"The urge to save humanity is almost always a false front for the urge to rule" ~ H.L. Mencken
For most people, concern about poverty stems from noble ideals. Indeed, for Christians, as well as those of some other faiths, improving the lot of the less fortunate is one of life's highest callings. Unfortunately, this concern leaves people vulnerable to those who would prey upon their good intentions.
Since at least the time of Marx, we have heard demands for income redistribution in the name of reducing "inequality". This philosophy is pervasive in the media and has become a central tenet of public policy today. A recent example is Robert Wade's "Winners and Losers" in The Economist (April 26, 2001). He declares, "The global distribution of wealth is becoming ever more unequal", and warns us that "that should be a matter of greater concern than it is".
Few ever challenge this idea, that inequality is inherently bad. Some may protest that government attempts to reduce inequality are ineffective, or that they violate property rights, or that the taxation needed for such policies reduces economic growth. While these protests are all valid, they still implicitly concede that inequality is bad.
Is it, really? In order to properly address the subject, we must do two things: 1) distinguish between poverty and inequality, and 2) distinguish different types of inequality, and their sources. When we do, we will find that, far from being bad, the right type of inequality is good and even necessary to our well-being.
The concern over the "distribution" of income indicates a misunderstanding of the nature of wealth. Wealth is not something that exists in nature, with the only need being to distribute it fairly. Wealth must be created. Oil in the ground, without equipment to recover and refine it, and without machines in which to use the end-product, is worthless. Natural resources are only valuable when humans figure out a way to use them to satisfy their wants. In a free society, income accrues to those who are successful at creating wealth, that is, those that satisfy the wants of others. An inequality of income simply indicates that some people are more able than others to satisfy the wants of others.
Poverty, on the other hand, is not the same thing as inequality. To claim that the "gap between the rich and poor" is widening does not mean that poverty is increasing. It may merely mean that the "poor" are becoming better-off at a slower rate than the "rich". But their lot may be improving nonetheless.
OK, so poverty is bad, and inequality is not poverty. But how does that make inequality good? Almost 50 years ago, Ludwig von Mises answered this question, in an article for The Freeman. Rather than paraphrase him, I'll quote directly the core of his argument:
"The consumers [in a market economy], by their buying or abstention from buying, ultimately determine what should be produced and in what quantity and quality. They render profitable the affairs of those businessmen who best comply with their wishes and unprofitable the affairs of those who do not produce what they are asking for most urgently… It is the consumers who make some people rich and other people penniless."
"Inequality of wealth and incomes is an essential feature of the market economy. It is the implement that makes the consumers supreme in giving them the power to force all those engaged in production to comply with their orders. It forces all those engaged in production to the utmost exertion in the service of the consumers. It makes competition work. He who best serves the consumers profits most and accumulates riches…"
"The millionaires are acquiring their fortunes in supplying the many with articles that were previously beyond their reach. If laws had prevented them from getting rich, the average . . . household would have to forgo many of the gadgets and facilities that are today its normal equipment. [Countries like the United States] enjoy the highest standard of living ever known in history because for several generations no attempts were made toward u2018equalisation' and redistribution'. Inequality of wealth and incomes is the cause of the masses' well-being, not the cause of anybody's distress."
Thus, to the extent that inequality is a natural outgrowth of a free market, it is not a problem at all. It is a benefit, the "cause of the masses' well-being". But is the market the only source of inequality? No. Quite clearly, when we compare the incomes of countries around the world, it is governments that cause inequality, by retarding the progress of people in some countries more so than in others.
This is why publications like The Economist can look at statistics and sound the alarm that inequality is worsening. Countries where the economy is relatively free (the U.S., Hong Kong, Western Europe, etc.) make economic progress; those where the economy is stifled by the heavy hand of government, don't. For example, in Sub-Saharan Africa, things are so bad that the average income per capita (excluding South Africa), is $315, lower than it was in 1960, even after adjusting for inflation. What has characterized Sub-Saharan Africa? Ruthless dictators (often propped up by foreign aid from guess who), communistic economic policies (such as ujamaa, or "cooperative economics", incidentally one of the seven principles of Kwanzaa), and wars.
As long as some countries remain more free than others, inequality will continue to increase. And this is why there is very little we can do about it. Government aid just worsens the problem by allowing a corrupt government to linger. Military action, even putting aside the brutality, has a pretty poor track record of bringing about prosperity. What we can do is to lead by example, and to spread the philosophy of liberty far and wide, that those in desperate places may come to see the root cause of their problems.
Predictably, Mr. Wade's article closes with a call to "mobilise our governments, the multilateral organizations, and international NGOs to establish as an overarching priority a more equal world income distribution – and not just, as now, fewer people in poverty". In so doing, he reveals his true agenda: increasing government power, not helping the poor. Mencken's words ring truer than ever.
To the extent that inequality of income is a problem, it is a problem caused by governments. Free markets, on the other hand, have everywhere shown an ability to dramatically improve living conditions for all. Only when this is widely recognized can we eradicate government-induced poverty, leaving us with only the natural inequality inherent in a free and prosperous society.
May 31, 2001
