The Glory Days of America's "Robber Barons"

In response to the article Corporate Tax Dodging is Simply Unpatriotic that I blogged on yesterday, a correspondent sarcastically replied to another's comments with:

By all means let's return to the good old days of Andrew Carnegie, J.P. Morgan and John D. Rockefeller because life was so much better for the working class. Andrew Carnegie would treat a drill bit better than the guy who used it.

In fact, the first sentence is literally true, in large part because the second sentence is completely false. As Burton W. Folsom, Jr. explains in The Myth of the Robber Barons,  Andrew Carnegie valued his employees, rewarding productiveness through a "a merit system":

Strong incentives were given employees who . . . excelled. Carnegie explained that success "flows from having interested exceptional men in our service; thus only can we develop ability and hold it in our service."

One of the dopiest fantasies espoused by anti-business, anti-capitalist mentalities is that business success can be built on cheating the customers and trashing the employees. It's astounding how many people swallow this gunk, despite the fact that a few minutes of thought would expose the illogic of the idea.

I left this reply:

These three were productive geniuses who raised the general standard of living. Carnegie dramatically lowered the cost of steel, supercharging myriad steel-using industries from construction to autos to railroads to farm equipment and more. Rockefeller perfected and lowered the cost of oil products such as kerosene, bringing economical nighttime illumination to average folk for the first time (displacing expensive whale oil, which only the wealthy could afford) and, later, feeding the automobile industry with cheap gasoline. These two together created indespensible necessities of the advanced industrial civilization we enjoy today. Morgan sent surges of prosperity through the economy by providing vital capital to promising companies, technologies, and innovators such as Thomas Edison. The "working class" has rarely had such valuable benefactors. Their fortunes are a pittance compared to the value they added to the lives of untold millions.

Yes, by all means lets return to the days when the Carnegies, Rockefellers, and Morgans could once again flourish without the drag of soak-the-rich parasites.

As Andrew Bernstein notes in his article The Inventive Period, "To defend freedom against the distortions of the anti-capitalist historians it is important to reject the inaccurate and opprobrious title of 'the Gilded Age' for the late nineteenth century."

Related Reading:

The Myth of the Robber Barons by Burton W. Folsom Jr.

Patriotism and the Welfare State

Capitalism in No Way Created Poverty, It Inherited It by Yaron Brook and Don Watkins

Patriotism and the Welfare State

Today I feature a businessman. In Corporate Tax Dodging is Simply Unpatriotic, Henry Passapera denigrates America's great companies:

As a small business owner, I’m proud to pay my fair share of taxes. Taxes pay for investments we make together to improve our economy, our quality of life, and our country — everything from roads and bridges that facilitate commerce for businesses such as mine, to economy-boosting investments in Social Security and Medicare that strengthen retirement security for seniors and fuel consumer demand on Main Street.So, I get angry when multinational corporations, at times our competitors, use offshore tax havens to avoid paying their fair share. 

Remember that Passapera is talking about  companies acting legally. One wonders if Passapera himself takes advantage of any tax "loopholes" available to him. Presumably not. Considering his "patriotism," one would expect him to pay the full 35% corporate tax rate.

As to that hodgepodge of "investments" that fuel government spending on behalf of "we," it's probably too much to expect Passapera to question whether government has any right to confiscate our money to pay for them in the first place.

Passapera's conclusion is rather nauseating:

For small business owners, this is not about partisanship or politics. It’s about fairness, responsibility and love for our country.Simply put, if you want to fly the American flag at your corporate headquarters, you ought to be paying your fair share of taxes.

I left these comments:

So patriotism now means working for the "we"; the collective?

There was a time when patriotism meant upholding real American ideals--inalienable individual rights, and a government that protected those rights. America was Founded on the belief that each person could work and trade, earn property, take responsibility for his own life; that each person owned his own life, and should be free to act on his own judgement for his own betterment.

Now, patriotism means seizing more and more of the individual's earned money to feed wealth redistribution programs for people who didn't earn it, run by an increasingly omnipotent and imperial government?

