Capitalism – the Real “Third Way”

Leave a comment

Conventional understanding views economic history as some kind of big battle between unfettered capitalism on the one hand (as supposedly demonstrated by the late nineteenth to early twentieth century United States) and full blown socialism on the other (as the Soviet Union was supposed to have been). Allegedly, both extremes have their positive aspects but are, individually, weighed down by their supposed negative ones. So capitalism, for example, is able to raise the standard of living by several-fold in a person’s lifetime and showers us with more goods than we could possibly imagine. On the other hand, so this conventional belief goes, it promotes a consumerist, materialist and greedy “sink or swim” society that has no regard for the unfortunate and the least well off. Hence the vision of the US as the kind of place where you can buy whatever you want but if you happen to be poor or become afflicted with an illness then you are on your own. Socialism, however, stagnates and reverses the standard of living to the extent that nothing ever works and the population is mired in permanent poverty. On the other hand, so this conventional wisdom dictates, everyone is apparently more equal and the goods that they do manage to produce are distributed “fairly” across society. (Curiously this understanding of economic history seldom tends to acknowledge the tyrannous nature of socialism which, in the Soviet Union, resulted in the deaths of tens of millions of people – one might ask whether this negative feature is so off the scale that it would completely obliterate the chance of socialism being taken seriously as an ethical proposition at all?). Thus, in order to create the best society, we allegedly have to try and combine the economic growth of capitalism with the supposed equality and fairness of socialism, discarding the negative aspects of those two systems in order to arrive at we have today – a social democracy, the “third way”, an economic order that is “somewhere in the middle” between greed and need.

The first problem with this conventional thinking is that neither of the two polar opposites have ever really existed, or at least not in the manner that their proponents imagine them. Capitalism has never existed because government interference in the economy has always been present, simply in lesser or greater quantities at different points in history. Often the interferences at lesser points have provided the catalyst for more intense government activity in later periods, such as the booms and busts and the stop-start flirtation with centralised banking in the last half of the nineteenth century paving the way for the Federal Reserve System that dawned in 1913 just in time to print enough money to pay for World War One. Socialism has never existed because, as Ludwig von Mises so convincingly told us nearly one hundred years ago, it is, quite literally, impossible to build a socialist commonwealth without economic calculation. The Soviet Union survived to a large extent because it could refer to international markets for prices for the factors of production which enabled it to provide at least some kind of functioning economy, albeit at a vastly reduced rate of output compared to the rest of the world.

The real polar opposites that we have endured in the post-Renaissance era are not unfettered capitalism and unfettered socialism at all, but, rather, state corporatism and state socialism. State corporatism, the alignment between government and business, has its epitome in fascist economies such as Nazi Germany and Fascist Italy, but it describes also the imperialism of nineteenth century Britain and the evolution of the United States, which received corporatist boosts during the War between the States, World War I and the New Deal, the latter of which, modelled on Fascist Italy, has successfully sealed the fate of the US as a permanent “corp-tocracy”. State socialism, on the other hand, is not the ownership and use of the productive assets by all for the benefit of all. Rather, it is their ownership by the government and the bureaucracy with productive capacity devoted to their ends, such as missile parades in Red Square, rather than the ends desired by the people, with the people themselves treated as expendable public slaves whose disobedience warrants a one way trip to the gulag.

Second, the blend that has actually been achieved in modern government is not between capitalism on the one hand and socialism on the other. Rather, it is between state corporatism and a democratised form of state socialism. On the state corporatist side, we have central banks printing massive quantities of money, dishing it out to Wall Street which expands credit, creating artificial booms and busts and lining the pockets of the financiers. At the same time large swathes of industry are subject to government patronage and privilege to the extent that in sectors such as energy, transportation, finance, healthcare, and so on there is no genuine free competition. To top it all off, armaments manufacturers profit from the continued proliferation of invented and unjustified foreign wars. On the state socialist side, however, we have politicians bribing voters with other people’s money, and demands for social justice, fairness and equality, anti-discrimination are met through the forced redistribution of wealth and income.

