Bill Gates and Ludwig von Mises by Gary North

The characteristic feature of modern capitalism is mass production of goods destined for consumption by the masses. The result is a tendency towards a continuous improvement in the average standard of living, a progressing enrichment of the many. Capitalism deproletarianizes the "common man" and elevates him to the rank of a "bourgeois."

~ Ludwig von Mises

With these words, Mises began his book, The Anti-Capitalistic Mentality (1956).

Microsoft, more than any high technology firm in our generation, has catered to the masses. It has generated the revenues to prove its success in this mass-marketing effort.

In 1980, Bill Gates secured Microsoft's future with a program, QDOS, that he had purchased from another programmer. He paid $50,000. Today, he is worth somewhere in the range of $30 billion, and this is after he has given away billions of dollars worth of Microsoft shares to his non-profit foundation. His partner, Paul Allen, is worth about $20 billion. I would call that a good return on their investment.

By selling low-price products to hundreds of millions of people, they have become incomparably rich. Their story illustrates what Mises described in the second paragraph of his book.

On the market of a capitalistic society the common man is the sovereign consumer whose buying or abstention from buying ultimately determines what should be produced and in what quantity and quality. Those shops and plants which cater exclusively or predominantly to the wealthier citizens' demand for refined luxuries play merely a subordinate role in the economic setting of the market economy. They never attain the size of big business. Big business always serves – directly or indirectly – the masses.

Gates was present at the creation of the microcomputer industry as a member of the Boston Computer Club. If we date the advent of this technology with the Altair 8800 in 1975, then only Apple and Radio Shack got into this industry in a big way earlier than Gates did. Insofar as the industry is a mass-market phenomenon, Gates created it – as close to singlehandedly as anyone has ever created a mass market industry.

For this, he is despised. The envy shown to Gates is greater than that shown to any other American capitalist in our era.

It is not just that he is rich. In fact, his wealth is rarely raised as an issue against him. He is hated because he caters to the masses. That is, he is hated for precisely the reason that Mises offered as the primary justification for capitalism. His code is just not up to . . . to . . . code.

Those who do not share the opinion of the masses of desktop computer users complain that Microsoft's products are not good products technically. But consumers say they don't care, and they say it in the way that Mises said they should: with their money.

In 1980, I bought a used $25,000 Data General mini-computer, which I needed to access another man's $7,500 word processing program: S.S.I. (Satellite Software International). In one week, I doubled my output of articles. The money was worth it then, though not in retrospect. In 1982, I bought an IBM PC for $5,000 plus a $495 upgrade of S.S.I., now called WordPerfect. Bill Gates made that transition possible for me, and for hundreds of millions of others who never used a mini-computer.

In my report, "The Religion of Operating Systems," I spoke of two cults: the Mac cult and the Linux cult. The Mac cult hates Microsoft because its members think their system is easier to use, and that users ought to value this feature highly. Linux cult members hate Microsoft because their system is based on purer code, which the masses ought to honor but don't.

The masses pay no attention to the critics. This is what really upsets the cultists. The masses have turned their backs on the things valued most highly by the cultists.

Not all users of Linux and Mac are cultists. Some just prefer one system to the others. But I now have a folder full of outraged letters from certified cultists. Their hostility to Microsoft is intense because Microsoft stays with the masses in the broad highway rather than with the purists on the sidelines: the ease-of-use purists and the precise-code purists.

This is the anti-capitalist mentality in action.

SUBJECTIVE VALUE VS. OBJECTIVE CODE

One of the major errors that dominated economic thought from Adam Smith's Wealth of Nations until the 1870's was the labor theory of value. This error rested on a false hypothesis, namely, that all economic value stems from the value of the labor that it takes to produce a service or good. This error was the mirror image of the Physiocrats' doctrine that all economic value stems from agriculture.

In the 1870's, three economists independently published books that showed that economic value is imputed value: imputed by consumers. These three economists were Menger, Walras, and Jevons. We call this new insight the subjectivist theory of value. It is in contrast to objective theories of value: agriculture, labor, or cost of production theories.

It has proven impossible to persuade most people of the truth of the theory of imputed value. People instinctively look to the value of what goes into a product as a way to explain the value of final production. This probably has to do with the idea of physical cause and effect. "Causes (earlier) produce effects."

