An “Open Letter to Warren Buffett”

Over on my Reading Economics page, I’ve outlined a plan to read through, among other things, George Reisman’s program of readings. In that light (although I haven’t actually posted on anything from that series yet), I thought it was worth pointing out an article of Prof. Reisman’s that ran on the Ludwig von Mises Institute’s website this week.

In “An Open Letter to Warren Buffett,” Reisman discusses the assumptions underlying some of Buffett’s highly publicized statements about “class warfare” in America and rebuts them with economic theory influenced by Mises and Ayn Rand.

After describing the Marxian exploitation theory on which Buffett’s views appear to rest, and reminding us that people like Buffett get shot whenever Marxists take over a government, Reisman says something striking:

Based on this account of the origins and nature of alleged class warfare, I have to ask how you see your place in the world, Mr. Buffett. Are you an exploiter of labor? Has your life’s work consisted of the accumulation of wealth in a manner fundamentally indistinguishable from that of a slave owner? Has the accumulation of your billions been the result of your systematic theft of workers’ rightful wages? Has your life consisted mainly of efforts tending to impoverish still further the workers you employ, and been prevented from doing so only to the extent of the existence of such measures as pro-union, minimum wage, and maximum-hours legislation?

Reisman notes that if the above accurately describes Buffett’s role in society, his “Giving Pledge” doesn’t nearly make up for all the suffering he has caused in his life:

There would still be not only the deadweight loss of everything that you and your family have personally consumed over the years that was stolen from others, from the occasional ice cream soda you reportedly like to your private jet. There would also be the fact that whatever you might now give away would not be any compensation to your actual victims, many of whom have passed away by now or are too old to enjoy it as they might have at the time they earned it and you robbed them, and who would receive nothing at all to the extent that you give your wealth away to completely different people.

Of course, Reisman does not view Buffett’s social role in this way. To the contrary, he considers Buffett’s career to be enormously beneficial to society, and that he has earned the profits that the market have sent his way.

The argument is more involved than I want to get into here. There’s a lot to chew on, and it is well worth a read. I do want to quote one more passage that I found especially interesting:

You appear not to understand the positive effect on others of the way you have earned most of your wealth, which has been mainly in the purchase and sale of securities. You characterize your work merely as detecting the “mispricing of securities.” Correcting this mispricing is actually very important to the economic system. In buying securities that are underpriced, you help to raise their price, thus reducing the mispricing that is present. In selling securities that are overpriced, you help to reduce their price, thus again reducing the mispricing that is present. To the extent your judgment is right, you earn profits, and to the extent you save those profits, you are in a position to buy and sell securities on a larger scale and thus to correct errors of mispricing on a larger scale.

In raising the price of their securities, the effect of your action is to help firms raise capital that should be able to raise capital; in reducing the price of their securities, the effect of your action is to make it more difficult for firms to raise capital that should not be able to raise capital. As you know, the price of securities functions in this way because it determines what percentage of ownership in a firm needs to be given up in order to raise a given amount of capital or how much capital can be raised by giving up a given percentage of ownership. In other words, you are facilitating the raising of capital by firms that will use it well and impeding the raising of capital by firms won’t.

More good stuff in the original article (although I actually think that Reisman, following Rand, exaggerates the socially beneficial role of the capitalist a bit).

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About Dr. J

I am an Associate Professor and head of the Department of Humanities at Faulkner University. I am also Associate Editor of the Journal of Faith and the Academy.
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5 Responses to An “Open Letter to Warren Buffett”

  1. I think Reisman has exaggerated Buffet’s words. I haven’t followed Buffet too closely, but I don’t hear Marxism in what I have heard. All class conflict and taxation of the rich isn’t necessarily Marxist. Class conflict is a reality…the Marxist hypothesis about it is just that…a particular hypothesis. Exploitation has multiple hypotheses, and not all of them are Marxist. Buffet’s suggested remedy doesn’t sound Marxist to me. Reisman sounds very absolute either/or -ish. I realize there’s a principle-based, slippery slope sort of argument for that, but I don’t think Buffet sees it that way. By the way, I’m not necessarily in favor or not in favor of Buffet’s talk. I’ve read some economics and political theorists, and I’ve found that it is all quite complicated. I don’t have any answers. I see strengths and weaknesses in what I’ve heard out of Buffet, and I don’t know fully which way I lean. I would have to do more research into the details of current taxation to decide if there’s currently need for “The Buffet Rule” or not.
    Anyways, thanks for the great blog. You are always thought-provoking on the Great Books and on economics.

    • Dr. J says:

      Stan, I’ve always thought that Reisman’s tendency to paint things black and white stems from his longtime devotion to Ayn Rand, who was always telling people to “check their premises” and pushing antithesis. There are different ways of understanding social classes; Buffett’s appeal to wealth as the basis for class distinction sounds more Marxian than, say, a traditional Three Estates framework or a State vs. Society paradigm, but I think you’re right in that Buffett doesn’t see himself as Marxist. I think Reisman recognizes that, too, and that he sees that fact as a mark of intellectual confusion on Buffett’s part. So he wants to pursue ideas to their foundations and in doing so runs the risk of setting up a straw man or a false dichotomy. Still, there’s a lot of interesting theory in the article.

      Thanks for your thoughtful comments and for your own blog!

      • I enjoyed Reismann’s article. While I agree that Buffet doesn’t consider himself a Marxist, I agree with Reismann and Rand (though I’m not a big fan of her) that it is worth “checking your premises”; particularly when what you say has such weight and Buffet’s words hold much weight. Pursuing your ideas to their foundation is a wonderfully difficult idea that helps you find ideological consistency.

        As Rothbard would say: “It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”

  2. John Ward says:

    Mr. Buffet is quite a conundrum. I have been a stockholder of Berkshire for many years and his annual letters to shareholdrs are truly an education in sucessful investing. Until Obama was elected he was not very active in politics. His father was a Senator from Nebraska that many categorized as a Libertarian. I don’t think it is at all clear what is the reality of Buffet’s philosophy/politics. Reisman is a great economist and I will always listen to his, and the Von Mises Instututes opinions. Perhaps a biographical/psychological study of Buffet’s life could shed some light, but I am not aware that one (yes I know biography like books exist) has been written, and given Buffet’s historical isolation I am not sure that one could be written.

    • Dr. J says:

      I’m always mystified by his political comments as well. It’s tempting to pigeon-hole him as a rent-seeker at times; I seem to remember him bemoaning the deregulation of television because it made it more difficult for him to make money by simply buying the Big Three networks. I’m sure he’s more complicated than that, though. And I always enjoy his letters to shareholders, too.

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