The fissure between these two extremes has not produced any kind of successful mixed economy that selects the best aspects of each system at all. Rather, it has resulted in some kind of bifurcated system that is based on antagonism and resentment. Those clamouring for state corporatism, fake privatisations and government support for business simply want to line their pockets while leaving everyone else to foot the bill. Those wanting state socialism, noting that state corporatism seems to do nothing except make the rich richer and the poor poorer, want to end the anti-democratic structure of state corporatism and return key industries to “public ownership”.

Third, if the two dominant social systems have been state corporatism and state socialism and the postulated “third way” of blending the two has failed, then what, we might ask, is the real third way? There are only three possibilities. First, unfettered socialism; second, unfettered capitalism; and third, a mixed economy of genuine socialism and genuine capitalism (what we might call “interventionism”).

The first option, socialism, is clearly a non-starter as its inability to perform economic calculations means that it is suitable only for bringing chaos out of order. A socialist economic order is no order at all; it is a disaster that would quickly relegate the human race to the Stone Age. The third option, interventionism, is also a non-starter as it produces distortions that must either lead to further interventions or to a complete abandonment of the intervention altogether. For example, if the government intervenes to set a price ceiling on a certain good that is below the market price the result, all else being equal, will clearly be a shortage of that good. The government therefore has one of two options in order to restore supply – to intervene further and take over the supply chain; or to abandon the price control. If it takes the first option, this requires further interventions in other industries which will create similar distortions and disarrays which will breed further interventions all the way until there is full government control over everything – i.e. socialism. Socialism, however, is impossible as so will collapse almost immediately. If it takes the second option, then capitalism is simply restored. In the opinion of the present author we are now reaching the apex of the so-called mixed economy where this decision will have to be made. Decades of excessive money printing and perpetuated malinvestment through the resulting credit expansion has driven financial markets to a zombie-like existence bathing in a sea of insolvency. We are now close to the point where governments will either have to completely socialise financial markets or abandon their policy of cheap credit and restore sound money and credit.

This leaves, then, only capitalism, the genuine free market, as the only prospective and sustainable economic order. Only capitalism, based upon voluntary trade resulting from each individual peacefully pursuing his purposes, is able to avoid the pitfalls of socialism, of the pseudo-capitalism in state corporatism, and of the pseudo equality and fairness of state socialism, all of which are based on force, fraud and antagonism. As we discussed before, all of the alleged pitfalls of capitalism – inequality, greed, selfishness, and so on – are not part of the capitalist system at all and are more appropriately assigned to one of the other systems where everyone attempts to live at the expense of everyone else. Only the restoration of a genuine free market capitalism can therefore lead to a peaceful and prosperous society.

View the video version of this post.

Advertisements

Economic Myths #13 – Wealth Inequality and “The 1%”

Leave a comment

The inequality of wealth and income has been in the news again lately. According to the Daily Telegraph, 1% of the world’s population will own half of its wealth by next year. The Executive Director of Oxfam, who provided the figure, said that “an explosion of inequality was holding back the fight against poverty”, asking the rhetorical question “do we really want to live in a world where 1% own more than the rest of us combined”?

The mainstream debate over this issue fails to understand the true nature of the problem. The pro-free market side are wont to point out that such inequality “doesn’t matter” and governments should not do anything to interfere with the progress of business. The likely call from the opposite side, however, is for increased taxation and redistribution and, indeed, Oxfam itself stressed the need for a greater crackdown on tax avoidance by large, multinational corporations. However, the reality is much more subtle than simply left vs. right and, indeed, the debate produces a false dichotomy between “pro-business” and “pro-government/anti-poverty”.

On the one hand, we can agree that wealth inequality does not, on its own, create any problems for the generation of wealth and the reduction of poverty. The common attitude towards the rich appears to assume that someone like Warren Buffett or Bill Gates has tens of billions of dollars lying around in a bank account for them to spend and enjoy. The reality is that these figures represent the value of capital goods – machines, tools, factories and so on – that are invested in producing goods and services that everyone wants to buy. If these resources are in the hands of just a few people – say, “the 1%” – who most accurately devote them to the most urgently desired needs of consumers, then there is nothing economically deleterious with wealth inequality. Indeed, wealth inequality, in this scenario, is exceedingly good as any attempt to reduce it would divert resources into the hands of those less capable of directing them to the ends that people desire, or into those who would consume them. It is capital investment – more capital invested in more production processes to churn out more products that people need – and not taxes and redistribution that solves the plight of poverty.

