Altruism, Freedom and Economic Progress

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The virtue of altruism is held in immeasurably high esteem in our society today. Selfless benevolence at one’s own expense is regarded as the pinnacle of human endeavours, with societies and cultures often reserving their most coveted honours and elevations for people who have apparently undergone acts of selflessness and generosity. Contrary to mainstream thought (and contrary to the thought of some free market proponents), there is nothing in either libertarianism or free market economics that disputes this view. It is true that, strictly speaking libertarians qua libertarians neither promote nor condone any voluntary act; rather, they simply take the position that such acts should not be countered with violent repressions. Whether such acts are good in and of themselves is another matter. Further, free market economists will note that although voluntary exchanges create net wealth (including gift giving in which the donor never “loses” as such but, rather, gains a psychic profit that, to him, must be worth more than what he gave up), there is no part of their science in and of itself that compels them to promote or encourage giving any more than they are required to promote any other type of exchange (although economists may of course note also that increased wealth creation usually goes hand in hand with increased generosity). Nevertheless, as a private individual, it is possible for libertarians and free market economists to regard such specific, overt acts of kindness and generosity – especially those that cause the donor to incur at least the risk of a great material cost, such as wading into a strong river to save a drowning child – as worthy of praise and adulation and that the congratulation of such individuals is far from being out of place.

On the other hand, mainstream thought has extrapolated, erroneously, from these individual, voluntary acts the conclusion that economic progress, the vanquishing of poverty and the path towards a greater and better society are themselves dependent upon altruism and self-sacrifice to the extent that these virtues can cohere into a social system – a system, that is of course, managed by state fiat, such as the welfare state. This belief is dependent upon a further error which is that, in the free market order, the fundamental interests of each member of society are pitted against each other and that one person’s profit must automatically transform into another person’s loss. In other words, the profit and loss system results in benefits to the few (or, at most, some) at the expense of the many. From this incorrect assumption one naturally leads to the conclusions that the only way to benefit more or the many is if these profits (or the wealth that is possessed by the few) are turned over to the many. It is these conclusions with which libertarians and, in particular, free market economists disagree. If that was not bad enough, however, we shall also see that the implementation of systemic methods of wealth distribution is, in fact, completely antithetical to and destructive of altruism and generosity.

This error is similar in nature to another error encountered in mainstream economics – that of supposed shortages of “demand” on an economy-wide sale. In the particular situation of an individual firm or industry, a withdrawal of demand from the firm’s products will result in a slowdown of business for that firm. If the firm is to recover then it is obvious that a recovery of demand for its goods and services is necessary. However, from this entirely correct conclusion regarding a particular circumstance is extrapolated the utterly false conclusion that increases in demand must benefit the economy as a whole. Or, in other words, that where there is a general economic malaise the effective response is to encourage a general increase in demand for an alleged “glut” of supply. As we know from Say’s Law, however, demand and supply are opposite sides of the same coin – the demand for one product is formed by the supply of another. Therefore, one cannot increase general demand without also increasing general supply, i.e. the production of real products. Simply printing more money or lowering borrowing costs does nothing to increase demand; it simply raises the prices of what is already available and shifts the purchasing power over these existing resources from the last or later recipients of the new money to the first or earlier recipients. The real problem in an economic bust is a relative glut of some products, namely, capital goods that are further up the chain of production, and a relative shortage of other products, namely consumer goods and capital goods lower down the chain of production. So too is a similarly false conclusion drawn with regards to altruism and self-sacrifice – that what may be good in one, specific situation is good for society as a whole; and so good, moreover, that the state should systematically force us all towards altruism and self-sacrifice. Let us now explore the reasons why this is false.

First, with particular, individual acts of kindness or generosity it is possible for a bystander to appreciate and form judgments concerning the variables that are weighed in the consideration of whether someone has performed a virtuous deed; the initial helplessness or the “worthiness” of the recipient; the magnitude of relief that the voluntary act of kindness provides; and the magnitude of at least the material cost to the donor. One can therefore form a personal judgment, based on empathy, of the positions of the particular giving and receiving parties as to whether the act of altruism is a good thing. On an economy-wide scale in a society of tens (may be even hundreds) of millions of people, however, it is not possible to form such judgments with any degree of specificity, and much blunter tools such as “income” are needed in order to judge who should be donors and who should be recipients. But such blunt tools tell us nothing about why, for example, someone’s income is low, whose responsibility it is and who should bear the burden of doing something about it. Moreover, there is no reason to suppose that someone who has a “high” income necessarily has cash to spare and does not have other commitments for those funds which the government wishes to redistribute – commitments which, even to others, may be valued as worthy, such as investing in his children’s education.

