Real Life Capitalism Whack-A-Mole

A couple of years ago, I introduced the concept of Capitalism Whack-A-Mole. Capitalism Whack-A-Mole is an argumentative habit of libertarians where they shift between various mutually incompatible philosophical frameworks in order to deal with successful critiques of capitalism.

I taped a TV segment today with the Ayn Rand Institute’s Don Watkins about his book “Equal Is Unfair.” My sole goal going into the segment was to see if I could produce a Capitalism Whack-A-Mole in the wild. Initially, after he passed on my baiting about the authoritarianism of private property, it seemed like I wasn’t going to be able to make it happen. But, eventually, it did.

Being a Randian, Watkins advocates for the government to create economic institutions that distribute the national income solely to “producers.” This is a standard desert theory line about how distributive justice requires that each person be distributed that which they produce. At some point in my standard critique of desert theory, I got to the part where I explain that the existence of capital income — rents, interest, dividends, capital gains — violates desert theory because it provides capitalists income even though they did not produce it. Capital income is definitionally income from owning not income from producing.

From there, the glorious Whack-A-Mole began.

Watkins first rebuttal effort was to say that in fact capitalists do produce the income because they match capital with talented labor and such. So, at this point, he was endorsing the basic idea that income is only justified by production, but saying that capitalists do actually produce.

I then clarified that he has mistaken entrepreneurs for capitalists. It is entrepreneurs who match capital with labor, not capitalists. And entrepreneurs receive labor income for doing so. To illustrate the difference, I used my own retirement account as an example. Last quarter, I had $200 of capital gains in my retirement account, but I clearly did not produce anything to earn that income. It just came in passively from the index fund.

Confronted with the fact that desert theory cannot justify capital income, Watkins then shifted. His new argument was that capital income is a reward for abstaining from consumption. The experienced will understand this as the “wages of abstinence” argument. I called him on the shift, noting that abstaining from consumption is not producing and that he had said people are only owed what they produce.

At that point, he shifted again. His third argument was that capital income was necessary to incentivize savings and capital investment. Why would you save your money and put it up for capital investment if you did not get a return for doing so? I called him again on the shift, noting that he has now made a utilitarian argument for why paying rents to non-producing capitalists is good for general prosperity. But, once again, this does not show that the capitalist earns their rents through production.

From that point, the last word swung to him and he actually shifted yet again, focusing this time on the “voluntary” nature of the manner in which the capitalist secures his unearned, passive rents. I was not able to respond to this, but it’s obvious how one would do so. As with the other shifts, the voluntarism argument still fails to deal with the problem that capital income is unearned. Randians promise that they can show capitalism distributes out according to the principle “to each according to what they produce.” But they can’t show it because it isn’t true. Also, capital income is not derived through voluntary means, but instead extracted through coercive property relations.

So, by the end of the little back-and-forth, Watkins shifted from desert to “wages of abstinence,” from “wages of abstinence” to utilitarian incentives, and then from utilitarian incentives to voluntarism. As always, the erratic philosophical shifting on the matter of capital income is a solid indicator of the fact that libertarians have no way of justifying it coherently. Marxists have always been right on this. The best shot they have is the utilitarian framework, but that framework also supports the welfare states that they loathe.

  • TheBrett

    But, once again, this does not show that the capitalist earns their rents through production.

    If you’ve decided (on utilitarian grounds) that it is good to have returns on capital in order to encourage people to put it up for investment, then in a sense you are saying they “earn” their returns – after all, they’ve achieving it under the moral framework under which you’ve made it good for them to receive it. If, for example, you have a utilitarian rule that it is good for me to sacrifice my life to save 100 lives, and then I do so, I have been a “good person” in that scheme and thus earned praise.

  • Ferraro

    No, they have not won their returns in the sense of have produced them. Utilitarianism does not change that because utilitarianism works only with consequences, not principles. Yes, it is good that they earn their return, different thing is whether they produced them or not, and that a part of their returns will be taxed to serve as a complement of income for the poorest is also good. Both are justifiable under utilitarianism because both have good consequences or consequences better than the alternatives. Yes, the capitalist who received the return should be celebrated as you because both actions brought good consequences. Nothing to do with deontological ethics.

  • TheBrett

    I never said it had anything to do with deontological ethics.

  • Ferraro

    The principle of desert exists in the deontological framework. One deserves his income because he produced it. Taxing is wrong because taxes infringe the rule that one must receive all that he produced. This type of moral judgment is deontological. The consequences are irrelevant and the morality of an action is determined by the adherence to the principle. Utilitarianism existing within the consequentialist framework only judges the morality of an action by its consequences. Principles are ignored in favor of the well-being generated. Whether it is moral or not to tax someone based on the fact that he produced his income or any other reason other than about the consequences has nothing to do with utilitarianism.

