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A Defense of Business

Posted by M. C. on March 3, 2023

Luis Rivera

By Walter E. Block

Did you ever wonder how businesses first started? From scratch, I mean. I’m not talking about nowadays. That’s easy. I’m now contemplating the very first one to grace the planet.
There had to be some such occurrence. Companies did not always exist. There were no employers or employees zillions of years ago when our species was located in the trees, or in the caves. Yes, we then worked in groups, and there was typically a headman, but this was not at all the employer – employee relationship we are now defending.
Let us posit, then, that during this far off time, there were only individual proprietorships. Each person worked on his own, for himself. There was no such thing as anyone hiring anyone else. Employment was completely missing from humankind. Everyone was employed alright, but only working for himself.
We now simplify matters and assume equal productivity on the part of everyone. They could each produce 10 units each of apples, bananas and chicken. All their earnings consisted of 30 food units. No one saved anything for a rainy day, nor to enable him to hire anyone else. It was a hand to mouth existence.
Nevertheless, one day, someone got up on his hind legs; call him Charlie. He went to his buddy, Bob, and said, “Hey Bob, come work for me. You’ll be my employee. You’ll follow my orders (within reason). I’ll pay you 35 food units every day. Bob, no fool, took up Charlie on this offer. His mathematics ability enabled him to calculate that 35 was greater than 30.
On the basis of which economic phenomenon was Charlie able to make Bob this offer, and actually carry through on it? Out of which rock did he draw the blood, amounting to 5 food units? For the non-cognoscenti, it is called specialization and the division of labor.  Two people, Charlie and Bob, working together, can produce more than double the amount that each could accomplish, working alone. Perhaps it is because Charlie is better at harvesting fruit, while Bob could preside over our clucking friends with greater efficiency. Maybe it is due to the fact that some stones or trees are impervious to the efforts of one man, while succumb to those of two, working together. In any case, the two of them, as a team, can produce 75 food units; Charles pays Bob 35 of them, and keeps 40 for himself.
Did Charlie exploit Bob? The Marxists, economic illiterates and lacking any shred of logic, would say yes, and necessarily so. Why? Well, capital always exploits labor. But there is no capital in our little scenario. (In any case, capital emanates from savings. In our example, Charlie either saved up to be able to hire Bob or borrowed it from someone else. The bottom line is that this enabled the productivity of both to rise. This can hardly justify the Marxist claim of exploitation.) There is just the Adam Smithian specialization and the division of labor. Yes, Charlies’ share was boosted by 10 (40-30) while Bob only benefited to the extent of 5 (35-30). Heck I would have awarded Charlie lots more; it is my numerical example. But no matter how you slice it, Charlie was Bob’s benefactor. Indeed, they each improved the economic welfare of the other. We can deduce this from “drop dead” theory. If Charlie had dropped dead, or for any other reason never made that employment offer to bob, would the latter be better or worse off. Obviously, worse off, by 5 units daily.

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