Second, in the long run massive transfers of wealth from the class of “haves” to the class of “have nots” does not benefit the latter in the long run. One of the most serious misconceptions concerning the ownership of wealth is that one must own it in order to benefit from it and thus only divesting wealth from those that have it and giving it to those that do not have it can ameliorate the plight of the poor and needy. What benefits the latter, however, is not the turning over of wealth to their hands so that it can be consumed and lost forever. Rather, what really hauls the poor up from the depths of despair is the investment of wealth in capital goods which are then able to produce more and more products and services at increasingly lower prices so that the poor can afford to buy them. We can illustrate this by adapting a well-known proverb: give a man a fish and he will feed himself for a day; invest that fish in a business that will produce fishing tackle that the man can afford and he will feed himself for a lifetime. The man in need never owned that original fish nor the capital goods that were produced from consuming it, yet it is clear that his life benefitted from its investment in a productive enterprise to a far greater extent than if he had ever gotten his hands on it directly.

Third, the very motivation towards altruism is most often dependent upon a close family or friendly relationship between donor and recipient where the welfare of the latter is of great importance to the former. Such a motivation is destroyed when your money disappears into a bureaucrat-run black hole. The result is that, as people lose their ability to spend their money in ways that they want, the motivation to producing wealth in the first place is destroyed. There is therefore less wealth to distribute anyway. Critics may, of course, argue that such a result is owing to the alleged “selfish” and self-centred nature of humans and that surely we – i.e. the state – has a duty to attempt to overcome this? There are at least two responses to this. First, it is part of the natural condition of humans that the primary ends and values that they hold are concerned with their immediate environment – that is, the welfare of themselves, their friends and their family; in other words, people whom they know, care about and have the ability to form empathetic judgments about. It is the stimuli from these sources that most potently determine our desires and choices. Everything else that goes on in the world is, for the most part, out of sight and out of mind, or at least very remote and can be brought to us only electronically through the media. But one does not even need to go that far, as most people are unlikely to even be able to appreciate the conditions, needs and desires of people in another neighbourhood in the same town – or even in the same street. People do, of course, devote themselves to causes that aim to help people far away about whom they may know very little; but these are specific causes towards which one may have a specific motivation. Wealth redistribution, however, aims at ameliorating hundreds, if not thousands of afflictions across many millions of faceless people. It is simply not possible for any human to form empathetic appreciations of all of those individual circumstances and, thus, neither will they be able to appreciate any kind of amelioration of these afflictions if they happen hundreds of miles away (this is before we get into any discussion of whether wealth distribution does, in fact, accomplish such ameliorations). Therefore, it is not possible for the typical human to motivate himself towards striding towards providing for a giant pot that aims to solve these problems, or at least not to the same degree he motivates himself towards providing for ends of his choosing. Moreover, we may ask whether a person with the ruddiest bleeding heart would, if it came to a choice, prefer to work towards contributing to the tax pot ahead of, say, caring for his sick and dying mother. Second, the very fact that wealth redistribution is forced (by the threat of imprisonment) rather than undertaken voluntarily does nothing to promote altruism in any way at all. Indeed, we might say that genuine altruism and selfless behaviour worthy of praise and recognition relies upon the fact that someone could have chosen, freely, to have done something “worthy” with his time and money. When I am forced to hand over my money, however, I have in no way “behaved” altruistically; in fact I haven’t really “behaved” at all – rather the money was simply taken from me. Further, rather encouraging any feelings of generosity the forced appropriation of my property it is likely to make me bitter and resentful and, moreover, to curb any desire to be generous with the remainder of the funds that I have left. To make matters worse, the welfare state does not leave the recipients of welfare spending as kindly and grateful beneficiaries who feel they were lucky to have avoided misfortune. Rather, the welfare state begets a sense of “entitlement” and dissolution of personal responsibility – that it is the state’s responsibility to provide for their needs and that they have a right to the state’s assistance. Ironically, therefore, the welfare state itself increases antagonism and selfishness rather than promoting their antitheses.

The attitude of selfless altruism can also be seen also in the elevation of those who devote themselves to so-called “public service” above those who compete in the allegedly greedy and grubby business of the private marketplace. Although positive views of politicians have soured considerably in the past generation, it is still widely believed that private industry is where people go to make lots of money to keep for themselves, while those who seek public office shun such squalid and base motivations and, with their visions of a “greater” society, can almost single-handedly make everyone better off without a thought of any benefit to themselves. Indeed, to the present author, it beggars belief that people are gullibly hypnotised by the illusion that all of their hopes and dreams are dependent upon a tiny minority, or even (when you witness the almost messianic reverence devoted to presidential candidates) a single person out of a society of millions gaining a job ahead of somebody else. It is in no doubt true, of course, that many people seek to enter politics with the desire, albeit the naïve one, to help people and to improve society. It may also be true that they could have amassed greater private fortunes by seeking employment in the private sector. Nevertheless, all political accomplishments (other than the few and far between measures that seek to roll back the interference of the state) necessarily produce a negative sum result – negative because what is given by government to one set of people must be taken by government from another, minus a cut to pay the salaries of the politicians and bureaucrats. This is before we consider the destruction of the incentives to create wealth that we outlined above. Even if, therefore, we stretched credulity and viewed politicians as truly angelic and selfless they would still not accomplish anything that would produce a net gain to society.

It is not the aim of our discussion here to suggest that a society distinguished by capitalism and free enterprise would suddenly create some kind of utopia where rank selfishness is without any negative consequences. Rather, it is simply to point out that, in the long run, the vanquishing of poverty is achieved by the investment of more capital goods in order to make more products affordable to people with the existing money that they earn themselves; not through giving them more money that is earned by and forcibly confiscated from somebody else. In such a society the high incidence of people needing the help of others would be prevented, not just cured. Nevertheless we might also note that it is a society that is highly prosperous and without a systematic welfare state that encourages rather than obliterates charitable endeavours. Overwhelmingly this is because people simply have more to give – it is no great mystery as to why most of the world’s great charitable foundations and societies originated in the nineteenth century, the era of the relatively most capitalistic progress and the least intervention by a formal welfare state. Ironically, it is the welfare state that has squeezed out private charity and genuine altruism from having any mainstream role in society. Additionally, however, in the absence of a compulsory so-called “social safety net” people rely on maintaining good relationships based on trust, reliability and selflessness with family and friends precisely so that they may be there for each other to cushion the consequences of the occasional unforeseen circumstance. Far from provoking any atomistic and individualistic existence freedom promotes and encourages a strong community and family spirit. If the virtue of altruism is to be nurtured then there cannot be a better place for it than there.

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Economic Myths #14 – Share the Wealth

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Clement Attlee is, with little doubt, one of the more notable of Britain’s former Prime Ministers. Apart from the long lasting effects of his legacy he was, in 2004, voted the “Greatest British Prime Minister of the Twentieth Century” in a poll of 139 academics. Needless to say, with such a high ranking in academic circles, almost every “accomplishment” of the post-war government that he led (with the possible exception of decolonisation) is likely to be an anathema to libertarians. Not only did he nationalise key industries such as the railways, canals, road haulage, coal mining, gas, electricity, telephones and steel manufacturing, he practically created the “cradle-to-grave” welfare state, the jewel in the crown of which was the now untouchable sacred cow, the National Health Service. Furthermore, he successfully entrenched the “Keynesian consensus”, the idea that full employment would be maintained by Keynesian fiscal policy, that was to unite all parties of any stripe for another three decades until the election of Margaret Thatcher’s government.

With such profound and fundamental changes to British society, many of which are still felt today, it is important to have an insight into Attlee’s motivations towards the legislation that his government passed. His own background, (not unlike that of most left wing intellectuals) was decidedly non-working class. The son of a solicitor, he was raised in Putney, an area of London populated by the professions. He was educated at an independent school and later read Modern History at University College, Oxford. He was not exactly born with a silver spoon in his mouth but neither was he consigned to life working in factories or in the coal pits. According to Wikipedia, his original political leanings were conservative. It was after he spent three years managing a charitable institution for working class boys in Stepney, East London, that he “came to the view that private charity would never be sufficient to alleviate poverty and that only direct action and income redistribution by the state would have any serious effect”. Thereafter, he became a “full-fledged supporter of socialism”. Which such self-assuredness, can we expect Attlee’s post-war government (to borrow a phrase from the infamous Beveridge Report that influenced his government’s policies) to have come close to completely “abolishing want”? Unfortunately, the facts speak otherwise:

  • Coal production in 1947 fell seven million tons below the output of privately owned mines ten years earlier, resulting in a three week industrial power cut in London and the Midlands;
  • The government constructed 134,000 fewer homes per year at a higher cost per unit than were built in either of the two years preceding the war;
  • Wages were frozen to wartime levels while the cost of groceries soared as their supply declined;
  • When US and IMF loans dried up, the costs had to be borne by the British working man, leading to the “taxation and tears” budget of 19491.

And summing up the welfare state:

The [Beveridge] plan merely furnished a thin cushion against total disaster for the most impoverished third of the population. True, every citizen (whether or not he needed it) was entitled to prenatal care, a birth subsidy, hospitalization and medical care of sorts, unemployment insurance, an old-age pension, funeral costs, and an allowance for his widow and dependent orphans. The subsidies and allowances were tiny, and, with mounting inflation, barely sufficed for the poorest – sixteen dollars at birth and eighty dollars for a pauper burial. Medical services were spread so thin that even at the price of nationalizing the existing medical profession, it was impossible to guarantee first-rate care. With food rations hovering near the starvation level, sickness became more frequent and national; production fell still lower. So poverty was not eliminated but increased to plague proportions, and life was a nightmare for everyone but the most dedicated bureaucrats. A man might have “social security,” yet he could not go out and buy a dozen eggs. After four years of Socialist government, he was only entitled to an egg and a half per week, as decreed by Marxist No.1, John Strachey, Fabian Minister of Food and Supply2.

The origin of Attlee’s political views betrays his belief in a common economic error, a belief that can clearly have disastrous consequences if its holder happens to one day become the leader of his country. This view of either private charity or forced redistribution as the solution to poverty is based on the flawed notion that there is a fixed pool of wealth for everyone – that when one person possesses wealth it necessarily results in another person being without it. From this false premise it follows that the alleviation of the poverty of one person requires wealth to be disgorged from another. The solution to poverty, however, is that wealth is created and not simply redistributed – the pie gets bigger and not just chopped up in a different way. Capitalism and the free market, far from creating haves and have-nots, involves the progressive accumulation of capital that produces more products at cheaper prices that everyone can buy. More factories, more machines, and more tools that produce a greater supply of goods for less and less effort serve to alleviate material poverty. All of us become better off as a result. If, on the other hand, wealth is to be confiscated from some and redistributed to others, it retards this very process of wealth creation. While a specific redistribution may allow the beneficiaries to afford to purchase a bit more in the short term, in the long run there will be less work, less saving, and less capital investment and accumulation. The number of products produced will fail to increase and thus their prices will remain high and out of the reach of the poor. Redistribution is, therefore, a temporary solution at best. At worst, it traps the people permanently in the stagnant poverty that you are trying to get rid of.

Let us imagine ourselves, for one minute, as employees of the charitable institution of which Attlee was manager. How do we interpret that which we may see every day? From some kind of absolute standard, the poverty and destitution of the slums in the East End of London may have been “terrible” or “bad”. No one would ever seek to deny this. It is important to realise, however, that poverty, fundamentally, is not caused by humans but by nature. The earth is and never has been the Garden of Eden, full of delicious goodies that are ripe for our picking. The first person who trod the virgin soil of the Earth was in a position of absolutely crippling poverty by our modern standards. All he had was himself and his bare hands – no shelter, no food, no clothes, no tools, absolutely nothing. (Indeed, we might ask, how on Earth would “redistribution” have helped him when there was nothing to distribute!). But from the moment he dug the soil with his hands, from the moment he picked up the first plank of wood to build into a shelter, from the moment he fashioned a tool from basic materials such as a rock and a stick, so began the long, slow process of capital accumulation and wealth creation, a process that only really began to accelerate in the early 1800s. Humans, in other words, have to work to overcome the natural state of poverty in order to build up a civilisation as prosperous as the one we have today. To view a snapshot of this process at any one moment in history and to declare self-righteously that “those people over there are in poverty!” is to judge this march of progress against an ideal – as if earth should be the Garden of Eden. The appropriate standard against which to make a judgement however, is the best that can be done given the eternal condition of scarcity. If one cries “something must be done” it ignores the possibility that something is already being done and has currently reached its best possible stage before moving forward to bring greater things. Wealth creation and capital accumulation takes time – we did not get refrigerators and cars the very moment the first person on earth decided to get off his backside and start working. But this process has caused the percentage of people living on one dollar a day to fall from 85% to 20% in two hundred years – and that achievement has been accomplished while the population has multipled five or six times.

The only way, then, by which we can judge that there is “too much poverty” at any one time is to ask a single question – is there anything that is slowing down or causing an artificially imposed constraint upon the process of wealth creation? The answer can only be what Franz Oppenheimer referred to as the “political means” for an individual to gain wealth – that, rather than work oneself to use unowned resources, or to trade goods voluntarily with others, one confiscates them violently from people who already own them. Although we can see that Attlee’s solution – redistribution through the welfare state – is a major part of this, so too is any restrictive and regulatory encroachment upon private property. In Attlee’s day, we can point to the fact that the decade of his birth, according to historian David Cannadine, marked the peak of aristocratic power and influence in British society. Today, it is the power of the privileged financial barons of Wall Street that benefit from cheap, freshly printed money, robbing the poor of the their purchasing power and ploughing it into assets, causing bubbles, malinvestments, booms, busts, unemployment and misery. If we really want to solve poverty, we should be removing these barriers to wealth creation that favour the privileged elites rather than compounding the entire sorry state of affairs with further economic evils.

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1Rose L Martin, Fabian Freeway – Highroad to Socialism in the USA 1884-1966, Ch. 7.

2Ibid. p. 76.

Disability and the Free Market

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Whenever faced with the opportunity to explain the benefits of the unfettered free market, the libertarian will often find himself cross-examined and required to explain how a political economic system of liberty will handle various societal ills and issues. One of these issues is disability and how disabled persons, inflicted with some kind of impairment that is (usually) no fault of their own, will be able to sustain a quality of life comparable to that of non-disabled persons. For the sake of brevity we will explore this issue here in relation to physical disabilities rather than mental.

The statist solution to disability is, typically, nothing short of rank egalitarianism. First of all, one must define a hypothetically “typical” able-bodied human being and the characteristics of that person. Anyone who does not meet this standard through either the absence of tissue (such as an arm or an organ) or damage to the same that impairs functionality to a significant degree is considered to be “disabled”. The state’s response to this, in addition to disability benefits funded by the taxpayer, is to forcibly require private providers of goods and societies to maintain equality of access for disabled citizens, including the installation of ramps, lifts, disabled spaces on transportation facilities, and so on. Tackling disability, therefore, is a plank of social justice, of redistribution not from the financially rich to the financially poor but from the physically wealthy to the physically deprived. Just like any other arm of the welfare state, one set of people is forced to fund remedies to problems that are borne by another so that the cost of disability is shifted from the disabled to the able-bodied.

A preliminary problem with this approach is defining precisely when a person will be considered to be “disabled” and which characteristics we are examining when we make such a definition. At the extreme, few people can run as close to as fast as Usain Bolt. Should we not consider Bolt and those of his calibre as able-bodied and the rest of us disabled? If Superman appeared on Earth today, wouldn’t we all appear to be chronically crippled in comparison? Shouldn’t Bolt or Superman be required to fund the rest of us with disability benefits? Clearly this would be ridiculous but when we attempt to make a similar judgment against the “typical” human being we see that we all have varying physical strengths and weaknesses compared to other people that make us either more or less suitable to certain pursuits. Indeed the very reason why we have the division of labour is because of these varying qualities, with weaknesses regarded simply as differences rather than disabilities. At what point does a weakness become a disability? While it may be possible in common parlance to state that a man without an arm is “disabled” whereas a person who has a fully functioning arm is “able-bodied”, determining a clear legal definition of disability for cases in between these two extremes will require at least a degree of arbitrariness. What, for example, should we make of a person who has an arm but cannot extend it fully in a particular direction? And if we are talking about typical characteristics, females are generally physically weaker than males – should we regard all females as “disabled” with all males required to subsidise them with disability benefits? Furthermore, simply because a person is disabled in one way does not rule out the possibility that he may excel beyond the capabilities of his able-bodied brethren in another that, in his eyes, more than makes up for any loss of functionality caused by the disability. What is also clear is that, for the most part, we have to consider a not only a “typical human” but also a “typical disability”. While any disability is capable of being “compensated” by tax-payer funded benefits, when it comes to forcing equality of access only disabilities suffered by a small but significant percentage of the population can be considered. The reason why there may be ramps and wide car park spacing for wheelchair users is because wheelchair users form such a minority. If, however, an individual suffered from a really unusual disability that could only be met through special accommodation unique to him is it likely that all businesses and public spaces in the entire country would be forced to cater for this? As with all statist solutions that lead to redistribution, defining the deserving beneficiary will always be haphazard, encompassing some of those whose ailment is little more than a minor irritation while leaving out in the cold those with significantly impacting impairments.

Leaving this consideration aside, however, and taking it as a given that we can define someone as “disabled”, the libertarian response to the statist solution must be that, however awful and debilitating one’s disability, no one possesses the right to shift the cost or the burden of that disability to another individual. Although it may not be the fault of a disabled person that he possesses a disability, neither is it the fault of anybody else and hence there can be no entitlement, enforced by the violent imposition of the state, to have other people fund a remedy or compensation. It will be the case, therefore, that disabled individuals may command lower earning power in the marketplace simply because their productivity is lower. However, this is no different from the fact that a slightly weaker man may have lower earning power than a slightly stronger man in the market for physical work; the difference between the slightly weaker man’s earning power and the disabled man’s earning power is one of degree rather than of kind. Why should the individual with the greater impairment acquire an entitlement to compensation whereas the individual with a lesser one must shoulder the burden alone? In any case, however, a physical disability does not automatically mean that a disabled individual can command lower earning power – if his mental faculties are intact then his productivity in mental tasks may exceed that of the physically able-bodied in physical tasks. Furthermore, a disabled person has no right to enforce private providers of goods and services to provide some kind of equal access to those goods and services – such as the installation of ramps, lifts, wide car parking spaces, etc. Precisely how much access a private provider grants to his goods and services is dependent upon whether the cost of doing so is less than the resulting revenue. Such questions are very broad as well as very narrow. Should, for example, the supplier set up a bricks and mortar store? If so, where should this store be sited? Should the supplier set up a website? Or would sales be maximised by sending individual salesmen round to every door with the very products in hand, ready for the purchasers there and then? All of these are questions of access. If a minority of customers with disabilities are significant enough to make increased access profitable then it will be provided, otherwise resources are diverted from ends which are more urgently desired by consumers. It is important to realise in this regard that shops, bars, restaurants and so on are not “public” premises; they are privately owned premises into which members of the public are invited to conduct trade. It is the owner’s prerogative which members of the public whom he chooses to serve – he cannot be forced to associate or disassociate with any particular customer, regardless of race, creed, or physical ability.

What, then, would be the position of disabled persons in the unhampered free market? Where a person’s earning power is markedly lower as a result of a disability, or where “access” is impeded by the same, we could suggest that private charity would exist to ameliorate the situation – something that is more likely in an economy where people are allowed to keep more of their money. Such charities could, for example, provide disability benefits to those who are disabled and fund the installation of facilities that improve accessibility. However, the essential difference between the free market and the welfare state is that the latter, in all of its guises, is preoccupied only with wealth distribution whereas the free market is the powerhouse of wealth creation. In the first place, it is only because capitalism and the free market has generated so much wealth that the existence of disabled persons in society can be funded. In impoverished past times, if a person could not work or only worked to a lesser ability than the able-bodied he may simply have starved to death, if he was not actively killed beforehand for being a burden on everyone else. Our advance in this regard is solely because even the lesser productivity of the physically disabled is, in the free market, able to afford them a comfortable standard of living, something that would continue along with increased wealth creation. Capital invested on behalf of the able-bodied is also capital invested on behalf of the disabled and the productivity of both is improved with economic growth. Second, it is not true that there would be no redistributive remedy under the free market. The whole purpose of insurance, for example, is to provide compensation for those catastrophic, but unlikely events that are no fault of the victim. Where physical disabilities are present from birth, for example, prospective parents could purchase medical insurance that will promise a certain pay out in the unfortunate event that their baby is born with a disability, compensating them for the additional costs of care and raising a disabled child. Similarly, insurance would cover the incidence of faultless accidents which leave you with a disability. It is of course the prerogative of each individual to purchase such insurance and it is entirely up to him whether he wishes to run the risk of being unfunded after an accident. But this is his choice and such a person cannot be forced to put his money towards an end that he does not deem suitably urgent enough for fulfilment. If, however, you do believe this is a valuable end then you will not left high and dry with the only option to die following an accident simply because the state is not there to lend you a crutch. Third, redistribution by the state to remedy a certain ill completely distorts the incentives that lead towards the occurrence of that ill. If one knows that a disability will be compensated by the state then, quite simply, it reduces the cost of being disabled. Disability with state compensation is relatively a more attractive proposition that disability with no such compensation. Therefore whatever steps could be taken by persons to reduce the incidence of disability will be taken to a lesser degree. Given that ability and disability is intricately linked to a person’s health overall, people will be less careful with their health; they will take more risks with their bodies; they will be involved in more accidents; indeed, even obesity is now, according to the European Court of Justice as of last month, defined as a disability – would anyone doubt that the level of obesity would be as high as it is without government funded healthcare programmes? Moreover, there will be less of an incentive for couples who possess a genetic risk of passing on a disability to a child to avoid giving birth to disabled children. There will, therefore, be more disabled children born. In short, if you confer upon people a right to be paid when they are disabled, you will, all else being equal, have more disability. Fourth, such distorted incentives also perpetuate the accommodation or compensation of physical disabilities ahead of attempting to find long term solutions that would result in their eradication. If the burden of disability is reduced it also reduces the impetus to find a cure. Disability is simply put up with instead of solved. With the free market, however, as the division of labour widens and more capital is accumulated it affords the wealth not only to increase specialist outlets and solutions that may cater specifically for disabled persons, but also it makes possible increased research and development into long term cures for physical disabilities. Imagine if a person without legs could grow new ones, or if a person who is deaf could resolve the problem simply by swallowing a pill? A truly wonderful world is not one where everybody is forced to compensate and accommodate disabled persons; it is one where we have the wealth and technology so that, to quote the prophet Isaiah, “the eyes of the blind shall be opened, and the ears of the deaf unstopped…the lame man leap as an hart, and the tongue of the dumb shall sing”. This is not to imply that there will be no attempt at achieving cures for disability under statist regimes; but with retarded wealth creation and distorted incentives the desire towards and capability of achieving it is greatly diminished. Moreover, with the free market, the point at which a person’s disability is considered a problem worth spending money finding a solution for is determined by disabled individuals and not the arbitrary decrees of the state. Let us therefore banish the statist accommodation and compensation of disability and unshackle the free market so that disabled persons, like everyone else, may enjoy not only an increased standard of living but the possibility of a complete cure for their afflictions.

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Economic Myths #9 – Social Safety Nets

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It is often trumpeted as a virtue that “civilised”, social democratic countries offer their citizens one or more types of “social safety net” in attempt to eliminate the most dire effects of, say, unemployment, illness or some other kind of incapacity that could inflict a condition of extreme poverty upon the individual members of the citizenry. The idea is that the most basic wants will always be guaranteed by the state should one be unable to provide them for oneself and no one need have any fear of hunger or lack of shelter – situations that are said to be “intolerable” in a modern, 21st century society.

The first problem with this theory is that poverty is not some selectively appearing disease that crops up every now and then to infect an otherwise healthy and wealthy society. Rather, poverty is the natural state in which human beings first found themselves. When Adam and Eve were expelled from the Garden of Eden they saw the world to be a barren and harsh place that is capable of providing precious little – may be just oxygen to breathe – without the conscious effort of its inhabitants. The only way to alleviate this harsh situation is for humans to work to produce the goods that they need and, eventually, to bring about capital investment in order to expand the amount of consumer goods that can be enjoyed – whether it’s cheap food, housing, education, holidays or whatever – a process that only really got underway in any significant form in the 1800s. If the individual beneficiaries of a social safety net are not able to produce these goods themselves then somebody else must do so. Simply legislating the welfare state into existence does not create the goods and services it needs to dispense to the poor and needy in order to banish poverty and want. Rather, existing goods have to be forcibly confiscated from those who have produced them and dished out for free to those that haven’t. Social safety nets are compulsory redistribution programmes, not wealth creation programmes and any benefit one receives under them will be at the expense of another person.

The economic effects of this are familiar to economists not only in the “Austrian” tradition but of other free market persuasions also. The most naïve error made by any proponent of redistribution is to believe that people’s behaviour is somehow hermetically sealed from the government intervention that seeks to achieve a certain end – i.e. that increased taxes on activity A will not discourage people from carrying out activity A; or increased funding to eliminate a “dire” situation will not, in fact, exacerbate that situation. Whenever a new tax is proposed the estimations of new revenue to be raked in are always based, incorrectly, on the assumption that people will still wish to carry on doing the taxed event just as they did before, as if the tax makes no difference. And if some new programme to be financed by this revenue is proposed, they will calculate the amount of money needed to cure the existing problem without considering whether throwing money at it will make it worse. All else being equal, if you pay people to when they do something they will do more of it; if you charge someone when they do something they will do less of it. In the case of social safety nets, if people are charged to produce wealth in order to fund it the cost of creating wealth is forcibly raised. Relative to other activities such as engaging in more leisure time, the attractiveness of producing more goods, more capital and more resources is reduced. There will, therefore, be less production, less capital investment and fewer consumer goods at higher prices – hardly the situation that one would expect to be conducive to the abolition of poverty. Similarly, if you grant a guaranteed right to be paid upon the occurrence of a bad event – such as sickness and unemployment – then you lower the cost of that event and the relative cost of preventative measures is raised. All else being equal, you will have more sickness, more unemployment and so on.

The focus of many of these social safety nets today appears to be on so-called “hardworking families” – never mind the fact that single people also work hard and struggle to make ends meet. Children, in particular, appear to be little more than a metaphorical blank cheque that the state writes to “protect” them from poverty and hardship. Yet children do not appear out of nowhere and a conscious decision must have been made at some point to have a child – or at least to carry out the act of procreation. The same economic effects will therefore result from any safety net that benefits parents with children. If you pay people when they have children then there will be more children in families that struggle to pay the bills. The resources to feed these hungry young mouths must be confiscated from those who do not have children – either through inability, a lack of desire or good old fashioned financial prudence – and redistributed to those who do.

The running theme through all of this, therefore, is that throwing free money at a problem in which people have at least some kind of influence will only aggravate that problem. Indeed, in spite of more than half a century of the welfare state we in the Western world still seems to be afflicted with the scourge of poverty – although a rather bizarre form of it where those who are poor appear to suffer more from obesity rather than from starvation. One would associate progress with a reducing, not widening social safety net. We might as well also mention the “cynical” view that government prefers to retain people in a state of dependence because it means more reliance upon the state and more votes.

A powerful weapon in the arsenal of proponents of the welfare state is the false dichotomy – that the choice is either between a government social safety net motivated by care and compassion on the one hand or some kind of selfish, greedy, sink-or-swim and dog-eat-dog society on the other. This is plainly ridiculous; the free market exists precisely because people have needs and others are willing to advance the means to fulfil them. The whole purpose of insurance – presently and regrettably distorted by government interference – is to protect from genuinely catastrophic events that are not your fault in return for a premium paid in advance. Furthermore, opting for the alternative of the free market does mean the abolition of care and compassion – rather, it gives people the freedom to be caring and compassionate. Indeed it is such private benevolence that is discouraged by the welfare state as it obliterates the need to cultivate personal relationships upon which you can rely. Real benevolence, selflessness and caring for one another springs from these relationships and from private choice; the forced redistribution demanded by the state, however, leads to the very opposite – bitterness, antagonism and cynicism when your hard earned money is taken to be given to others, all of whom – in spite of whether they are genuinely needy or not – are tarnished as workshy and endless breeders. It is no accident that many of the great charitable foundations appeared in the nineteenth century, the most relatively free and capitalist period in history – and not in the era of the welfare state. As for the argument that social safety nets are necessary for civilisation, what could be less civilised than violently wrestling something you want from someone at the point of a gun?

The social safety net therefore needs to be realised for the destructive force that it is – not as a hallmark of economic and societal progress but as one of retrogression of civilisation and as a retarding influence on the very real cure for poverty and illness – more capital, more production and more goods for everyone to be able to buy at cheaper prices.

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The Limits of Libertarianism

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A distinct disadvantage of advocating a libertarian society as opposed to some sort of collective is that libertarians seldom win the emotional battle when pitted against competing ideologies. Democratic socialists and redistributionists can effectively wear their bleeding hearts on their sleeves, forever waxing lyrical about their concern for the poor, the sick, the elderly, and which ever other group appears to be in need of pitiful platitudes at this particular time. Libertarians, on the other hand, in calling for the right of every person to own his/her income, appear to advocate nothing more than greed and selfishness, the slippery slope to the disintegration of society as we each ferret ourselves away in an increasingly atomised existence.

This is a misunderstanding that is common not only among the opponents of libertarianism but also among libertarians themselves and it is high time that the latter stood up for themselves and realised how to counter these straw man attacks. Libertarianism is not and never has pretended to be a complete philosophy of how a given person should live his or her life. It is only states that each person should be given the freedom to choose what he does with his person or property. It does not mean that because an individual should have such a choice that he should keep his person and property for himself. One of the options is that he could, for example, give some of his money to the poor. It is, therefore, quite open to and consistent for the libertarian to state that a person should do X, Y or Z but that such a person should not be forced to do so. Simply because a person cannot be forced to do something does not mean that libertarians do not, individually, believe that people are subject to other moral obligations; it’s just that libertarianism itself stops short of discussing them. So as long as these obligations are not violently enforced then they are compatible with libertarianism, but do not form part of it.

Collectivism, however, is markedly different. For when collectives posit a certain forced redistribution of wealth and income amongst society this is usually based on an all-encompassing moral and political theory. So, for example, a collectivist might state not only that a person should donate a portion of his income to the poor but that also he should be forced to do so. It is this aspect that makes collectivists look more “caring” and “sensitive” to the needy – the fact that they are prepared to “enforce” their moral outlook seems to show they mean business. Libertarians, in contrast, come across as cold and uncaring, relying only on a vaguely defined notion of voluntary charity to take care of society’s ills.

There are three possible ways in which this may be countered. The first is to admit that libertarians are somewhat guilty of contributing to this view as few have developed an additional moral philosophy on top of their libertarian beliefs (although we can perhaps excuse ourselves given that the weight of government violence and intervention in today’s world is more than enough to be getting on with). But we must either turn our attention to developing our own, private, moral philosophies on which our passion for liberty forms the core, or, at the very least, we must be prepared to acknowledge the problem and explain the compatibility of any moral philosophy with libertarianism as long as it permits the individual to choose.

Secondly, contrary to popular opinion, the history of ideas has seldom been one of “liberty” vs. “collectivism”; rather it has been that of one version of collectivism versus another. As Mises pointed out, everyone has their own idea as to how they think goods and resources should be distributed throughout society: “In the eyes of Stalin, the Mensheviks and the Trotskyites are not socialists but traitors, and vice versa. The Marxians call the Nazis supporters of capitalism; the Nazis call the Marxians suporters of Jewish capital. If a man says socialism, or planning, he always has in view his own brand of socialism, his own plan. This planning does not in fact mean preparedness to coöperate peacefully. It means conflict”. (Omnipotent Government, p. 253). By pointing out this fact libertarians can demonstrate how, in a free world, everyone can pursue, in harmony, the ends that he believes are morally right with his own person and property, whereas to do so violently would just mean endless conflict with everyone else who happens not to share your view.

Thirdly, if a collectivist claims to care about the needy in society then we are entitled to ask why he favours a system that is almost guaranteed to make them worse off and why they oppose the very system – capitalism and freedom – that has been responsible for the most enormous increase in the standard of living in the whole of human history. Poverty is the state of nature of humans in the world; it is their ingenuity that has flourished through freedom that has allowed them to harness the powers of nature and increase the amount of wealth and satisfaction that we gain from them. If we compare the condition of human existence in 1800 (where 85% of the world’s population was living on $1 a day) to that of today (down to 20%) then we can see that freedom has been exceedingly good to the poor. Perhaps smart libertarians, accused of ignoring the plight of the needy, should raise this point and query whether, in fact, it is their ideological opponents who are really the ones who don’t care?

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Poverty and the Pope

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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.

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