There is nothing patriotic about demanding that government seize more from the earnings of one's fellow Americans. It would be patriotic to demand that every business's tax rate be cut to what Honeywell pays--1%; or, better yet, 0% or no corporate income tax. Kudos to the companies (and individuals) that use every legal means to keep more of what they earn. The productiveness that feeds their growth and profits is the true benefactor of America.

If you want to see why socialism is winning in America, this capitalist provides the answer. Today, capitalists are the last people you could rely on to fight for capitalism.

Related Reading:

Duty vs. Life, Liberty, and the Pursuit of Happiness

America: A Nation of Sacrifice?

The Dangerous John McCain

Blaming the "Gun Culture" for One Accidental Shooting is Unjust

Calling the tragic Kentucky case of a 5 year-old shooting of a 2 year-old with a child-sized gun "no 'crazy accident'," the NJ Star-Ledger said:

We can argue about the need to limit the sale of assault weapons and high-capacity magazines. We can have a reasonable debate about the effectiveness of background checks. Perhaps it’s time to broaden that discussion, and include the acceptance of a fringe gun culture that puts weapons and live ammunition in the hands of a preschooler, as if it were a toy.

In a Forbes op-ed, Harry Binswanger explained how he grappled with the issue of "gun control":

Both sides [in the gun control debate] are looking at cases that are real. The question is: how can we take all of them into account? What is the proper way to think about this issue?
The answer I’ve come to is radical: reject entirely the collectivist mindset. Don’t look at populations; don’t ask: among 300 million Americans, would law X result in more lives being saved than lost? That sort of cost-benefit analysis is amoral; lives are not balanceable one against the other. And, in practice, it leads to endlessly battling statistical studies. I realized I should not take a God’s eye perspective, looking down on the flock, seeking to preserve the herd. Mankind is not a herd.

It was with Binswanger's perspective in mind that I left these comments:

Guilt by association--blaming the innocent many for the wrong-doing of the few--is one of the greatest of injustices perpetrated by men over men. That's the collectivist mindset at work.

A "fringe gun culture" didn't put a loaded weapon in the hands of a child without adequate supervision. Neither did some mysterious "acceptance" of such a culture. Some specific adult did, and the circumstances of that specific situation, and how they relate to child endangerment laws, must be looked at before anyone can be judged.

The collectivist worldview is an amoral worldview, and the source of so much injustice.

Related Reading:

Banning Guns Punishes the Innocent and Violates Rights

With Gun Control, Cost-Benefit Analysis is Amoral by Harry Binswanger

Free Speech and "the intersection of tax policy, campaign finance regulation, and civil rights law."

Walter Hudson points out the threat to our First Amendment rights posed by the IRS--and it goes well beyond the current scandal. Here is an excerpt from Hudson's The Real IRS Scandal:

As the IRS scandal continues to develop, it highlights a deeper and more fundamental injustice in our social order, an ongoing First Amendment crisis fostered by the intersection of tax policy, campaign finance regulation, and civil rights law. Any response to this most recent episode which does not address the root systematic injustice will be incomplete, inadequate, and morally inexcusable.

As philosopher/novelist Ayn Rand observed long ago:

"The right to life is the source of all rights—and the right to property is their only implementation. Without property rights, no other rights are possible.

"Just as man can’t exist without his body, so no rights can exist without the right to translate one’s rights into reality—to think, to work and to keep the results—which means: the right of property."


Once the government gains control over your property, whether by a complex, arbitrary form of taxation or regulation, it can coerce you in a thousand different ways.

Related Reading:

How Government Powers of Economic Control Threatens Free Speech

Occupational Licensure Threatens Free Speech in NC

Apple and a Flat U.S. Tax Code

The NJ Star-Ledger said in a recent editorial that Apple's tax avoidance highlights the need for tax reform. But they took a cheap shot at Apple, labeling the company a "money launderer." But, surprisingly, the editors gave the company a back-door compliment by saying that Apple and other big companies would "likely dominate any new tax debate that involves our money-hungry federal legislators." 

