're interested in Ayn Rand's work, there isn't a lot I found. I was surprised, actually. There is not a lot from her on profit or the profit motive, but she's a big advocate of rational egoism and of business and of profiting. But this is a relevant passage right here. This comes from capitalism, the unknown ideal, page 38. Now listen to this quote. Consider the evil. He's already got a moral judgment here of judging people by a double standard and of denying to some the rights granted to others. Today's liberals, and she puts that in quotes so she doesn't think they're liberal, recognize the workers or the majority's right to their livelihood, their wages, but deny the businessman's or the minority's right to their livelihood, which is their profits. If workers struggle for higher wages, this is hailed as social gains. If businessmen struggle for higher profits, this is damned as selfish greed. If the workers standard of living is low, the liberals blame it on the businessmen. But if the businessmen attempt to improve their economic efficacy, to expand their markets, to enlarge their financial returns, thus making higher wages and lower prices possible, the same liberals denounce that as commercialism unquote. So MLK versus Ayn Rand on profit, you see the very distinct attitudes I want to give you to fast forward now to today's world. This is like 60 years later, how much things have not changed. Here's some slides on just contemporary attitudes toward profits. And some of this is from academic journals, some of it is from headlines. But the fact that this would be so in the academic journals I think is interesting because you would think by now scholars would have a little more erudite, sober attitude toward profit. This study, which is very interesting by these three scholars from 2017, these scholars are actually very good. They're not necessarily anti prophet. But here's the title of it. And by the way, I'm saying some of this verbally for the audio audience. There's an audio and video audience for these sessions. Title of this one for the Journal of Personality and Social Psychology is anti profit beliefs, how people neglect the societal benefits of profit. So they did a survey, and I'll just extract from the abstract. Profit seeking firms are stereotypically depicted as immoral and harmful to society. At the same time, profit driven enterprises contribute immensely to human prosperity. Those two sentences alone are just mind boggling to me. Do you get the first sentence? Profit seeking firms are depicted as immoral and harmful to society, and yet, quote, contribute immensely to human prosperity. That's a real dichotomy. How can it be immoral and harmful to society to contribute to society's prosperity? You see the moral practical dichotomy there. Quote excerpt again, people see business profit as necessarily in conflict with social good. They have anti profit beliefs. Increasing harm to society is viewed as a strategy for increasing a hypothetical firm's long term profitability. So when they did the survey, they said, how do companies become profitable? And the answer was bye harming society. Together, these results sets suggest that the default view of profits is zero sum. Did you get that? What is zero sum? That if I gain, you lose that. There can't be mutual gain when profits involved. I'll elaborate on this, but this goes all the way back to Adam Smith, unfortunately the founder of political economy. So it's still a view, at least in the popular mind, that profit is zero sum. Here's another one from Journal of Management Education, also 2017. It's called balancing profit and people. Corporate social responsibility in business education. So this is a study of how business school students get business ethics. But notice this, you see this a lot. Profit versus people. People versus profit. Profit is inhuman. It's not good for people. Somehow, business school, I'm quoting now, business schools are struggling to incorporate corporate social responsibility in their curriculum despite interest from students and pressure from accreditation agencies. Further down, they speak of the triple bottom line stakeholder theory, exposure to social problems, business roles in exacerbating or mitigating social problems. Again, the attitude profit is a problem. Here's another one. Journal of Empirical Experimental Psychology from 2022, very recent. This one's by Johnson, Zhang and Kiel. Quote the title of it, win win denial, the psychological underpinnings of zero sum thinking. So back to the zero sum thing, which is very critical in profit theory. I'm quoting from the abstract. A core proposition in economics is that voluntary exchanges benefit both parties. That's true, actually. But we show that people often deny the mutually beneficial nature of exchange and instead expounds the belief that one or both parties fail to benefit from the exchange. Further down, these studies revealed that win win denial is pervasive. Several potential psychological mechanisms underlie win win denial. I won't go through all of them, like failing to observe that people do not arbitrarily enter exchanges. Here's another one. There's only a couple more of these. But just to give you a flavor of how far we have not come in 200 years of understanding profit, either ethically or economically, here's one from Bocham Ford and all evidence on the growing profit disconnect between the public's views of corporate America. Excerpt a sample of college students that indicates a strong negative view of corporate profits. Well, no surprise there. College students resonates strongly among business students, too. You want to wonder where corporate woke is coming from. If you get decades of even in business school, if you get decades of profit as suspect, quote a strong and growing dissatisfaction regarding corporate profits. Specifically, 72% of those surveyed believe that the strength of the United States is based on the success of corporate America. But 61% believe corporate America is too profitable. These results are puzzling given the importance of corporate profits to us firms and the economy. Unquote. This is from Business Economics journal, I think. Lastly, let me give you this last one by Brian Kaplan. Brian's a free market economist up at GMU, a very good economist. They did this survey of various things. I just extracted this part of the survey. So this is from the Economic journal magazine, 2002 from Britain, systematically biased beliefs about economics. So he did this vast survey of how biased people are and how really uninformed they are about economics. But from this study, I just extracted the one on profits because that's all I'm interested in here. So here's his question, he says, now I'm going to read to you another list of reasons having to do with businesses that some people have given for why the economy is not doing better and give major reasons. So he's got these variables. Okay, here's some of the variables. Business profits are too high. Another one, top executives are paid too much. So, see, in the business world, if profits are net production, as I'm going to contend, the more profits, the better. The more profits, the more production. You cannot have the economies, not the economy. The economy's supposed to be output, growth, prosperity. It's a major contradiction to say the economy's not doing well because, and he's got it right in this study, business profits are too high. It turns out to be a positive correlation in the studies. All right, let's. Here's what I'm going to do next. I'm going to do theories of profit, and then I'm going to revisit what I said in the beginning. The marxist view of profits as theft, the neoclassical view as profits as perfect, if only zero, and then the positive view, which I call the capitalist view. So see how I have three main theories of profit here on this slide. The first one, the classical theory, the second one, the neoclassical theory, and the last, the capitalist theory, which is the true one. So the classical theory comes from Adam Smith, David Ricardo, Jon Stewart Mill, Karl Marx. There are others, but those are the three biggies. What do they say? That profit is taken from workers. It's basically deducted. Those are the words they use, deducted from wages, effectively by underpaying your workers. Now, if those are your costs, you can see why your profits would be higher if you're lowering your costs. Where do they get this idea? They get the idea from what they had called the labor theory of value, that only manual labor and the quantity of manual labor mainly was the main cause of the value of products. So there was not due, in other words, to skilled labor or mental labor, the kind of labor you'd see in entrepreneurship. So that was their theory. You could see why they would not have a valid theory of profit because they're focusing all the value on the quote, unquote workers. Now, that lasted from, like, 1770s to about 1870. So that's 100 