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CAPITALISM:
A Treatise on Economics

by
George Reisman


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From Chapter 9: The General Benefit from Private Ownership of the Means of Production (pp. 296-297)


This excerpt is taken from George Reisman, Capitalism: A Treatise on Economics. Ottawa, Illinois: Jameson Books, 1996. Copyright 1996 by George Reisman. All rights reserved. May not be reproduced in any form without written permission of the author. The following limited exception is granted: Namely, provided they are reproduced in full and include this copyright notice and are made for noncommercial use, i.e., for use other than for sale, including use as part of any publication that is sold, copies of this excerpt may be downloaded into personal computers and distributed electronically or on paper printouts from a personal computer; reproduction on the internet is permitted provided the copy of the excerpt is accompanied by the following link to the Jefferson School's home page (which may, and hopefully will, be displayed elsewhere and more prominently): The Jefferson School of Philosophy, Economics, and Psychology. This limited right of reproduction expires on December 31, 1999.

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The influence of the division of labor on the institution of private ownership of the means of production is almost universally ignored. Typically, people think of privately owned means of production in terms that would be appropriate only in a non-division-of-labor society. That is, they think of them in the same way that they think of privately owned consumers' goods--namely, as being of benefit only to their owners. They believe that before the nonowners can benefit from the means of production, they must first become owners.1

This belief underlies the popularity of all forms of "redistributionism" and socialism.2 People believe that so long as wealth remains concentrated in the hands of a relatively small number of capitalists, the capitalists alone benefit from it. For the great mass of noncapitalists to benefit, it is believed, the wealth of the capitalists must first be taken away and given to the noncapitalists, or be held by the government and used for the collective good of all.

Closely related to these ideas, of course, is the belief--held virtually as a self-evident axiom--that capitalism is a system which operates only in the interests of the capitalists, and that the defenders of capitalism must therefore either be capitalists themselves or be in the pay of the capitalists, or else simply be perverse enemies of the great majority of mankind. So deeply rooted are such convictions that it is often thought to be a sufficient refutation of the arguments of an advocate of capitalism to intimate the size of his bank balance or stockholdings.3

Similarly, in reporting election results, the news media routinely explain voting patterns on the basis of the voters' wealth and income status. They take it for granted that only wealthy, upper-income voters will favor "conservative," i.e., procapitalist policies, and that poorer, lower-income voters will automatically favor "liberal," i.e., anticapitalist policies.

Even the alleged friends of capitalism often share the conviction that private ownership of the means of production and capitalism serve only the capitalists: very often their notion of how to fight the spread of communism is first to create more capitalists. Only then, they believe, will there be a sufficient number of people with an interest in opposing communism.



The Benefit of Capital to the Buyers of Products

The first thing that must be realized is that in a division-of-labor society, all private property that is in the form of means of production--i.e., of capital--serves everyone, nonowners as well as owners. In a division-of-labor society, the means of production are not used in producing for their owners' personal consumption, but for the market. They are used in producing goods that are sold. The physical beneficiaries of this private property--and it is the far greater part of the capitalists' wealth--are all those who buy the products it helps to produce. In other words, it is the general buying public who are the physical beneficiaries of the capitalists' capital.

Consider, for example, the question of who are the physical beneficiaries of the auto plants of General Motors. That is, who physically receives the products of these plants? Is it the stockholders and bondholders of General Motors? Of course not. The number of GM's cars that is produced for the capitalists who own GM is relatively insignificant. Almost 100 percent of General Motors' auto output goes to people who do not own a single share of its stock or a single one of its bonds. The same is true of every other business enterprise.

Indeed, the proportion of General Motors' auto output that is purchased by stockholders or bondholders of any enterprise--by capitalists of any description--out of the proceeds of profit or interest income, is relatively small when compared with the proportion that is purchased by wage and salary earners. The far greater part of the automobiles purchased from GM and almost all other auto manufacturers is purchased by wage and salary earners. Wages and salaries, not profits and interest, are the source of the overwhelming bulk of consumption expenditure throughout a capitalist economy. It is wage and salary earners who consume the overwhelming majority of the automobiles, television sets, housing, furniture, food, and clothing, and almost every other consumers' good that is produced.

Thus, the overwhelmingly greater part of the physical benefit derived from the privately owned means of production in a capitalist economic system goes to nonowners of the means of production--to wage and salary earners.

It cannot be stressed too strongly: the simple fact is that in a division-of-labor society, one does not have to own the means of production in order to get their benefit. One has only to be able to buy the products. In a division-of-labor society, one gets the benefit of means of production owned by others--every time one appears in the market as a customer. Indeed, it is of the very essence of a division-of-labor society that one obtains the benefit of others' means of production, just as one obtains the benefit of others' labor and knowledge, and that this occurs by means of the purchase of products in the market. It is only in a non-division-of-labor society, in which there is little or no production for the market, in which the producer and the consumer are almost always one and the same person, that privately owned means of production benefit only their owners, or virtually only their owners.

Implicitly, it is such a society that the enemies of capitalism have in mind. They have not yet woken up to the fact that capitalism is a division-of-labor society. They are unaware that in a division-of-labor society, the means of production serve everyone who buys products, and that thus, under capitalism, there is a general benefit from the capital owned by the capitalists--a benefit which everyone shares in his capacity as a buyer of products, even if he himself does not own any means of production or capital.

This general benefit, it should be realized, applies to all of the means of production, not merely to those which are employed in the direct production of consumers' goods. The benefit of the steel mills that produce the steel that enters into GM's cars goes to the buyers of the cars, along with the benefit of the auto plants, as does the benefit of the iron mines that contribute to the production of that steel, and the benefit of the factories that produce iron-mining equipment. The benefit of the land that grows wheat goes to the buyers of bread, as does the benefit of the tractors used in the growing of wheat, and the benefit of the factories which produce those tractors, along with the benefit of the flour mills  that make the wheat into flour, and of the bakeries that finally turn out the bread....

Notes

1. Cf. Ludwig von Mises, Socialism (New Haven: Yale University Press, 1951), pp. 4042; reprint (Indianapolis: Liberty Classics, 1981). Page references are to the Yale University Press edition; pagination from this edition is retained in the reprint edition.

2. For a discussion of its influence on the mentality of destructionism, see above, pp. 230231.

3. Cf. von Mises, Socialism, pp. 500504.