However, this scenario is conditional upon the crucial aspect that resources must be in the hands of those who are best suited to serving the needs of consumers. In other words, those who are rich must have become so by meeting those needs. However, it is patently obvious that the current ownership structure does not reflect the voluntary choices of consumers. Rather, it is the product of crony capitalism, of cheap printed money that is ploughed into malinvestments and of taxpayer funded bail outs when it all collapses. The growth in wealth inequality is due not to the fact that consumers are voluntarily choosing to place that wealth in the hands of a few select people; it is because the government is throwing cheap money at this tiny elite so they can steal all of the world’s assets.

What, then, is the solution to this problem? Taxation and redistribution would clearly compound the economic evils rather than solve them. And, in any case, in spite of the hullaballoo about tax avoidance, the rich will always be able to influence tax policy to their benefit and to arrange their affairs so as to avoid it as much as possible. Rather, what is needed is a wholesale withdrawal of government from either supporting or hindering anyone in the pursuit of gaining wealth. All wealth should be obtained through the voluntary nexus of serving the needs of consumers and everyone should gain their wealth through their abilities and not through their political connections. What might such a world look like? Would it encourage wealth inequality or would such inequality be unlikely? One the one hand, it is arguable that wealth would still be highly concentrated. Genuine entrepreneurship is a rare talent and is likely to always remain so. However, if that is the case it is also likely that those particular individuals who own the world’s resources will rotate relatively quickly, with the top dogs remaining on the pedestal for only a short time. Indeed one aspect of the current wealth divide that is ignored is whether the same people remain stuck within their wealth/income group or whether there is relatively fluid movement between the different groups. Successful entrepreneurs make their biggest successes when they are small, nimble and contrarian. Once they have achieved their wealth, however, and their enterprises have morphed into large, multinational companies, they become large, unwieldy, inefficient and complacent. A former rebel becomes a part of the establishment who then becomes vulnerable to the insights of later entrepreneurs. Part of this can perhaps be seen with the technology industry where no, single player has managed to dominate each successive era. Microsoft put a PC into everyone’s home in the 1980s-90s; Google was the number one in internet search; Facebook was on top with social networking; and we are now, seemingly, entering a fourth phase where Apple seems to dominate smartphone technology. No single outfit has been able to carry through its dominance from one era to the next. Corporate dynasties and everlasting companies controlling everything will certainly not be a feature of a genuinely free market. Even a stock investor such as Warren Buffett, who has profited from a great many businesses in numerous decades, would be unlikely to achieve the wealth that he has done. Buffett’s mantra of value investing relies upon the price of a stock to become undervalued relative to the underlying value of the business, and for the price to then reach parity with, or exceed, that value. But the large distortions in stock prices – both up and down – have been precisely because of central bank flooding the markets with cheap, freshly printed money that results in excessive booms and busts. It is unlikely that Buffett, in a genuine free market, would have been able to buy and sell at such favourable prices as he was able to do in recent decades. On the other hand, however, it is also possible that a free market would reduce wealth inequality. As wealth creation ensues and the standard of living rises, ordinary people will find themselves with increasing amounts of disposable income that they may decide to divert into saving rather than increased consumption. Such funds, through savings accounts and the bond market, may form the backbone of investment funds that are ploughed into productive use. Thus, ultimate ownership of wealth may be more diverse than it is at present. Either way, however, we can be sure that the resulting structure of production and ownership will be one that best serves the desires of consumers and changes and adapts as the tastes of consumers change. Ultimately, it will always be the everyday folk, through their purchasing habits, who decide on the level of wealth inequality – not governments and central banks handing out favours to their political cronies.

What about the Poor?!