years of that theory. It was overthrown, thankfully, by neoclassical theory. That's what I'll talk about next. That starts in the 1870s or so, and that's people like Walras, Frank, knight, I would even say Kirzner, although he's considered an austrian economist. What is their view, they are actually rejecting the view that it's taken from labor. So they're trying to overthrow the labor theory of value to their great credit, and they come up with a utility theory of value. But still, they don't understand profit. They think in this case now, profit comes from not underpaying workers, but overcharging customers so their revenues would be higher, what Kamala Harris would call price gouging. They're just charging any damn price they want, raising their prices and overcharging. So they're not underpaying labor, they're overcharging consumers. And this group comes up with what they call the perfect competition model, which I'll return to later in my talk. But their view is perfect competition means no big businesses, no big market share for any company, almost no pricing power whatever. So they try to denude the entrepreneurial world of having any efficacy, and they feel like this is how theyre going to defend business, by saying, our profits arent really big after all. Dont go after us. The competition will make sure that profits are ground down to almost nothing. Therefore were virtuous. They dont quite go that far. What's the third theory? What I call, there isn't really a name for it yet. I haven't found. I'm just going to call it the capitalist theory, and it comes from people like Isabel Patterson, Ayn Rand. I would include George Riesman here. I'm definitely an advocate of this, although Reisman and I differ on profits a bit. I need to put them in this category because these are the kind of people who are advocating the right view. And again, it gets back to what I said earlier here. The view is, profit is net value created by capital and the source, not the labor theory of value. Not underpaying workers, not gouging consumers, but rationality, intelligence, ingenuity, and creativity of entrepreneurs, their self interestedness, entrepreneurs and inventors and all the people that commercial people help bring to market. Now, just to give you a flavor, I'm going to go through this faster because I've already suggested this. Just excerpts from those who believed in the labor theory of battle. So here's Adam Smith, 1776. Wealth of nations in all arts and manufactures. The greater part of the workmen stand in need of a master to advance them, the dealers of their work. The master, he really means here, the capitalist shares in the produce of their labor. Do you get that? In other words, a capitalist shares in the produce of the labor. The labor is producing everything, not the master, so to speak. Or in the value which it adds to the material in which it's. And in this share consists his profit. So he's defining profit. This profit makes a deduction from the produce of labor. See that line? So, to Smith, profit is deducting what labor makes. He's not saying anything about the deductor laboring at all or producing anything. John Stuart Mill, fast forwarding here to 1848. Labor produces more than is required for its support. Laborers will, in addition to producing their own necessities, have a portion of their time remaining to work for the capitalist. We thus see that profit arises from the productive power of labor. He means manual labor. And, of course, Marx. Here's the manifesto. Socialism necessitates the most radical. Well, let me go to the right here. Their theory, there's a lot of language and verbiage in Marx and Engels, but their theory really is based on the labor theory of value, is that profit is theft. So he agrees with Smith, but he's much more vigorous and vitriolic about saying, this is theft, this is exploitation, and it's unjust. Smith's view was more like, well, it is a deduction from labor, but it contributes to the wealth of nations. Marx's view is, it does contribute to the wealth of nations, but it's incredibly unjust, and we need to throw the system out. I'm not going to quote from that section, because we don't have much time. I will say briefly here, for those interested, Marx did believe that the profit rate under capitalism will go to zero. Why? Because if profit comes from exploiting labor, and you have to exploit them more and more over time and pay them less and less, you're going to so immiserate the workers that you can't. Well, you can't get blood out of a stone. It's the basic argument. And plus, by this point, they'll be so pissed off that they revolt, that they rise up and take over the means of production. Well, you can measure. It's easily measurable. See these two lines? They go squiggly, but they do go horizontally. They don't go to zero. This is the rate of profit. Just over the last 100 years or so, various measures of the rate of profit. Some of them are from China, Japan, us, Britain. The rate of profit does not go to zero. But that's a technical point. Now, what about these people who say, okay, I'm not labor theory of value, and I'm not advocating that it's stolen from labor, but they get stolen from customers, that they get stolen by overcharging so here's vol. Ross. This is called the perfect competition model. Equilibrium in production is a state in which the selling prices of products equal the cost. If you know anything about business, if your prices equal your cost, there's no profit margin. And he's talking about. That's equilibrium. Quote, it is an ideal state, not a real state. It never happens in the real world. Profit depends on exceptional and not normal circumstances. Theoretically, it ought to be left to the side. Now, Leon Valtraz is a major, influential neoclassical economist, and he's basically saying profit should basically be zero, and it's not really zero, but ideally it would be. You see why this would lead to a policy mix that would say, we need to go after companies that are very profitable, because Leon Walras is telling us that it's not ideal and it's not perfect. Now, here's Frank Knight, who actually came up with most of the perfect competition model. Quote, profit is due to entrepreneurial. You're about to hear, you hope to hear productivity. But he says, uncertainty and ignorance. To get that profit comes from ignorant entrepreneurs, not smarties, not intellectual confidence and knowledge. Profit arises from. Now, I'm quoting here, this is the various things he refers to. Sheer accident, luck, gambling, intuitive judgments. I love this one. Unconscious inductions, subjective feelings, hunches and superstitions. Quote, quote. Again, the entrepreneur, in his supposed control of production, is relatively helpless as to what he'll produce, where and when. Under perfect competition. He would, of course, be completely helpless, a mere automatic registrar of the choices of consumers and of the laborers and the property owners, unquote. This is a. This, I submit, is one of the more vile. And he's a famous economist, too. He's the father of the Chicago school of economics, believe it or not. So following him was Stigler, Friedman, Gary Becker, all the others who were many, in many ways, much better than him. But he's the one. Notice this. This is from a book called risk, uncertainty, and profit, 1921. So, this is about 100 years ago. A major economist starting a major school has this view of profit as nothing and entrepreneurs as contributing nothing, and profit should be, ideally, zero. Now, some of this creeps into, sadly, the austrian economists. Some of them have this kind of perfect competition model in them. So here's Schumpeter theory of development. Economic Development, 1934. Profit is, quote, a symptom of imperfection in markets, and it reflects a disequilibrium, because under normal conditions, production must flow on, essentially, profit less. And that's when, quote, the economic system is in its most perfect state. See how they're so they're still echoing the Bol Ross view that perfection entails no profit. Mises quote from planning for freedom, 1952. Profits are never normal. They appear only when there's a maladjustment, a divergence between actual production and production, as it should be. They disappear as soon as that maladjustment is removed. Now, here's the perfect competition model. In Mises, he calls it, in the imaginary construction of an evenly rotating economy, there are no profits, no entrepreneurs, and no entrepreneurial profits and losses. The wheel turns spontaneously, unquote. And Kirchner, who was seen as an austrian theory of the entrepreneurs, he would think he might get it, that if he studies the entrepreneur, he would find the entrepreneur creating profits. So, perception, opportunity, and profit, 1979. The book, he says, quote, profit results from entrepreneurial alertness. That sounds good so far. And a propensity to sniff out opportunities. That sounds weird from anyone