The source of their riches

ECONOMIST PAUL Samuelson, who won the Nobel Prize in 1970 for raising "the general analytical and methodological level in economic science," had this to say in a recent column in the Washington Post:

By and large, the poor aren't poor because the rich are rich. They're usually poor for their own reasons: family breakdown, low skills, destructive personal habits and plain bad luck...The larger truth is that much of the income of the rich and well-to-do comes from what they do.

Funny how the destructive personal habits (alcoholism, drug addiction), family breakdown (rich people divorce all the time), low skills (do rich people have any skills?) and plain bad luck (ask Lehman Brothers) of the fabulously wealthy never seems to leave them in the ditch of poverty.

These people do not do anything that could be described as socially useful work. They invest other people's money and collect profits and interest without having to lift a finger or break a sweat. On the other hand, there are more than 7 million people in the U.S., according to official statistics, whose work does not pay them enough to lift them out of poverty. Is there really no connection between these things?

Let's indulge Mr. Samuelson for a moment and consider that idea that "much" of the income of the rich comes from what they do, and that the poor are just poor because they are lazy and unlucky. On a certain level, part of what Samuelson says is irrefutable: rich people definitely "do" things to get rich. The question is, what exactly do they do?

In a classic Saturday Night Live skit, Steve Martin explains how to be a millionaire and never pay taxes: "Steve...how can I be a millionaire and never pay taxes?" he asks himself. He answers: "First...get a million dollars." Samuelson's explanation isn't any more illuminating than this, and he's not even funny.

SAMUELSON'S ARGUMENT reminded me of a statement by the 19th century French economist, Sismondi, who wrote: "Exertion today is separated from its recompense; it is not the same man that first works, and then reposes; but it is because the one works that the other rests."

Sismondi makes a clear connection between poverty and wealth--those who do not work live off the wealth produced by the labor of others. The father of bourgeois economics, Adam Smith, was also far more honest in his assessment of wealth and poverty than Mr. Samuelson. "It may very justly be said," Smith explained, "that the people who clothe the whole world are in rags themselves."

Logical conclusion: the poor are indeed poor because the rich are rich. This is the only possible explanation for why some people have billions of dollars and others live on $1 a day--that wealth is based on the extorted labor of the many on behalf of the few.

Are we really to believe that billionaires like Bill Gates (net worth: $58 billion) and Warren Buffet (net worth: $62 billion) actually performed intellectual or manual labor that is worth more than the GDP of entire countries--more than 10 times, for example, the GDP of Nicaragua ($5.7 billion), with a population of 5.6 million people?

Keep in mind that Bill and Warren continue to be paid no matter what they are doing: skiing, playing the horses, brushing lint off their coats or complaining to servants. Most of us ordinary mortals only get paid when we work, but rich people magically make money even when they are sleeping. And the truth is, we don't even get paid for all the work we do.

We'd be on surer footing if we listen to the famous robber baron, John D. Rockefeller, quoted in a recent column by Sharon Smith on this Web site: "I would rather earn 1 percent off a [sic] 100 people's efforts than 100 percent of my own efforts." I suppose this is what made him so lucky, and his employee's so unlucky.

WHAT SAMUELSON is offering here are a string of hackneyed prejudices masquerading as analysis: blame the poor for their own poverty. When we read these things, we wonder how anyone could ever consider economics to be a science, or that Mr. Samuelson could have possibly raised its analytical level.

But it should not surprise us that respected Nobel Prize-winning economists are more apt to obscure rather than illuminate the truth. As Karl Marx once wrote, the conquest of political power by the rising capitalist class

sounded the knell of scientific bourgeois economy. It was thenceforth no longer a question, whether this theorem or that was true, but whether it was useful to capital or harmful, expedient or inexpedient, politically dangerous or not. In place of disinterested inquirers, there were hired prizefighters; in place of genuine scientific research, the bad conscience and the evil intent of apologetic.

Sincere economic inquiry was replaced by what Marx called "vulgar economics."

The once popular (and now thoroughly discredited) theory, known as "rational expectations theory," which claimed that financial markets are self-correcting and tend toward equilibrium, is the most infamous recent example of vulgar economics.

If this were not enough to expose the unscientific nature of modern economics, two of the founders of Long-Term Capital Management, the multibillion-dollar hedge fund that collapsed in 1998 and almost brought down the world financial system, were Harvard-educated Nobel Prize-winning economists whose had devised a technique for valuing stock market options.

It has long been a common argument of the vulgar economists that capitalists don't get their profits from the proceeds of unpaid labor, but rather from their own "abstinence." Profit, according to the 19th-century economist John Stuart Mill, writing in 1848, represents a "recompense" for the capitalist's "forbearing to consume his capital for his own uses"--his "remuneration for abstinence."

According to this logic, if the capitalist is going to be so altruistic as to skimp on his own needs in order to invest his hard-earned capital, he should get a little back in return. Yet Mill is forced to admit that the surplus that accrues to capitalists must come from somewhere. "The cause of profit," he admits, "is that labor produces more than is required for its support." It cannot be put more clearly or more simply than that.

It is certainly not abstinence by which corporations are able to concentrate in their hands the principle means of production in society. On the contrary, it is the forced abstinence of the working class--that it does not receive the full product of its labor, but hands part of it over free to the capitalist class--that explains profit.

It is the job of vulgar economists like Samuelson to convince us all that we should continue in our "forbearance" toward our exploiters, by telling us little fairy tales that aren't much better than what we learned as kids about the tooth fairy.

The truth is, capitalist investors perform no useful function in society. They are not designers; they are not engineers; they are not planners or managers; they do not make anything; they do not transport anything; they do not create anything. As Frederick Engels wrote many decades ago, "the existence of the 'retired' shareholding capitalist" has become "not only superfluous, but a perfect nuisance."