Two newbie questions about objectivist principles

[woly]

I had a discussion about proper government with a friend of mine the other day and here are two questions that I didnt really have a proper answer for, I was wondering if anyone could help me with them.

1. Currently the water supply of a typical major city is run or at least regulated by the government so that everyone is able to have access to water. But under an objectivist government, the water supply would be run by a private company, now wouldn't that employer have an absolute monopoly which could be abused? My friend brought up this scenario: If half of the population were wealthy enough to purchase water at $2 but the other half could only afford it at $1, couldn't the water company just raise the water price to $2 since they are making the same income while using half of the resources? Since this company owns the water supply, wouldn't the usual market forces that may promote a competitive price, fail?

2. One question I have had since reading Dr Peikoffs OPAR is about the idea that one persons accumulation of wealth does not "feed off" another persons loss, that wealth accumulation is not a zero-sum game. Now I am sure there is an easy explanation for this but for some reason I just cannot see how this is possible. If someone makes a profit, doesn't that mean that someone else losses? Could someone help me out with this concept because I cant seem to grasp it.

Any help would be greatly appreciated.

Thanks,

Woly

[mmmcannibalism]

I'll leave the first one to someone with a little more background

to the second here's a simple scenario

I have some iron; I turn it into a plow. Because a plow is more useful then raw iron I sell the plow to a farmer for some food. Now the farmer has better equipment and I have food. The wealth creation is involved in the work that turns materials into something valuable.

In free trade all exchanges are an exchange of something you value for something you value more.

[TLD]

1. Currently the water supply of a typical major city is run or at least regulated by the government so that everyone is able to have access to water. But under an objectivist government, the water supply would be run by a private company, now wouldn't that employer have an absolute monopoly which could be abused? My friend brought up this scenario: If half of the population were wealthy enough to purchase water at $2 but the other half could only afford it at $1, couldn't the water company just raise the water price to $2 since they are making the same income while using half of the resources? Since this company owns the water supply, wouldn't the usual market forces that may promote a competitive price, fail?

This is the type of question that does not require working through an entire scenario. Show fundamentally why Capitalism is the only rational and proper system. Then someone can see why the Govt. does not have to regulate and help maintain a single water co. in a given area. With a truly free market, a monopoly would only exist if the sole water co. maintained the best rates and service that the market would enable.

2. One question I have had since reading Dr Peikoffs OPAR is about the idea that one persons accumulation of wealth does not "feed off" another persons loss, that wealth accumulation is not a zero-sum game. Now I am sure there is an easy explanation for this but for some reason I just cannot see how this is possible. If someone makes a profit, doesn't that mean that someone else losses? Could someone help me out with this concept because I cant seem to grasp it.

A job created is not necessarily someone else's job lost. A business started is not necessarily another business's loss. If wealth is earned and not a result of immoral behavior, no one else need lose anything. Wealth breeds savings and investment which helps the economy grow which ultimately helps everyone else.

Edited January 2, 2011 by softwareNerd
Fixed quote tags

[2046]

On he first issue regarding monopoly: Objectivism does not say that “the water supply should be run by a private company” in these exact words. Objectivism does not make any claims as to how many companies there should be in a given industry, how many producers of a given product, or really “how the X industry would be structured,” so I just want to be clear that we don't actually stipulate how a water supply “should be run” or how water services ought to be delivered in a given city. We can only validate that the proper function of government is protection and objective law, and not water services. So, just to be clear, we do not say “the water supply should be run by a private company” be it a single company, or X many companies, or anything. That is ultimately up to the law of supply and demand, which is the real force governing these kinds of activities. We have no “plan” for “running” society and the economy. We cannot predict how any given area of production will run, just as I cannot predict what you will eat for breakfast, or what shoes you will buy next month, and so on. We only demand a political system in harmony with man's need and requirement of freedom.