who, quote, simply notices that inputs can be obtained at a total outlay, less than the sales revenue. But in equilibrium, all profits have been squeezed out. See the theme? Any profit that happens to be won by entrepreneurship cannot be construed as a marginal productivity return. In other words, the entrepreneur is not productive. We see profits captured by the owner, unquote. So you see the language. It's not really profits are created. They're captured. They're sniffed out. Someone's alert. They're nothing. Walking in their sleep. They just walk around and find profits on the ground or in margins. So here's the summary of this model. I'm summarizing a lot of literature in about six bullet points, but this is what students are taught in microeconomics to this day in universities. A perfect market, any particular market could be the market for smartphones. The market for gasoline, could be the market for food. Their view is, the economist view is there has to be many buyers and sellers, many meaning thousands. There can't be, like, four car companies. In their view, that's imperfect and the profits are too high. And they should be prone to trust busting so many buyers and sellers. And of course, that means each of them has an infinitesimal market share, right? They have 1% market share, not, say, 50 or 60. Here's another requirement. What do you think of this homogenous products? All the products of all the companies in this industry have to be similar. That's what homogeneity means. No differentiation between the products. Why they call this perfect. You shake your head and ask, by the way, this means no advertising. So the perfect market has no advertising. Why would you have advertising if your products don't differ? So that's where you get the critique of advertising. The critique of advertising is somewhat based on the idea of, why are you guys advertising? This is wasteful. There shouldn't be 73 different toothpastes. They should all be homogeneous. And here's another one. No asymmetric information. What does that mean? That every time there's a trade, each party to the trade has to know as much as the other. So you go by, I don't know, you go buy a car or you go to a doctor, decide whether to get a medical treatment or not. The doctor knows more than you about the procedure, and the car company would know more about the car than you do. Right. This argument is that makes markets imperfect because there's unequal, what they call asymmetric information. Last couple sellers as price takers, this is the idea that you have no influence over the price you're charging. So you just look out on the market and say, what's the price? I'll charge that price. I'll just. My price will be equal to the market price. I'm going to be above it. Not going to be below it. It should be equal to it. Finally, no barriers to entry. If Richard Salzman wants to start his own smartphone company, I should be able to do it by Saturday. Shouldn't take me much money. Shouldn't take me much patents. And if there's barriers to entry, that's an imperfect market to them. If Apple today can't get 73 competitors going at it, it's imperfect. And then finally, related to profits. Price has to equal, they say, marginal costs. And if you know anything about business, you know you have marginal or variable costs that change with unit output. But then you also have fixed costs of plant and equipment. They basically want you to set your price, not to cover your fixed costs. What is the argument there? They would say, well, you already bought the plant and equipment. The goods are already there. The equipment's already there. You should be charging just the marginal price. Now, here's an example. A pharma company might take 20 years and $800 million to discover a pill, right? Once they discover the pill and get it approved, they want to sell the pill. This marginal approach says, well, how much does it take you to make a pill? Like, maybe $0.05 off the assembly line? So you should only charge $0.05 or at most, maybe $0.06, right. And what's the company going to say? We have fixed costs here. They're called R and D. We spent 20 years investing $800 million into the. We need to amortize that over time. No. The perfect competition model says, no, no, no, no. You can only price at marginal cost, which basically makes profits either minimal or zero or nothing. The first thing you have to ask in this, what is the point of all this? Because some of them will say, I grant that there is no such real market like this. They use it as a standard for regulating and trust busting markets. It's almost like a cudgel that they've created, but it has a very philosophic kind of platonic aspect to it, if you think closely, because every single aspect that I just named boils down to equality, I'll go back here. Many buyers and sellers with equal market share, equal small market share, all the products look alike. There's no differentiation. Everyone has equal information, everyone is equally price setting. All the profits are low. And what runs through all of this is equality. Equality, equality, equality from beginning to end. And that to them is perfection. Now some positive stuff, and then I'll stop. This is what Isabel Patterson wrote in the forties, which is very cool. She came up with this argument about production. Just to simplify the argument, what the heck is profit? And she used the potato example. So I've given you pictures here of potatoes, but this is the idea of profit as net production. Now get this, this is very clever. Here's a quote from the book. This is from the God of the machine, 1943. And by the way, historically interesting. Isabel Patterson had an enormous influence on Ayn Rand's conception of capitalism. They were close friends, they were both intellectuals. But at this point, and maybe a little bit earlier, Isabel Patterson seemed to know a lot more about economics and business and profit than Ayn Rand did. And Ayn Rand admits that she taught her a lot. Well, here's a section from this book. This is just brilliant. From Isabel Patterson, I'm quoting. Now, production is profit and profit is production. They're not merely related, they're the same thing. Now, what does she mean? She goes on, when a man plants potatoes, if he does not get back more than he put in, he has produced nothing that shes taking a pint of potatoes as part an investment. You can put potatoes on the ground and get potatoes. So its a brilliant way of looking at this, because it amounts to looking at investment and then return on investment. She continues, this would be obvious if you put a potato in the ground today and dug it up tomorrow, but it's all the same if he plants one potato and gets only one potato as a crop, his labor is wasted, and then he must starve, or someone else must feed him if he has no reserve from his previous production. The objection to profit is as if a bystander who observed the planter digging his crop should say, hey, hey, you put in only one potato and you're taking out a dozen. You must have taken them away from somebody else. Those extra potatoes cannot be yours by right, unquote. She says, if profit is denounced, it must be assumed that running at a loss is admirable. On the contrary, that is what requires justification. Profit is self justified. So this is what is meant by the idea of profit as net production. When you strip away money and prices and costs and just look at production and why we're engaged in production, we're not just trying to go through the motions. We're not trying to put in one potato one day and get out one potato the next. We're trying to have a net gain, a net value added. And I think this illustrates it perfectly. In business and accounting, you know, profit is just revenues minus costs. But that's all we're talking about. The revenues are things that are sold at a price, but things that are produced and sold at a price. What are the costs, the materials and the labor and all the stuff that goes into the making of that thing? And again, if revenues equal cost, you're not making any money. The idea is to maximize revenues relative to costs, and the bigger the better. It isn't just the idea that, well, profits should be low and stable, and they shouldn't be high at any point. That's just not true. The higher they are, the more net value you're creating. So I'm skipping through here because some of this is more technical. Here's the rate of profit, which I alluded to earlier, is very, very important. It's a percentage measure, and this is the most technical thing I'll do today. But notice how the rate of profit is a quotient, and I'm showing on the screen, for those who can't see the screen but are listening to me, profit earned the dollar. Profit earned on invested capital. Well, the profit is a flow concept. It's the idea of how much money did I make over a particular year? And the invested capital is a stock concept. That's the stock I invested from the start. You can get a ratio