  • Guy in TN

    When the debate is about what our moral framework ought to be, responding by saying that “justly earning something is about simply following my preferred moral framework” is an empty circularity. Surely he didn’t mean something so vague. As shaky as desertist arguments are, at least when they say that property should go to the laborer they are proposing a concrete moral position. Desertism as “praiseworthiness”…well that just opens up the abyss further.

  • util

    You mix up secondary (derivative) notitions and the fundamental framework. If it has overall best consequences to have something X (a rule, a habit, a belief …) then utilitarianism says we should have X, as a pure instrument for producing what really matters: well-being. But we cannot simply posit some X, e.g. a set of libertarian rules, from the armchair. To accept them on utilitarian grounds we’d have to investigate the empirical evidence. And the empirical evidence shows that nordic style universalists welfare states are better att producing well-being than all other real world competitors. But perhaps utilitarian arguments can salvage some much weaker notion of “earning”. But that would not get the randian/libertarian what they want. Since rules about taxation, distribution and so on would have exactly the same standing as that notion of earning and furthermore the notion of earning would be inherently constrained by those other notions. There is then in this utilitarian framework no logical space for the randian/libertarian to complain against the utility promoting taxation of resource R with the claim “I earned R”.

  • Harrison Ainsworth

    That is not ‘production’ though — which was the point.

    A utilitarian justification is not a desertist one — i.e. justifying returns according to effortful productive work (or however it might be defined).

  • rarply

    Wait how is the entrepreneur the one to match capital and labor. The entrepreneur doesn’t have capital without the capitalist. Also if that was true why doesn’t the entrepreneur capture all the gains that would go to capitalists? They have the advantage in terms of asymmetric information.

  • correcter

    Having != producing. And the claim was about producing. Think of Futz Fairchild von Moneybags the third, son and heir of old Baron Adolf von Moneybags. At age 3 when his papa Moneybags dies little Futz *has* a shitload of capital. But Futz, cute as a button, still has not *produced* the capital.

  • rarply

    Sure but Matt using his retirement fund as an example. Worry about the inheritance tax later. I am also looking for an answer as to why the entrepreneur doesn’t capture all the income of the capitalist.

  • correcter

    “looking for an answer as to why the entrepreneur doesn’t capture all the income of the capitalist”
    Because the capitalist has power and power tend to be used?

  • Dr J

    It’s pretty simple. Under capitalism, the consumer is sovereign. The capitalist deserves his profit because, and to the extent, consumers say so.

  • Frank Bolton

    Under feudalism, the king is sovereign. The king deserves his profit because, and to the extent, villeins say so.

  • Dr J

    The eternal question of human affairs is “who gets to decide?” If you don’t think the consumer should decide what value to assign to goods and services, who do you propose instead? A king?

  • Frank Bolton

    Because you didn’t take the hint that my flippant response should be a signal for you to totally redo the framing of your argument, let me spell it out for you:

    1.) First of all, you’re confusing seller with capitalist. An economic transaction, even a profit-producing one, can happen without a capitalist.

    2.) Alternatively, instead of reducing the transaction to a single actor, I propose the more mature and complex answer of ‘mostly the consumer and seller, with a democratic society providing a close eye on the transaction and even intervening to ensure that the transaction does not injure through fraud, coercion, externalities, etc. either party or society as a whole’.

    3.) Even beyond the previous points, you make the mistake of conflating ‘the price the consumer pays for the product’ and ‘the amount of money the seller should get’. There’s no ontological reason why a seller should get any money dependent on a particular sale.

  • Dr J

    1 and 3) The capitalist, seller, and worker get paid what they get paid because of consumer choices. People can and do “bootstrap” businesses without the assistance of a capitalist. In fact, if you’re an entrepreneur, you’re highly motivated to forego the capitalist, because he’ll demand a good fraction of your company.

    Trouble is, bootstrapped businesses grow very slowly, if at all. Taking the capitalist’s money lets you grow faster, create more jobs for workers, deliver value to more consumers earlier, who in turn reward you with more revenue.

    In other words, the consumer pays $X to the bootstrapped business and $Y to the capitalized business. So yes, the consumer decides how much the capitalist gets paid.

    2) That doesn’t describe who makes the decision, or by what mechanism a group of people comes to a decision. It’s not even inconsistent with consumer sovereignty, as consumer voting is probably the most responsible form of democracy there is.

  • Frank Bolton

    Hey, have you noticed that with all of your clarification, you’ve pretty much derailed the simplicity of your original argument?

    My point remains: wealth from a sale is not determined solely by an economic transaction between a seller and a buyer. It’s often determined by a third party, usually but not always government. It’s been like that well before there was capitalism or even government for that matter. And once you accept that incredibly jejune piece of human economic history it pretty much completely kills the idea that “capitalist deserves his profit because, and to the extent, consumers say so”.

    Trouble is, bootstrapped businesses grow very slowly, if at all. Taking the capitalist’s money lets you grow faster, create more jobs for workers, deliver value to more consumers earlier, who in turn reward you with more revenue.

