"Life is 'solitary, poor, nasty, brutish and short.'" -- Thomas Hobbes, 1651
Because we Americans
are today richer in most ways than were princes and potentates, pharaohs and
autocrats throughout most of history, we often forget that America is an
historical aberration. In "Capitalism & Freedom," Milton Friedman reminds us
"The typical state of mankind is tyranny, servitude and misery." Also, your
status was fixed from birth until the day you died.
Imagine 200 years ago
the richest men on earth, never having access to antibiotics, television,
telephones, computers, air-conditioning, air travel, and a hundred other
miracles available today to most secretaries and gardeners for a month's wages.
Many Americans assume
the reason they enjoy higher wages than other people in other countries is
because they're more educated, more skilled, and it is through their own merit
(or union membership). A little travel to other countries and they would
discover otherwise. For example, a worker who migrates from, say, Iraq -- such
as my neighbor Nihad -- finds he can soon realize the wage rates common here,
but if he goes back to Baghdad, what he learned here will not enable him to earn
more than his fellow countrymen doing the same job. Nor can the reason be
explained that businessmen and entrepreneurs in Iraq are inferior.
Iraq's lower wages are
not due to inferiority or ignorance. They're due to less savings, less capital
accumulation and fewer rich people -- rich people with a propensity to save and
invest in capital goods, machinery, equipment, etc. Investment capital is what
enables workers here to produce more units of output for each hour worked.
Obviously a man with a D-8 tractor is more productive than a dozen men with
shovels, with a chainsaw more than with a hand saw, with a spray-gun than a
paintbrush. Poor countries do have rich people but absent well-defined property
rights and laws to protect their property, they prefer not to invest where it's
risky. Think of Venezuela with Hugo Chavez nationalizing one company after
another.
If the United States
in its early years had the same regulations and progressive taxation as now it
could never have developed to the degree we see today. Had not the great
railroads, canals and factories been built before the advent of progressive
taxation beginning in 1913 the degree of development, wealth and standard of
living would have been much slower. Rich people only consume a portion of what
they earn and most reinvest the bulk of their money to earn more. When fewer
become rich there's less surplus capital to invest, less money to create new
factories, machinery and equipment, less money to replace existing things as
they wear out. It's true higher taxes can lead to less inequality of income.
However, hard as it may be for some to accept, when government redistributes
wealth eventually everyone, rich and poor -- become poorer. It's reported that
U.S. capital stock is shrinking for the first time and more capital is being
invested in China and emerging countries resulting in their faster growth in per
capita incomes.
We leave it to those
who claim it's natural resources that make a country rich to explain Japan, Hong
Kong and Singapore's extraordinarily high per capita incomes.
Inequality of wealth
is essential to a free market economy
In "The
Wealth of Nations," Adam Smith illustrates how the free market works: "It is not
from the benevolence of the butcher, the brewer or the baker, that we expect our
dinner, but from their regard to their own self interest." Motivational
speaker's Zig Ziglar updated this to: "You can have everything you want in life
if you provide enough people everything they want."
For some reason a few
people get all worked up over inequalities of income in society. Professor L.
von Mises, "Human Action," contends: "The inequality of incomes and wealth is an
inherent feature of the market economy. Its elimination would entirely destroy
the market economy. What those people who ask for equality have in mind is
always an increase in their own power to consume. In endorsing the principle of
equality as a political postulate nobody wants to share his own income with
those who have less. When the American wage earner refers to equality, he means
that the dividends of the stockholders should be given to him. He does not
suggest a curtailment of his own income for the benefit of the 95 percent of the
earth's population whose income is lower than his."
Inequality of income
and wealth is indispensable to progress. An increasing accumulation of capital
relative to an increase in population is the only way to bring about
technological improvements, bring about a greater supply of equipment, machinery
and tools per capita -- bring increased wages -- and a higher standard of
living.
It's additional
capital accumulation alone (including so-called tax breaks for the rich) that
when invested, brings about technological improvement, rising wage rates, and a
higher standard of living. Mises maintains, "The crux of the issue lies
precisely in the operation of selfishness. Under the system of inequality this
selfishness impels a man to save and always to invest his savings in such a way
as to fill best the most urgent needs of the consumers. Under a system of
equality this motive fades."
If all it took to
raise wages was a union strike, laws decreeing a higher minimum wage and
guaranteed annual income, then all countries would follow Zimbabwe. All
Zimbabweans are billionaires and yet 85 percent of its billionaires live below
its poverty level according to the Zimbabwe Congress of Trade Unions, (and after
numerous strikes). Even I'd be a billionaire when in Zimbabwe and have the cash
to prove it.
The Zimbabwe
government taxes, spends, promises, and then prints money in billion-dollar
notes to pay for its promises. Merely having money, however, doesn't necessarily
make one rich. What will your money buy? A standard of living depends upon how
many hours of work it takes to buy food, clothing, shelter, transportation --
how productive you are. Upon its 1980 independence, the Zimbabwe dollar was
worth more than the U.S. dollar.
Politicians kid
themselves if they think the people who create wealth daily will continue doing
so if their wealth is redistributed through some utopian idea of "Social
Justice," or changing the Commandment to "Thou shall not steal -- except in the
name of the poor."
America is rich
because it was founded on the principles of private property ownership, a free
market economy, and a government more limited than any previous government in
history. Rich because more money is invested in infrastructure, factories,
machinery and technology, than in other countries while its culture eschews
sloth, envy and
covetousness.
Schnaubelt, president of Citizens for
Private Property Rights, has been a commercial real estate broker
for 39 years and was a San Diego City Councilman from 1977-81.