out of that. There is obviously a ratio out of that. Empirically, economists have found, guess what this ratio is? It's about ten to 15% I actually showed you the graph earlier in the presentation, and it fluctuates between ten and 15%. And by the way, that's for the entire economy. It's not that companies aren't sometimes making more than that. They are. And capital gravitates toward those companies because they're making more money, their profits are higher. And then there are companies where profit margins are going down, their profit rate is going down, they might even go out of business. And what would be the motive? The motive would be to get capital out of those companies, out of those industries. So here I'm just trying to anchor the principle that not only is profit net production, not only is it legitimate, not only is it moral, the profit rate and people on Wall street and elsewhere have 17 different ways of measuring these things, but they care about these things because it's how talent and capital is allocated in and out of industries, companies and products. It's very, very important. So you slight this mechanism, you tax this mechanism, you twist this mechanism, you're going to wreck the economy. Now, last couple of things just on this idea. Well, if it's really the capitalists and the entrepreneurs who are earning profit, what do we mean by this? I think it's very helpful. And I teach students all the time, never just lump labor together and say there's labor. That's never true. There's mental labor, there's skilled labor, there's physical labor, there's very, very crude manual labor. And the key is, some labor is more brains than brawnous, and some labor is more bronze than brain. We all know this with every unknown number of examples. It's the brainiacs who create the added value. It's the intelligent, commercially oriented, creative people at the top of what Ayn Rand called the pyramid of the building that create way more wealth and should be paid way more than others. So that's an important thing. And lastly, I think it's helpful, in this context at least, to talk about who gets paid. What are all these terms? Are any of these terms so legitimate? I would put it this way. I don't really call the lower group labor. If you notice on this chart, on this slide, I call them helpers. Now, I know that sound, that might sound a little demeaning, but I'm saying that they don't own the means of production. They're hiring out their labor services, and they're saying, pay me a wage, but then I'm going to go home. At the end of the day, I don't have to worry about this. Business. And so they're providing a service. They're definitely providing a service, but they're helping the capitalist and the entrepreneur create wealth and run the business. They're not running the business themselves. They're helping. And so I call their labor services and they're paid what it's called wages. A perfectly fine explanation for our description of what the helpers get. Now, what do landlords provide? Real estate, real estate services. And they get paid a rent. What if financiers and lenders provide savings? They accumulate savings from savers, and they turn around and invest it in enterprises. They earn interest. Now I have here the entrepreneur, as distinct from the capitalists, although they can be the same thing, that you can be the owner and the runner of your business. But when you get into big businesses, the managers are not necessarily the owners, they're not the major owners. So here I'm going to say the entrepreneur is the initiation and organization of the business. And they earn a salary and bonuses. So unlike wages, they don't really get wages. They get salaries and bonuses, and sometimes they're huge. This would be like CEO pay. And then finally I have the capitalist shareholder providing capital, and they also provide the intelligence of hiring the managers. There are a board of directors that work for the owners and hire the manager. So there's a lot of mental work going on there. And what is their pay? Profits and dividends. So I just want to stress here, these terms are perfectly fine. Profits, dividends, salary, bonuses, interest, rent, wages. And they go to particular people who are called factors of production. I don't deny that. But it's just wrong to say the profits come from labor. And you start mixing up these categories and decrying some earnings as unearned income. We hear that all the time. The financiers are accused of this. Your interest is unearned. But this is the way I would think of it. The five key contributors to production and the kind of pay that we call their pay. So there they are, capitalist, entrepreneur, financier, landlord, helper. They own capital, labor, savings, real estate, and labor of a different kind. And it's the capitalist who earns the profit. [00:47:48] Speaker A: Great. [00:47:50] Speaker B: Let me just finish with one more thing. There's some readings here at the end. I just wanted to say something personal about how people only think of profit, not only in these false ways, but in ways that are solely due to business. And I did allude to this earlier, but there's such a thing as I call personal profiting. And I don't think people quite realize how ubiquitous this is. But profit, as I put it here, in this slide, profit and profit movement aren't only commercial phenomenon, because in the personal realm, rational eagle is also try to calculate benefits versus costs and maximize the difference. They just don't think of it this way. They don't think of themselves as running an enterprise. They think of them as just living their lives. But everything you do, every choice you make, not just at the grocery store, but in the time and energy and resources you spend with friends and family and, I don't know, wasting time on social media, on the Internet. At some level, if you're calculating this is worth it to me or it's not worth it to me, this is anonymously beneficial to me or it's not beneficial to me. You are basically making a profit and loss analysis. And if you're good at it, you'll mostly be engaged in gain. You'll never like deliberately unless you're sacrificing yourself engaged in net loss. And I just wanted to suggest this because I think people don't think of this so much as it's not just business, but your entire life should be profit oriented and profit maximizing. So I'll stop there. Scott, I know there's a lot of material here, but I'll leave it there. [00:49:26] Speaker A: Yeah, great material lot to go over. I have questions of my own. There were some from the audience. I wanted to invite Bruce and then Joshua to state your questions. Or I can read them if you prefer. You can actually, if you want to ask a question, there's a react button with a heart at the bottom. And you can click that and raise your hand. Bruce, do you want to unmute and ask your question or do you want me to ask it? [00:50:01] Speaker C: Can you guys hear me now? [00:50:03] Speaker A: I can, yes, go ahead. [00:50:06] Speaker C: I'm just kind of curious. As I said to Richard, from a historical perspective, when you talk about Marx, Lenin, Engel, and all of the aforementioned, what I will call non capitalist, and each time their theories fail, how can people continue to buy, quote that this is something better than our free market economies? [00:50:30] Speaker B: That's a really good question. I think maybe. What is the phrase we hear today that politics is downstream from culture? I like that phrase because it's a recognition people have that, you know, if our politics are going awry, maybe there's something about culture. What do they mean by culture? They'll be talking about culture wars, Bruce, you know, things like that. Well, it sounds like the more, you know, more fundamental ideas by which we're living our lives. So the answer to your question I would give is exactly some of what I've talked about tonight, the ethical disdain, the disdain for egoism. I really think even though economists can prove that profits are good for the economy, I mean, we saw some of those surveys, right? Theres still this disdain for profit. I think its, I have no other explanation because I know its a practical benefit and most economists do. But the disdain for it and the perfect competition model, even among economists, I think, reflects the fact that theyre very uncomfortable having a full throated, unabashed, unapologetic defense of rational egoism. It's so interesting to me because political economy itself began with Adam Smith saying, self interest leads to the wealth of nations. But if you look at Adam Smith scholars today, even the ones who know him and like him, they go out of their way to say, well, you didn't think it was moral. Don't get me wrong here. He didn't think it was moral. He just thought it was practical. If you read his theory of moral sentiments, he does say it's a kind of a nefarious motive. And so that was in Smith. That's in smithian scholars today. And that's the only explanation I have, Bruce, because I think it is very disturbing. But it's part of that question that also says, geez, if capitalism is so productive, why don't people embrace capitalism? If socialism is so destructive, why do people keep embracing socialism? Well, those are political economic systems. And I think the only answer I can give is you have to dig deeper and say there are epistemological and ethical foundations for these views. And to get capitalism, you're going to have to get an argument for reason, rationality, egoism, and rejecting these ideas that it's zero sum and it's cutthroat and all that kind of thing. [00:52:56] Speaker C: But that's, your question would be, why not just base this in historical facts instead of theory? You know, yeah, at the end, you talked about the, you know, somebody go to the customer, the poor family going to the store, they're not going to buy the most expensive products. They have selfishness and self interest. Pardon me, it says we're not going to spend money frivolously or they will go broke and they will learn. That's just simple economics to me. It's frustrating. [00:53:23] Speaker B: It is so much. It is to me, too. And it's frustrating to me, too. But by the way, if you notice, even if you get someone to agree that trade is win, win, win, they'll go the, in other words, doesn't have to be loss lose win win lose, sacrifice. They'll complain that the winnings aren't equal. I mean, if I trade with you and I get, you know, $5 benefit from what I'm getting from you, and you get a dollar 50 benefit, notice how that's still win win, but it's unequal win win. And I don't, why should I care? I'm looking for my $5 gain and you're looking for your $50 gain, but the result will be you'll have more income than I do. And they get all upset about inequality of income, and to the extent it comes out of inequality of trade. So even on that level, they're going to resist it, I find. But thanks, Bruce. [00:54:15] Speaker A: Thank you. Let's go to Joshua. Joshua, thank you. [00:54:20] Speaker D: Thank you so much for the history and these different perspectives. Yeah, I guess I was thinking about the perfect market assumptions, particularly the homogeneous products, no barriers to entry. I'm just wondering, taking the word profit out of it, is there any room for individuality, either for the producers or the consumers wanting something that's theirs? Is there any room for a genius, you know, a Hank Reardon type or I guess in real life, an Elon Musk or a Steve Jobs type? Is there any room for innovation? Or is it just a bunch of boring commodities that we're all stuck with in that world? [00:54:49] Speaker B: In that world, no. But to. But thankfully, in the history of economic thought, the best person for this is Schumpeter. So I did quote from Schumpeter, but I was just talking about his profit theory and kind of echoing the perfect competition model. But he definitely emphasized the Hank reards and the creativity and the innovation and the, we would call them disruptors today, but his famous phrase was creative destruction. And I'm glad to say Ray Niles, by the way, is an all time expert. Ray's on the call here. He's from professor at St. John's in New York, is an absolute Schumpeter expert. And I've talked to Ray back and forth about Trumpeter. So we love Schumpeter. And I don't want to, you know, just by quoting him on profit, say that he's as bad as the others, but he is very good. If you haven't read him, who asked that question? Was it Joshua? Josh. [00:55:41] Speaker D: Yeah. [00:55:42] Speaker B: So have you, Josh. Thanks. Josh. Have you read jumpiter is great on this? Okay. [00:55:46] Speaker D: I'll tell you, thank you for pointing me in that direction. [00:55:48] Speaker B: It's great. Thank you. Ray. Did you want to chime in on jumpiter? Or the. [00:55:53] Speaker E: Well, actually, it kind of leads to just a question I had. Yeah, Schumpeter is great. I'll just say one thing about Schumpeter. He says the entrepreneur is the motive engine of economic growth. I mean, he describes him in heroic terms. I actually used that in a paper talking about Schumpeter, which I recently published. But I feel like he, the economist in that sense, who is really closest to Ayn Rand's ideas about the entrepreneur. Now, the question I had, though, is just sort of a little technical one about, I liked your list of all the people who contribute to profit or to wealth creation and the different roles, the laborer and the capitalist. But I felt like, I'm not sure how you think about this, but when entrepreneur like, we have entrepreneurs like Elon Musk or Henry Ford or Jeff Bezos who create their company, who create it, your definition sounds more like just strictly like a CEO, which I think would you consider sort of having the CEO as sort of that kind of paid employee. But the entrepreneur, yeah, he gets financed by capitalist, but he creates an enterprise that simply would not exist if he didn't come up with that idea. [00:57:23] Speaker B: Yeah, I do think, Ray, you'd agree that the entrepreneur literature, which thankfully, has grown, I think it started in the Reagan years, getting much more attention focused on the idea of the starters. They would start up companies and get companies going. But then once they became big and bureaucratic and what they call the separation of ownership and control, the entrepreneurs spirit, it said, it has been said, gets lost. But, yeah, you and I know there's great CEO's over the years, the Jack Welch's of the world and others, many to be named Steve Jobs and others who they were managing huge enterprises but still managed to be entrepreneurial and, you know, realized that their companies were stagnating and decaying. But that's a whole other issue. I think there's a whole, as you know, big controversy about whether, if there's greater separation between who owns the place and who's running the place, the capitalist versus the entrepreneur or the CEO, then all the incentives go awry. That's actually, I found, interestingly, it's kind of hinted at even in Atlas Shrugged, I don't think she had this view, but indirectly, the villains in Atlas Drug are big corporations with names like amalgamated Steel and consolidated whatever. And the heroes have personal names on the door, Reardon Metal and Hammond Automobile and things like that. So it's almost like she had this view that if you were personally, selfishly owning the place, and running it, you'd be a better capitalist than if you were part of this board of directors who are all collectivists looking at each other. So that kind of attitude is true even in corporate finance. But Ray, I just want to get on the record, tell me whether this is right. What's great about Schumpeter on profit is he says, listen, these entrepreneurs and these creative people who see new things and innovate and bring together all these factors of production, they do create enormous profits in the beginning, and they create whole new industries and companies and products. And he definitely says they earn it. But then the view is others copy him, come in, compete, and this is kind of like the capitalist story, right? We shouldn't be apologizing for this, that others come in and the market gets bigger and this originator's profit margins might dwindle. But then he goes on and does something else and starts all over again, or another one like him. So you would agree. So he never says profit is stolen. He just kind of agrees with this idea that the normal state of affairs is not this constant innovation and starting up of new things, but the general running of things as is administratively. And that's when I think would say. [01:00:15] Speaker E: This idea that you said there's always a tendency for profits to get eroded away because of competition, because those innovators. And I think he's saying that that's always happening. It's relentless, right? I mean, the imitators coming in. But I guess I would say that, you know, I think what is the normal state? Yeah, there's a tendency to that. But I think he sees it as sort of where, you know, where things are headed. If there was never another entrepreneur, then profits would fall that level. But I think the normal state is constant entrepreneurship. I think that's kind of, you know, I think that might be how he, you know, how he might think about things, but he definitely, you know, sort of, he suffers a little bit from that, you know, the evenly rotating economy idea. But in his hands, it's not, he's not saying it's some kind of ideal, you know, he's not saying that at all. [01:01:15] Speaker B: And I should have stressed that perfect competition model, platonic as it seems. It sounds like, well, that's crazy. Maybe they're just teaching theory in the school, which they are. But the bottom line, really critical manifestation of this is antitrust. The trust busters, they see what they'll do. They hold this