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Depoliticised markets are like a symphony ... allow me to explain.
Prior to creating a successful business, the various components necessary to make a successful product or service already exist.
The customers exist, the resources required to create the goods or service exist, even the labour is available – be it underutilised and undervalued.
Everything is at hand, but no production or service is offered. Why?
In a nutshell, because the key factor in the productive process is not there – that is, the entrepreneur, who is essential in the process combine all these factors, in the right combination of each, so the product or service created has greater value than the individual components required to produce it.
That last part is important. The end product has to have greater value than the individual components in order to create new wealth. It is this new wealth that allows expansion. Expansion creates more wealth, and more wealth is what is needed to lift the poor out of poverty.
Redistribution of existing wealth only punishes those who produce, leading to lower productivity and less wealth, exacerbating poverty. What is needed, if you care about long-term consequences, is the creation of greater wealth, not the redistribution of existing wealth.
Even after the product or service comes into being, we still require the right person to keep factors of production in a balanced, symbiotic relationship for the enterprise to remain in existence.
If the harmony becomes unbalanced, the entire productive ecosystem can collapse to the point that the value of the resources becomes greater when divided than when united, which is when corporate raiders buy the whole and sell off the factors of production – buildings, inventory, equipment and other assets – to create the last gasp of value remaining, which leaves labour floundering as they were before the entrepreneur came on the scene.
Karl Marx made the false but common assumption that the value of any product or service is the creation of labour. He never really saw the entrepreneur as the most important labourer.
To Marx, the capitalist, as he called the entrpreneur, stole all their profits by taking the surplus value of the labourers. Yet that labour existed before the capitalist came along, and either unemployed or underemployed. If all value comes from the labour of employees then the profit should have pre-existed the entrepreneur, but it didn’t.
In reality, it is the entrepreneur who creates the wealth, not labour. When entrepreneurs come along and combine the right resources, seek out the right methods of production and distribution, and locate the customers then wealth is created.
This is not only in conflict with Marxist theory, it is the complete opposite of it.
In this sense, labour is similar to seeds sitting in a packet waiting for a farmer to plant them in the right soil, to water and fertilise them to produce a crop, harvest it, and get it to consumers.
Yes, the seeds are a necessary component to feed the hungry, but without the farmer the process doesn’t happen and the people will not be fed.
It is the capitalist who is the key factor in creating wealth. They don’t live off the efforts of workers; the workers live off their efforts. But even that isn’t quite right.
In truth, neither lives off the other. Each trades and benefits from the another. The worker sells labour to the entrepreneur in exchange for payment. And here again the entrepreneur is a necessary component.
The entrepreneur pays the workers before they have a good or service to sell. Labourers may help produce the product, but they don’t wait until it has sold to get paid.
They want payment when they work, not months in the future. Like every other factor in production, labour is paid for in advance, while the entrepreneur takes the risk that no one will want what is produced.
This is how markets are like a symphony. All the notes necessary for great music already exist, but it is the composer who brings them together in the right combination and balance to create a product of great value.
The entrepreneur is the composer to capitalism’s symphony.
Composers create value out of pre-existing factors. The entrepreneur creates value from pre-existing factors as well. In so doing, they give greater value, not just to the final product or service, but to each of the factors of production used.
Through the hiring of workers, the value of labour increases. Not just the value of the entrepreneur’s workers, but of all workers.
The utilisation of labour makes it scarce and thus more valuable, which is why labour continues to increase in value in market economies in spite of the dire predictions of the doomsday cults in both the anti-market right and anti-market left.
Peron is the president of the Moorfield Storey Institute and author of several books, including Exploding Population Myths and The Liberal Tide
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