Such a description of Washington politicians as "money-hungry" is rare in a "liberal" newspaper, which usually directs such pot shots at producers, rather than looters. Apple, whose CEO Tim Cook called for tax reform before congress, would be doing the country a favor by fighting to keep as much money as possible in the hands of the companies and individuals that earned it. Unfortunately, most would likely do so by fighting to preserve their favored tax breaks, rather than by lowering rates. That's why the editors pessimistically referenced the 1986 tax reform which, as I have previously noted, left the door open to special tax structures and thus failed to solve the problem.

These peripheral issues aside, the editors are right about tax reform in one sense--we need it now. I left these comments:

Whenever you hear incantations to the "public welfare" and the "national interest," you know that someone is about to get screwed. Since the "public" and the "nation" is merely an association of individuals, these collectivist terms mean that some people's interests and welfare takes precedence over some others.

Sure enough, Apple is smeared as a money launderer for keeping more of the money it earned by providing products that billions of consumers value enough to voluntarily buy. This, despite the $6 billion in taxes it actually did pay.

Yes, the income tax code is a mess. However, I don't share the editors' pessimism about reform. Congress should create a new flat corporate tax code that eliminates all current tax preferences and statutorily bans all future preferences and drastically lowers the rate from the criminally confiscatory 35%. This would eliminate the special interest feeding frenzy. Similarly, the individual code should be scrapped and replaced with a low flat rate, but with a single, generous personal exemption (Steve Forbes has proposed a plan that would make roughly the first $46,000 of income for a family of 4 tax free).

Flat taxes are fair. And, considering the recent scandals involving the IRS, these reforms are the least we could do to protect our economic and political liberty. It would reign in the dictatorial power of that corrupt institution.

In the meanwhile, kudos to Apple for its highly moral and patriotic legal tax avoidance. It's always heartening to see producers keep as much of their earnings from the "our money-hungry federal legislators" as they legally can.

Related Reading:

Apples Patriotism Highlights Urgent Need to Abolish the IRS and Institute a Low-Rate Flat Tax

Time for a Flat Tax

Toward Less-Unfair Corporate Taxes

The Government's Shameful Antitrust Persecution of Apple Reaches Trial

The government's antitrust suit against Apple went to trial this week. The judge in the case urged Apple to settle because he believed the government had "a strong case," but Apple CEO Tim Cook vowed to fight, saying Apple would take "a very principled position on this." Let's hope so.

Apple is accused of "price-fixing," because it allegedly contracted voluntarily with major book publishers to set the e-book price for its iPad a few dollars above Amazon's $9.99 price. Amazon's price was well below the $25 to $35 price of hard cover versions, which would have hit publishers' profits pretty hard. So, the publishers signed agreements with Apple in which they, rather than Apple, would set the price, guaranteeing Apple a 30% commission on each sale (the so-called "agency model"). The hope was that Amazon, which at the time had an "iron grip on the electronic book market," would follow suit with the publishers. They eventually did. The strategy apparently worked. The agreement apparently raised the price of e-books by anywhere from $2-$5.

For this, Apple is charged with "conspiracy" because, according to the government, Apple didn't want to "compete" with Amazon. This is the bizarro world of antitrust: When a producer takes the risk of raising prices because it believes existing prices are below what the market could bear, that's "price-fixing." When the government forcibly forbids producers from doing so, thus keeping prices unnaturally low, that's not price-fixing. "Competing" means charging whatever the absolute lowest price some competitor is currently charging. Risking a loss of sales by raising prices to what one believes consumers are willing to pay is, somehow, not competing.

But what Apple and the book publishers (all of whom caved in and "settled") did was, precisely, to compete. Apple leveraged the economic power it earned in the market by proposing a deal with the publishers, allegedly to raise the price of e-books. The publishers, who were eager to thwart Amazon's cut-rate pricing because of the harm it could do them, agreed. Apple believed this strategy would work, and indeed it did. Consumers willingly paid the prices set by these agreements (Apple claims that average prices actually went down, not up). Whatever the case, what Apple did was precisely to successfully compete in the market, in pursuit of the honorable goal of maximizing its profits. Despite all of the antitrust thugs' blustering, the result of Apple's "price-gouging" is a cut in book prices by more than 50% from hard-cover versions!