thing up as a model. They're not expecting every industry to be like this, but put it this way, the more it departs from that model, the more they get on the radar of the trust busters. And if you know, the whole history of trust busting, it's just been a complete carnage of some of the greatest companies ever, greatest minds ever, the greatest entrepreneurs ever. And they're doing it again now. They're doing it going after big tech, both sides, Republicans and Democrats. But you see, why would be if profits have to be, like, really low and stable low, if they see any company or any industry with above average. Here's the egalitarian critique. Above average rate of profit, and not, in other words, above 15, it's 20, it's 30, it's 40. And not just that in a sustained way. It's not just happening for a couple of years while the product rollout comes, but they're sustaining this for like, four or five years. Those companies rise up on the radar and are shot down and busted and broken up by these antitrust goons. So that's not the only way. There's regulation. There's the price gouging bullshit that you're hearing from Harris that all comes out of the perfect competition model, that prices should be, you should be price takers, you should not be price setters, you should not have any efficacy over your pricing or your business. We're going to tell you what to do. And if you don't conform to the norm, that's why all these phrases about it's not normal for profits to be above, they're all looking for normality and egalitarian performance, and that's just not what drives a capitalist system. [01:03:13] Speaker A: Great. Well, let's go to Clark next. [01:03:17] Speaker F: Yes, Richard, thanks so much for this presentation. You are really enjoying this. [01:03:23] Speaker B: Oh, great. [01:03:23] Speaker C: Thanks. [01:03:25] Speaker F: Yes. I guess my question is, you know, well, let me just first say Ayn Rand famously said, it's earlier than you think. Of course, you know that. That was more than 42 years ago. And, you know, as I, as I've gotten older, I'm, I get a little frustrated. But now, you've been in academia, I believe, about, about a decade or so. [01:03:45] Speaker B: Yeah. [01:03:45] Speaker F: And so now, have you noticed, now, do you get lumped in with just the other remarket economists or people now slowly starting? Because you mentioned Brian Kaplan earlier, he's very free market, and I like a lot of what he says. But when you are communicating with these other free market thinkers, do they sense the uniqueness of your ideas, Rand's ideas, or I, or is it still earlier? Is it still earlier than we think? [01:04:21] Speaker B: I think they're, I would put it this way. Many of them are aware of, call it the moral case for capitalism. I mean, her books make the economic and political and moral case. But she's uniquely known for saying capitalism is an ideal. She meant a moral ideal. And by that she meant it's based on rational self interest, individualism. And these economists, even the free market economists, and there's many more of them than there were 25 years ago, 35 years ago. So that's the good news in their field, they're very reluctant to go to ethics in economics itself. They split it, just like David Hume did, who came up with the is ought dichotomy. The ISOT dichotomy is an economics. They call it positive economics and normative economics. And positive economics is supposed to be these model driven mathematics. That's why it's so mathematized. It's supposed to be the what is. And they do umpteen studies about what is and this and that. And they will not touch ethics. They will not say anything about ethics. Now, in normative economics, they think that's non scientific. In that field. They'll talk about, well, the tax rate should be this, and corporations should not maximize shareholder value, but rather stakeholder value. So even when they go normative in business schools, finance, or economics, they just adopt, I'm not saying they, the free market economists, those types will just endorse and incorporate the altruist collectivist models. That's why we're getting woke corporate. I actually did a session for the Atlas Society on, I think it was called why MBA students are anti capitalist. It's a paradox. Because they're MBA, they're business students, and they're being taught to be anti capitalist. It's terrible. That trend is definitely worse over the last ten or 15 years, mostly by shifting to the stakeholder model instead of the shareholder model. But that's been my experience. The free market economists really want to stay out of the fray and not get to what they would call ideological by making a kind of moral case for capitalism. And I found also many of them in the libertarian movement want to reject the word capitalism. Theres many economists up at GMU who will say to me, theyll say to others, please stop using the word capitalism because its hurting our cause. They think it hurts the cause. Call it free market this or free enterprise or this and that. Because their view is that capitalism has this connotation of its the system of buying for capitalists. In other words, its cronyism. Its a privileged system that benefits only capitalists. Now, when you, when you push, when I push and say, you know that's not true, they'll say, yeah, I know that's not true, but I have a pr problem on my hands and I can't either say to students or to colleagues or at these professional conferences, use the word capitalism in this glowing way. So they're embarrassed about the word. Just as in ethics, you could say the ethicists are embarrassed by using the word selfishness or egoism. Very similar. So, you know, ayn rand was kind of unabashed about this. She would say the virtue of selfishness as Tyler or capitalism, the unknown ideal. Should she not only use the words, but then say they're good things. And in academia, that's considered not erudite, not subtle, not sophisticated, not nuanced. But my kind of view is still in. My kind of view, which I'm unabashed about presenting in class and in conferences and journal articles, is still a minority view. But it is a view out there. It does exist. I don't know if you can still see the screen, but on can you see that screen? Til Scott, there are three or four books there. I wanted to recommend one. How to be profitable and moral. A rational egoist approach to business by Yanu session. Yana's an objectivist who for many years taught Athenae University of Calgary business school. That's from 2012. This one by Robert White is very good as well, from 2020. Robert is an objectivist also and teaches in Europe. The moral case for profit maximization. That book is excellent. That is a scholarly book. Now this other one by Bainbridge, he's not an objectivist, but this is very good. The profit motive, defending shareholder value maximization. So these kind of things are encouraging. There are increasing number of books, I think, in this realm, but they're still not the mainstream. [01:09:03] Speaker A: Great. Let's go to a deep. Next can unmute. Hope I'm pronouncing your name correctly. You'll have to unmute before we can hear you. [01:09:17] Speaker G: Do you hear me? [01:09:18] Speaker B: I do, yes. Hi, deep. [01:09:20] Speaker G: Hi. Yeah, I am not really capitalist. Okay, listen, you increase my blood pressure about 5%. I have been listening. [01:09:34] Speaker B: All right, good. [01:09:38] Speaker G: I know it is not a good time to discuss. I'm in the car with my co founders. We are going late. We are trying to make profit, but of course I don't have good feelings about that. Now, here is a question. I had three quick questions. I want to learn about your philosophy. Unions. Just briefly, if you can tell unions, Ubi and inheritance on these three topics, what is your philosophy says? Let's see how much there is a consistency. I just, I want to get an idea. Unions, workers unions for their self profits and UbI system and inheritance. [01:10:25] Speaker B: Okay, so very quickly, unions, our philosophies and the capitalist philosophy view is unions are perfectly okay as long as they're voluntary. So there's a freedom of association under capitalism, if laborers want to join together and try to collective bargain with other, with employers, that's perfectly okay with us. What we're not for is them getting special favors where the government mandates that the employers have to deal with them. So the idea of striking, to the extent striking initiates force, you know, you cordon off the factory and you don't let others replace you. We're against all that. So as long as it's voluntary, we're not against any kind of cooperation, but by the way, between labor or businesses. So we're not even against businesses. What do they call it? Colluding on prices. So we don't like the antitrust laws at all. You didn't like, you didn't ask about the antitrust laws. I get that. But the addendum to that would be we do not believe the standard of living