The Creation of Wealth

In his book Justice: What’s the Right Thing to Do? philosopher Michael J. Sandel considers the case for and against taxing the incomes of the rich in order to help the poor and provide necessary services. He considers the libertarian arguments against taxation in general by considering the case of basketball star Michael Jordan. First, he notes that Wilt Chamberlain, who was the highest-paid basketball player in the 1970s, earned a maximum salary of $200,000 per year, while some thirty years later, Jordan was paid $31 million in a single year.[1]

Sandel fails to ask the obvious question: Why, even after we take into account the devaluing effect of inflation on the value of money with the passage of time, was Jordan able to earn so much more money than Chamberlain? Clearly this was not due to any intrinsic superiority in Jordan’s basketball skills, since the fact remains that even the average salary earned by an NBA player in Jordan’s time exceeded by many times the highest salary earned by the best player in Chamberlain’s time, and no one would argue that the average player in Jordan’s time deserved to be paid more than Wilt Chamberlain in his prime. Why, for doing essentially the same job and performing the same actions, was Jordan – and professional athletes and entertainers in general – able to earn so much more money than Wilt Chamberlain and his contemporaries?

The great discrepancy that exists at different times in the same society in a certain profession is also visible at any given time in different countries, and even in different regions of the same country. Many professionals such as doctors, engineers, lawyers, and teachers can earn much more in a rich country like the United States than they can in a poor country like Haiti. As a result, many of the most highly-educated and best-trained individuals living in poor countries emigrate to richer countries in order to earn more money and enjoy a better standard of living.

If we go back in history to the origins of basketball, we learn that the game was invented by James Naismith in 1891. For probably the first few decades following the game’s invention, players were not paid for playing basketball. Indeed, if they were asked, most people living at the time, whether they were players or spectators, would have found the idea of paying athletes money to play a sport, or paying for the privilege of watching them play it, completely ridiculous. It was only with the commercialization – and some would say the corruption – of amateur sports that what was formerly regarded as a joyful and exuberant form of play was transformed into an arduous and demanding form of paid work. After all, sports were originally considered as ends in themselves that allowed individuals to exercise and strengthen their bodies, thereby improving their health, while performing a socially engaging activity with other people, things that are still true of all those who play a sport for enjoyment rather than money.

Of course, I am not saying that professional athletes do what they do solely for money. The great majority of athletes enjoy what they do and seek to be the best they can not primarily for money but for the glory of excelling in their sport and possibly winning a championship or gold medal. But it is nevertheless a fact that today, there are few people who would regard the common practice of paying athletes as corrupt, demoralizing, or wrong, which was the view that prevailed in all societies a mere hundred years ago before the advent and spread of the model of professional sports.

Let us return to the discrepancy that I noted earlier, that today the most successful individuals in many different professions are able to earn far more money than those same individuals earned in the past. How can we account for this difference? For the answer to this question has very profound effects on the naive and widespread libertarian argument that an individual living in society should not be taxed because one’s earnings belong solely to oneself, since it was due solely to one’s own efforts, work, skills, ingenuity, originality, expertise, and risk-taking that one was able to earn them.

One important factor in the creation of wealth that I will only mention briefly, because it is already widely recognized and written about, is the greater efficiency of industrial or mechanical production over human or animal labour. As more wealth can be produced per worker or by automated production methods, then the total wealth of the society increases and there is more money that can be spent on luxuries such as attending professional sporting events, eating in fancy restaurants, living in big houses, going on vacations, drinking expensive wines, or buying famous paintings. In addition, there are many more people who are able to do these things, which formerly were restricted to the small part of the population that was rich.