Leave a comment

When debating the virtues of a capitalist or libertarian society, one can extol the benefits of private property, free exchange and non-violence. Most of the nagging questions – “how would police work in a free society?”; “how would we regulate unscrupulous companies?”; or the now-clichéd classic “who would build the roads?!” – can be dealt with fairly straightforwardly and it is not difficult to show how such a society would deal with these matters in a vastly superior way to one that is imbibed with statism.

However, there is one question that always presents a seemingly insurmountable difficulty – what would happen to the poor? By this, we do not mean the accusations of a free economy being “sink or swim” or “dog eat dog” which can also be disposed of fairly easily. What we mean is the fact that a free world would have no “official” institution or “social safety net” to help those who were genuinely less fortunate. A libertarian might mumble a few words about the importance of charity but with an outright declaration by one’s opponent that such a system is necessary, one may be tempted to concede that this is the Achilles’ heel of a libertarian society1.

It is high time that libertarians took the offensive against such a criticism and turn this apparent weakness into an advantage. In the first place, the question depends very much on how we are defining “the poor” – absolutely or relatively. In an absolute sense, the first hurdle to jump over is the criticism that capitalism is actually the cause of poverty. This is nonsense. Poverty is the state of humans in nature. When the first person walked the earth the only tools he had available were his bare hands. There is no “capitalist” system to speak of and his lack of food, shelter, clothing, and anything even remotely enjoyable in life is because nature dealt him this hand. Capitalism, that is, the accumulation of capital, is what moved him away from this state of nature and allowed him to enjoy hitherto unimaginable riches. On the eve of the industrial revolution, 85 percent of the world’s population survived on less than a dollar a day in today’s money. That figure is now down to 20 percent2. Blaming capitalism for the remaining poverty and “inequality” is like blaming a treatment for cancer for “only” curing 80 percent of cancer cases. The conclusion one would draw from such statistics is not that the treatment should be abandoned but rather that it should be extended to the remaining 20 percent as quickly as possible! One answer to our problem of what to do about the poor is, therefore, to say that capitalism will simply make poverty irrelevant, an evil vanquished and consigned to the pages of history books. And it is precisely those areas of the world that do not possess the institutions necessary for a functioning of capitalism – strong private property rights and the rule of law – that are still mired in poverty. Furthermore, those countries that have experimented with socialism experienced nothing but stagnation, decay, environmental destruction and a permanently low standard of living. So for someone who questions what a capitalist system would do about the poor it is incumbent on that person to explain why he favours a system that would keep the poor very much in poverty.

The more popular argument against capitalism, however, is that it causes relative poverty – that some people get ahead while others are left behind to languish. Apart from acknowledging what we just mentioned – that there are areas of the world where a capitalist system simply cannot flourish – the primary reason regarding one’s own political system is that everything in a given Western country is mind-numbingly centrist. In the UK political division was formerly split between the Tories – representing the preservation of the superiority of the aristocratic, landholding caste – and the Liberals which were born out of the enlightenment. When the liberal philosophy succumbed to socialism after the World War I, the latter marked a seemingly distinct contrast between the interests of businessmen and “capitalists” on the one hand and that of the working class on the other. This continued for the next seventy years until the collapse of socialism in Russia and Eastern Europe left socialism as an empty and unworkable philosophy. Beginning with the Thatcher era and culminating in the Blair Government, the ideological shift was to the centre – that, not any more was it “the workers” vs. “the bosses” but, rather, Government would allow business to pursue profit while preserving the welfare state and the nationalisation of certain industries such as healthcare. What has resulted, therefore, is a very rich strata of society and a very poor strata of society both supported by the Government, and ultimately all paid for by the middle classes. It is this “corporatist, welfare state” that has caused the bifurcation of wealth rather than any vestige of that system that could be referred to as capitalist. We have already seen in the 2007-8 financial crisis how the rich – usually connected with a financial system propped up by the legalised fraud of central banking and fractional reserve banking – rather than suffering losses are bailed out when they make huge entrepreneurial errors. Their gold-plated situation is one of “profit & profit” rather “profit & loss”, increasing the propensity to gamble recklessly and plough scarce resources into loss-making ventures. At the opposite end of the scale the poor are also bailed out of their situation, increasing the attractiveness of unemployment, consumption over saving, and the dissolution of traditional institutions such as family and friendship. The net result of all of this is a permanent rich and a permanent poor, all supported by the state and, ultimately, the middle earners who are not “too big to fail” but also not poor enough to receive government welfare handouts. This is the real cause of the inequality between rich and poor in the Western world today – that the gap is mandated by the extant political system – and not by capitalism.