So this is a question about the economics involved in a free society. We cannot predict exactly how many companies there would be, or what ways they would operate, economics can only outline the general rules and explain them. On the unhampered market, the mass of the consumers of a given good or service actually decide who should run and produce that service, with their buying and abstention from buying. The issue to consider in regards to monopoly is that if, hypothetically, a single seller of a good or service arises on the market, then it has achieved this status by most efficiently satisfying the wants of the consumers, and that at least for the time being, that the owner of this firm could not see any chance of improving his income by selling all or part of his means of production, otherwise he would do so, and no one else could see any chance of improving his income by bidding away factors from the single-owner or by becoming a capitalist producer himself through original saving, through transforming existing nonproductively used private wealth into productive capital, or through combining funds with others, otherwise it would be done.

The point is that there is a difference between a “monopoly” that comes about by a single seller naturally arising by peaceful and voluntary trade with the consumers, to which no one is prevented from competing with him, and a coercive monopoly, in which an area of trade is withdrawn from the market by government edict, and free-entry and freedom of competition is barred. The term “monopoly” originally only applied to the latter, as that is the only situation in which freedom of entry can be barred in restraint of trade (by governmental initiation of force), otherwise there is no actual monopoly, even if a naturally-arising single-seller exists, because anyone is free to compete with him. Therefore, we can see that a free market actually makes these coercive monopolies impossible. (See: “Common Fallacies About Capitalism,” Chapter 5 of Rand's Capitalism: The Unknown Ideal.)

And an additional point I want to tack on is that what you describe as the status quo (governmental monopoly or regulated oligopoly of the water supply and water delivery) is exactly the coercive monopoly in which we get the actual type of situation your question imputes to the free-market! Under the current conditions of governmental water monopolization, whichever decisions are made about the water are not a result of rational economic calculation, but coercively imposed on the consumers. No matter how it is arranged among competing private providers of water services, on the unhampered market, private enterprise would simply price water so as to clear the market (refer to any Econ 101 course on the concept of “price” as determined by the law of supply and demand.)

However, under the current conditions, the city government having its monopoly control of water services, failing to supply enough water, and failing to price that water in such a way as to clear the market to equate supply and demand (which private enterprise does automatically), the response to water shortages has always been to blame not itself, but the consumer gets blamed for "using too much water." The "solution" being to "use less," and ban the use of sprinklers, pools, car washing, etc. We have all heard these news reports in New York, LA, etc., a situation which private enterprise organized around the profit principle, as opposed to the governmental management principle, would consider absurd; as increased demand never results in blaming your customer for buying your own product and telling them to stop “using so much of it,” but rather would simply would delight in expanding its operations to fill increased demand of its services. So it's not even true that the government makes sure that “everyone is able to have access to water,” as your question started off by saying!

Your second question is also in regards to economics. In the ages preceding the development of economics as a science (prior to the 18th century) there were a number of doctrines of the “mercantilist” school of thought that held popular fallacies about economic laws in society. The mercantilists held that there were two causes to all economic problems: (1) lack of business due to a scarcity of money, and (2) the phenomenon of overproduction. This first lead eventually to the maxim that “the gain of one man is the damage of another; no man profits but by the loss of others” stated by mercantilist Michel de Montaigne. Now, we call this the “Montaigne fallacy,” or “Montaigne dogma.” What is necessary to understand is not that one person gives money to someone else in exchange for a good, because money is not equal to wealth. Money is simply a means of exchange, and an indirect means of exchange (in order to get what you really want.) Wealth itself is not in a limited static or fixed quantity for all time, or else we would have never crawled out of the Neolithic ages, we would never have reached a higher standard of living than the Stone Age. Wealth is produced by transforming nature-given resources to satisfy human ends. What is being exchanged in a money economy is ultimately commodities. When trades are voluntary, the profit of one person is the benefit of another, because each party values the item inversely, or else they would not enter into the trade. Entrepreneurs actually earn profits using their reason to discover the ways to transform nature-given resources into useful commodities, by better adjusting production so as to satisfy the desires of the consumers, and by better predicting future conditions in order to adjust want-satisfaction to its most urgently needed areas. Thus, the profit earners gain is necessarily the gain of others, and is proof that the consumers are better supplied than they would have been in the absence of the entrepreneur's effort.