Despite what they may think, human beings – and libertarians in particular – are not rational creatures. Moreover, their understandings are limited in many ways so that they overlook the numerous relationships that exist in situations like these. Because of their limited understandings, they see only the efforts, struggles, and perspirations of each individual and the money one is paid for one’s labours, and conclude that this money belongs wholly to the individual because it was earned solely by one’s efforts, skills, knowledge, ingenuity, or inventiveness. What they fail to recognize is that the value of this income, or what they are able to purchase with it, is not determined by them, but rather is determined by the interconnected web of social and economic relationships and behaviours that have been developed by the society in which the individual happens to live.

It is obvious that a highly-trained individual like a doctor, teacher, engineer, or basketball player would earn far less money in a poor country today than one would for performing more or less the same actions in a rich country. If Michael Jordan had spent his entire professional career playing basketball in Gambia, Afghanistan, or Peru, it is obvious that he would not have earned much money. It follows, then, that there are important features that exist in the rich country that are lacking in the poor country and contribute to an individual’s ability to earn far more money in the first than in the second situation. What exactly are these features?

First of all, professional athletes like Michael Jordan earn their money by travelling from one large, populous city to another, where they play in front of large audiences of spectators who pay to watch him and his teammates play against the home team. How do they get from city to city? Do they run like a cheetah, fly like a bird, or swim like a whale? Clearly not. Today, they fly in airplanes. In the past, professional athletes either rode in buses or trains to get to where they needed to go. Although most airlines around the world are run by private companies, the airports which they fly into and out of – facilities, let us remember, that are crucial to the airlines’ ability to operate their businesses – are not built and operated by private companies but rather by governments with taxpayers’ money. The same is true of the vast interconnecting system of roads and highways which are generally paid for and maintained by governments. Besides individuals, a great many companies depend on this system of roads or other costly transportation infrastructure in order to send and receive merchandise which they sell or use to manufacture other products.

And what about the fans who go to the arena or stadium to watch these athletes perform? How do they get there? Most of them do not walk since they live too far away; they either drive or take public transit, the first of which depends on, while the second is, a government-built and operated system. Even the simple activity of walking is easier and more convenient, not to mention much less dirty, as anyone who has had to walk on a muddy dirt road well knows, when there exist sidewalks that are constructed and maintained by municipal governments. Paved surfaces like sidewalks and roads can accommodate thousands and thousands of pedestrians or vehicles over the years without suffering significant deterioration or alteration, things that aren’t true of natural surfaces like grass and dirt.

These kinds of expensive infrastructure projects are built, operated, and kept in good order by governments. And they are absolutely vital to the ability of businesses to function and individuals to work and earn money. Some other examples are public transportation systems that enable workers and consumers to get from one place to another so they can earn money or spend it, the electricity-producing plants and system of wires that deliver electricity to every building in a city, the water-treatment facilities and pumping stations that provide clean water, the sewage system that removes and treats liquid wastes, the garbage-removal system that transports solid waste from cities, and so on. If there were no properly-maintained roads, airports, and public transit systems, then individuals could not get to where they need or want to go, and businesses could not send and receive large shipments of goods to or from distant places. In the case of water transport, these massive transport ships require port facilities which are often built and operated by governments. If there were no electricity, water, and sewage systems, then again, businesses could not function, since so much of today’s business is dependent on a steady supply of this kind of energy and these kinds of essential services.

All of these expensive systems exist in all rich countries and are lacking, to varying degrees, in poor countries. And, like other people, since the ability of professional athletes like Michael Jordan very clearly depends on their existence and regular maintenance in order to earn the incomes they earn, then it logically follows that their incomes should be taxed so that these vital services can be maintained and, if necessary, improved or expanded.