A capitalist system, in contrast, would be strikingly different. In the first place, the rich can only stay rich by continuing to devote the scarce capital goods to the ends that are most urgently desired by consumers. No bailouts, no socialisation of losses. But also the whole purpose of a capitalist system is mass production for the masses. It is not a system of trading phantom assets denominated in paper money. It is this mass production that extends what were once the luxuries of the rich to the rest of society. In the pre-capitalist era, a rich man may have had a horse and carriage and the poorer man may have had nothing and would have had to walk. Today, the difference is that the rich man may have a Ferrari and the poorer man a VW Polo. But at least now they both have a car. Whereas before the difference was one of how quickly it would take one from get from A to B, the remaining difference is simply one of comfort and style. The relative gap has, therefore, narrowed. All around us we see a shortening of the time from the development of a luxury item to its dissemination amongst the wider population. It took several decades from the invention of the computer before every house and office had a PC; yet the Smartphone revolution has taken only a few years. As capital becomes more ubiquitous, therefore, the result is a practical narrowing of the gap between rich and poor.

Having pretty much explained why the poor would be far better off under a capitalist system than under a collectivist one, what of the fact that there is no formal institution for helping the poor? Here, people too often jump to the virtues of the welfare state while undermining those of a world without it. As we noted above it is precisely because there is a welfare state that the relative importance of other institutions such family, friendship and the local community become less important. After all who needs to rely on friends to help you out in your hour of need when the state will do it all instead? Without the state to bail one out however, such institutions are likely to flourish. The irony is that, under a capitalist system, the very selflessness and altruism that its critics say is destroyed by capitalism would in fact receive an almighty boost! The capitalist system is simply one of human co-operation; its just that this co-operation is voluntary rather than enforced. People do not simply stop co-operating because they aren’t forced and when the relationship is voluntary it leads to human beings that are more understanding, caring and friendly towards their social counterparts rather than the bitterness, hatred and resentment that results from mere force.

Critics of capitalism should therefore be met head on with the facts that a free economy a) reduces absolute poverty by allowing production for the masses to be unleashed, b) reduces relative poverty by permitting luxury items and innovations to be mass produced, and c) encourages family, friendships, empathy and understanding between human beings who will be more likely to help each other out when they are in genuine need. Given all of that, it becomes incumbent upon the statist to explain why he favours a system that preserves poverty and creates a society of selfish, bitter and uncaring individuals.

View the video version of this post.

1A curious aspect of political debates where liberty is pitted against some form of collective is that liberty is subject to a paralysing degree scrutiny to which its opposing philosophy is not. If libertarianism shows a single morsel of uncertainty when answering how it would solve a particular problem it is declared to be unworkable and impractical, regardless of how many other areas in which it is shown to be beneficial. Yet people happily support and vote for political parties in spite of disagreements with particular aspects of their manifestos.

2Tom G Palmer, Interview with an Entrepreneur Featuring John Mackey in Tom G Palmer (ed.), The Morality of Capitalism, p. 26

Poverty and the Pope

Leave a comment

The newly elected Pope Francis has celebrated his inaugural mass by placing the poor at the centre of his papacy, presaged earlier by the inspiration of St Francis of Assisi when choosing his regnal name and the urging of a fellow cardinal to “remember the poor” immediately upon his “victory” in the Sistine Chapel.

