Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
Divvy Up the Hardware, Destroy the Software
Like Marx, Lenin believed that capitalism had solved the problem of production and that the state could simply expropriate the commanding heights of industry and produce wealth for the “common good.” He declared that “any literate person” was capable of managing any part of the economy, from banks to factories. Very quickly, however, he learned that running a business was far more complex than he had ever imagined. With political commissars in charge, production plummeted, people starved, and peasants rioted.
What Lenin never understood is that real wealth does not lie in the factory itself – the hardware – but in the knowledge of the entrepreneurs and managers who planned, built, and established the myriad procedures by which it is run. The real wealth lies in the software – the information and procedures stored in the minds of the people who operate the factory. Confiscating the hardware left the Bolsheviks with useless hulks devoid of the essential software that had enabled them to create wealth.
Leftists of the “you didn’t build that” mindset from Barack Obama to Elizabeth Warren are speeding us down the same dead end road that Lenin traveled nearly a century ago. They see wealth in materialistic, static terms; as something that can be doled-out until everyone is “equal.” They don’t realize that wealth is created in the software: the laws and institutions that protect the freedom necessary for individuals and entrepreneurs to work and create. Should they destroy those laws and institutions in their blind race toward their vision of equality, they will succeed only in destroying America’s wealth.
Image Credit: Flickr user Edward Kimmel.
Published in General
Good piece, Richard. Are you familiar with George Gilder? I am pretty sure there is a connection here to Gilder’s Knowledge and Power, but it would take someone other than me to explain it, if indeed it exists.
In Knowledge and Power, Gilder held that markets transmit information as do data communications systems. In a data communications system, information flows best through a low-noise medium. Market information is transmitted chiefly through prices. In a market, prices balance supply and demand best in those states whose governments maintain order and refrain from introducing “noise” such as wage and price controls and ever-changing regulations and laws.
There’s also a pretty big factor in terms of motivation. If it’s my daily bread on the line when I go in to work I won’t starve. If I get my rations regardless then I’ve got no motivation to do more than the bare minimum, and eventually everyone starts to starve.
“Do you know how many Commisars I have checking up on me? Eight. Eight different Commisars. Basically my only motivation is not to be hassled. But you know, that only gets someone to work hard enough not to get sent to Siberia.”
I agree that much of the wealth lies in the software, but some programs require a lot of hardware to run. Even with the most brilliant, capable, and motivated people operating under the right laws, you can’t make certain things happen without having sufficiently large capital, client-base, etc.
A super-computer isn’t worth much if all you’re running a five-function calculator on it (indeed, the costs of maintaining it for so little gain are likely to be harmful), but even the most brilliant computer engineer in the world can’t make Netflix run on a TI-82.
The Russians used to say, “We pretend to work, and they pretend to pay us.”
It strikes me that this phenomenon touches quite a few aspects of our society. Let me mention one: the transmission of knowledge-wealth from one generation to the next.
If so, the radical decline in workforce participation is frightening.
I could elaborate, but you get the idea. So much of the knowledge-wealth is being diluted and diminished in the private sector. What does it say about the knowledge accumulated in the academy versus the knowledge accumulated in the market?
I can think of several other ramifications. By definition, then, I applaud you for a thought-provoking post!
I think Obama and Warren do understand the important role of intellectual property (software) in creating wealth. They just want to transfer as much of it as possible without killing the golden goose. The idea is “keep doing what you are doing entrepreneurs, we will just take a bit more, and then a bit more etc.”
Today’s Democrats were described to a tee in Atlas Shrugged more than 50 years ago, reading it today, it sounds like the evening news. The economic savages like Warren and Obama think that memoranda and regulations are the end product.
Warren and Obama have contempt for the “software”, as did Lenin. They look down on the bourgeoisie, believing that their own academic success is a marker of their superior intelligence, and that their intelligence is transferable to any subject. They believe that running a business is easier than what they do; that they could have done it themselves, except that they chose not to spend their time on something so crass and materialistic. They have no respect for the accumulated skills and knowledge — and the specific kinds of intelligence — that are necessary for someone to create economic value.
Richard,
Beautiful Post. The short read that tells it all is Hayek’s “Fatal Conceit”. Socialists don’t assume the market is doing anything special that a command economy can’t emulate. This is a fatal conceit.
Regards,
Jim
I was going bring up George Gilder also.
“Have you ever heard of a TPS report?”
People, especially motivated, educated and capable people, are the most important asset of all.
Tom,
I overstated the case to make my point, but try the following thought experiment: Imagine that every penny that someone like Bill Gates owned were to be confiscated. How long would it take for him to be wealthy again? A year? Maybe two? People’s real wealth lies in what they put in their brains rather than what they put in the bank.
Hank I noticed you aren’t using the new cover sheets on your TPS reports.
I don’t know. Maybe he’d never become wealthy again; right time, right place, and opportune inspiration don’t converge like that very often. I’m sure he’d build up to a comfortable position in some firm, but comfortable is much different than wealthy.
Great post. I think Jonah Goldberg has an article making a similar point in National Review years ago.
I think FDR said something similar to what you describe Marx thinking: The time for increasing productivity is done, and now we just need to focus on distributing the produce. Why would a grown up think this?
No one from Gilder could have gotten here so fast!
Interesting. Today, I am at a client site providing the last bit of training, assistance, closure whatever you might want to call it, to complete a contract. The person receiving this information asked for a “brain dump”.
After 15 years of intimate contact with my company’s products, I can guarantee you neither this customer nor any customer is going to get a “brain dump” of what I have learned.
There is the thought by many that knowledge can almost be mind-melded from one person to another like Cmdr. Spock might have done. It can’t happen. Knowledge is gained slowly either from teacher to student or from life to student.
I agree with James Gawron and Hayek. To assume that knowledge is easily and quickly transferable is a conceit.
Tru dat. I have to deal with this nonsense daily. I manage a large software engineering team. Whenever we lose a talented individual without fail I get “How long will it take to replace Ed on the Foo team?” I want to scream because the answer is usually “He knew A LOT and it’ll take years, and the new guy will be really expensive and if we had just given that same money to Ed, he’d still be here!!!”
Ed pretty much said what I wanted.
Grit, talent, and ambition are hugely important and liberals grossly underestimate them. I think we sometimes, overestimate them.
As a representative of Eds everywhere, I concur. Definitely give Ed more money now.
We should note that the reason this is the case, is because all resources are ultimately consumed. None are eternal. New wealth needs to be constantly created, which is why divvying up existing wealth is counter productive.
Let me just say that as a progressive, I can’t stand Elizabeth Warren. I don’t think she understands anything about corporate tax inversions but opines on the issue. Additionally, she seems like she would antagonize her colleagues, no matter what their political leanings.
That said, I’m not sure that it is fair to say that she wants a totally equal society. I doubt that she does. She was at a talk a few months ago with Paul Krugman in which she expressed a recognition of capitalism as the best economic system currently around. She said it has issues, but that she does not want to see the whole thing destroyed. True, she does not love it out for any philosophical reasons, but why should anyone love any system whose sole purpose is to compete amongst other system to simply maximize utility in a long-term and stable manner?