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Source link: http://archive.mises.org/7086/are-rich-people-parasites/

Are Rich People Parasites?

September 6, 2007 by

Hunter Lewis’s excellent book differs from nearly all other books on economics. Most books defend a particular point of view: a work by Duncan Foley, e.g., will be much more favorable to Marxism than one by Ludwig von Mises. Lewis instead presents the arguments both for and against the free market, allowing readers to judge for themselves.

Why does he do this? Not because he has no point of view of his own. Judging by the way he presents the arguments, I strongly suspect that he favors the free market; and at the end of the book, he does offer some policy suggestions. But he thinks that judgments about economic policy rest on premises about values that cannot be fully reconciled. FULL ARTICLE

{ 29 comments }

RogerM September 6, 2007 at 8:03 am

Interesting review. Can’t wait to read the book. The discussion of values sounds very much like Hayek in “Fatal Conceit”.

Anthony September 6, 2007 at 8:34 am

There was recently a video by some socialist politician in the US titled “Can society afford the rich?” A better question would be: can civilized society exist without them? Of course, many of the so-called rich did not acquire their income via the market, and that must be remedied (by complete privatization and homesteading of all state-owned/-aided ventures.)

Shaze September 6, 2007 at 12:17 pm

A system based on the necessity of a poor working class is clearly a flawed system.

RogerM September 6, 2007 at 12:49 pm

Shaze, In what way is the US system based on the “necessity of a poor working class”?

Anthony September 6, 2007 at 1:10 pm

Given that socialism utterly obliterates productivity, yes, it is indeed true that a system based on a poor working class is a flawed system. So much for socialism then!

Clearly Shaze, you missed the entire point of the article. That saving by the rich further increases productivity, thereby rendering everyone better off.

Cosmin September 6, 2007 at 3:13 pm

“Is it not grossly unfair, e.g., that Bill Gates has billions of dollars, far in excess of what he needs to lead a life of luxury, while others must struggle for a pittance?”

I’m not sure anyone in a truly free market can become Bill Gates rich. So yes, his richness is unfair, not because he has it, but because he acquired it in a coerced market.

It follows that, if the rich are less rich, then perhaps the poorer ones would be richer and would have savings to invest. Why must the power to invest be concentrated in the fewest hands possible?

Fundamentalist September 6, 2007 at 5:57 pm

Cosmin:”So yes, his richness is unfair, not because he has it, but because he acquired it in a coerced market.”

In what way did Gates benefit from a coerced market?

Fundamentalist September 6, 2007 at 5:59 pm

I like what Taleb has to say about wealth in “Fooled by Randomness”: moderate wealth results from intelligence and hard work; great wealth from luck.

Anthony September 6, 2007 at 6:43 pm

Fundamentalist, my guess is that Cosmin’s answer will be that he benefited from unjust IP laws, various regulatory structures and the State’s existence and involvement in the software industry in general. I certainly agree with Cosmin that fantastic wealth such as that possessed by Mr Gates will not be concentrated in the hands of the few in a truly competitive market.

Fundamentalist September 6, 2007 at 8:06 pm

Anthony: “…he benefited from unjust IP laws, various regulatory structures and the State’s existence and involvement in the software industry in general.”

But all of those apply to Gates’s competitors as well. How is it that Gates benefitted from the IP laws, regulatory structures and gov involvement when others, such Steve Jobs, didn’t?

RWW September 6, 2007 at 8:29 pm

As far as I know, Steve Jobs is also fantastically wealthy.

Anthony September 6, 2007 at 8:34 pm

Gates is certainly not the only beneficiary, just one of the most visible ones.

Matt C September 6, 2007 at 8:39 pm

I’ve not read the book, but from the review, it sounds like this is a pivotal argument:

“As we have seen, it is the special role of the rich to be forced to save and invest — they alone have more than they can possibly spend.”

“We” haven’t seen this, and neither has Lewis, because it is complete nonsense. Poor people can save, and rich people can live in debt. Which country is richer, the U.S. or China? Which country has a higher household savings rate?

I’ll skip the book.