The problem with such reasoning is that in human action, forecasting precedes the process of planning and production. Men imagine the future, and then they make plans to attain their goals. They individually impute value to future results. Then they decide which goals they should pursue with the limited means at their disposal. Only then do they begin the production process: a means to an end.

It takes economic training and practice for people to perceive that value is imputed subjectively by consumers, whose spending patterns then establish objective prices, which in turn produce profits or losses for sellers. Analytically, the economist moves from the future to the present, not from the past to the present. This is not how most people think of causation.

Those who affirm purity of code with the same fervor that General Ripper affirmed purity of essence in Dr. Strangelove think from the past to the present. They are code-based. How you get to your output means more to them than your output. They are liturgical to the core. Form matters more than substance. The precision of the tool matters more than its output.

Most users just care about output.

OPERATING SYSTEMS

My main point in my article was that Microsoft has clearly won the war of the operating systems, which indicates that it is doing something right. The free market has spoken.

But on a site for libertarians, I suspected – and found out by e-mail – that the free market's forthright declaration is not good enough for a hard core of libertarian users of non-Microsoft operating systems. There is a hostility against Microsoft that borders on the religious, and this hostility has a corollary: the belief that free market cannot be trusted. Therefore, consumers cannot be trusted.

I was not saying that people should not use Macs. If they are graphic artists, they probably should use Macs. This market was Apple's low-return niche market from the day that Apple began reworking Xerox's PARC graphics-interface software. Apple has done a good job in this tiny niche market. My point was that Apple's management self-consciously made marketing decisions that enabled Microsoft to win the battle in the mass market.

As for Linux, I said that its users are mostly techies. The e-mails that I received indicate at least that those who wrote letters to me are techies. Techies are not Microsoft's targeted market. We non-techies are. The concerns of techies are not Microsoft's primary concern in the desktop market, which was the topic of my article.

There are economically sound reasons for the success of Microsoft. The installed base of existing programs is a big one. Lots of programmers write programs for Windows. Old programs are often usable on the latest version, so there is a portability issue that users of these programs appreciate. Users ask: "Will my old programs work on Linux or a Mac?" Maybe they won't. To avoid these maybes, users upgrade to a new version of Windows.

Those aficionados of alternative operating systems who disregard the high costs of learning a new tool and abandoning an old, familiar one do not understand what gunfighters in the Old West understood, namely, that you are wise to stick with an old, familiar tool that works well in your skilled hands rather than switch to a new one that has better technical characteristics. If your goal is to put a bullet in your opponent before he puts one in you, technical considerations of pistols are secondary. Speed and aim count for a lot more.

CATECHISMS FOR THE COMMITTED

For things digital, as for things analogical, individual perception determines value, and competing bids by consumers determine profitability for sellers. But in the religion of operating systems, the measurable testimony of consumers in the free market is dismissed as either irrelevant or perverse. Consumers have made it clear: they prefer Microsoft products. The testimony of the market is considered heretical by the Church of Linux, an assembly of priests, and by the Church of Apple, an assembly of laymen.

The religion of operating systems has a catechism.

Q. What is the basis of Microsoft's success?

A. Bill Gates' ruthlessness.

Q. What should be the basis of software success?

A. Precise coding. (The Church of Linux)

A. Ease of use. (The Church of Apple.)

Q. How important is a new user's learning curve?

A. Not very.

Q. What is the value of the user's time?

A. Less than the value of using the new operating system.

Q. Who should be the judge of this comparative value?

A. Members of my digital church.

Q. What is the proper way to deal with Gates?

A. Murmuring on-line.

Q. If this fails, what then?

A. The Department of Justice.

Libertarians have a problem with the last response. In theory, they say that a monopoly is possible only when the government intervenes to favor a specific firm. But when it comes to the Monster Gates, a libertarian member of one of the non-Microsoft denominations is sorely tested. He knows that, had the Federal government not forbidden Microsoft's purchase of Intuit (Quicken), Microsoft would now have a stranglehold on the home budgeting software market. He suspects that it was only the threat of legal action by the government that kept Microsoft from setting up digital blocks in Windows against rival programs, such as Netscape – not that such action was necessary for Internet Explorer to replace Netscape Communicator.

