From North’s article Exploitation and Knowledge
The profit motive: everyone knows that the free market economic system operates in terms of the profit motive. The trouble is, hardly anyone understands where profits come from. This includes the businessmen who make them. This failure to understand the source of profits has given a real advantage to the critics of the market. When the supposed defenders of the free market argue that the hope for gaining a profit is the motivating force of capitalism, yet they cannot state clearly where profits come from, they have left themselves intellectually defenseless.
First, the critics of capitalism identify the profit motive with greed. Since a profit is identified economically as an above-average rate of return on an investment, it can easily be equated with greed. Greed sounds bad. Since there is no way ‘scientifically to define greed, this is a difficult argument to refute. Already, profits sound immoral.
Second, the critics claim that profits come from the ability of the stronger, richer, and more ruthless members of a society to exploit their weaker neighbors. The word “exploitation” has been a favorite one in socialist circles. Karl Marx made the word a weapon against capitalism. The workers are exploited by the capitalists, Marv said, because the capitalists can extract surplus value from laborers. The laborer has to work, say, five hours in order to have enough money to buy minimum food and shelter, but the capitalist keeps him on the job many hours longer. Thus, the capitalist “exploits” extra money from his workers: surplus value. He expropriates this surplus. It really belongs to the worker. It is his labor. What was a technical explanation of the origin of profit — incorrect but initially plausible — became a moral critique because of the choice of a pejorative word: exploitation.
Marx’s exploitation theory was theoretically wrong, and it was demolished by the Austrian economist, Eugen von Bohm-Bawerk, before Marx died. There is no way that the capitalist could retain such a surplus in the face of competition from other capitalists. They will bid against each other in a quest to appropriate any surplus for themselves. They will keep doing this until the wage paid to the worker is equal to the value of his output.
The thing is, you have to be able to follow a chain of logic to understand this.
If Marx’s theory were true, the greatest profits on earth would be made in places such as China and India, where wages are the lowest on earth and the available supply of workers to “exploit” is enormous. Yet the fact is that capital flows into high-wage nations, not the low-wage nations. Capital seeks productive workers, not cheap workers. This means workers with good educations and far more opportunities to work somewhere else. Capitalists must compete against each other to gain the services of such high-value workers. This competition raises wage rates. In capitalism, high profits are associated with high wages and low-priced goods.
Exploitation theory is ridiculous… but too politically convenient to give up.
The Ignorance Factor
Who has the best information about the value of labor services? It might be argued that laborers really do not know what their labor services are worth on the free market. Therefore, they refuse to take a chance and threaten to quit. They are afraid of losing their jobs, and they are not aware of the better opportunities available to them elsewhere. They cannot get accurate information free of charge.
This is quite true; accurate information is not a free good. At zero price, there is less of it available than is demanded. It is, perhaps more than any other scarce economic resource, the most valuable of assets.
If men are unaware of an opportunity, they cannot take advantage of it. Nevertheless, the tree market is a social order in which it is not necessary for all men to know of an opportunity in order for others to benefit from it.
Here is the main question: How can we scientifically distinguish “exploitation” from a mere refusal to give away information that is economically detrimental to the income of the one who is giving it? (Also, how could we distinguish the gift of information from possible stupidity on the part of the company’s management?)
People who proclaim that capitalism exploits workers are really proclaiming something very, very different: capitalism allows people to take advantage of better information, at least until the competition finds out and starts taking advantage of it themselves. What the opponents of capitalism are really proclaiming is that men have a moral and legal obligation to give away the world’s most valuable scarce economic resource: accurate, profitable knowledge. The critics expect men to give away a resource as if it were a free good, when we all know it is anything but a free good. It takes an investment in an uncertain future to gain ownership of this asset. Yet the critics want us to believe that it is exploitative to use it once we have discovered it. The critics want to kill the private markets for information.
It is natural that the people who want God to Just Shut Up also wants free men to give up their every secret to the Servants of the People.
And we all know how open and transparent Communist & Socialist governments are… how free of corruption and secrecy…
Some of the finest economic wisdom in history can be found in Jesus’ parables. He aimed His parables at the average listener. He knew that they were not trained theologians. They would not respond to detailed theological analysis. So he went to them with parables, and several were “pocketbook parables.” (Others were agricultural parables: seeds, growth, sowing, reaping.) His parable of the buried treasure was based on His understanding of the market’s process of searching for information and using it to one’s advantage: “Again, the kingdom of heaven is like unto treasure hid in a field; the which when a man hath found, he hideth, and for joy thereof goeth and selleth all that he hath, and buyeth that field” (Matthew 13:44).