There are three questions one is tempted to ask any public person who bleats on incessantly about the poor:

1. What is the definition of poverty?

2. What is its cause?

3. What can be done about it?

Let us be charitable and ignore the fact that many measures of poverty are determined relatively (and hence are really a disguised measurement of “inequality” rather than of poverty) and proceed to answer the second two questions firmly and starkly. Poverty, to the extent that it exists, only does so because of a relative lack of production per capita of the population that is poor. This, in turn, is because there is a low amount of capital invested per person. The only way to resolve poverty is to encourage private saving, private investment in capital and an increase in production per head of the population, all of which must in turn be based upon strong rights to private property. There is absolutely no other way. Taxation, redistribution, borrowing, wasting, Government boondoggles will in no way help the poor. And yet precisely what is it that is always called for? Always the latter. Nor will the poor be helped by “showing loving concern for each and every person, especially children, the elderly, those in need, who are often the last we think about”, to quote the Pope’s inaugural homily. As economics teaches us you do not need to love your fellow human in order to increase his well-being, merely to serve him and engage in trade with him.

It would be an inspiration indeed if the Pope was to call for private property, free trade and free enterprise to lift the poor out of the slums. But I, for one, do not remain particularly hopeful that he will follow this path.

View the video version of this post.

Greed

1 Comment

All too often one hears the repeated lament that the reason for boom and bust, widespread poverty, the increased inequality of incomes, endless warfare and whatever else happens to be plaguing the world today in the eyes of the saintly commentator are because people are afflicted by greed. “If only people weren’t so greedy then everything would be fine!” chants the typical appeal.

However even a brief thought will reveal the empty nature of this word as a basis for criticism of the current social, political and economic order. This is not to suggest for a moment that the order is perfect or even right, nor that some people are not endowed with malicious intent. Merely that pursuing the problem with reference to “greed” is simply meaningless.

There seem to be two strands to any accusation of “greed”. First, that the alleged perpetrator desires to “possess wealth, goods, or objects of abstract value with the intention to keep it for one’s self, far beyond the dictates of basic survival and comfort” (as Wikipedia puts it) – i.e. that greed is the desire for some form of excess. Secondly, that only some people are afflicted by this menacing motivation whereas the rest of us are apparently content to languish in undemanding modesty.

Taking the first problem, if some people want or desire some kind of excess then we are entitled to ask excess of what. If something is excessive then what we are measuring, what is the unit of measurement and at what point of the scale is acceptability divided from excess?

One plausible possibility is that we attempt to gauge the value that a person’s desires or possessions would bring to him/her subjectively, what might be called “psychic income”. But why should this condemn a person as being the epitome of moral filth? If I get an immense amount of utility out of something that is, to all intents and purposes, useless to other persons what harm is this causing? Is it wrong for me to gain pleasure where others do not? What if I possess an object that gives me unimaginable psychic income, that makes me the happiest person alive, yet is, to everyone else, of little or no value? What has it got to do with anyone else that I enjoy this thing so much? This may sound like an exaggeration, but when you consider that many people have in their possession objects that to them carry great moral sentiment – wedding rings, photo albums, etc. – whose market value is but a pale reflection of the value they hold for the owner then it is not so far fetched.

In any case, even if gaining “undue utility” from an object was reprehensible, how do we measure this excess of subjective value? What is the cut off point? Utility is ordinal not cardinal – we can only rank things in order of how much we value them, not in precise quantities of value. A simple order never gives us any clue about how much something is valued, only how it is valued relative to anything else.

A second possibility is that we attempt to determine a person’s greed by the market value of his desires or possessions. But the market value of an object is simply a hypothetical price that someone might pay if offered the object for sale. It is dependent entirely upon the valuation of everyone else and is subject to constant and unceasing change. Indeed, strictly, market prices are only estimates. Real prices are historical events that bear no relation to future events. But leaving that aside let’s assume that a person’s possessions and/or desires command an exceptionally high market price. All this tells us is that everyone else values those possessions or desires extremely highly also. Why is a person to be condemned for this? Is it my fault if everyone also wants what I want or have? What if my family photo album was discovered to contain the prized, lost work of a celebrated artist or my wedding ring was found to contain a precious mineral and suddenly these objects, overnight, go from being practically worthless to potentially fetching millions of pounds in a sale. Am I now guilty for wanting or possessing these objects? Why should the fact that other people have changed their view of my possessions condemn me as being “greedy” for wanting to retain this property for myself? Should I be divested of my photo album and my wedding ring and the proceeds distributed to combat my alleged greed?