over the years has been increased by labor unions, but by capitalists and introducing capital. Ubi. We're against universal basic income in the sense of the government mandating that everybody get a check no matter what they do. In the libertarian movement, it's very popular. I don't understand why, because I think they want to. And actually, Milton Friedman came up with the idea of a negative income tax. That was an early version of it. But their motive is to minimize the welfare state, to ratchet back the welfare state and just give everybody a check. I mean, we're against the idea of taxing people unjustly, and certainly against the idea of turning around and giving money to people that's already, money that's already been taken for doing nothing on the grounds of justice alone. Getting something for nothing sounds to us like parasitism. Sounds to us like not justice, but injustice. Inheritance is interesting because we're for complete freedom of inheritance, of people bequeathing their wealth to others. So we're against these. We're certainly against the punitive inheritance taxes, but even small inheritance taxes. Here. The idea is it's part of your property, right? It's the least recognized part of property rights, but we're big advocates of private property rights. But it has like four or five main elements. One would be, do I have a right to go earn property? Do I have a right to work? And the second would be, do I have a right to exchange what I produced, to consume what I produce, to invest what I produce? But the last one is to give it away, to gift it, to bequeath it. And we want unrestrained property rights in all those realms. That fifth one, though, that last one notices the weakest. That's the one that from all sides, not from our side, but from all sides, that one's really hard, for some reason, for people to defend, partly because they don't think the heirs deserve it. But our view is it's the givers who matter. They're the ones who own the property. They should have the priority about where it goes. But that was one plank. Edip, you must know a steep inheritance tax is in the communist manifesto. So there's a bunch of things in the communist manifesto, but that was one of them. Some people want to do it to stop inequality of income, but I don't. [01:13:40] Speaker G: Want to forget to. Thank you. I learned tonight I will check it whether it is correct or not that the average profit is 15%. That is very interesting piece of information I got from here. I need to verify it or falsify it, but that was very interesting. Thank you very much. [01:14:00] Speaker B: We can also share. We can also share the slides, Scott, to anyone who joined the call tonight. They can get the slides later. [01:14:07] Speaker A: Absolutely. I do want to go to our founder, David Kelly. David. [01:14:12] Speaker B: Thanks, Edith. [01:14:13] Speaker A: To unmute. [01:14:16] Speaker H: Yes, thank you, Scott. I have a question for Richard about competition. I'm not an economist, but what you say about you make a profit when your sales revenue exceeds the cost of what you're producing per unit, I would think any businessman would understand that completely. And there are a lot of people who didn't understand it or failed, and they suffer the consequences. But the price structure, the price of goods is determined by supply and demand, and so is the price of the product that is being produced. And even if you have a breakthrough idea, like apple or some other firm, people will come along and compete with you. [01:15:12] Speaker B: Yeah. [01:15:13] Speaker H: And that competition is often regarded like altruism itself or like egoism, rather, as discreditable. And here's my question. In some realms of life, people love competition. I mean, we've just seen the Olympics in Paris, and, I mean, I could watch Simone Biles do her routine over and over again. It's so beautiful. And she, you know, I was glad she won. And it just. That side of human excellence. And we see it, you know, in, you know, in sports, too. You know, people admire the great football players, basketball players and so forth. [01:16:01] Speaker B: But. [01:16:01] Speaker H: That does not extend to business, except. But on the third hand, I have three hands. As a philosopher, people do look up to standout producers like Elon Musk and even Jeff Bezos. And I'm wondering why, if you have a take on why those differing attitudes about competition exist. [01:16:30] Speaker B: I do. And before I answer briefly, I've written exactly on this called we should celebrate wealth diversity, too. So I was poking fun at the diversity and variety advocates differences, the spice of life and all that, David. And yet the egalitarians come in and say, not in the commercial realm, not in the economic realm. Anyway, I wrote that for aie r.org. so if you just search my essays at AI r.org, it's called celebrate wealth diversity as well. I noticed the same exact thing you did. It's in that essay, David, and I named sports Hollywood Academy Awards, the Oscars, you know, and things like that, arts and entertainment, even lottery winners. How about that one? Lottery winners. Most people would say those are random achievements, not, not really earned. Earned. Other than you did buy the ticket, no one hates lottery winners. I don't know. There's no resentment of lottery winners. It's interesting. So. Yes, exactly right. And it's also interesting to me because competition in these fields does seem more like a zero sum game. We know it's not. But when the Bulls beat the Celtics, the Celtics lose and the Bulls win, that's not quite the same as a trade between me and you, David, where we both win. And yet this is an enterprise, and everyone's winning in the arena and everyone's voluntarily playing because they're getting paid. I understand that. But I do agree. And I think it is either a, I think part of it is you can see athletes physically doing it in front of you. This is my theory. It's probably not a very good theory. And you can see actors and actresses performing and lottery winners. I don't know how I put that one, but, and there's something about a CEO or a banker, and if you say to people, what do they do? They'd say he sits at a desk all day and tells people what to do and then goes home and then golfs and then for some reason makes 42 million a year. I hope it's not that concrete bound, but I suspect that that's exactly what's happening. Plus the animus toward commercial and profiting. But you're absolutely right. Where's the animus toward the football player who makes 400 million a year. It's not 400 million a year, but that much. They clearly have those numbers. Those numbers are listed and posted, and yet people don't. And people do not resent these people. These people. And I don't know if that's a kind of a shallow way. Tell me if you think that's kind of a shallow answer. But I'm thinking that people are so concrete bound that they'll only be satisfied with a lot of money going to someone if they see them physically performing. Now, someone like Trump, I actually think one of the reasons he was admired is he's built buildings. Or someone like Elon with the spaceships going up and the Tesla car driving by, you know what I mean? Or the iPhone for Steve Jobs. If my theory is right, then the ones that are most admired, Henry Ford, the ones that are most admired, the observers can see some concrete connection between their wealth and their product. But if I said JP Morgan, I think as you get into the more abstract fields, venture capitalists, hedge fund managers, people are like, what are you talking about? Why would a hedge fund manager. They don't even know. They can't even spell hedge, let alone know what they mean. So do you think that that theory is kind of shallow, what I just said? [01:20:03] Speaker H: No. I've wondered for many years whether Ayn Rand had the concept of the anti conceptual mentality arrested at the concrete bound level, like you were saying. And even for outsiders like myself, I'm not. I don't work on Wall Street. I don't understand half a 10th, a hundredth of what they do. [01:20:27] Speaker B: Yeah. [01:20:29] Speaker H: I do appreciate, though, that markets exist and there is fierce competition in those realms. So I know that just if you're making money in that realm, you've got something that a lot of other people don't have. But also, if you think about economic finance, markets, economic regains from them, what they're doing is allocating capital to enterprises and providing a relatively safe means for people to save their money, earned interest and dividends down the road, which is a hugely important factor for the rest of us. But I think it does come back to the concrete bound nature of people. And that's why, in epistemology, if I could do one thing in my work, it would be to help people understand abstractions. [01:21:36] Speaker B: Yeah. David, one of the aspects of your answer strikes me as very interesting, because