Smith, Meet Oprah Winfrey
by Gary North: Ron
Paul: 'Sell the Gold in Ft. Knox'
In a recent
report, "What Makes Oprah Run?" I discussed her career move: founding
a new cable TV network. She has an estimated net worth of $2.7 billion.
She has received a network TV salary of over $300 million a year.
She is the most financially successful woman in history. Yet she
is putting her reputation on the line. She is telling the world,
"I can create my own TV network, named OWN. It will be a greater
success than my career so far."
I also pointed
out that very rich people are not passively rich. They are actively
rich. They are involved in their businesses, or else they are involved
in charitable work, or the pursuit of influence, or the pursuit
of historical legacy, or even the pursuit of power. They have about
the same amount of life expectancy as the rest of us. They cannot
buy more time. They use this time to produce, not consume,
This is what
I want to talk about here.
SMITH ON CONSUMPTION
In his path-setting
Wealth of Nations (1776), Smith made this observation.
is the sole end and purpose of all production; and the interest
of the producer ought to be attended to, only so far as it may be
necessary for promoting that of the consumer.
deep into the book, in Part 4, Chapter 8 (p. 625 of the Modern Library
version). It is the heart of his economic analysis. He would have
saved readers a great deal of time and trouble if he had placed
it as the opening sentence of the first paragraph of the book. Then
he should have developed his system in terms of this assumption.
In every social
order, there is a hierarchy of wealth. At the very top of the income
production system, there are people who do not have to work in order
to be fed, clothed, housed, and generally kept happy by retainers
who cater to his every whim. The question I ask is this: Will most
of these rich people be indolent? That is, will they use their one
irreplaceable resource time exclusively to consume
or to "set aside for a rainy day" so as to consume later? I have
never read of such a society.
In richer societies,
where consumption is a matter of taste rather than survival, more
people can afford to accumulate capital in order to . . . what?
Not consume. For consumption costs time, and time is not replaceable.
The cost of time is high for the productive masters of capital.
They do not waste it in full-time orgies of consumption. They could
afford to, but they don't.
I mean the use of an asset that renders it unusable in the future
by the owner. Food is the obvious example. Food satisfies hunger.
It may make a person more productive, or it may fatten him so that
he becomes less productive. But, once eaten, it is gone by means
of the second law of thermodynamics' one-way, irreversible transformation
of potential energy into kinetic energy: heat and light. It's here
today and gone tomorrow: forever.
I don't want
to enter into a discussion of the implications of this for philosophy:
the end of meaning in the inevitable heat death of the universe.
In that view, everything really is consumption, and resources finally
are exploited to their limit. That is science's pure version of
"peak energy." We are told that this scenario is many billions of
years away . . . and, no, Keynesian deficits cannot overcome it.
Sorry about that. Ultimately, Al Gore is wrong. Global warming will
cease, big time. I have written a book on this, and why I don't
believe the scenario: Is
the World Running Down?" It's free here.
If people do
not accumulate capital to consume all of it, contrary to Smith,
then why do they accumulate it? To produce even more.
This is not
the way that post-Smith economists have discussed production. They
have generally assumed that people accumulate goods, including production
goods, in order to consume. Yet in my experience, this is not the
case, nor is it the case of the wealthy people I know. To assume
that production is for personal consumption leads to bad forecasts
of human action.
That some people
consume most of what they produce is self-evident. Use yourself
as an example. You consume more than you save. But remember: the
word "most" implies "not all."
"Not all" makes
most of the difference.
1800, the United Kingdom began to experience 2% economic growth
per annum. This rate has continued. It was matched by the United
States, then Western Europe. The result has been a 16-fold per capita
increase of wealth, worldwide, and in some nations, 100-fold. Yet
no one has presented a compelling explanation for its origin in
1800. Mankind at last overcame the Malthusian trap. When Malthus
wrote anonymously in 1798 that starvation had always overcome economic
growth, he had all of history on his side.
An almost unmeasurable
change 2% per annum has changed everything. It had
to do with thrift. It had to do with the capitalization of new ideas.
It had to do with the newfound dignity and legitimacy of doing business.
Yet we do not know what specific mix of factors produced this.
It had to do
with future orientation. It had to do with gaining wealth and fame
and influence. There is no formula for it as far as anyone knows
and can defend. In all of mankind's history before 1800, rising
consumption had always overcome rising production. Economies always
stopped growing. Per capita income always contracted.
The world has
learned how to produce more than it consumes. Producing more than
you consume is a moral imperative today. It is now recognized as
the means to prosperity. The willingness to forego consumption is
the key to ever-greater consumption.
understand. But have they got it backward?
TO LIVE, OR LIVING TO EAT
We know of
the person who lives to eat. He may be a gourmet. He may be a glutton.
But most of us recognize that something is bizarre about such a
person. Most of us eat to live. We do not live on Twinkies.
are the cooks. Do they live to cook or cook to live? If we are talking
about some teenager working in a fast-food restaurant, we are talking
about someone who cooks to live, or at least live better. But when
we are talking about a master chef, we aren't. In a world filled
with fast food restaurants and garbage cans, there is always a Ratatouille.
is famous for his statement, "No man but a blockhead ever wrote,
except for money." But no one reads Johnson any more, and people
haven't for two centuries. They read extracts from the multi-volume
Life of Samuel Johnson, written by James Boswell, who
did not write for money.
do not write for money. The World Wide Web is proof. Few people
make a living writing for the Web. I do, but I am rare. People want
to get their two cents' worth, even if they never get paid two cents,
and they have to start a free WordPress.com or Blogger.com site
to get in those two cents' worth. They write for hours. They broadcast
on Twitter. They write and write and write, but they don't get paid.