In short, a libertarian can test his commitment to the principles of private ownership by examining his attitude toward Microsoft. If Gates wants to program Windows so as to block all rival programs, why should any government agency have anything legitimate to say about this, let alone prohibit on threat of sanctions? Would the world be a better place if Gates' competitive spirit were not hampered by the threat of violence by the State?

Yes or no? No mumbling, please. (No, you don't have to send me an e-mail telling me your answer. This is between you and your maker, even if you think the Big Bang is your maker.)

THE GREATEST GOOD FOR THE GREATEST NUMBER

This is the issue of market share. What is the best way to determine whether consumers' desires are being satisfied? The free market economist answers: "By profit and loss statements and balance sheets." The profit motive drives entrepreneurs to create consumer-satisfying products and services. The profit-and-loss statement tells us which entrepreneurs have been successful.

What does not tell us? (1) Precise code; (2) ease of use.

Those who judge productivity by the precision of the code can do so. They can choose Linux. In other words, those who are skilled enough to judge between the coding of operating systems have the legal right to do so. The rest of us don't have this ability, so we just don't care. We assume that because almost everyone we know uses Windows, we should, too. This lack of concern about source code is an affront to some Linux aficionados. I have lots of e-mails to prove this. For some, it is a matter of deeply felt religious principle: a cause. One man wrote:

Bottom line, Linux is for Libertarians who don't want the government with a large Left Wing Co-operation interfering with their life. Linux represents a concept not truly appreciated this day in time called freedom. It is the operating system for freedom loving people.

I have no objection to his commitment to either freedom or Linux. But there is the nagging issue of market share. Is he saying that most men's lack of commitment to freedom is the true cause of Microsoft's dominant market share? I think he is.

I am of another opinion. I think Microsoft is dominant because the products provided, early, what the competition did not. Success feeds on success. This is the issue of the installed base. Windows succeeded because people could upgrade from DOS. Of course, those poor souls who did this, accepting WordPerfect for Windows instead of WordPerfect for DOS, made a technical mistake. The DOS version is still faster and more powerful for writing, as distinguished from typesetting, than the Windows version. I say this as perhaps the world's greatest expert. I have written over three-dozen books on WP for DOS, and I have typeset books with both versions. The Windows version is better for typesetting. It is not better for writing basic text.

But most users don't care. They are neither full-time writers nor typesetters. Therefore, slow, kludgy Windows word processing is good enough.

"Good enough." These two words are an affront to Linux users and Mac users. They resent the fact that it is not worth the time, risk, frustration, and trouble for Microsoft users to switch. I have a folder full of e-mails to support this statement.

I have never received so many letters telling me that I don't know what I am talking about. The Linux users dominated this line of response. I will not bore you with extracts. Some were adamant: I know nothing. This one is my favorite: "May I suggest that before you hold court on operating systems again find some time to have lunch with an articulate engineer? You would most likely learn a great deal in just one hour. . . ." The likelihood of my locating an articulate engineer – rare in any circumstances – who wants to spend an hour talking to a layman about the fine details of operating systems is, I suspect, quite low. Since my original point was that it is the users who make the decision based on their non-technical goals, this suggestion confirms my original thesis, namely, that it is precise code, not users' output, that excites most Linux users.

NON-CULTIC ANALYSES

A few correspondents admitted that I was correct. Rudolph, a European, wrote: "I had installed both Linux and Windows. Linux is very hard to configure for newbies. Linux for desktop is a nightmare." Note: as I said in my first paragraph, my article was specifically written for desktop users. Robert wrote:

I enjoyed your perspective on the Microsoft, Linux, and Apple operating system debates in today's Lew Rockwell issue. I have said many of the same things you have to my friends, many of whom are members of either or both cults. I like Linux, as I am one of those techno-priests myself, but I have no illusions about my "faith" displacing Microsoft any time soon. If it is to be overthrown in the marketplace, Microsoft will have to trip and fall on its own sword, which is possible, just as IBM unexpectedly did, but I wouldn't bet on it happening on any given day.

He obviously understood my point.

Mike wrote sensibly about the debate over operating systems in a rational non-confrontational way. His point is this: individuals should choose operating systems based on their needs and abilities.

