Bohanon: To Sharpen a Point on the Obama Pencil

September 11, 2012

by Cecil Bohanon, Ph.D.

Barack Obama and progressive Democrats are correct: No one builds a business on their own.

This is a truism and truisms should be recognized as true. But it also is a straw man. There is no argument that the production and distribution of goods and services requires cooperation. Most all recognize that some government goods and services (think roads and courts of law) are necessary for business to thrive.

But these assertions hardly imply successful businesspeople ought to pay more in federal taxes. Just to set the record straight, the top one percent of income earners, pay around 24 percent of their income in federal income taxes. The rest of us pay around 8.5 percent of our income in federal income taxes. So by what criteria are successful business folks not paying enough?

Here is a dirty little secret progressives don’t want you to know: The federal government is not a source of social cooperation, it is mechanism of social coercion. Albeit such coercion maintains national defense and other necessary (and unnecessary) government services, but the cooperation that leads to success in business lies primarily in the market process.

Leonard Read pointed out in 1958 that not only does no one person build a pencil company, no one person is capable of building a single pencil. The humble pencil is the result of the cooperation of millions of people around the globe. From mill workers in California who cut the wood to graphite miners in Ceylon (now Sri Lanka), multitudes of people add their “infinitesimal bits of know-how” to pencil production. You can find the essay at:

http://www.fee.org/library/books/i-pencil/

And what facilitates this cooperation? It isn’t federal directives, it’s market incentives.

Adam Smith, the father of economics, examined this same issue in his classic work “Wealth of Nations.” He pointed out that “. . . man stands at all times in need of the cooperation and assistance of great multitudes while his whole life is scarce sufficient to gain the friendship of a few persons.”  He went on to assert that: “it is in vain for him to expect it from their benevolence only.”

Note that Smith did not dismiss benevolence nor deride it. He simply observed that when a person wants something from another he will:  “. . . be more likely to prevail if he can interest their self–love in his favour, Whoever offers to another a bargain of any kind, proses to do this. Give me that which I want, and you shall have this which you want is the meaning of every such offer and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” 

Anyone who builds a business must succeed at offering bargains to their customers, to their employees, to their suppliers. Those offers make the other parties better off.

Interdependent? You bet, but through voluntary market exchange. As necessary as federal power may be, it is not  about facilitating cooperation through mutually beneficial exchange. Governments issue edicts, they don’t solicit offers; governments obtain resources through taxation, not through sales; a federal agent comes with a warrant, not a sales brochure.

So contrary to the opinion of many, governments aren’t about beneficence or cooperation. They are about using force to attain certain ends. Markets in contrast rely on persuasion not coercion. Both matter but it is important to understand the nature of each.

Cecil Bohanon, Ph.D., an adjunct scholar of the Indiana Policy Review Foundation, is a professor of economics at Ball State University. Contact him at director@inpolicy.org.



Comments...

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>