This unravelling of any accusation of greed begins to show the true motivation of the accusers – that it is really based on their envy rather than the possessor’s “greed”. This leads onto the next problem which is the idea that only some people are greedy – the “haves”. Everyone else is spared the condemnation. But would any of the latter turn down the offer to have their wealth increased beyond the so-called “dictates of basic survival and comfort”, even if it meant that no one else’s was? According to elottery-syndicates.com more than 32 million people play the UK National Lottery each week, well over half the eligible population. All of these people want to advance their own wealth to a great height (at least several million pounds worth in the regular lottery game while the jackpots in “Euromillions” game can run to over £100m after repeated rollovers) while leaving everyone else’s in exactly the same place. “Greed” therefore appears not to be an isolated motivation but one that is shared commonly.

Indeed, it is part of the human condition to always seek improvement to the current state of affairs as they are appraised by the individual. Every human action is an attempt to substitute more desirable ends for less desirable ends with the means available. To seek an end to this is to replicate the fallacy on which so many political philosophies have foundered – that the natural condition of man, with all of his qualities and faults, can somehow be moulded or changed. Any viable political philosophy must account for the true nature of man, warts and all. Further, as a result of humans’ unceasing appetite for improvement “the dictates of basic survival and comfort” change with each generation. In the second decade of the twenty-first century no one thinks that you are greedy if you can afford a house, a car, a telephone, a refrigerator and an annual foreign holiday. In the same decade of the twentieth century such possession would have been the utmost display of ostentatious luxury. As demand is often elastic it has always been the case that what has started out as luxury consumption of the rich has inspired entrepreurial activity to mass production until supply can be increased so heavily that even the poor can afford what was once a symbol of great wealth. Any attempted measure, therefore, of “the dictates of basic survival and comfort” is entirely arbitrary.

There are numerous related fallacies to the so-called greed problem. One is the idea that because one person has something another person must necessarily be without – that one person’s gain is necessarily another’s loss. If I have an iPad does that mean that someone does not have an iPad? No, it does not. I have an iPad because I went to work and created goods or services that I exchanged for money which, in turn, I exchanged for the iPad. The iPad only comes into existence because I created the resources that enabled me to purchase it. If I did not it would not mean that someone else would have it – it simply wouldn’t exist. Now there are definitely people in the world who do not fund their lifestyles from such production and voluntary trade but rather from violent appropriation of other people’s product, and some of them are very rich. But this should be dealt with for what it is and condemned accordingly. Per se one individual being a “have” does not mean that another is a “have-not”.

Another thread that seems to weave itself through social and political commentary is the idea that the net wealth of the rich is sitting around in a bank account somewhere, ready to be enjoyed as luxury consumption. This could not be further from the truth. The productive rich (as opposed to those who live off Government privilege and violently appropriated revenues) are rich because they have abstained from consuming what they have and invested it in real, productive assets – factories, machines, equipment, and things that must be run by people with jobs. Their increased net wealth reflects the success of this enterprise. It means more jobs for the rest of us to go to every day and cheaper goods for us to buy when we go shopping. The rich are rich precisely because their investment decisions have proved to be so productive. If this wealth was to be liquidated and distributed amongst everyone else in the name of “sharing” or “combating greed” then you would have to destroy the entire productive apparatus of the economy and place it in the hands of those who do not have the capacity to save rather than consume and, even if they did wish to save, have no or less of a proven ability to direct resources to their most productive uses. In contrast the amount of consumption spending by the rich, if distributed equally, would barely be enough to give everyone a few extra pennies.

In sum all of this reveals that it is a mistake to concentrate on people’s motivations or desires in achieving their ends. If somebody does something that inflicts no violence on either me or my property or if I trade with him peacefully and voluntarily then it is no business of mine why that other person engaged in those activities. What matters to me is the method of achieving those ends. Let us, therefore, banish any more talk of “greed” and focus instead on ensuring that more of our “greedy” entrepreneurs and businessmen make their wealth the honest way – voluntary trade, saving and capital investment that provides us with jobs and affordable products – rather than through violently enforced Government privilege, tax revenue and bailouts that definitely leaves them richer and us poorer.

——

View the video version of this post.