As a geek, I am sometimes approached by others as to my opinion as to what OS, hardware, network, software, etc., they should use. I answer them with 2 questions, (1) Do you currently have any of the above, and (2) what is your level of experience? Craftsmanship depends on the combination of a craftsman with a tool. In many instances the specific tool or its quality may matter, but not nearly so much as the experience of the person who holds it. DOS with a key-command interface, and even 2 fingers, is an awesome tool in the hands of a fellow who has used it for over 15 years. If the application software is up to the task, and there is still hardware on which to run the OS, it is the wisest choice. After all, it is not about the tool, but what you use it for and how well you know how to use it.

"After all, it is not about the tool, but what you use it for and how well you know how to use it." This seems so obvious. What is equally obvious is that this is exactly what desktop computer buyers have thought for a quarter century. And they have bought Microsoft.

Jim is unique. He is a geek who has used all three systems.

I really enjoyed your recent column "The Religion of Operating Systems". As a long time computer geek, I confess that I agree with most of what you said. After years of using MS Windows at home, and developing on Unix (Linux, Solaris, etc...) at work, I have recently become an Apple employee. I cheerfully have fully converted to this platform for my personal computing needs. My "unbiased" analysis is that each OS has its advantages and drawbacks. Which one is chosen depends obviously on each users primary needs. There will be a market for all of them because of this. The only issue I take exception with in your column, is your statement that Apple, will not recover from its current reputation. First of all, there is nothing Apple really needs to recover from in my opinion. They have their market, and of course they are seeking to expand it, but Apple is one of two companies that actually made a profit selling computers last year (the other was Dell). Clearly, Apple is doing something right, and doesn't require a major market share to do it. Certainly John Scully could have made the fateful decision to license MacOS to other vendors. It's a mistake however to assume that was a superior decision. The downside is that Apple could have found themselves in the very same quagmire as Microsoft; struggling to support the infinite number of platform and hardware configurations out there. Microsoft is losing ground to Apple and Linux because of this. Although the turf lost is admittedly small, and could be recovered, it could be an inevitable trend for Microsoft.
The Roman Empire crumbled due to internal moral decay. I'm not suggesting that Microsoft will crumble, but that their size and influence makes them a target in a free market. The insidious computer virus is a market equalizer, as it generally targets only the prevailing OS. There are many people and companies who are shifting to alternative computing platforms for this reason. Something to think about.

I have thought about it at some length. The vulnerability of Windows to viruses is not all bad. Here's why. The governments that would be most likely to launch virus-based attacks on the United States or the West are in poverty-stricken countries. Their people have pirated Windows products. These thieves have not had access to all of the updates, since their versions are not registered. So, any government that would launch an attack of killer digital viruses would bring down its own economy. I can think of nothing that stands as a greater shield against such attacks than the widespread use of pirated Microsoft products. Bill Gates has in fact provided us, as free riders, with the digital equivalent of the Doomsday Machine in "Dr. Strangelove." But I digress.

Doug points out that the military uses Linux. It's free, so this may be one of the few things the military does that is sensible.

One thing about Linux. User interface issues require more knowledge. But the fact remains this: The system is stable and reliable under stressful conditions. Windows is not. The military, and all users who require strong and robust systems choose Unix or Linux. Of course it requires more input to establish, but it stays up and runs for months. What is the price for this if your system requirements are such?

Recall that I was writing about desktop users and small businesses, not large organizations. Large organizations can afford to hire full-time programmers. Most desktop users can't. My article was written about desktop users – not the military, not Fortune 500 companies, not Web hosting services – desktops.

(Note: If you ever decide to write to an author to tell him that he doesn't know what he is talking about, and you provide as evidence facts that are unrelated to the author's original topic, you can expect to have your suggestions rejected by the recipient.)

So, you can use Linux or a Mac and not be a cultist. But give thanks for the market's decision to make Gates rich, for he has meet the needs of the masses, where, in 1980, they saw no need at all.

CONCLUSION

The hostility to Microsoft is based on something more fundamental than criticism of this or that weakness in Windows or other Microsoft programs. It is based, in far too many cases, on hostility to the free market. The free market allows consumers to decide what they are willing to pay for. Consumers have paid for Microsoft products. Freedom allows entrepreneurs the opportunity to de-throne the dominant firms. This is why I wish Apple and Linux great success. Maybe one of them will produce a word-processing program better than WordPerfect for DOS someday. I hope so. But I don't expect it.

Until then, I'm sticking with DOS.