An Open Letter to Warren Buffett on the Subject of Class Warfare

 

 

Warren Buffett speaking to a group of students...

Warren Buffett speaking to a group of students from the Kansas University School of Business (Photo credit: Wikipedia)

 

This may be the best article on free market economics and or the theory underpinning capitalism I have ever read. I have nothing whatsoever to add, except that you need to read it carefully. With a hattip to RedState Eclectic

 

An Open Letter to Warren Buffett on the Subject of Class Warfare

Mr. Warren Buffett
3555 Farnam Street
Suite 1440
Omaha, NE 68131

Mr. Buffett:

You have been quoted time and again, without any denial on your part that I am aware of, as having said, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”

In view of the seriousness of this statement, I have to ask you some questions.
Do you intend to be taken seriously when you speak? Do you know the meaning of the words you use? Do you know the source and implications of the doctrines you espouse?
The doctrine of class warfare is a derivative of the exploitation theory, whose best-known proponent is Karl Marx. According to the exploitation theory, profit and interest, indeed, any income other than wages, is an unjust deduction from what naturally and rightfully should be wages.
What makes possible the existence of incomes other than wages, according to Marx, is the same basic fact that makes it possible for a slave owner to gain by owning a slave. Namely, the fact that a worker is capable of producing the necessities he requires in order to have the strength and energy to work a full working day, in less than a full working day.
To use one of Marx’s own examples, a worker is capable of producing in 6 hours the food and other necessities that he requires in order to be able to work 12 hours. The 6 hours, or whatever the number of hours may be that the worker requires to produce his necessities, Marx calls “necessary labor time.” The hours that the worker works over and above the necessary labor time, Marx calls “surplus labor time.”
Just as surplus labor time is the source of the slave owner’s gain, so too, according to Marx, is it the source of the profit and interest of the capitalist. When the worker works 12 hours for a capitalist, his labor, according to Marx, adds a commodity value corresponding to 12 hours of labor to the materials and other physical means of production used up in producing the resulting products. If those materials and other means of production required 48 hours of labor in their own production, the product that results will contain those 48 hours of labor plus the 12 additional hours of fresh labor performed. It will have a value corresponding to 60 hours of labor in all.
Thus, the process of production, according to Marx, has resulted in a value added corresponding to 12 hours of fresh labor time. That value added will be divided between the wage earner and the capitalist in the form of wages on the one side and profit/interest on the other. What the capitalist must pay as wages, says Marx, is determined by the application of an allegedly universal principle of commodity valuation, namely, the labor theory of value. The capitalist will pay the wage earner a wage corresponding to the hours of labor required to produce his necessities, which by assumption is 6 hours, and will pocket the value added by the worker’s performance of 12 hours of labor. His profit/interest is what remains after deducting the worker’s wages, and corresponds exactly to the worker’s surplus labor time.
This example can easily be translated into monetary terms, simply by assuming that to every hour of labor performed in the production of a product there corresponds $1 of product value. Thus the materials and other produced means of production were worth $48 and the products that result from the application of 12 hours of fresh labor are worth $60. The 12 hours of fresh labor adds $12 of new and additional product value.
The capitalist’s profit/interest allegedly results from the fact that for the 12 hours of fresh labor added, with its corresponding additional product value of $12, the capitalist pays a wage of only $6, the sum corresponding to the labor time required to produce the necessities that enable the worker to perform his 12 hours of labor. The capitalist’s profit/interest thus represents “surplus value,” which corresponds to “surplus labor time.”
The ratio of surplus value to wages, or of surplus labor time to necessary labor time, Marx calls “the rate of exploitation.” In this illustration it is 100 percent, i.e., $6/$6 or 6 hrs./6 hrs.
A combination of greed and of forces otherwise tending to reduce profit/interest relative to capital invested, says Marx, drives the capitalists to step up the rate of exploitation. If the workers are able to work 18 hours a day on the basis of necessities produced in only 6 hours per day, then the working day will be increased to 18 hours. If the wages the capitalists pay their adult male workers are sufficient to enable them to support a wife and two replacement children, the capitalists will reduce those wages and thereby drive women and children into the factories, giving the capitalists the benefit of still more surplus labor time and surplus value. The capitalists will allegedly also strive to cheapen the worker’s diet, substituting potatoes or rice for wheat, say, thereby reducing the necessary labor time and increasing the portion of the working day that is surplus labor time. Working conditions, needless to say, will be horrific, since their improvement would generally come at the price of a reduction in surplus value.
This alleged state of affairs of subsistence, indeed, sub-subsistence wages, inhuman hours and working conditions, down to small children laboring in the mines, is the outcome of the operation of capitalism and the profit motive, says Marx, on the basis of his exploitation theory.
Class war is the result of the fact that in the light of the exploitation theory capitalists are to be regarded as the mortal enemies of the overwhelming majority of mankind, deserving to be stood against a wall and shot, which is exactly what has happened time and again, when Marxists have seized power.
Where Does This Put You, Mr. Buffett?

 

Continue reading George Reisman’s Blog on Economics, Politics, Society, and Culture: An Open Letter to Warren Buffett on the Subject of Class Warfare.

 

 

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