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POV: What Is Capitalism?
by Ayn Rand | November-December 1965
In Pursuit of Wealth: The Moral Case for Finance
by Yaron Brook | September 30, 2017
Inequality Doesn't Matter If We’re All Paid According to the Value We Create
by Don Watkins | October 18, 2016
Who Cares about Inequality?
by Don Watkins | April 28, 2016
Equal Is Unfair: America’s Misguided Fight Against Income Inequality
by Don Watkins | April 19, 2016
Economic Inequality Complaints Are Just A Cover For Anti-Rich Prejudice
by Don Watkins | April 14, 2016
Equality of Opportunity Doesn’t Exist in America — and That’s a Good Thing
by Don Watkins | April 06, 2016
Inherit The Wind . . . And Not Much Else
by Don Watkins | April 05, 2016
Equal is Unfair: America’s Misguided Fight Against Income Inequality
by Don Watkins | October 20, 2015
Religion in America
by The Editors | December 05, 2014
Religion vs. Freedom
by Onkar Ghate | December 03, 2014
Debate: “Inequality: Should We Care?”
by Yaron Brook | May 08, 2014
Economic Inequality: Who Cares?
by The Editors | March 25, 2014
Our Poverty Problem?
by Don Watkins | March 11, 2014
Is Inequality Fair?
by Yaron Brook | March 05, 2014
Government tries to do too much: Opposing view
by Don Watkins | January 26, 2014
“You didn’t build that,” conservative style
by Steve Simpson | December 09, 2013
Why Do 1.4 Million Americans Work At Walmart, With Many More Trying To?
by Doug Altner | November 27, 2013
Atlas Shrugged Is A Book About Pride In One’s Work, And The Success That Results
by Steve Simpson | November 08, 2013
Bernie Madoff, Steve Jobs, and Wall Street Greed
by Don Watkins | September 26, 2013
Justice Department should let US Airways & American Airlines merger proceed
by Tom Bowden | August 16, 2013
What Are The Search Results When You Google ‘Antitrust’?
by Tom Bowden | April 18, 2013
To Be Born Poor Doesn’t Mean You’ll Always Be Poor
by Yaron Brook | April 12, 2013
We Should Be Embarrassed by the Sequester Debate
by Yaron Brook | March 20, 2013
“Give Back” Is One of the World's Most Impoverishing Commands
by Yaron Brook | March 12, 2013
Capitalism in No Way Created Poverty, It Inherited It
by Yaron Brook | February 25, 2013
3 crucial lessons Ayn Rand can teach us today
by Yaron Brook | February 02, 2013
Capitalism without Guilt
by Yaron Brook | January 21, 2013
President Obama Duels With Ayn Rand Over What Makes America Great
by Don Watkins | October 29, 2012
Why Ayn Rand’s Absence From Last Thursday’s Debate Benefits Big Government
by Yaron Brook | October 15, 2012
The Virtue of Employee Layoffs
by Yaron Brook | September 06, 2012
Ayn Rand’s Atlas Shrugged: A Paean to American Liberty
by Don Watkins | August 17, 2012
President Obama vs. My Grandfather
by Don Watkins | July 30, 2012
The Dog-Eat-Dog Welfare State Is Lose-Lose
by Don Watkins | July 12, 2012
Changing the Debate: How to Move from an Entitlement State to a Free Market
by Don Watkins | July 02, 2012
Private Equity Firms Want Acquisitions To Profit, Not Fold
by Doug Altner | June 05, 2012
Opposing view: Celebrate private equity
by Don Watkins | May 29, 2012
The “On Your Own” Economy
by Don Watkins | March 09, 2012
What's Really Wrong with Entitlements
by Don Watkins | February 21, 2012
Happy Birthday, Ayn Rand — Why Are You Still So Misunderstood?
by Don Watkins | February 02, 2012
America Before The Entitlement State
