Some time ago, while guest hosting on Rush Limbaugh’s program, my favorite living economist, Walter E Williams, explained the necessity for individual capital accumulation as a means for lifting society as a whole out of poverty, in what I have come to refer to as the ‘Parable of the Bulldozer.’
As best I have been able to determine, he has never put the whole of that message into print, and I think it is an important lesson to preserve, and especially vital at this time, so I will retell and expand on that monologue here. Williams basic question was ‘Why does a worker building a road with a bulldozer earn far more than a worker building the same road using a shovel and wheel barrow?’ The answer is not that difficult. But the ramifications of the underlying principle go far beyond the impact on that individual worker.
The answer of course is that the worker’s productivity is magnified by the capital investment of the bulldozer. One worker with a bulldozer can do the work of 100 or more men using shovels and wheel barrows. No matter how much the employer of the 100 manual workers might like his employees, he could not pay them all what the bulldozer operator makes and remain competitive, it is only possible to pay the operator his higher salary because of the capital he controls. Even if the 100 manual workers formed a union and demanded equal pay with the bulldozer operator, they would succeed only in driving their employer out of business and rendering themselves unemployed.
But the benefits of using that bulldozer go far beyond that individual worker’s higher salary. He is paid more than the manual workers, but he is not paid as much as all of them combined, indeed, he is probably paid no more than 5 or so of them. The wages of the others, who are no longer needed, can be used to amortize the bulldozer and to buy more of them, and, most importantly, to lower the cost of building roads.
Societies that use bulldozers can afford more roads, dams, and other construction that involves earth moving. This infrastructure generates opportunity for other economic growth, in time employing those other workers in better paying jobs doing something less life-draining than moving earth with shovels and wheel barrows. In short, societies that use bulldozers are more prosperous than those which use manual labor, and that is of course is equally true of drill presses, lathes, computers and other capital investments that multiply human productivity.
We would all prefer to life in a society that uses the most advanced machines to make us more productive, but how does a society make that leap?
After all, none of those 100 manual laborers could ever get ahead enough to buy his own bulldozer, each can barely earn enough to keep his family alive, much less put aside money for investments. Nor could we expect them to pool their resources to buy a bulldozer so that a few of their number could enjoy a better life, as the immediate result would be unemployment for the most of them(a bulldozer actually needs more than one worker to keep it busy and is not limited to an 8 hour day.) The economic growth that would bring them all better employment takes time and would not be connected tangibly to their collective purchase of the bulldozer.
The answer is that we have to let the employer of those 100 manual laborers(or someone who will loan him the money) get rich on their labor so he can buy a bulldozer and lay off 96 of them. In the short term, that may seem exploitative and ungrateful, but there is no other way. Bulldozers do not fall from the skies. In time, he may buy dozens of bulldozers (or other machines) and employ them all, but in the short term, most of the manual laborers will be displaced.
We all want to live in societies which use bulldozers and other productivity multiplying capital investments. But the poor can never raise their society on their own. The only way the poor can rise to the middle class is to be “exploited” by some greedy capitalist who has accumulated wealth beyond his immediate needs with which he can invest.
Once a middle class has arisen, with earnings in excess of their immediate needs, they can, and do, invest, but even then, they are limited to relatively safe investments as they cannot afford to lose that nest egg once they have built it.In fact, the managers of the pension plans and funds in which the middle class invests risk serious repercussions if they choose high-risk, high-return investments.
But it is that high-risk venture capital on which the next generation’s prosperity depends, so, even after we have made the jump to a bulldozer society, we still need to allow for some fraction of the population to attain sufficient wealth that they have investment capital they can afford to lose, if we are to enjoy continued innovation and progress.And, indeed, the more people reach that level of wealth, the more progress we will enjoy.
Wealth, it turns out, is a good thing, and we all benefit from the excess capital accumulation by the most successful among us.In these times when we hear calls to transfer wealth from the rich to the poor, and to limit what the successful may earn, we should keep in mind that we would still be working with shovels without the rich, and we could be again should we destroy them.