POV: What Is Capitalism?
by Ayn Rand | November-December 1965
In Pursuit of Wealth: The Moral Case for Finance
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Inequality Doesn't Matter If We’re All Paid According to the Value We Create
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Who Cares about Inequality?
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Equal Is Unfair: America’s Misguided Fight Against Income Inequality
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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
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Equal is Unfair: America’s Misguided Fight Against Income Inequality
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Religion in America
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Religion vs. Freedom
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Debate: “Inequality: Should We Care?”
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Economic Inequality: Who Cares?
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Our Poverty Problem?
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Is Inequality Fair?
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Government tries to do too much: Opposing view
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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
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by Tom Bowden | August 16, 2013
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The Virtue of Employee Layoffs
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Ayn Rand’s Atlas Shrugged: A Paean to American Liberty
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Opposing view: Celebrate private equity
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The “On Your Own” Economy
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What's Really Wrong with Entitlements
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In Defense of Finance
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The Tea Party Will Fail — Unless it Fully Embraces Individualism as a Moral Ideal
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How About Tax Reparations for the Rich?
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The Guilt Pledge
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How To Succeed In Business: Really Try
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The U.S. Anti-Business Epidemic
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Atlas Shrugged’s Timeless Moral: Profit-Making Is Virtue, Not Vice
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Capitalism: Who Needs It — Ayn Rand and the American System
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Why is Ayn Rand Still Relevant: Atlas Shrugged and Today’s World
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The Corrupt Critics of CEO Pay
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America’s Unfree Market
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Net Neutrality vs. Internet Freedom
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Why Are CEOs Paid So Much?
by Elan Journo | May 11, 2006
To Outsource or to Stagnate?
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Religion vs. America
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The Sanction of the Victims
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The Moratorium on Brains
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What Is Capitalism?
by Ayn Rand | November 19, 1967
Is Atlas Shrugging?
by Ayn Rand | April 19, 1964
The Fascist New Frontier
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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


Government And Business in Voice for Reason
Government & BusinessCapitalism

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