Let's start with an even playing field.
Imagine you have two guys, Guy A, and Guy B, they both work the same job at a factory, earning $10,000 a year. After their basic living expenses (food, shelter) they have an disposable income of $1000 a year.
Guy B spends his money on booze. This has the flow on effect that he indirectly partially employs another guy to make the alcohol.
Guy A is disciplined and saves his money. He buys a taxi with his saved money. This has the flow on effect that he indirectly partially employs another guy to build a car.
Guy A (now a capitalist - as he owns some capital - the taxi), continues to work at the factory, but employs someone else to run the taxi.
Effectively here - Guy A and B's choice as to where to spend their money - determines other employment arrangements. Another person in the economy is going to be either a brewer or a car-builder, either going to produce capital or consumer goods - depending on how Guy A and B decide to spend their money. (We're assuming perfectly transmutable skills here).
The town they live in values the taxi service (ie they get more value out of it, than they pay to use it) - and thus the enterprise is a success - and Guy A manages to extract a profit (ie he charges people more than he pays the taxi driver). Guy A's taxi enterprise, on the face of it - seems like a win win situation. Guy A has some more income, and the town have a service that extract value from. Also - growth has occurred - another person has been employed due to Guy A's choice to invest in capital rather than consume.
So let's discuss this state of affairs.
The reason we say that Guy A should keep the additional profit, is not because he deserves it for his discipline (which really delves into moralistic type thinking), but rather we talk in terms of incentives. We allow people to keep the profits of their capitalistic ventures to motivate them to undertake those ventures.
The argument here is - if Guy A wasn't allowed to keep his profit, then he wouldn't bother saving his money, and would join Guy B drinking.
But let's question this - let's say the profit is then equally distributed through out the society. Guy A still receives additional benefit for his saving, both in his share of the profit, and the value of having a taxi service. Is this not incentive enough?
Let's consider how socialists and anarchists would approach this.
Ultimately - under a soviet style socialism - Guy A and Guy B wouldn't have a choice of what they spend their disposable income - (well - their choices would be restricted to a package that the socialist bureaucrat decides they are allowed to spend on).
In the capitalist example - the decision to have a guy working building a car - instead of brewing alcohol comes directly from Guy A's decision to spend his disposable income. Under socialism this would come from bureaucrat decision. Under capitalism - it is incentive that motivates allocation of resources , under socialism it is policy. This has the classic problems of socialism/government ownership - being rife with inefficiencies, vulnerability to corruption, and lack of direct incentive to make an efficient choice.
For anarchists... to me it seems that there is a lack of a model of how things would actually work. But it seems that the guy that can either work as a brewer or a carbuilder, would make the decision himself to build a car instead. Or the town collectively decides they want a taxi and the carbuilder/brewer will fill that demand. But it does leave me wondering what Guy A will do. Bear in mind here, that in order to get the car - consumption of alcohol must be sacrificed - how is Guy A incentivised to sacrifice his consumption? - Under socialism - he simply wouldn't be allocated the alcohol.
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"The reason we say that Guy A *should* keep the additional profit, is not because he deserves it for his discipline (which really delves into moralistic type thinking), but rather we talk in terms of incentives." (Emphasis added).
ReplyDeleteWith that *should* tucked away in there you snuck morality into that discussion anyway. The incentives have nothing to do with morality (or *shoulds*); they are a description of the motivating factors underlying our behaviour.
"Guy A still receives additional benefit for his saving, both in his share of the profit, and the value of having a taxi service. Is this not incentive enough?"
Perhaps not. If the incentive to save decreases, then all else equal, Guy A is likely to save less. This means less investment is undertaken, fewer profits are extracted from the fruits of the investment and there is less to redistribute. If Guy A's share of this redistribution is small enough, he might not bother to save at all. That is, the benefits Guy A gets from consumption now might outweigh the benefits he gets from the consumption of his savings in the future. This will happen if if his discount rate is high enough (how much he values current consumption relative to future consumption). Given that most people seem to have a rather high discount rate, you might not have to take much off the average Guy A by way of redistribution to discourage him (or disincentivize, if you will) from saving.