We’ve heard a lot lately about Bain Capital and their shameless exploitation or noble empowering of the American worker. We’ve also heard a lot about JP Morgan, MF Global, Goldman Sachs, and Lehman Brothers making money from nothing, or sometimes just the opposite. At the same time, we’ve heard about the dedication of the American auto worker and the ingenuity of our technology sector–the people whose sweat generates the income which powers our financial institutions. What a dichotomy: the people who create things in exchange for money versus the people who create money in exchange for…money.
Alienation from the product of one’s labor may be a Marxist idea, but it’s also a threat to the integrity of capitalism. Marx recognized the importance of the satisfaction a worker achieves in producing an object and in observing that object’s use to the benefit of its user. Capitalism is presumed to frustrate the worker by transferring the means of production (land, equipment, resources, etc.) to the bourgeoisie (the worker only works at the pleasure of the owner) thereby alienating worker from product. Communism is presumed to avert that frustration by ceding the means of production to the producers.
But capitalism also depends on workers being invested in their labor. If the first requirement of capitalism is the availability of capital in the form of private property as a spur of production and innovation, the second requirement is the equation of labor with monetary value. The translation is inexact; the value of a product or service isn’t always accurately reflected in its price tag. But capitalist workers understand that what they produce generally correlates with what they can afford to consume. Presumably, when we purchase something, we recognize that we’re able to do so thanks to our own industry; that we’ve provided some value to society and are thereby entitled to receive something else of equal value. Fair exchange is how capitalism ties worker and product together.
The strange thing about our particular capitalism is that if you’re lucky, you don’t have to exchange the products of your labor for the products of other people’s labor. In fact, if you’re lucky enough, you can simply take the products of other people’s labor. That’s because the luckiest among us have earned or inherited enough capital in the form of private property that they can live solely off investment returns.
Investing may qualify as a labor. Identifying promising opportunities and executing them is a task of great societal importance. But most people (and institutions) who subsist on investment returns–whether trust funds or endowments or retirement accounts–don’t invest that money themselves. They hire someone else to undertake the labor of investing it, using the returns they earn as payment for the service.
The capitalism in which these people participate is only the capitalism of private property, not the capitalism which equates labor with monetary value. Their expenditures don’t correlate with their labor or their societal contribution. When they make a purchase, the vendor trades labor for money, but they trade only money, not labor, for product. Each dollar they receive from investments is one dollar’s worth of labor they didn’t have to do, and one dollar less of economic value added to society.
Ideally, the financial freedom granted by large stockpiles of money enables their owners to dedicate themselves to activities that contribute non-economic value. That’s the theory behind university endowments, which provide their institutions with regular income to subsidize unprofitable research and the like. But often, I think, it simply invites alienation–the separation of labor and product. Those subsisting on investment income receive without giving. The goods they purchase have no connection with work they’ve performed. (Whether they deserve what they receive is a different and complicated question, as is whether subsistence on investments is an overall positive economic force.)
The line we’ve heard from conservatives about capital gains taxation is that people who invest their money (or pay someone to invest it for them) are taking a risk and thus deserve a reward. The peculiar principle seems to be that assuming risk is itself a labor which ought to be exchangeable for the products of others’ labor, or else a virtue we ought to subsidize. Funny that we don’t hear similar arguments applied to horse betting or slot machines.
A colleague of mine recently proposed raising the estate tax to 100%. I have a number of objections to that idea, but it would be one way to encourage the independently wealthy to participate in both facets of our economy–not just the aristocratic facet of private ownership, but also the meritocratic facet of valued labor. A more direct option would be to increase the capital gains tax significantly, though past a certain point such a tax would come at the expense of productive investment. Is there a more efficient mechanism?
Inadvertent Obfuscation 