For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken away even that which he hath.
- The Gospel according to Matthew
r > g
-Thomas Piketty, Capital in the Twenty-First Century
From Jesus to Piketty, it is a commonplace that wealth is a positive feedback loop.
Under one model, differential ability to steward capital, plus compounding gains, implies that perfectly benevolent people with more money than most should keep it more often than a naive expected utility maximization would suggest. On the other hand, conquering empires also experience compounding gains; the ability to leverage force into more force implies that this is a harmful positive feedback loop.
When seeking to do good, one should often attend to the specific details of the situation and take whichever action has the outcome they most prefer. But often there isn’t a very strong case for one particular action, and we’re left in need of a general heuristic for how to allocate our resources. Using explicit expected-value calculations in those circumstances will systematically underallocate resources to good uses that are less legible, and overallocate to things that illegibly cause harm. Accordingly, we need some baseline presumption for how to allocate one’s surplus between oneself, institutions one is participating in, and the rest of the world.
The deserving rich hypothesis
Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce. Is this what you consider evil?
When you accept money in payment for your effort, you do so only on the conviction that you will exchange it for the product of the effort of others. It is not the moochers or the looters who give value to money. Not an ocean of tears not all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow. Those pieces of paper, which should have been gold, are a token of honor–your claim upon the energy of the men who produce. Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money.
-Ayn Rand, Atlas Shrugged
Suppose I am perfectly benevolent and value everyone’s well-being equally. I grow some wheat on otherwise unused land, harvest it, grind it, and bake it into a thing of value: bread. If other people are also hungry, I might share my bread. But even from the point of view of perfectly egalitarian benevolence, there should be a strong presumption that I ought to feed myself first. This is because my possession of the bread is evidence of my capacity to produce it; feeding me indirectly feeds others, because it enables me to produce more bread in the future. Feeding others who did not produce bread does not have that sort of flow-through effect.
Likewise, I may save some seed corn to reinvest by ploughing it back into my field, even if someone else is hungry. Even if I value others’ well-being equally to my own, I have demonstrated an ability to use grain to make more grain, which will feed people better in the long run.
This principle can be generalized. Suppose my village’s economy is complex enough to have a need for a currency to serve as an unit of account and store of value. If I sell my bread for money, then my possession of money serves as evidence that I have some sort of productive capacity. In a world where this is the main way one acquires money, there should be a similar generalized presumption that even a perfectly benevolent person should hold onto a disproportionate share of the money they earn.
The war profiteer hypothesis
Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows the war is over
Everybody knows the good guys lost
Everybody knows the fight was fixed
The poor stay poor, the rich get rich
That’s how it goes
Everybody knows
-Leonard Cohen
Suppose instead that my village does not possess the shieldmaking craft, and is being harassed by a gang of archers, who can make shields, albeit ones whose usefulness decays over time. These archers periodically rain arrows down on the village, at which point people without shields have a substantial chance of dying of arrow wounds. However, they make me an offer: if I make them some arrows for them, they will give me a shield in exchange.
In this situation, while it is understandable for me to earn some shields in order to protect myself, possession of shields is prima facie evidence of complicity in the violence being done to my village. Accumulating a surplus is particularly bad behavior. I would not want to generalize the heuristic that arrowmakers should get to keep their shields; that would mean more arrows, resulting in increased need for shields, in a harmful positive feedback loop. The presumption that one should keep a disproportionate share of the shields one has made no longer appears to hold.
A secondary consequence of this is that shields, which may have had no value in the village before, are now highly sought after. The archers might also exchange shields for bread, since the breadmaker has as much incentive as the arrowmaker to accept shields as payment. I, the arrowmaker, might trade one of my shields to the breadmaker for bread. If the arrowmakers make a special effort to attack people producing “counterfeit” shields, and people transacting in other currencies, then shields might quickly become a standard unit of account and store of value. Under those conditions, possession of a large stockpile of shields could be evidence of complicity in violence, but it is also evidence that someone has produced genuinely valuable goods and services that one might want to see more of.
Possessing shields could mean that you have made much bread. Or that you have made many arrows, with which those lacking shields will be harmed. Or, in many cases, some combination of the two. Production and violence are bound together into a single unit of account.
For now, the application to the present situation is left as an exercise for the reader.
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Thanks to Jessica Taylor for the shields metaphor, and Wei Dai for asking the right questions to force me to clarify my thoughts on this.
Related: Matthew 25, Cash transfers are not necessarily wealth transfers, Why I am not a Quaker (even though it often seems as though I should be), The humility argument for honesty
So, wealth could be evidence of producing value, or of… acquiring wealth in more nefarious ways?
I’m not sure how tight the analogy is supposed to be. Is some group of people in the real world supposed to correspond to archers? To the shield makers?
Who’s supposed to be both attacking me and selling me defenses? Maybe if facebook sold an ad-block product? Is there some real-world entity whose behavior fits this pattern?
When by using Facebook, you make it harder for everyone else not to use Facebook, and give Facebook information about people who never signed up for Facebook.
When an advertiser spreads the idea that people who don’t buy their product are hapless and out-of-touch.
When a business that provides essential services takes excessive risks, knowing it can count on being bailed out with public funds.
Those are helpful, thanks!
I like this post a lot for succinctly, clearly explaining two common perspectives about wealth in a way that I think/hope will enable better conversations about a variety of topics.
I am curious about which conversations with Wei Dai prompted you to write this essay, if the conversation is public and it seems reasonable to link it.
(I am slightly confused about the “Talents” title, which doesn’t seem like the natural handle with which I’d want to refer back to this post later)
The quote at the beginning of the post is a quote from Jesus’ Parable of the Talents.
It was an offline conversation.
My guess is that it’s referring to talents in the sense of money, and also in the sense of ability (does having a lot of money imply that you’re good at producing “genuinely valuable goods and services that one might want to see more of” or that you’re good at “complicity in violence”).
I’m going to try to summarize, perhaps stupidly:
How far off am I?
Pretty close—the main reason I wouldn’t say it like that is that “created value” is a bit ambiguous here. The issue is really whether you can add up all the value created to get something like total value produced (a measure like GDP), which would be a desirable thing to increase in a pure loaves world, but definitely not in an arrows-and-shields world.
Ok. So your key point here is that GDP is not a good measure of “production”, or “human well being”, because its a measure that mixes together creative activity with destructive activity (including extortion).
Nitpick:
Well, this does presume that (some of) the capital that one needs to produce value is money. This is the case if you’re Amazon, but it isn’t the case if you’re a programmer. An excellent programmer, who is suddenly given $1,000,000, is not a much better programmer for it. It doesn’t increase his ability to be more productive via programming.
I agree that there are more and less capital-intensive types of work, but it might make sense for the excellent programmer to use some of their surplus to outsource nonprogramming tasks (e.g. order delivery, hire a cleaning service, pay for high-quality day care for their kids), to free up more time for the thing they have the greatest comparative advantage at.
Right. We call this “transferable private property”. Until we have a hive-mind (or a Big Brother with perfect capability for provenance/revocation of any ownership), it will always be a component of individual interactions in a limited-resource universe.
I think that if people around here really understood this they wouldn’t think so highly of GDP, since it’s in large part a measure of harm done.
A third hypothesis would be a Marxist/Picketty one: wealth accumulates through rent collected on capital and then turned back into capital, and capital is initially distributed through inheritance and/or theft. This is clearly not the whole story, but it also clearly captures part of the story that neither “deserving rich” not “war profiteer” do.
I responded here (here’s the linkpost).