It's interesting that the government is claiming that Apple cheated consumers. Apple could raise the market price of e-books because of its economic power; a power that consumers themselves granted to Apple. Economic power is a measure of the value that consumers place on a producers products by virtue of their willingness to voluntarily buy them. Economic (or market) power is achieved through consumer satisfaction. Apple used its consumer-granted power to influence the market for e-books--successfully, in this case---which is exactly what successfully competing is all about.

Through it all, nothing but voluntary agreements to mutual advantage are evident--between Apple and the publishers, the publishers and Amazon, and Apple, Amazon, and the publishers with consumers. Apple's only "crime" was to contract voluntarily with publishers on a pricing model. For this, they are smeared as "conspirators." Who is wielding force? The government, allegedly on behalf of consumers who were not defrauded or wronged in any way; who, in fact, benefited from the e-book revolution created by the likes of these companies--an achievement that the antitrust thugs could not even conceive of, let alone match.

If Apple successfully managed to get prices up a bit, to a level the market was proven to be able to sustain, kudos to them. There is no inherent right of consumers to some government-dictated "low" price. Prices are legitimately set only y the market, which includes the cumulative voluntary choices and agreements of and between producers and consumers. The governments only job is to fight fraud and breech of contract, but otherwise protect the rights of all to voluntary trade and contract.

Shame on our government for its attack on Apple and the book publishers. The government is criminalizing legitimate business practices, which highlights the tyrannical essence of the antitrust laws. And good luck to Apple in its fight to defend itself, and its courageous willingness to do so.

For some background on this case, I found this article via Voices for Reason.

Related Reading:

Antitrust Prosecution of Apple is Rotten

Apple Followup: Barbara Straniero's Mistaken Understanding of "Free Market"

The Abolition of Antitrust, by Gary Hull

Rights and Democracy

As a followup to the Mulshine column I discussed yesterday, this letter appeared in the NJ Star-Ledger on April 3, 2013:

Voting on my rights   I don’t disagree with all of Paul Mulshine’s Sunday column ("Hypocrisy on same-sex marriage here in Jersey"). I do object to his argument that this is an issue that deserves a public vote. Hogwash.   In a democracy, we don’t vote on every issue. We abdicate most of that right to elected officials, who are theoretically kept in check by voters and the courts.   So why a vote on this issue? Should Virginia voters have been the ones to decide on the state’s interracial marriage ban in 1967? Should Kansas voters have decided the fate of segregated public schools in 1954?   It’s one thing to vote on school budgets or open space. It’s quite another to vote on discriminating against a class of citizens. If voters approve same-sex marriage in New Jersey, that’s great. But I don’t need Paul Mulshine or anyone else to gift me with approval of my 21-year relationship with my partner.Dan Garrow, Ocean Grove

My comments:

Dan Garrow is on the right track. But, there are several fallacies in his letter that must be corrected.

First, in a democracy, the people do vote on every issue. America is a constitutionally limited republic (at least in its original conception), in which elected officials are kept in check by a constitution (not "voters and the courts). The constitution limits the government to protecting individual rights. In our republic, rights are inalienable, and thus outside the scope of the democratic process.

Second, rights are individual, not class (i.e., group) based, and are held equally and at all times by all people. Rights include earned property, speech, religion, and contract, etc. Rights are guarantees to freedom of action, not an automatic claim to other peoples wallets or service.

Therefore:

Third, it's false that "It’s one thing to vote on school budgets or open space. It’s quite another to vote on discriminating against a class of citizens." The two are linked, because it's just as wrong to subject someone's marriage (i.e., contract) rights to the vote as it is to subject someone's money (i.e., property) rights to the vote. Just as each of us has the inalienable right to choose our marriage partners, so each of us has the right to decide how to spend our own money. Government schools, open space programs, and bans on gay marriage are linked because they all violate rights.

There are no group rights, such as "gay rights." There are only individual rights, which are inalienable and held equally by all people at all times, and protected by government equally and at all times. The gay marriage issue is essentially a contract rights issue, and contract rights belong to everyone. If you are to effectively defend rights in any area, you must defend all rights of all people at all times. Otherwise, your fight is hollow.

Related Reading:

Rights are Inalienable, Not an Electoral Privilege