by Don Watkins | November 18, 2011
How Did Ayn Rand’s Atlas Shrugged Predict an America Spinning Out of Control?
by Onkar Ghate | October 31, 2011
What We Owe Steve Jobs
by Don Watkins | October 06, 2011
What’s Missing From The Budget Debate
by Don Watkins | July 12, 2011
Does America Need Ayn Rand or Jesus?
by Onkar Ghate | June 29, 2011
When It Comes to Wealth Creation, There Is No Pie
by Yaron Brook | June 14, 2011
It’s Time To Kill The “Robin Hood” Myth
by Yaron Brook | May 06, 2011
Using Ayn Rand's Values to Create Competitive Advantage in Business
by John Allison | April 04, 2011
In Defense of Finance
by Yaron Brook | February 15, 2011
The Tea Party Will Fail — Unless it Fully Embraces Individualism as a Moral Ideal
by Tom Bowden | January 21, 2011
How About Tax Reparations for the Rich?
by Don Watkins | January 18, 2011
The Guilt Pledge
by Don Watkins | September 22, 2010
How To Succeed In Business: Really Try
by Don Watkins | September 13, 2010
The U.S. Anti-Business Epidemic
by Don Watkins | August 17, 2010
Atlas Shrugged’s Timeless Moral: Profit-Making Is Virtue, Not Vice
by Yaron Brook | July 20, 2010
Capitalism: Who Needs It — Ayn Rand and the American System
by Yaron Brook | June 09, 2010
Apple vs. GM: Ayn Rand Knew the Difference. Do You?
by Don Watkins | March 02, 2010
Commercialism Only Adds to Joy of the Holidays
by Onkar Ghate | December 18, 2009
Why is Ayn Rand Still Relevant: Atlas Shrugged and Today’s World
by Yaron Brook | August 10, 2009
The Corrupt Critics of CEO Pay
by Yaron Brook | May 2009
America’s Unfree Market
by Yaron Brook | May 2009
Energy at the Speed of Thought: The Original Alternative Energy Market
by Alex Epstein | Summer 2009
Is Rand Relevant?
by Yaron Brook | March 14, 2009
Stop Blaming Capitalism for Government Failures
by Yaron Brook | November 13, 2008
From Flat World To Free World
by Yaron Brook | June 26, 2008
Vindicating Capitalism: The Real History of the Standard Oil Company
by Alex Epstein | Summer 2008
The Right Vision Of Health Care
by Yaron Brook | January 08, 2008
Deep-Six the Law of the Sea
by Tom Bowden | November 20, 2007
The Influence of Atlas Shrugged
by Yaron Brook | October 09, 2007
The Morality of Moneylending: A Short History
by Yaron Brook | Fall 2007
Say “No Way!” to “Say on Pay”
by Yaron Brook | May 22, 2007
Atlas Shrugged — America's Second Declaration of Independence
by Onkar Ghate | March 01, 2007
Pay Is Company’s Prerogative
by Yaron Brook | January 08, 2007
Religion and Morality
by Onkar Ghate | October 18, 2006
Net Neutrality vs. Internet Freedom
by Alex Epstein | August 16, 2006
Why Are CEOs Paid So Much?
by Elan Journo | May 11, 2006
To Outsource or to Stagnate?
by Onkar Ghate | August 01, 2004
Ayn Rand's Ideas — An Introduction
by Onkar Ghate | June 02, 2003
Capitalists vs. Crooks
by Elan Journo | July 22, 2002
Forgotten Heroes of 9/11
by Onkar Ghate | May 17, 2002
Religion vs. America
by Leonard Peikoff | 1986
The Sanction of the Victims
by Ayn Rand | November 21, 1981
Egalitarianism and Inflation
by Ayn Rand | 1974
The Moratorium on Brains
by Ayn Rand | November 14, 1971
What Is Capitalism?
by Ayn Rand | November 19, 1967
Is Atlas Shrugging?
by Ayn Rand | April 19, 1964
The Fascist New Frontier
by Ayn Rand | December 16, 1962
America’s Persecuted Minority: Big Business
by Ayn Rand | December 17, 1961
The “New Intellectual”
by Ayn Rand | May 15, 1961
Capitalism vs. Communism
by Ayn Rand | 1961