Anthony September 6, 2007 at 9:34 pm

Matt, exceptions simply prove the rule. The rich tend to have a high marginal propensity to save (in Keynesian terminology), I think due to the decreasing marginal utility their increased holdings yield them. On average they tend to save much more, and in much greater quantities.

And your comparison between the US and China is faulty, at best. The latter is only now industrializing, the former has more than two centuries of growth under its belt. You are not comparing equals.

Fundamentalist September 7, 2007 at 8:03 am

Anthony: “Gates is certainly not the only beneficiary, just one of the most visible ones.”

As RWW wrote, Jobs is wealthy, but not as wealthy as Gates. How did Gates manage to use the “coercion” in the marketplace better than Jobs? Also, back in the 1980′s, Microsoft, Apple, and Commodore (Amiga) divided the PC market equally. The Amiga died and Apple fell far behind Microsoft. How did Gates use the tax/regulatory/IP system to his advantage when the others couldn’t? IBM tried to compete with Microsoft with its on OS but failed. Why couldn’t IBM use the same tax/regulatory/IP system to beat Microsoft?

Every company and business person swims in the same tax/regulatory?/IP environment. Why do some succeed and others not?

Anthony September 7, 2007 at 8:45 am

Perhaps because some are better at out-manoeuvring competition than others? In the absence of IP laws (different from how a free market would handle the matter), I doubt Mr Gates would be anywhere nearly as wealthy as he is. I am not saying MS is a bad company – its products can be excellent. Just that it is very unlikely he’d enjoy as much wealth without the State.

Fundamentalist September 7, 2007 at 12:46 pm

Anthony:”I doubt Mr Gates would be anywhere nearly as wealthy as he is.”

Maybe. Maybe not. But he has succeeded in spite of the IP laws. Is anyone out there old enough to remember when MS stole its GUI from Apple and got slapped by the courts? Back in the 80′s, after MS came out with its first Windows GUI, Apple sued for IP infringement. MS basically admitted that they had stolen Apple’s GUI and offered to pay an annual license fee. IP has favored Apple far more than MS.

MS is so large today (and Bill so wealthy) because of smart marketing. MS licensed others to use its OS, so a lot of small companies jumped into the PC market to build cheap PC’s using the MS OS. Apple decided to keep all the IP to itself. As a result, cheap MS based PC’s flooded the market while Apples and Macs remained very expensive. The average user couldn’t tell the difference between the two OS, so chose the cheaper one, the MS based PC.

Amiga, which was far superior to either MS or Mac OS, bet the company on the gaming business, which did not grow as fast as management thought. Personal computing took off first in business where MS had the lead. Some of MS’s success was luck, some good management and marketing.

Kevin B September 7, 2007 at 1:54 pm

“The average user couldn’t tell the difference between the two OS, so chose the cheaper one, the MS based PC.”

Not only were PCs cheaper than Macs, but software was released sooner on PCs as well. Consumers were willing to purchase a desired program, even if it still had bugs and occasionally crashed the system.

ktibuk September 9, 2007 at 9:53 am

Fundemantlist is compeletely right.

If there is a pure free market success story, it is Microsoft.

And Microsoft prospered despite the difficulties in enforcing copyright contracts, not because it.

The most stolen IP in the world was probably Microsofts stuff like windows and office up untill it was easier for people to steal music and movies on the internet like 5-6 years ago.

scott t September 9, 2007 at 3:39 pm

“The most stolen IP in the world was probably Microsofts stuff like windows and office up untill it was easier for people to steal music and movies on the internet like 5-6 years ago.”

except that all that stealing that you refer to really wasnt stealing. someone apparently paid for some copies of music and shared it with others – through this sharing of content some people were grateful, some were probobly repulsed and others liked what was shared with them so much they went out and bought copies of music that had been shared (and others) with them.

without the ip regime more linux-like operating systems would probobly spring up – getting funding through service subscriptions or maybe even the operating system is free until you say..get online and there is a metered charge.

any number of ways im sure money is made without the ip cloud over everything.