Why do they
want to be read, which means heard. They will spend hours trying
to be heard . . . by someone, sometime, somehow. They act in faith
that someone will pay attention to their thoughts.
This is production.
We can say that it is for consumption some other person's
"consumption" of the author's words but this is a form of
be profit-seeking. It can be non-profit. It can be charitable. But
it is service nonetheless.
To define all
forms of service as consumption makes hash of definitions.
BUTCHER, BREWER, AND BAKER
In one of the
most famous passages in the history of economic thought, Smith wrote
man has almost constant occasion for the help of his brethren, and
it is in vain for him to expect it from their benevolence only.
He will be more likely to prevail if he can interest their self-love
in his favour, and show them that it is for their own advantage
to do for him what he requires of them. Whoever offers to another
a bargain of any kind, proposes to do this. Give me that which I
want, and you shall have this which you want, is the meaning of
every such offer; and it is in this manner that we obtain from one
another the far greater part of those good offices which we stand
in need of. It is not from the benevolence of the butcher, the brewer,
or the baker, that we expect our dinner, but from their regard to
their own interest. We address ourselves, not to their humanity
but to their self-love, and never talk to them of our own necessities
but of their advantages. Nobody but a beggar chuses to depend chiefly
upon the benevolence of his fellow-citizens. (Wealth of Nations,
Book I, Chapter 2.)
All true. But
does this say all there is to say about it? Let me re-write this
man has almost constant occasion to help his brethren, but it is
in vain for him to expect to be able to do this for long without
running out of resources. He has to make a profit. He will be more
likely to prevail if he can interest their self-love in his favour,
and show them that it is for their own advantage to do for him what
he requires of them in order to keep helping them. He needs to make
them customers, then clients. Whoever offers to another a bargain
of any kind, proposes to do this. Give me that which I want, and
you shall have this which you want, is the meaning of every such
offer; and it is in this manner that we obtain from one another
the far greater part of those good offices which we stand in need
of, in order to continue to serve. It is not from the needs of the
meatless, the beerless, or the breadless, that we expect to fund
our efforts, but from customers' regard of their own interest. We
address ourselves, not to customers' humanity but to their self-love,
and never talk to them of others' necessities but of their advantages.
Nobody but a beggar chuses to depend chiefly upon the benevolence
of his fellow-citizens.
This is the
outlook of a master chef, the master painter, the master everything.
This is the outlook of the person who understands the principle
of private ownership as a social function: service to others.
If you live
to serve, this is your outlook. This is the outlook of a mother.
If you serve to live, your outlook is more like that of a tradesmen
who sells to mothers.
If we see that
service is the basis of profitability, and profitability is the
best way to extend our area of service, then we understand the person
who accumulates to produce. We understand the capitalist.
up of capital is the laying up of tools. Do men do this to lay up
tools for their own sake? Only if they are misers. Do they lay up
tools in order to serve? Yes, if they understand the profit system
in a free market social order.
do not lay up capital to consume. They lay up capital to serve.
Their motives for serving vary. These may be for fame, or beating
some rival, or extending influence. This may also be for reasons
of concern for the poor. The psychology of motivation varies widely.
What does not vary is the means of accumulation: either violence
or service. The free market rests on the latter means.
WAR FOR MEN'S MINDS
for men's minds is mostly a battle for service. We try to persuade
others that our suggested way is the way of success. We try to persuade
them that honesty is the best policy, that efficient service produces
profits, that retained earnings are the best way to expand a business
long-term. We try to persuade them that peaceful trade is superior
to violent intervention as a way to serve the poor, the needy, and
We should try
to explain Oprah Winfrey in terms of production, not consumption.
She is internally driven to blaze new paths. She is forced to place
her wealth and reputation on the line. She is not doing this in
order to accumulate more consumer goods. She is running out of time,
the crucial consumer good. She is allocating this most scarce of
all resources to production.
is that it is not clear how best to do this. She had three main
options. She could give it away. She could stick with the network
and reach millions of women. She could start her own network. She
cannot know for sure which is the most cost-effective way to do
this. This decision is a huge one, given her level of wealth. I
described it in 2003 as the
horror of being Oprah. But to explain her motivation in terms
of personal consumption would be to misunderstand her motives.
is for consumption just not our own consumption.
is for accumulating the tools of consumption just not our
can be used for service. Apart from violence, it must be used for
service if it is to increase.
says, "He who dies with the most tools wins." This is in contrast
to "He who dies with the most toys wins."
The chief motivation
of the true believer is not his consumption. It is someone else's
The chief motivation
of the peaceful social reformer is the accumulation of capital:
the tools of sustainable, self-reinforcing social change.
speaks of redemption. What is its meaning? To buy back.
is one means of redeeming the world from evil. It illustrates success.
It enables success.
is more than a social system for growing the pie. It is a system
for learning the ways of economic growth. Production is a legitimate
goal. It is not a goal for its own sake. Idolatry is pursuing anything
other than God for its own sake. So, production is not for its own
sake. But neither is consumption. And neither is production solely
for consumption: "more for me in history." That is Mammon. Avoid
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
2011 Gary North
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