Dear T: Thanks for your long, lovely letter. I wish things were better in your chosen profession.
All I can say is that yes, the Marxists are right in that ex post, people can sometimes be “exploited” in the sense that they regret making a purchase, a loan, a rental, whatever. It sometimes happens, but not often, under laissez faire capitalism. I buy a shirt for $20, and, later, I wish I had my money back. However, the “magic of the market” is that ex ante, in the sense of anticipations, at the time I purchase this article of clothing, I valued it more than the money I had to pay for it. No other system can make any such claim. Rothbard is magnificent. So is Mises. Best regards, Walter
Sent: Wednesday, January 31, 2018 10:35 AM
Subject: Another take on debating the Marxist
I regularly read your exchanges on Lou Rockwell’s site. I’m not an economist, but a biologist, and yet I’ve found myself drawn into economics because of my circumstances. And only Austrian economics makes any sense.
I’ll return to debating the Marxist, but my circumstances are as follows: I was a cancer researcher, specializing in the mechanisms of how cells receive and react to signals from growth factors and other stimuli. I then moved to a biotech company that made kits and reagents for researchers to use in their work. My job was to monitor developments in research, and understand the needs of researchers, as well as their discoveries. From that position of knowledge, I directed the development of new products, as well as the licensing of existing inventions from academic researchers. They’d get a royalty on their invention, and if it was material we licensed directly, the university would get a bigger cut.
In the mid 1990s, I felt like it was shooting fish in a barrel. I had little difficulty identifying significant, novel developments. And I’d pass those to the guy in the next office, who called up the university in question, and negotiated a license. Back then, licenses were cheap, and universities were easy to deal with. Researchers were somewhat flattered that anyone cared about their inventions enough to invest in them, and commercialize them. Getting some money out of it was gravy.
By the late 1990s, things began to change. That change has continued, unabated. Specifically, other companies began calling up that university, and asking about the same inventions. If there were even vague therapeutic implications to the invention, it was not even worth talking to them. Clearly, more money was in play, looking for returns. The price of licensing anything was going up, and the return to us, going down. Watching this happen in front of my eyes, I began to wonder what was causing it, and I quickly found that the Austrian school had all the explanations. I went on to read a lot of Rothbard’s works, although I never read Mises.
After Bernanke’s QE madness, I was already well-informed of what would likely happen. And it happened as expected. Preliminary inventions, with no immediate chance of making money for anyone, were licensed for exorbitant amounts of cash, and a company was quickly founded on those inventions, with venture capital pouring in so quickly that I imagined there was no time for actually thinking about what they were investing in. When I say “preliminary,” what I mean is that the invention would require ten or more years of basic research before anyone would even know if it was viable as something that could make money. And by then, a dozen different approaches could crack the same nut. Rationally, I’d never invest a penny into it. And yet they were turning money away. Lesson to me: Increased money and credit does not mean there are more quality investment opportunities. It only means that more money chases those that exist, eventually leading to some awfully stupid financial decisions. That’s a very Austrian conclusion, by my understanding.
Getting back to the Marxist thing. When I was at the biotech company I previously mentioned, I had an insight about something of value, and the company was able to commercialize it with mechanisms they already had in place. And they made a lot of money off my contributions. Far, far in excess of what I was paid for it. I was merely a highly valued employee, compensated merely well. Then, the company was sold, and soon the new owners closed our division. I was one of few who were offered to stay on, working from home if we did not want to relocate. But we saw how badly they handled everything, and decided to start our own company. We had a lot of expertise to choose from, since most everyone else was being let go. We got underway, but suddenly, the same decisions about product commercialization that previously generated quick profits, now floundered. Distribution agreements were not as good as previously, web site traffic wasn’t there, customers didn’t know about us or have any special reason to trust our quality out of the gate. All those things that an organization brings, had to be developed from scratch. We eventually sold the startup, lucky to get out without losing our investment.
So while the value I brought in the first situation was high, that value could only be realized if the organization was properly equipped to exploit it. Yes, I know the baggage attached to the word “exploit”, but it has a good connotation, too. A poorly run organization cannot properly exploit the value created by its workers. You can say an employee of Cisco in the 1990s was exploited because the value of their work was far more than they were compensated. But what worker in a communist country was paid better? None. And since the enterprise was probably losing money, they were paid more than their share of profits. The workers were well educated, so the difference was not the people. It was the organization, that made it possible to extract full value from the work. The organization was adding value to the work put in by the people, and without it, the same workers could not create the same value. That’s worth something, and is why it is fair for those companies to benefit from the labor.
To add a post-script, when too much money distorts a market and drives up costs, nobody can make a decent return, and it eventually ruins the industry. That’s happened in my former industry. I don’t know any company that is growing aggressively. Everyone is simply treading water.
Best Regards, T3:52 pm on December 7, 2018 Email Walter E. Block