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Inequality Doesn't Matter If We’re All Paid According to the Value We Create

by Don Watkins and Yaron Brook | October 18, 2016 | City A.M.

Log on to Netflix and you can catch old episodes of Dirty Jobs, where you can watch host Mike Rowe visit plumbers, pig farmers, and steel mill workers and try his hand at some of the less sexy but utterly fascinating jobs that help make the world around us possible.

All of these people work incredibly hard, and it might raise a question in your mind — a question that is central to today’s debate over inequality: why is it that they earn far less than chief executives, investment bankers, or A-list actors?

The answer is that, in a free market, people don’t get paid for the effort they exert but for the value that they create.

Think about author JK Rowling, who became a billionaire from her wildly popular Harry Potter series. Rowling certainly worked hard — but so do thousands of other authors who struggle to find an audience. The difference is that millions of people value Rowling’s work. They were willing to turn over £10 or £15 for each Harry Potter novel, because the pleasure they got from those books exceeded the price tag.

It was irrelevant to them whether Rowling suffered writer’s block and spent sleepless nights agonizing at her desk, or whether she effortlessly poured out a hundred pages a day of perfect prose. It was the value that mattered.

The notion that people should get paid for hard work, rather than valuable work, may sound nice to some in the abstract, but in practice it would mean that a hair stylist who struggles to line up your sideburns should get paid more than the master who can give you the best hair cut of your life without breaking a sweat. It would mean that a sleep-deprived waiter deserves a bigger tip than one who is equally competent, but who turned down the opportunity to party the night before.

To be sure, creating value does require hard work, and many of the people who earn headline-making incomes exert enormous mental effort: from the Silicon Valley entrepreneur to the superstar athlete to the award-winning heart surgeon. They may make success seem easy, but if it were easy, everyone would do it. Even so, effort alone, although deserving of our praise and admiration, doesn’t imply anything about how big a person’s paycheck should be.

Don’s wife, for instance, is a teacher — a really good one, if he may say so himself — and she probably works as hard as many FTSE 100 chief executives. But she’s providing a service to only a handful of students each year. The chief executives are creating value for millions and even billions of people. It would be absurd for her to earn anything close to what they make.

A paycheck is the result of a trade, and what we trade are the values we create. The more you have to offer, the more you can get in return.

That’s why it’s ridiculous to complain about the income inequality that emerges from free, voluntary transactions. Rowling increased inequality when she became a billionaire, but she did so by making millions of people better off — and anyone who didn’t like her books didn’t have to pay her a penny.

That’s the pattern we see all over the economy. Jeff Bezos, Warren Buffett, and Mark Zuckerberg may have billions in the bank, but their fortunes didn’t come at the expense of their customers or employees or society at large. They prospered by doing something enormously valuable — by running companies that enriched the lives of everyone who chose to deal with them. It was win/win all around.

Unfortunately, today, not everyone is getting paid for the value they create. Too many are getting paid for the government favors they can extract. Widespread cronyism in the form of bailouts, subsidies, and other special privileges can increase inequality. But the problem isn’t the inequality — it’s the win/lose nature of cronyism. When people get rich through government favors, it comes at the expense of taxpayers, buyers, and competitors. The solution isn’t to fight income inequality, but to stop cronyism. We shouldn’t punish value creators for the sins of cronies.

Fighting high pay at the top has, for some, become “the defining challenge of our time,” to quote US President Barack Obama. But following that path would be a double disgrace. A just society shouldn’t punish people for prospering — and if it does, it shouldn’t be surprised if it finds that there is less prosperity.

Today America is seeing a decline in its rate of economic progress, and the same could be said of Great Britain too. It is the top value creators who drive human progress, and the real defining challenge of our time is how to liberate the pursuit of productive achievement while eliminating political influence-peddling. That’s going to require some genuinely hard work.

About The Authors

Don Watkins

Former Fellow (2006-2017), Ayn Rand Institute

Yaron Brook

Chairman of the Board, Ayn Rand Institute