But even this picture omits a great many other services that are provided by governments, such as public education, health care, and even unemployment insurance and other welfare measures. For roads, stadiums, power plants, sewage systems, the system of traffic lights, electricity grids, and so forth do not spring up out of the ground untended like a tree or plant. Being completely artificial structures, they must be built and maintained by skilled and knowledgeable individuals. In many countries, these individuals are educated in publicly-funded and operated schools. And in order to perform their jobs and earn money, they must be in good health, receiving medical treatment when they are sick or injured, which again in most wealthy countries is paid for by the government. These things are also true of all the fans who are able to work and pay for the tickets that go to paying the salaries of professional athletes – in order to be able to afford them, they must be healthy and reasonably well-educated in order to work regularly at their jobs and earn the money which they can then spend on things like tickets to sporting events, concerts, operas, restaurants, vacations, and all the other things that they spend their money on.[2]

When a population is malnourished or sick, as many people are in poor countries, then they neither have the necessary income to support the extravagant lifestyles of the rich and famous, who are the new aristocracy that lead privileged lives that are largely separated from and indifferent to the poor, nor, even if they had the means, would they have much inclination to spend their time and money watching the frivolous antics of athletes and entertainers.

Even privately-owned and operated businesses like the theatres in New York that show Broadway musicals depend in many ways on government programs and services in order to make money. Many of these musicals are seen by tourists, that is, by people who don’t live in or near New York. Again, as in the case of professional athletes, they must first arrive in New York, which they usually do by plane, before they can start spending money there. And when they are there, many of them use the public transit system to get from one place to another. There are many reasons why people visit or choose to live and work in a place like New York. Among these reasons are its many cultural attractions, some of which, such as museums, libraries, and theatres, are funded, in whole or in part, by government money. If all of these publicly-funded institutions ceased to exist, then it is obvious that New York would receive fewer visitors – and, moreover, would have fewer inhabitants – than it does.

While they are there, tourists expect to have access at all times to clean water and a clean, safe, and sanitary environment, all of which services – clean water, sewage and garbage removal, lights to illuminate the city at night, and police protection from criminals – are provided by the local government. Places where these services are lacking – where the water is not safe to drink, where garbage is left in the streets to fester and stink, where human sewage is not piped away to be treated out of sight and smell, where the streets are dark and unsafe at night, and where bands of criminals operate undeterred by the police – are generally places that receive very few tourists.

The fallacy in the libertarian’s and laissez-faire economist’s naive argument that the money that each individual earns belongs, morally and entirely, to that individual, and therefore a part of it should not be taken away by the government lies in their blindness to all of these many supporting systems and relationships that contribute to every individual’s ability to earn as much money as one does in today’s highly complex and interdependent modern societies. That these relationships which enable the creation of wealth are invisible to or overlooked by many people does not mean that they do not exist. It is a case of wanting their cake – by enjoying the privilege of living in a rich country where all these expensive services exist, services that have to be paid for by somebody – and eating it too – by wanting to keep all their income for themselves.

Understood properly, this naive libertarian argument applies only to an individual who lives completely separated from society and makes everything one needs or wants by oneself – the classic hermit of ancient lore or a modern-day Robinson Crusoe. Such an individual is rightly entitled to keep all the fruits of one’s labours, and anyone who deprives that person of any part of those fruits, whether it be the food one has grown, the dwelling one has built, the clothes, furniture, tools, and other utensils one has made, the animals one has raised or hunted, and so forth, would have committed a wrong. But such an individual’s ability to create wealth is extremely limited. Indeed, one would be able to produce little more than the things one needs for survival, a survival that would always be precarious, depending as it does on Nature and the elements. The security and physical comfort that many of us are privileged to enjoy are some of the other very significant advantages that only exist in modern wealthy industrial societies, which are the result of the collective contributions of literally millions and millions of individuals.

There are, however, very few libertarians who would be willing to live such a rugged, physically difficult, and extremely limited lifestyle. Instead, they transfer the arguments that are valid only for such completely isolated and truly independent individuals to individuals who live in a modern society, and thus are highly dependent in countless ways on its other members, and not only via monetary transactions in the marketplace. This is a very different situation, and it cannot be said that such individuals live independently of the other members of society.

