Value transference essay no. 1

Another re-post from the archives.

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The reason we need to talk about value transference is because other people are talking about “value creation.” If you look at the Google ngram viewer, you will see that the phrase “value creation” was practically nonexistent before the 1970s, and that its use skyrocketed during the last two decades.

I don’t really know why the phrase was originally created, but people of a libertarian-conservative bent have glommed onto it as a way of explaining the results of what they call “free markets” and as a way of justifying a libertarian-conservative approach to taxation

The theory behind value creation is that people and businesses make money be creating value that other people are willing to pay for. People may pay in currency, but of course currency is just a store of value that allows people to more efficiently trade the value they created for the value that others created.

Because the United States has a so-called free market, it is argued that the only way to make money in the United States is by creating value. Therefore, the richest people (at least the richest self-made people) are those who created the most value, because there’s a direct and nearly-perfect correlation between value created and how much money an individual or business has accrued.

The correlation between value creation and wealth bolsters the libertarian-conservative viewpoint that taxes should be kept low. Suppose Doctor Uno is lazy and only saves one life per week. Doctor Dos works hard and saves ten lives per week. Is it fair to punish Doctor Dos for his hard work and his life-saving contributions to society by hitting him with a higher tax rate?

What about rich people who clearly didn’t do anything useful in order to become rich, such as people who were born rich or who married rich spouses? The libertarian-conservatives would argue that, if property rights are to mean anything, they should mean that rich people are entitled to do whatever they want with their money, and that includes giving it to spouses and children. So taxing these people would be punishing the original act of value creation.

Even if one accepts the argument that all wealth accretion is the result of value creation, it doesn’t necessary follow that progressive tax rates are wrong or immoral. The purpose of taxation is not to punish anyone but to fund necessary government functions. The rich are taxed at a higher rate because they can afford to pay more and because they have a lower marginal utility for additional money.

As you know, it’s my hypothesis that great fortunes are the result not of value creation but the result of transferring the value created by the hard work of other people. This is what I call value transference, and it’s a necessary counterbalance to the now popular term of “value creation.”

Why do people deny the truth of value transference? No doubt for the same reason they deny the truth of evolution, or HBD. Libertarian-conservative types are so psychologically invested in the idea of wealth equals value creation that any hint of a greater truth causes severe cognitive dissonance. And they get angry at me. If the rich are rich not because they created value but because they transferred the value created by the hard work of others to themselves (some might replace “transferred” with the less polite word of “stole”), what justification is there for allowing them to keep their wealth?

Actually, history is full of justifications for why the people with wealth and power are entitled to their wealth and power. There has never been a society in recorded history where there weren’t a few who were rich and powerful and many who were poor, and the rich and powerful always had explanations for why they were entitled to their positions long before modern theories of economics were invented. Divine right was one such explanation. The Pharoah of ancient Egypt went one better and said the he himself was a god. Today we look back at these explanations and laugh, but who’s to say that in the distant future, humans wiser than ourselves won’t look down similiarly at the justifications used by the billionaires of the present?

This introductory essay leaves many unanswered questions, such as:

1. Is our economy really a free market?
2. What the heck do people mean by a free market anyway? (Answering this question is necessary to answer the previous question as well as the following question.)
3. Is it true that the only way to make money in a free market is by creating value?
4. Why would anyone voluntarily give money to someone else unless they were getting value in return?