Economic Myths #14 - Share the Wealth

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 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

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Notes

[1] Rose L Martin, Fabian Freeway – Highroad to Socialism in the USA 1884-1966, Western Islands Publishers (1966), Ch. 7.

[2] Ibid., 76.

Is the Free Market Uncaring?

A distinct disadvantage of advocating for a society free from state interference is that winning either the rhetorical or emotional battle is a lot more difficult. Democratic socialists and redistributionists can effectively wear their bleeding hearts on their sleeves, forever declaring their care for the poor, the sick, the elderly, or whichever group is in need of their pitiful platitudes at any particular time. Libertarians, on the other hand, appear to advocate for nothing more than greed and selfishness by calling for the right of every person keep own his/her income. Surely this would be the slippery slope to each of us ferreting ourselves away in an increasingly atomised existence?

This misunderstanding is common not only among the opponents of libertarianism but also, occasionally, among those libertarians who mistake freedom for libertinism. How can we counter these straw man attacks?

Libertarianism as a philosophy – by which we mean the theoretical endeavour to determine what are valid legal rights – neither is nor has ever pretended to be a complete blueprint of how a person should live his life. It only states that each person should be given the freedom to choose what he does with his person or property. Having that choice does not mean that it is a good thing for him to, say, decide upon keeping everything he has for himself. One could easily argue that he should, for example, give some of his money to the poor. Simply because a person cannot be forced to make one choice or the other does not mean that his choices are immune from all other forms of moral scrutiny; it's just that libertarianism a) states that these choices cannot be forced, and b) stops short of discussing these other aspects. So as long as any positive, moral obligation is not enforced with violence then it is in accordance with the libertarian ethic.

Collectivism, however, is markedly different. For when a collectivist posits 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 that they mean business. So even if libertarians manage to defuse accusations of selfishness, they can still come across as cold and uncaring through their reliance on only a vaguely defined notion of voluntary charity to take care of society's ills.

There are three possible ways in which view 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 commitment to individual freedom (although, having said that, challenging state violence in today’s world is more than enough to be getting on with). We must be prepared to turn our attention to developing not only our own, private, moral philosophies, but also to understanding which positive behaviours are conducive to sustaining a free society on a sociological and psychological level so as to craft a resonating political strategy.

Second – and contrary to popular opinion – the history of ideas has seldom been one of “liberty” versus “collectivism” or of “freedom” versus “tyranny”; rather it has been that of one version of collectivism versus another. As Ludwig von Mises points out, every planner has his own, mutually exclusive grand plan when it comes to determining how society should be shaped:

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 supporters 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.[1]

By pointing out this fact libertarians can demonstrate how, in a free world, each person and community can pursue, in harmony, the peaceful ends that they believe are morally right with their own property. To pursue those ends violently wouldn’t breed a proliferation of care and compassion. Instead, it would just mean endless antagonism with everyone else who happens not to share your view.

Third, 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 everyone poorer than they already are. In other words, why do they oppose the very system – capitalism and freedom – that has been responsible for the most significant increase in the standard of living in the whole of human history?

It is easy to forget that poverty is the natural state of human existence outside the Garden of Eden. A political system can certainly perpetuate this natural state. But only when our ingenuity has been allowed to flourish through individual freedom have we been able to harness the powers of nature so as to 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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Notes

[1] Ludwig von Mises, Omnipotent Government: The Rise of the Total State and Total War, Liberty Fund/Ludwig von Mises Institute (2010), 242-3.

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Is the Free Market Uncaring?

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