Montaigne argued that a doctor's income arose from the illness of others, the farmer's income arose from the hunger of others, etc. We often hear “he's profiting off of someone else's X” where X is usually a bad condition, misery, suffering, etc. But this is actually not the case. In reality, things like hunger, illness, or suffering exist independently of whether or not we have a market economy or totalitarian dictatorship or whatever. They are simply a part of the human condition, of living life on planet earth in this reality. We do not inhabit a Garden of Eden, or float about immaterially like ghosts. It is not the disease which a doctor “profits off of” but it is actually removing the disease or treating it, which causes the doctor's profit. It is making the hunger go away which enables the farmer's earnings. The gain is at the removing or easing of the felt uneasiness which the producer satisfies. He is a benefactor to mankind, without which, human life would be impossible. Thus, we can see that there are no conflicts of interests where men do not seek the unearned, and that exchange on the market is always mutually beneficial (win-win). On the other hand, when men do seek the unearned, “interests” necessarily must conflict. Also, in any coerced transfer, one party necessarily gains at the expense of another party (win-lose.)

(See Ludwig von Mises: “The Ultimate Source of Profit and Loss,” from Chapter 24 of Human Action and “Profit and Loss,” from Chapter 17 of Planning for Freedom.)

The Ultimate Source of Profit and Loss on the Market

Profit and Loss

Sorry for the long post, hope it helps.

[softwareNerd]

... the water supply ...

In each little area like this, people will figure out what best serves their interests. For instance, when people buy a home, they know that there are certain checks they need to do: e.g. a title search, a home inspection, etc. Similarly, people will figure out what types of contracts work best when dealing with utilities of this type. For instance, they might learn that when buying a home one must check that the location comes with rights that allow new utilities to reach it (a right to a piece of property is not just a right to certain amount of space, it is a bundle of all sorts of rights).

Also, they may realize that they should enter into long-term contracts for certain types of services, and that such contracts must also have pre-negotiated terms governing their extension. Take this example: someone opens a hamburger shop in a strip mall and it becomes a great local success after some years as word of mouth spreads. The mall owner decides to raise the rent of that store, since there are no other strip-malls very close and the hamburger joint would have to spend a few years building up their reputation (thus losing much potential revenue) if they moved to a new location. Since many landlords have tried this in the past, it is pretty standard for retail stores to negotiate all sorts of clauses in their contracts. Firstly, they can do very long term deals. Secondly, they can put in clauses that allow them to extend the deal at certain objectively-specified rate-increases. Also, to counter a different problem, they will often have clauses that disallow the landlord from allowing certain similar businesses in the same mall.

All this is not as complex as it sounds; people deal with far more complicated things every day of their lives. Contractual terms tend to become standardized in a way that protects the interests of both sides. (That is the essence of trade: both sides are looking for some mutual benefit.) To take the water example, it might easily become standard practice that as part of buying a house one might also sign with the water company, ensuring a certain set of rates for a certain period, ensuring the frequency with which rates can be raised, and perhaps pegging any future rates to some price-indicator. It is even possible that one will insist that such terms be transferable to any new owner, to ensure that one is not hampered when one tries to sell one's house. These types of clauses are routine in all sorts of contracts.

If someone makes a profit, doesn't that mean that someone else losses?

The essential way to look at this is to forget the monetary world for a moment and to think of real things. For instance, someone plants a seed and it grows into a crop of vegetables. In real terms that person has made a "profit", without anyone making any loss. One can get value in two ways: one can create it, or one can get it from someone who created it. If one looks at the latter process -- the distribution of already-created values -- then anything one gives is taken from some other use. However, the starting point is creation. That comes without taking from anyone. When people work productively, they create new values that do not come from anyone. Edited January 2, 2011 by softwareNerd

[brian0918]

For the first question, you may want to gain a better understanding of why such arguments cannot undercut an ethical system. There is nothing inherently wrong with one person or company owning all of the water in a city. It is only if that company chooses to knowingly act irrationally toward whatever means, that their actions can be judged as wrong. The possibility of people acting irrationally is always present, whether in a free society, democracy, or dictatorship, and the lack of complete rationality within a society is not a refutation of any political system. It is only in a free society, though, that homeowners would be able to protect themselves with the contracts softwareNerd describes, or sue the company for fraud in court, or band together with the rest of the neighborhood to demand improvements in their services, or setup their own competing water supply, or drop a well on their property, or pick up and move to an area with better services.