The widespread belief, therefore, that individuals like Michael Jordan and the many others who are able to earn vast sums of money earn that money solely or primarily through their own efforts is complete and utter nonsense. This is one of the principle Lies of Libertarianism. If this were actually the case, then athletes like Jordan and other highly-paid entertainers ought to be able to earn the same amount that he earned during his career playing basketball in the United States anywhere else, including uninhabited or sparsely-inhabited places like a desert. It is only in a highly complex and interconnected society like the United States that he was able to earn the vast sums of money he was paid for merely playing a sport and entertaining the masses.

The opportunities – whether these are financial, artistic, entrepreneurial, professional, political, athletic, social, academic, personal, and so forth – that exist in any given time and place, such as New York today, New York in the 1820s, Beijing in the 1500s, and Nairobi, Kenya presently, clearly depend on the models of behaviour that exist in that place and time. And these models of behaviour and the opportunities that result from them, as well as the society in which they exist, were not created by the individual who reaps the benefits of taking advantage of these opportunities. They were created by the society in which the individual lives and prospers, which means the sum total of all the contributions of the people who live there, and lived there in the past, as well as others with whom the inhabitants do business, such as farmers who supply foodstuffs to the inhabitants, and distant foreigners and companies who supply other things like oil, metals, and finished products. Hence, it is entirely just and fair for the government or state to take a part of the individual’s earnings to maintain and improve the society that gave one the opportunity to succeed and earn the significant amounts of money one is able to earn.

The noted industrialist and philanthropist Andrew Carnegie came to the United States as a boy and made his fortune in steel production. Had he lived his whole life in his native Scotland, even if he had had the same ideas that improved the steel-making process and enabled him to amass his fortune – a supposition that is highly unlikely – he would have had no opportunity to put them into practice because there were no large-scale steel works in Scotland then. Hence, his success, both industrial and financial, although they were partly due to his own ideas and initiative, were just as much due to the opportunities that existed only in the United States, and perhaps a few other countries at the time, such as England and Germany. But unlike libertarians today and many others who become fabulously rich, Carnegie understood this societal debt, and so he used most of his money to help others instead of merely squandering it on himself or his family.

Libertarianism is a stupid set of ideas – to call it a philosophy would confer on it a veneer of legitimacy, respectability, and sophistication that it does not deserve – that has much in common with the selfishness that children exhibit when they are young because they do not understand that other people have desires, needs, and feelings that are just as important as their own. In the libertarians’ case, they fail to see that people who live in societies depend in innumerable ways on each other for their survival, health, physical comfort, financial success, and growth and development as human beings, as well as on the many services that are provided by the government. The only thing which these selfish individuals have gained by growing older is, instead of the maturity and wisdom that come with age, the intellectual ability to defend their childish selfishness so that a great many people have been taken in by their completely spurious arguments.

[1] From a search on the Internet, it appears that these salary figures are slightly inaccurate. According to Wikipedia, Jordan was paid $33 million in his final year with the Chicago Bulls, which was the 1997-98 season, while Wilt Chamberlain was paid $250,000 in his last year playing for Philadelphia, and then signed a five-year contract to play for Los Angeles which was worth $250,000 per year. However, these discrepancies do not change the fact that, in nominal monetary values, Michael Jordan was paid more than 100 times the amount that Wilt Chamberlain was paid for playing basketball in the NBA.

[2] Increasingly, professional sports revenue comes from the many millions, and in some cases billions, of people who watch events like the Olympics or World Cup on television, which is primarily operated by private companies. But even in this case, the advertising revenue which comes from private companies that advertise on television is due to the fact that spending on this kind of advertising increases the company’s revenue and profits to a greater extent than the cost of the advertising. Again, this effect is greater in a wealthy country like the United States than in a poor country like Nigeria, which is roughly half as populous as the United States, but where the majority of people don’t have much disposable income, and hence the revenue that can be earned from advertising is much more limited, which means that even if a professional sports league exists in Nigeria, the athletes will not earn anywhere near as much money from advertising revenue, whether from television, endorsements, or other sources, as professional athletes do in the United States.