Fundamentalist September 9, 2007 at 6:30 pm

scott: “without the ip regime more linux-like operating systems would probobly spring up”

But they might not succeed. I used to sell software, and the main obstacle we encountered was switching costs. And that’s the main obstacle thsy Linux faces, too. If you have a hundred employees who a fairly good on Office software, you might save a lot of money on licensing fees by switching to Linux, but you would also spend a lot of money retraining those 100 employees in the new software and have to put up with lower productivity while they learned it. Also, if your IT department is proficient with MS software, they will require retraining and will not be as proficient in Linux for a while. There is so much more required to business success that just IP, that IP issues become almost insignificant.

Dave September 9, 2007 at 7:08 pm

“Are rich people parasites?” Short answer: In a free market, “no.” In the mixed economy warfare/welfare state, “yes, for the most part.”

Joseph Huang September 10, 2007 at 12:46 pm

MS could not be a sucess without copyright law. Software prices would be much lower, and most software would probably be free, if copying software was legalized. Software copying does not agress upon anyone else because potentially reducing the profits of somebody else is not agression.

Gary September 10, 2007 at 1:51 pm

I like Dave’s comment above and want to expand on it a little.

If a person (or more likely persons acting within a corporate entity) were to become rich by lobbying the government to distribute tax money to them for goods or services whose price vastly exceeds their value, then they would certainly be parasites.

If, on the other hand, the wealth was created through strategy and cunning (eg. Bill Gates), then the answer is that they are not parasites.

Microsoft makes its money in the private arena by creating products for which there is demand. Boeing, on the other hand, derives the vast majority of its profits from sales of armaments to governments.

Microsoft never put a gun to my head and seized my earnings. Boeing, however, participates in the seizure of about 25% of everything that I produce.

So I would say that the answer to the question posed in the title of the book is “sometimes”.

Joseph Huang September 10, 2007 at 5:11 pm

MS’s business is based on government-imposed scarcity. I don’t see how extracting the money from consumers instead of the state automatically makes them non-parasities. If you create wealth by being better at “strategy and cunning” in a market distorted by the state, you can still be a parasite.

Fundamentalist September 10, 2007 at 7:49 pm

Joseph: “MS’s business is based on government-imposed scarcity.”

I’m guessing you refer to IP laws. But if what you say is true, why has Linux run MS out of business?

Working Class Guy September 13, 2007 at 2:07 am

Fundamentalist wrote:
“In what way did Gates benefit from a coerced market?”

1) End users are required to agree to the EULA without reading it!

2) Computer programs are akin to mathematical formulations. Go look at Knuth’s “The Art of Computer Programming” and you will see that the algorithms that undergird much of the computer infrastructure are mathematics reformulated as programs. The point is computing *is* science and as such should not be patented.

3) Austrian economists should be wary of the “Intelectual Property” argument as being fraudulent!
It’s a safe bet that proprietary claims are a ruse to hide plagarism of other software. Betcha much of what Cisco and Microsoft claim as their own innovation was lifted form BSD UNIX, and the research done at Berkley University. Microsoft claims to be a great innovator but things like the dancing paper clip and Encarta have the indelible stamp of mediocrity.

Working Class Guy September 13, 2007 at 2:29 am

Fundamentalist said
“I’m guessing you refer to IP laws. But if what you say is true, why has Linux run MS out of business?”

True Linux has not Run MS out of business because:

1) Word and Excel are perceived as indespensible. Actually SoftMaker.de and OpenOffice are quite satisfactory stand ins.

2) A valid criticism is that much of the Linux Desktop software is chaotic or buggy. That begs the question though. Is the Microsoft way of doing things really that good? Namely:
a) Print out stuff from one computer
b) Go to the second computer
c) Retype all the information back in again.
This is the invariable paradigm of proprietary software. It’s just like the old days where evry province had it’s own measures and weights.

So the solution is identify tasks that are repetitious and write simple scripts. Many of the scripts for routine manipulation are available for free off the internet.

3) The point here is that Linux is succesful, provided men and women are willing to embrace a paradigm shift. Namely don’t use the computer as a glorified typewriter but use scripts to automate routine tasks.

The success or failure of a technology has much more to do with marketing. It’s important to observe that “easy to learn” is not the same as “easy to use”. Linux and BSD UNIX offer superior mechanization for the workplace.

Your Future February 28, 2011 at 5:43 pm

The rich are parasites. You don’t get rich by working hard, but by gettting others to work hard for you – in other words, stealing.

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