Altruism and Economics

by | Jun 20, 2015 | Economics

How do people's ideas on morality affect their economics?


How does it work? How do people’s ideas on morality affect their economics? It’s not by a direct line, as if one went straight from “One must live for others” to “Supply does not affect price.”

An example of how altruism warps economic thinking is the concept of “unequal bargaining power.” This is a concept accepted by left and right. Remedying the unequal bargaining power of a solitary worker is the justification offered for “collective bargaining” and other atrocities. “In union there is strength”–strength to balance the strength of the rich employer, who can hire you or any of a number of other job-seekers.

But how do the same facts stand in a mind untainted by the creed of need?

First of all, the concepts of “strength” and “power” here package-deal productive power and destructive power–the power of the dollar offered and the power of the sidearm unholstered. That equivocation itself comes from altruism: to an altruist, withholding goods needed by others is theft (see my article “The Dollar and the Gun,” in Why Businessmen Need Philosophy).

And that leads to a startling realization. On egoist premises, the inequality goes in the other direction. It is the poor, starving worker, desperate to get a job who stands to gain an enormous value from it, and the employer who will get only the worker’s marginal product.

The “bargaining power” of one party to a trade is his ability to provide value to the other. You want to find, and trade with, the person or company that has the greatest “bargaining power over you”–i.e., the biggest value to you.

Can one with a high bargaining power exact stiff terms? That language is from the altruist morality. He can’t “exact” anything, he can only offer. And “stiff”? By what standard? Of the various offers available in the market, you take the one that gives you the biggest gain.

Let’s put numbers to it. Suppose someone is selling something, a widget, that you can use to earn $100, but which he values in his situation at only $10. And suppose the seller knows that you can do this (and knows that he can’t do much with it). Does he have any advantage over you? Are you at his mercy? Only if you think altruism is correct–i.e., that you have a right to have that widget. Otherwise–i.e., as an egoist–you look at it this way: he has the potential to provide me with a large gain, and I have the potential to do likewise for him.

Let’s say that the seller, knowing the widget’s value to you, asks a price of $90. If you know that the widget’s value to him is only $10, you’ll counter with some much lower figure. (If you don’t, you might accept the $90 price, and be pleased to make an 11.11% profit: 10/90 = 11.11%). But if you do know that he values the widget at only $10, you could counter at $25–and the negotiation is underway. The final, agreed-upon price will be something giving a big gain to both parties. Say you pay $60 dollars. The seller gains $50 on the trade, and you gain $40. That is a win-win trade for both of you–as it is for any deal mutually agreeable to each party.

I am reminded of the exchange between Al Ruddy and Ayn Rand, when they agreed on the abortive sale of the movie rights to Atlas Shrugged. He said that he would have been willing to pay more. She responded that that was okay, because she would have been willing to take less.

In contrast, suppose the widget is worth $100 to you, but worth $98 to the potential seller–a condition of approximately “equal bargaining power.” The deal can be concluded only in the narrow range of $98.01 to $99.99. But that means that neither party gains much. It would be to your selfish interest to look around for someone who values the widget far less. That is, it would be to your selfish interest to find someone who had “great bargaining power over you.” The limiting case is someone who doesn’t want the widget at all. He would be delighted to sell it to you for $20–even if he knows it is worth $100 to you.

The other factor that an altruist is blind to is competition on the market. Neither party will take a price lower than he can get elsewhere. If other people, besides you, can take a widget and find a way to turn around and sell it for $100, the widget-seller won’t accept a price less than they would pay. Consequently, the “helpless” employee at the “mercy” of the rich employer can demand a price for his services close to their marginal value to the average business. (In widget terms, the price paid will be around $90.)

By the same token, if there are people clamoring for these jobs, the employer can offer much less. Which is his sovereign right. Except that permanent unemployment is impossible in a free market. A high profit on employee-hires attracts capital, bidding up wage rates. (The tendency on a free market is for a uniformity of profit, adjusted for risk–because above-average profits attract capital, which then bids up the cost of factors, lowering the profit rate back to the average.)

The bottom line is that what is styled “superior bargaining power” is one party’s ability to greatly benefit the other. And that’s something for which we “inferior” people are selfishly grateful.

Dr. Binswanger, a longtime associate of Ayn Rand, is an professor of philosophy at the Objectivist Academic Center of the Ayn Rand Institute. He is the author of How We Know: Epistemology on an Objectivist Foundation and is the creator of The Ayn Rand Lexicon: Objectivism from A to Z. Dr. Binswanger blogs at (HBL)--an email list for Objectivists for discussing philosophic and cultural issues. A free trial is available at:

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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