Thursday, June 23, 2016

The 'give back' argument is the opposite of the truth

This post is an enlargement of a comment I made on Lindsay Mitchell's blog today. Lindsay wrote about the response of a 'social entrepreneur' who had contacted 300 local businesses to pay for school lunches for children, and who had had no takers. The 'social entrepreneur' said, 
"I'm not trying to sound harsh but if there are businesses that are making money off our community then I'm sort of garnering towards making them socially responsible to give back to the community that it makes money from."
What I said in my comment was,
"Businesses...'give back' in the taxes, rates and other government charges that they have to pay - often amounting to more than half their profits. But that is just the start of what they 'give back'. They also employ most people who work in their communities, paying their wages, their PAYE, their ACC, their holiday and sick pay, and their on-the-job training. Add to that the fact that many businesses sponsor local sports teams and cultural events, and that many business people are prominent in community service organisations, and you start to see why such claims that business people should 'give back' make me sick."
I have written before about the socialist U.S. senator Elizabeth Warren's "you didn't build that" argument - that businessmen do not create the wealth in their businesses but rather ride on the backs of everyone else in the community. As I pointed out in that earlier post, Elizabeth Warren exactly reverses the true facts. The reality is that everything in the community, every dollar* earned and spent by every worker, and every tax dollar collected and redistributed by the government has been created somewhere, sometime by a business owner or operator or investor.

But, I hear you say, the business owner sells his products and services to the community and therefore isn't he just recycling money that already exists? That would be true if the economy was a closed system and a zero sum game, and, if it was, we would never get wealthier as a society. In fact, we would get poorer because as the population increases and some wealth is destroyed by disasters, war and decay, our wealth per capita would decline. So how do we explain the following graph, showing an exponential increase in global GDP per capita (while the population was also exponentially increasing) over the past two hundred years?

The answer is capital, and by capital I don't just mean money invested. Capital is the sum of human knowledge - it is the equipment and processes, the inventions and patents, the brands and goodwill, and all the other things that go into producing and selling the goods and services we consume. It is the leverage that enables relatively unskilled workers, who would have trouble making a wooden cart wheel on their own, to produce a modern automobile. And because capital is as much about the ability of the human mind as it is about anything physical, it is limitless.

Marxists would have you believe that capital and labour are in conflict - that the more of the final price of the goods and services that go to reward the use of capital, the less that is available to reward labour. This is rubbish. Capital enables labour to be more productive and it is why workers in the Western world today are paid much more for their labour than at any time in history. It is the efficient use of capital that is characteristic of a free market (i.e capitalism) and that enables wealth to increase without limit - and for that increase in wealth to churn through society, thereby improving everyone's standard of living.

So next time someone says that a businesses should 'give back' to the community, just remind them that everything in the community has been derived from businesses in the first place.

[* Note that actually this isn't strictly true for a dollar of fiat currency, but it is true if you think of a dollar as a fixed equivalent amount of gold.]

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