Among the worst things that has ever happened to the poor is the federal government’s war on poverty. As a socialist program, it actually impoverishes the poor rather than improving their overall economic condition. That’s because it destroys or impedes the forces that raise the standard of living of everyone in society, especially the poor.
Let’s begin with an imaginary nation, one in which people decide to repeal all taxes on income, prohibit the government from helping people, establish sound money, end all restrictions on trade, and dismantle their enormous military establishment, leaving only a small military force in existence. Everyone is now free to accumulate unlimited amounts of wealth.
Over the course of the next three decades, a tremendous amount of wealth is accumulated. But there are also enormous disparities of wealth — thousands of multimillionaires and billionaires but millions of people who have more “normal” incomes and wealth. Nonetheless, the overall standard of living is significantly higher than it was at the beginning of this process, especially for the poor.
Along come socialists and, driven by a strong sense of envy and covetousness, decide that this massive disparity of wealth is unfair. “It’s simply not right that there are some in society who have so much wealth while others have less,” they declare. “We need to wage war on poverty,” they exclaim.
How do they purport to wage their war? By using the government to take money from the rich through taxation and then give it to the poor. “The rich don’t really need so much money,” the socialists say, “and the poor need it much more.” Thus, the socialists exclaim that not only will their war on poverty help the poor by putting more money into their pockets, it will also help to equalize wealth in society.
Actually, however, their war on poverty impoverishes society and reduces the overall standard of living, especially for the poor. In the extreme case, their war on poverty leads to everyone being equally poor and starving to death, like in North Korea.
Purist socialists want to equalize wealth all at once rather than do it gradually. “Why wait?” they ask. “Better to equalize wealth all at once.” Thus, they nationalize all the private businesses and mansions and declare them to be now owned by the government. They then begin to dole out the wealth they have seized to the poor.
Naturally, during the first couple of years of this process, the socialists are in their heyday. No more millionaires and billionaires. The state has seized all their money and their property. They are now just like everyone else — poor. That makes the socialists ecstatic.
Moreover, at first there is naturally a large amount of wealth that is available for confiscation and distribution to the poor. The socialists appear to be great, compassionate benefactors — i.e., lovers of the poor, needy, and disadvantaged.
After a couple of years, however, the socialists realize that there is no more wealth in society. They discover that government bureaucrats lack the ability to run the economic enterprises that have been nationalized. They drive the state-owned businesses into bankruptcy. Before long, there is no longer any more wealth to confiscate and distribute to the poor. Everyone is on the verge of starvation.
Where socialists go wrong is their assumption that societies are naturally wealthy and, therefore, that there is always something to confiscate and redistribute. Not so. Societies are actually naturally poor. Throughout history, most societies have been poor.
Thus, the critically important question — one that socialists never ask — is: What causes wealth? Or to put it another way: What is necessary to bring about a higher overall standard of living for society?
The answer is: Stop the government from waging war on poverty. Instead, establish a system with which we began in our hypothetical above. Abolish all taxation on income and leave everyone free to accumulate unlimited amounts of wealth. Abolish all socialist programs in which the state is charged with helping people. Dismantle large permanent military establishments, which thrive on sucking enormous amounts of money from people’s income through taxation. Repeal all restrictions on the freedom of people to trade with others. Establish a system of sound money — i.e., one in which the government isn’t involved.
It’s that system that brings an end to poverty by raising the overall standard of living. There are three reasons for this phenomenon:
1. When people are free to accumulate wealth, they inevitably save a portion of their income. Those savings go into banks, which then lend them out to employers, who use it to purchase tools and equipment, which make workers more productive, which leads to higher productivity, which increases revenues for the firms, which bring about higher wage rates for the workers. In other words, an increase in savings and capital raises the overall standard of living in society.
2. People also raise their standard of living through the simple act of trade. That’s because in every trade, people are giving up something they value less for something they value more.
3. Sound money enables everyone in society to make rational economic calculations, especially with respect to savings, investment, and consumption.
That’s the key to ending poverty. Any nation that wants to end poverty simply has to adopt these principles. The only problem is that rising standards of living inevitably attract socialists, who want to wage war on poverty, which then returns society to an impoverished state.
Reprinted with permission from The Future of Freedom Foundation.