Consider what the man in the parable was doing. He stumbles across an important piece of information. There is a valuable treasure hidden in a field. He is not sure just who it was who hid it, but it is there. He presumes that the person who hid it was not the present owner of the field. He is not certain of this at first, but he is willing to take a major step. He hides the treasure again, and goes out and sells everything that he owns. I suppose he did some preliminary investigating, just to see if the present owner will sell it. But the present owner may change his mind. Or he may have known about the treasure all the time, and he is luring the speculator into a disastrous decision. The discoverer cannot be certain. But he takes a chance. He sells everything, and goes to the owner with his money. He buys the field.
Now he owns the treasure. He took advantage of special information: his knowledge of the existence of a treasure in a particular filed. He took a risk when he sold everything that he owned to come up with the purchase price. Then he went back to the owner, thereby alerting the owner to a possible opportunity–the possibility that something valuable is connected to the field. Maybe it would be unwise to sell it after all. But finally he decides to sell. The entrepreneur–the man with the information and some venture capital–has closed the deal. He has attained his goal.
Jesus Christ explicitly endorses both capitalism and the right of men to keep profitable secrets to himself. So long as the terms of the contract is kept, there is no violation of the Law of God.
(I will be ignoring the unrighteous, cruel, self-serving, and unpredictable law(lessness) of men here.)
The Socialist View
The modern socialist would be outraged at this parable. The entrepreneur, who was striving to better his position, was clearly immoral. First, the land he was on should have been owned by the people, through the State. Second, he had no business being on the land, without proper papers having been filed with the State in advance. Third, he should never have hidden the treasure again. It was the State’s. Fourth, if it was not the property of the State, then he should have notified the private owner of the property. Fifth, failing this, he was immoral to make the offer to buy the property. He as stealing from the poor man who owned the property. Sixth, should he attempt to sell the treasure, the State ought to tax him at a minimum rate of 80 per cent. Seventh, if he refuses to sell, the State should impose a property tax, or a direct capital tax, to force him to sell.
What the socialist-redistributionist objects to is the lack of mankind’s omniscience. The economy should operate as smoothly, as efficiently, and as profit-free as an economy in which all participants had equally good knowledge–perfect knowledge–as all other participants. Knowledge, in a “decent” social order, is a universally available free good, equally available to all, and equally acted upon by all. It is only the existence of private property, and personal greed, and a willingness to exploit the poor, that has created our world of scarcity, profits, and losses. Knowledge about the future should be regarded as a free good. Profits are therefore evil, not to mention unnecessary, in a sound economy. This has been the argument — the real, underlying, implicit argument — of all those who equate profits and exploitation.
What is the biblical answer? Men are not God; they are not omniscient. This fact of economic life angers the socialists, and they strike out in wrath against the market order which seeks to encourage men to search for better information so that they can profit from its application in economic affairs. The socialists prefer to stop the search for information concerning the uncertain future, rather than allow private citizens to profit personally from the-use of knowledge in society.
“Men are not God; the are not omniscient.”
This is the essence of the socialist hatred of capitalism… the right of free men to keep secrets and property… and their in-the-bone hatred of both God and those who believe in Him.
The word “exploitation” should be understood by those people who are likely to be the victims of true exploitation. “Exploitation” in a market order means the personally beneficial use of accurate economic information. Socialist programs to reduce “exploitation” are, in the final analysis, programs to make it unprofitable for forecasters to launch risky ventures based on their predictions concerning the uncertain future. These socialist programs are also based on a false view of knowledge: that it is a free good that is available to all, if only private ownership were abolished. By abolishing “exploitation” — the profitable use of knowledge — the socialists will inevitably reduce the flow of accurate knowledge of economic conditions. The public will have more inaccurate knowledge in its capital structure, and therefore more losses, with fewer profits to compensate for the losses. Men will not be the beneficiaries of uncertainty-bearing forecasters (entrepreneurs). The State becomes the active suppressor of the spread of accurate knowledge. If this is not exploitation, what is?
What we need is a means of reducing “exploitation,” i.e. reducing the profitability of suppressing accurate information. The exploitation of another man’s ignorance cannot long continue is a society in which there is freedom of expression, if this freedom is accompanied by the freedom to act on the information provided by the freedom of expression. It means that each man’s “exploitation” of the resource of knowledge is always threatened by his competitor’s “exploitation” of that same knowledge, as well as the “exploited” persons use of the knowledge. Knowledge is like any other scarce asset: it is not a free good. Those who want it must pay for it.
The State loves mass ignorance.
The Church is to spread the knowledge of God and encourage obedience to His Law-word widely and as freely as possible to all people, everywhere.
The self-governing man, fearing God and not Man, is what the world needs as the building block of a free and prosperous future… and the more, the better!