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The Capitalism Delta

2021/05/31

... in which we discuss why "being rich is a reward for creating value" doesn't quite add up. Along with highway robbery.

... it is said that...

... creating wealth is not a zero-sum game, a "fixed pie", in which wealth can only accumulate by the rich taking away their fair due from the poor. Instead, wealth is being created by building things, organizing activity, inventing new, efficient ways to accomplish formerly hard goals, and helping people get what they actually want. So, if you consider, say, a billionaire, you shouldn't see unjust advantage: they must have benefited humanity greatly, and those billions are just a fraction of the value they ended up creating.

Which view is, admittedly, a great step forward, compared to the viewpoint stating that great prosperity would follow by just distributing everything equally. Not that wealth distribution isn't unequal; it's just that some of this inequality is a side effect of it being created at all, so by eliminating inequality, suddenly everyone is worse off. Or... that's what they say. Is this right though?

A perfect business model

Monetary transactions happen when both parties benefit from the transaction. Everyone ends up being happier. That's why free markets are great.

For example, imagine party A puts a gun to party B's head, offering a very appealing business proposal: "your money for your life". The continuation of your life is clearly of great value to you; by offering the victim an optional business transaction, the robber clearly adds tremendous value to society, given the expected price to be paid.

Of course, all kinds of counterarguments come up. This can hardly be categorized "voluntary", after all. Also, it's not exactly legal. However... it has a common property with all well-working business models:

The customer picks between two outcomes by paying or not paying. They'll pay if the difference between these outcomes is worth paying for. Conversely, a good business model consists of being able to make a difference in outcomes, based on customer payment or non-payment.

Now, one way of making a difference is by jumping in and making the world a better place to those who have paid. Another one is by not making it worse to them (... in the case of the robbery: "not being shot" is a whole lot better than the opposite). The point is... it is not a requirement that the existence of this "business" has a positive effect on the world overall: it will still be a profitable one as long as it can make the right difference to customers.

Some examples

Obviously, most physical goods make life better when one has control over them. You pay, I'll hand it over. You don't, I keep it. This is one of those cases where making more of them is good: if I come up with a way of making them cheaper, more people can have one of them, so everyone is happier.

Usually, work and services are fairly similar. You pay: I'll do something you want. You don't: I'll just stay at home, or work for someone else, etc. More work being done is good.

Common between these is that no one else is affected. Effects are tiny and neatly localized.

When this is not the case though... consider companies lobbying for complicated tax rules. They're providing a valuable service: if you pay, they'll make filing taxes easier. However, it so happens that many people wouldn't even need them if filing taxes was simpler. Overall, their existence makes their non-customers' life worse. In fact, they're also making the lives of some of their customers worse: instead of a simpler tax code, they now have a similarly simple workflow but they now also have to pay extra for it.

Similar "business models" exist in large quantities: