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Life and Liberty
Apr 10, 2023 05:44 pm
Public post
Economic Myths #14 - Share the Wealth
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 the three decades ending with 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.
Attlee’s 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 a life of working in factories or down the coal pits.
According to Wikipedia, Attlee’s original political leanings were conservative. It was only 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”.
With such self-assuredness, can we expect Attlee’s post-war government to have come close to (as the infamous Beveridge Report that influenced his government’s policies put it) “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 1949.[1]
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 Supply.[2]
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.
The view that either private charity or forced redistribution is 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.
However, it is important to realise that poverty, fundamentally, is not caused by humans but by nature. The Earth is not, 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 absolute, 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 second he picked up the first plank of wood to build into a shelter, from the day 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 the 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, therefore, one was to cry “something must be done” upon witnessing an “appalling” condition, one 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 multiplied 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 the “political means”, 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 fake 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.
Next week’s myth: Unemployment
---
Notes
Notes
[1] Rose L Martin, Fabian Freeway – Highroad to Socialism in the USA 1884-1966, Western Islands Publishers (1966), Ch. 7.
[2] Ibid., 76.
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Life and Liberty
Mar 06, 2023 05:54 pm
Public post
Economic Myths #9 - Social Safety Nets
[First published on Free Life]
The first problem with this theory is that poverty is not some selectively appearing disease that makes a magical appearance 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 that the world was a barren and harsh place that is capable of providing precious little – may be just air to breathe – without the conscious effort of its inhabitants. The only way to alleviate this terrible 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, therefore, the individual beneficiaries of a social safety net are not able to produce these goods themselves then it follows that somebody else must do so. Legislating the welfare state into existence does not, unfortunately, 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 a certain activity will not discourage people from carrying out that activity; or that 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 often 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 only the existing problem without considering whether throwing money at it will make that problem worse. All else being equal, if you pay people to do something they will do more of it; if you charge someone to do something they will do less of it.
Applying this understanding to the case of social safety nets, if people are charged to produce wealth in order to fund them then 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 while the relative cost of preventative measures is raised. All else being equal, you will have more sickness, more unemployment and so on. Indeed, most of the afflictions which may cause a person to fall into hardship are not sudden accidents but are, in fact, a consequence of the lifestyle and environmental choices that a person may make – choices that are influenced by relative costs/benefits.
For instance, children, in particular, appear to be little more than a metaphorical blank cheque that the state writes to “protect” them from poverty and hardship (indeed, the focus of many social safety nets today appears to be on so-called “hardworking families” – never mind the fact that single people or childless couples may also work hard and struggle to make ends meet). Children, however, do not appear out of nowhere and, but for the most exceptional of circumstances, 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 economic effects that we outlined will therefore result from any safety net that benefits parents with children. If you pay people when they have children then all of the existing children will not suddenly be transported to the land of milk and honey. Instead, there will be more children in more families struggling to pay the bills who are desperate for a handout. 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 as the result of a financial decision – 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 the Western world still seems to be afflicted by 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. Moreover, it is also the case that expenditure on healthcare and other entitlements is shoving most states down the road to bankruptcy. Should it not be the case that “progress” is characterised by a reducing, rather than an expanding social safety net?
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 edifice of investment and capital accumulation is not to benefit only the well off – rather, its task is mass production of more and more goods and services at lower prices for the ordinary person. Moreover, the purpose of insurance – presently and regrettably distorted by government interference – is to protect you from genuinely catastrophic events that are not your fault in return for a premium paid in advance.
Opting for the alternative of the free market does mean the abolition of care and compassion and the sudden appearance of selfishness and “rugged individualism”. Rather, it gives people the freedom to be caring and compassionate. Indeed it is such private benevolence that is discouraged by the social safety nets as they obliterate the need to cultivate familial and 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 work shy, endless breeders. It is no accident that many of the great charitable foundations and mutual organisations 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 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.
Next week's myth: Taxes Benefit "Us"
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