In other words, it is only in a free society that one can protect oneself from the ever-present danger of the irrationality of others.

For the second question, I would recommend Peter Schiff's very short illustrated book How an Economy Grows and Why it Crashes (256 pages, but mostly cartoons). It starts with the most basic economy, and shows why the wealth creation of one person benefits the entire society.

Edited January 2, 2011 by brian0918

[woly]

Thank you so much guys! Such detailed answers from everyone! The explanations for the zero-sum fallacy were very helpful. One question with the water supply question, would it be legal for a company to OWN a river/lake or would they only be able to sell the water that they are able to pump? In researching this question I came across a wiki article on Riparian water rights which, as wikipedia states, is:

General principle

Under the riparian principle, all landowners whose property is adjoining to a body of water have the right to make reasonable use of it. If there is not enough water to satisfy all users, allotments are generally fixed in proportion to frontage on the water source. These rights cannot be sold or transferred other than with the adjoining land, and water cannot be transferred out of the watershed.

Riparian rights include such things as the right to access for swimming, boating and fishing; the right to wharf out to a point of navigability; the right to erect structures such as docks, piers, and boat lifts; the right to use the water for domestic purposes; the right to accretions caused by water level fluctuations. Riparian rights also depend upon "reasonable use" as it relates to other riparian owners to ensure that the rights of one riparian owner are weighed fairly and equitably with the rights of adjacent riparian owners.[1]

Would this be a valid legislation? It allows access to multiple parties, little government interference but the idea of a shared resource doesnt sound very objectivist to me.

[softwareNerd]

Would this be a valid legislation?

It could be. At this level of concreteness, a right does not mean that one human being must have sole control over a physical thing to which the right pertains. For instance, you and I could become financial partners in a real-estate venture. We could buy a single piece of physical property and specify the terms on which we will share it.

[woly]

It could be. At this level of concreteness, a right does not mean that one human being must have sole control over a physical thing to which the right pertains. For instance, you and I could become financial partners in a real-estate venture. We could buy a single piece of physical property and specify the terms on which we will share it.

Yes but the problem in my question is that what happens if one person/firm owns the water supply without any incentive to offer competitive prices? With riparian water rights it seems that since there would most likely be multiple properties adjacent to a water source then there would be a avenue for competitive companies to create their own water supply service. This sounds like a sound solution but it seems that riprarian water rights would only work if no one person/company owns the body of water itself. Would this go against an objectivist system since no one would be able to buy the body of water itself?

[bluecherry]

Supposing they can make the same amount of money either way, what do these people have to gain by just having all this extra water simply sitting around, unused? Now what may they have to gain if there are more people able to be out there producing, which would require, among other things, that they not die from thirst?

[softwareNerd]

...would only work if no one person/company owns the body of water itself. Would this go against an objectivist system since no one would be able to buy the body of water itself?

No, this would not go be contradictory to Objectivism. In other words, Objectivism does not say either of the following:

"A body of water must be owned by a single person"

"A body of water may not be owned by a single person"

Of course, Objectivism is a broad philosophy rather than a detailed legal system, so it would not speak in terms of water. However, a legal system inspired by Objectivism would not have laws like the two stated above.

That was the point I was trying to make with my partnership example: i.e. that shared ownership in the sense of contractual partnerships or some other contractual arrangement among individuals was perfectly compatible with Objectivism. I'm not sure if I'm answering your question or merely repeating myself. If the latter, then could you provide a little more explaination of your own understanding of Objectivism in this arena, because that is where the difficulty seems to lie.

