Articles

Jan. 19, 2005

Marx vs. Rand

Some time back I began a series of posts comparing Marx and Rand to the Long Wave. We tend to think of Long Wave Growth Phases being primarily driven by innovation. Innovation is not the only driver. Mood, social issues and economics all contribute. However, the one overriding factor of each Growth Phase is political and social change.

Marxism dominated the last two growth phases. The Soviet experiment, the rise of unions, socialist governments of Europe and Roosevelt's "New Deal" are all expressions of Marxist wealth re-distribution. The world passed a water-shed moment with the fall of the Soviets. From that point forward, the validity of Marxist thought came into question in a way never before considered.

The essence of Marxist thinking is wealth equalization. Ideal Marxism distributes wealth at the time of creation. Or as Marx said "The only way to kill capitalism is through taxes, taxes and more taxes." Wealth confiscation is the essence of Communism. The appeal of wealth redistribution is instant gratification. Burdening the more productive has almost universal appeal - everyone wants a free sample, something for nothing or a two for one deal - or on more practical terms free medical coverage and a guaranteed job.

The essence of capitalism is delayed gratification. Investment requires taking a risk for future gain. The capitalist wants no guarantees other than a stable political platform from which to conduct business. Before making an investment, the capitalist wants to know his assets will not be confiscated, contracts he enters into will be enforceable and labor will respond in a reasonable fashion.

The essence of wealth creation is delayed gratification. Without the ability to compound ones success and build upon the future very little lasting wealth is created. At the end of the Soviet era, the Communists had destroyed both their industrial base as well as the resources that provide raw materials and even food for their people. Contrasting the history of Russia where marauding hoards rampaged over the Steppes time again with the isolated stability of the British Isles - the birthplace of the Industrial Revolution - it is easy to see the importance of a stable environment.

As humans, we are the product of our thoughts. Our actions individually or collectively are dictated by the agreements we make as a society. If by agreement society sees it as valid to confiscate Bill Gates wealth simply because he has more, then society's laws will reflect this. In fact, the structure of US law with its arbitrary and confusing anti-trust, product liability, progressive income tax, Social Security, sheltered charitable foundations and inheritance tax all support the principles of Marxism.

Marx was a product of his time. He saw correctly the destruction of the class system of the Monarchy being replaced by the influence of the Industrialist. Probably the only thing Marx got right. What he failed to see was the inevitable wealth distribution necessary to support continued industrialization. Marx feared the industrialist would simply displace the monarchy at the disadvantage of the working class. No way did he envision the evolution of a middle class. Yet without the wealth of the middle class customers for product are limited as is the incentive to work.

In the early stages of industrialization, there were no rules. It took Ford to develop the assembly line and mass production

It took Johansen to develop his "go - no go" gauge to standardize machining. I took Taylor to develop rules of efficiency. None of these concepts existed before industrialization and most of them were developed well after the 1900s. Marx writing in the 1850s provided a framework for political rules to balance the role of the worker against the monopolistic power of the corporation.

Yes, Marx was wrong, but failure and misconceptions have never deterred religions and governments from developing rules for society. Marxism provides a comfortable living for those implementing the rules and in a democratic society a method of bribing voters. Yet the profitability of Marxism is only valid when the majority of the population is economically below the median line. Marxist rules work as long as the majority profit from wealth redistribution. As Middle Class affluence increases wealth distribution becomes a burden to the majority. Somewhere in the mid-1970-80s the balance shifted. The appeal of Reagan and Thatcher was the elimination of social programs and the lowering of taxes.

It took about 50 years for Marx's theory to permeate the political system. The Bolshevik Revolution of 1917 was a shocker to the world. Today Rand's writings are 50 years old. Where Rand was demonized in her day, many of her ideas of personal responsibility and rewards for the most productive are now resonating in the corporate world. The shift away from in-house employees to consultants and contract workers changes the focus of work and work roles in society.

There is a fundamental difference between Rand and Marx. Marx says the fruits of the most productive must be re-distributed for the benefit of society. Rand says by encouraging the best, society benefits. When society limits the top, it limits prosperity for all. The legal and tax system in the US and most western industrialized countries favors the Marxian model.

For example, when a lawyer sues Merck over Viox society suffers. Viox was a beneficial product with some nasty side effects for a few people. Because some people had a bad reaction to the drug, all those who benefit, including Merck's president's wife, are denied the drug. Further Merck, who operated well within industry standards, will suffer through litigation and take a hit on its capital. Capital that could be used to develop new drugs to help more people. The risk of liability causes corporations to take a more conservative role in the creation of new products again limiting choice in society.

Under a Rand model, monies normally paid for punitive damages would be funneled back into research to fix the problems with drugs like Viox. Knowing wealth flows directly from the corporation by limiting tax and legal burdens provides the greatest benefit to society. As long as a company operates in a legitimate fashion it should be free from excess liability.

Tort reform is not the only area turned upside down under a Rand model. It is not a coincidence for the Bush Administration to target Income tax and Social Security. The government burdened by Marxist polices of the past 100 years has reached a point of exhaustion. As national boundaries break down, governments lose control and move into the world of global competition. Where the major countries have already turned over the valuation of their currencies to the global market place, more and more competition will dictate the rules and function of government. More and more Rand's philosophy of delayed gratification will dominate the design and creation of new laws and rules.