    You’re making a utilitarian argument now. I’d proceed very carefully if I were you: capital-focused utilitarianism hasn’t gone well for capitalists since the start of the 20th century.

  • Dr J

    You’re making a utilitarian argument now.

    No, I’m making the same argument I made to begin with. All the people in the supply chain get paid what they get paid because of consumer choices. Where government steps in to dictate some other outcome, that’s not capitalism, that’s socialism.

  • RJ

    In the real world, consumers and their choices never are sovereign, regardless of the form of government. Obvious, univocal empirical data. Real world, not imaginary one. The government is there to decide which consumer-distorting system to follow, not whether the system will distort consumer choices.

    I wasn’t born yesterday. Were you? ‘Consumer sovereignty’? Get real. Officially unserious.

  • Dr J

    The OP about capitalism in the abstract. Please stay on topic.

  • RJ

    OK, abstract. You could have a communist system, in which people work according to their ability and then receive resources based on need. Or you could have (in the abstract!) a system in which people are rewarded according to productivity. The former is better. More just, more fun, more inspiring. What, you don’t agree? Could it be that ultimate values cannot have a rational arbiter?

    Hey, since we’re talking in the abstract, we could take the hyper-Hegelian anarchist view of ability/needs theory. Under communism, people will be so in tune with justice and reality that you won’t need anybody to enforce the production regime. No kings needed. Similarly, in the hyper-libertarian capitalism, people will be so enthralled by the greatness of the system that no one will try to distort markets for personal gain, no one will threaten smaller retailers to keep them from trading with others, no meat inspectors will accept bribes to mislead consumers, yes, another kind of sweetness and light.

    Still with the abstract – commerce is boring. I would not want a life whose social relations dominated by commerce. It would be a massive and unfair restriction on my freedom. I want freedom; I’m a socialist. But not a hyper-Hegelian anarchist communist. So: even an ideal form of libertarianism would massively reduce my freedom.

    In reality, neither system is possible for the foreseeable future. In contemporary reality, the more government retreats from economic governance, the more the economy is dominated by rent-seeking. For the vast majority, reduction of freedom and economic prospects.

    Dr J is another whack-a-mole specimen. Switches from abstract desert to a utilitarian argument where convenient. And back. Whether it’s an abstract justification or a utilitarian, libertarianism proposes to massively restrict my freedom and my chance at a decent standard of living. No thanks.

  • Harrison Ainsworth

    Sounds like a classic question-beg in this topic: justify it in terms of itself.

  • Michael Cleaves

    Wow, man. This one is totally phoned in. What’s going on, bud?

  • Konrad_Lorenz

    If the consumer was “sovereign” he’d tell the landlord to fuck right off. Instead he pays his rent — or else.

  • Bob

    Can’t the “wages of abstinence” argument be construed under desert theory? Two possible paths:

    (1) Argue that abstaining from consumption is a factor of production. Imagine a world where all goods are distributed perfectly justly according to desert theory. Now two branches: one, you spend your $200 on ice cream; two, you abstain from consumption and the money gets put (by you or some entrepreneur you loaned it to) to productive use and a new product is generated. Is it not the case that your abstaining from consumption of the resources you were justly holding played a role in the creation of this product?

    (2) Assuming wages of abstinence cannot be rationally construed as productive, can’t one develop a wider notion of desert than just the narrow ‘producer’ criteria? A notion which also includes labeling someone as deserving who abstains from consumption of goods they were justly distributed and allows them to be put to productive ends? After all, plenty of egalitarian theories have developed more nuanced notions of justice than plain simple “everyone should have equal stuff.” Why couldn’t a desert theorist hold to a more nuanced notion of desert?

  • RetroPam

    Another game of Capitalist Whack-A-Mole takes place around how labor is valued.

    On a good day, they’ll say that labor is worth something in proportion to the “value that it brings to the company.” On a different day, paticularly when minimum wage is the topic, they’ll say that labor is only worth what a relatively desperate person will do it for.

    Which is it? The two are completely unrelated, but the second is usually the fall-back when one starts introducing concepts such as the minimum intrinsic worth of a (very irreplaceable) hour of a person’s time along with the reason why most workers work: to earn a living.

    An aside: I see the phrase “desert theory,” but given the context and the way that it is used, shouldn’t it be “dessert theory?” Deserts are dry and sandy. Desserts connote what a person “has coming.”

  • A horse proletarian

    It’s desert theory because it is about what someone deserves, not about delicious candy or sandy spaces.

  • RetroPam

    OK, but that is the first time that I have ever seen the word “desert,” spelled in that fashion, used in that manner. So, I questioned the spelling.

    Searching more on it, some sources say that the word as used here is an obsolete meaning of “desert.” To which I say, fair enough. Question answered.

  • A horse entrepreneur

    No link to the segment?