[Hermes]

1. Currently the water supply of a typical major city is run or at least regulated by the government so that ...

Stuart Hayashi wrote an essay on arguing metaphysical impossibilities. "A meteor is about to hit the Earth..." Show a real case and discuss that. Here, the fact is that the cases I know of do not apply. We lived in a village of 3000 people with a central water supply -- from five wells. Later we lived in a township where each home had their own well. Some cities passed laws against collecting rainwater (open barrels let mosquitos breed), but now, collecting rainwater is a "green" alternative. In short, it seems to be a challenge to come up with an example of one entity actually controlling water except as we simply allow it by default. I

And, come to think of it, is it not true that so many people buy water that disposal of the containers has become a nagging point from ecological activists?

Edited January 5, 2011 by Hermes

[Greebo]

Yes but the problem in my question is that what happens if one person/firm owns the water supply without any incentive to offer competitive prices?

Dig a well.

Move.

Establish a water shipping company and transport potable water from other sources.

Establish a consortium of like minded individuals and buy the person/firm out.

Buy the land upstream of the water supply and collect said water and sell it to the firm.

Options abound that require no use of force.

[Hermes]

Dig a well. Move. Establish a water shipping company and ...

Right. All those and more. I had some errands to run first thing this morning and thought more about this. Also, I wanted to expand on a sentence that I deleted before posting: One of the neighbors who gathers rainwater here is actually a shopping mall. They have a lot of roofage to drain from. My point about Fowlerville's five wells was that the widespread presence of water was physically established.

The original post assumed (as we all might, too easily) that city water is fairly and equitably dispensed. History suggests otherwise: city services often went to and go to the privileged. But no matter their status, they have only one vote. So, eventually other forces come into play. (And shutting off water, electricity, etc., to dissidents is a historically known problem with government services.) The motivation to form a political group, petition, and run for office, can also be (better) expressed via the market. For the same energy, you get better results.

It is a fact that city water has been condemned by other higher authorities for contamination. Back in 1994 or so, I wrote an article for Midnight Engineering about a local "conceptor" start-up. One man had the management skills and bankroll to look for engineers with good ideas and give them a place to work. He marketed their inventions, or helped them market it if that was their interest. One of the guys lived in Flint, Michigan, and the water had been condemned. Hauling water was a hassle and engineers are often lazy, so he found it easier to design and fabricate an in-home purification system. His product was about the size and configuration of a water softener.

So, you could truck water in and sell it by the tank; and even if you trucked in impure water, it could be purified from a home tank by an in-home system.

All of these solutions bring us back to my original point about Stuart Hayashi's caveat not to argue metaphysical impossibilities -- claiming that one entity can control all the water and everyone would be helpless is difficult enough to demonstrate in reality when talking about governments with force of arms. To imagine that a market entity could do this is to imagine a chimera.

(The Argument from Arbitrary Metaphysics by Stuart Hayashi originally was posted to Rebirth of Reason here and ObjectivistLiving here.)

Edited January 5, 2011 by Hermes

[New Buddha]

The form of the modern American city is derived from the municipal corporation's ownership of the basic services such as water, sanitation, stormwater, power, roads, etc. A city formed under a laissez-faire system would look nothing like the city anyone lives in now. This makes it difficult to provide a counter arguement to the OP's question about a monopoly on the water supply. An existing city would have to be entirely re-engineered if it were to allow for competition among the basic utilities. For example, currently sanitation, stormwater and domestic waterlines run (for the most part) under city streets. Streets are only so wide. If we had multiple water, sanitation, and stormwater service providers, they would be hard pressed to find space to locate their lines -- as city's are currently designed. If the roads were also privately owned, separate easements would need to be negotiated with each road/transportation provider.

The point of this post is not that a laissez-faire city cannot work, but that it would be extremely difficulty if not impossible to convert an existing city to such a thing.

Edited January 6, 2011 by New Buddha