you can't. I don't want to put words in your mouth, but you kind of said, now there's this field I don't know very well. I don't know the technical aspects of it, but I know they make a lot of money. But I'm inferring that it's earned because I know how competitive it is. Thats very interesting because the anti capitalist attitude would be, Im going to start with they make a lot of money and Im going to end with there must be no competition. See what I mean? Your starting point was, I know theres fierce competition on Wall street. Of course, Ray Niles and I worked on Wall street. We know exactly what they made lots of money and they were fiercely competitive. But we also know, Ray, how many of them we knew were like, they're trying, they're trying, they're trying. They disappear. You never see them again. [01:22:32] Speaker E: Right. [01:22:33] Speaker B: So there's this darwinian process of the survivors, but it should be that way. Right? The ones who are really brainiacs, the ones who can sit consistently outperform, yes, they're going to be the multimillionaires. They're going to accumulate the wealth over the years. And yet people aren't willing to say with a kind of trusting of, I trust that Wall street is producing genuine people who earn that wealth. Ray, do you have an idea on this concrete bound idea of whether you can observe whether someone's wealth is connected to what they do or what they. [01:23:06] Speaker E: Well, I actually typed in a thing. It's interesting. Aristotle and David, I will defer you, the philosopher, but just my little bit of reading. He really didn't get the idea of interest on loans. He thought it made no sense. But he also, but making money through trade, like retail trade, wasn't, there was no moral, it wasn't morally valuable, like if you got rich through retail trade. So, and I think this, this idea, I know the Marxists have this idea of commodities versus money. And you know, you know, making money from money, it's immoral. And, and I think this sort of has just filtered through our culture. And, you know, the big religions are also hostile towards finance. It is true. People also, it's hard to understand what banking does. I mean, it shouldn't be that hard to understand. Like when you really think moving capital to its highest value of use and you can point to a factory and say that iPhone factory, someone had to finance that, but people really don't understand it. And then the more advanced that finance gets, really unusual things, trading derivatives or whatever, even the people who do it don't even necessarily understand the economic value of what they're doing. Actually, there's one quick anecdote. I'm just sorry a guy, he had his bring his daughter to work day, and I believe this story really happened. So she said, daddy, what do you do? And he couldn't explain it to her. He traded, like, I don't know what, some kind of weird derivative or something. He couldn't explain it to his daughter. So you know what he did the following Monday? He quit his job. [01:24:48] Speaker B: Yeah, yeah, yeah. I've heard stories. I've heard stories like that, and it's so sad. And I actually, I've had students, they're seniors, they're going to Wall street, and they want to make money. And I'll ask them their motives, and most of it is, I want to make money and I want to have fun. I want to do New York City. But I'll ask them about finance, and I know there's these biases, and I'll say, this isn't due to my teaching. It's due to somebody. I'll say, do you think your job is productive? No. Do you think finance, do you think the finance sector is productive? No. Don't you think this is going to hurt your motivation after a while? You're in this field, and they would say something like, not if I make enough money. So there's a cynicism associated with this, but the ones who simultaneously want to do it and realize it's productive, they're just dynamos. They're going to be. That's going to be the best combination. Ray, what you're saying, and David, the way I put it also is it isn't just this idea of the labor. Lump of labor idea that. Not the lump. Physical labor, skilled labor, mental labor. As you go up the pyramid of ability, as Ayn Rand called it, people are not aware of what they're doing and what they're contributing. It's also, sectorally in the economy. I've noticed if you go to the three main areas, they're like extractive industries, farming, fishing, mining, oil production. Right? Your hand, your hands are dirty, your muscles, you're sweating. People think and realize those people are really productive. This is a very jeffersonian concept, actually. Okay. But the next level is manufacturing. Right. You process what's extracted. Then beyond that, you got wholesaling, retailing, advertising, finance, lawyering. You see how it gets more abstract. But those things are absolutely, those other things are absolutely essential for keeping an advanced economy going. And yet, mentally, I think if people are epistemologically impaired and aren't able to see conceptually, they cannot retain this or they're not taught it, which is even more criminal by people who should know better. They're not taught that all these sectors are productive and interacting and mutually supportive. They're just taught that the bottom ones are productive and the ones on top are sucking the blood out of them. It's a very common view. So it's not just the capitalists sucking blood out of the labor, it's these other sectors, these more abstract sectors are sucking the blood in the finance. It's called financialization. If you look up the word financialization, there's a whole literature complaining that advanced capitalist countries have too much finance. The finance sectors are too big, that they're parasitical. It's very sad, actually. Someone said to me one time, you wouldn't have a job, professor, would you? And we certainly would not need political economists if the, you know, like in 1700. And I said, why not? He said, because you'd be working in the fields 18 hours a day. And I said, actually, that's true. I said, but the wealth of nations from Adam Smith. He didn't notice that the wealth of nations, or even begin to try to explain it till 1776, because we were becoming more enlightened and more advanced. And now when you fast forward 225 years, the reason the culture is not being held up is there's not anybody or there's fewer and fewer who can explain how the system works. So you need not only the producers in these various businesses, you need producers in intellectual fields to be able to produce the knowledge, to maintain the thing, to teach people. All these parts are great. They're all working together, and that's a different kind of productive effort. As you know, we're doing this tonight. We're productive intellectually, but it's that alone, the intellectual sector is seen as parasitical. It's so important to keeping the advanced capitalist civilization going. [01:28:43] Speaker H: It would be great. I'll just make a brief comment and then turn it over back to Scott. But it would be great if there were some kind of simple but persuasive and accurate description of what people in finance do that laymen like myself could. I know a little more than the average person maybe, about this, but that you could explain it, because this seems to me a really enduring problem and obstacle, politically and increasingly. Politically and economically. So that work I'm thinking about may exist already, probably does. But if not, it'd be a great thing to produce, I think I. [01:29:30] Speaker B: To finance. Yeah. There is a book called Ray, isn't there a book called the Morality of Finance by certain authors we know? [01:29:38] Speaker E: Yeah, I think I contributed a challenge. [01:29:40] Speaker B: You contributed to that one. Yeah. So that's a good book. That's called the Morality of Finance, but it also, is it called the morality of finance? I think so. But it also, but it also explains, it also explains the productive aspect of finance. Yeah. Productive and moral. So it's written by objectivists. That is. [01:29:57] Speaker H: Oh, okay. [01:29:58] Speaker B: So it's called the morality of finance, David, I think. [01:30:00] Speaker H: Morality of finance. Okay. Thank you. [01:30:03] Speaker B: I've given that to Duke students who are going to Wall street. Great. We had a time, Scott. [01:30:10] Speaker A: Yeah. This has been a great conversation. Thank you so much. I'm glad everyone got a chance to get their questions in. I want to thank you, Richard, for doing these events for us each quarter. [01:30:22] Speaker B: Great. [01:30:23] Speaker A: Grateful to have you here. If you want to see our other events, you can check it out at atlas society.org events. And to make a tax free donation, you can do so at atlas society.org. donate. So thanks again, everybody, and we'll look forward to seeing you at future events. [01:30:40] Speaker B: Thanks, Scott. Thanks, everyone.