Capitalism and Equality
Capitalism and Equality
By Duncan Whitmore
In several recent posts and a podcast on this blog1, Rev. Rory McClure has provided some robust and insightful assaults on the leftist quest for equality. For too long it has been widely believed in mainstream circles that equality between human beings, in one form or another, is some kind of virtue to which society ought to aspire and that rank inequality is a measure of severe injustice that needs to be corrected by state action. Even though the worst excesses of inequality – such as the rising value of assets owned by the rich as a result of worldwide money printing – are, in fact, products of a state corporatist system, the perception that some people will be wealthier than others in a free market continues to provide an almost instinctive impetus towards some kind of socialism and re-distributionism. Rev. McClure has performed an important service by not only demolishing the view that inequality is a handicap for lovers of liberty but, above and beyond that, by demonstrating how inequality is, in fact, something to be embraced and cherished.
To add to Rev. McClure’s important arguments this essay will first subject the aspiration towards some kind of perfect or immediate equality – i.e. the forced attempt to render all people absolutely equal now with today’s stock of wealth and resources – to a specifically praxeological critique. However, we will also demonstrate that even if someone desires a more approximate or gradual achievement of equality – such as the so-called “equality of opportunity” – it is, in fact, statism, socialism and any kind of redistributionism that should be abandoned while, instead, those who seek to create such equality should embrace a social order that maximises the production of wealth. That social order is, of course, free market capitalism. Thus it will be shown that, even on their own terms, advocates for greater equality should be free marketers.
Perfect Equality – A Praxeological Critique
It is a persistent problem for egalitarians that nature places a formidable number of obstacles in the way of achieving any kind of equality. So inherent is the natural state of inequality between human beings that we could even suggest that Mother Nature intended it to be so and that she willed such a state to be permanent. As Rev. McClure pointed out, individual people are born with different qualities – different heights, different weights, different physical and mental capabilities, and so on. So too are the environments into which they are born different. Not only will their parents and those around them also have varying characteristics and varying abilities at raising their offspring, but the precise climate, geography and availability of natural resources will differ from place to place. Hence, the Earth itself gifts different people in different ways by presenting them with different challenges for them to live their lives.
Some of these environmental differences are likely to have had a cumulative genetic impact as a result of natural selection that exacerbates further inequalities. A society which has developed in an area where resources are plentiful and where little work needs to be done to ensure survival will have had its physical and mental capabilities tested to a much lower degree than a society that has developed in a barren area where resources are scarce and what little the earth has to offer must be obtained through ingenuity and backbreaking physical work. Only the most intelligent and strongest will have survived and prospered in the latter society whereas practically anyone could have lived in the former society. After generations of reproduction, therefore, those who are born today in the latter society – the “difficult” one – are likely to have superior mental and physical attributes that are not enjoyed by those in the “easy” society. Ironically, therefore, those who descended from a society which originally had “less” are those who are likely to command greater wealth and income by virtue of their superior strength and intellect in today’s society characterised by global trade and the division of labour.
Indeed, given that we have mentioned trade and the division of labour, we might as well point out that any drive towards an immediate and perfect equality would require the complete eradication of these elements for they are clearly founded upon rank inequality. The division of labour cannot exist unless people utilise different skills and different abilities to undertake different tasks. If two people wish to trade it is because they each start off with different goods and each wish to obtain different goods through the trade. In other words each partner to the exchange desires to be different and views himself as having gained something more than what he parted with.
These facts leads us on to another formidable barrier to equality which is the nature of human action itself – the ability of each individual human to think, desire and consciously choose to devote resources at his disposal in ways that he deems fit. In other words, although every human strives to better his life and, in the vast majority of cases, attempts to secure a higher standard of living, each individual pursues this by making decisions independently of others. Some of these decisions will be good or better decisions while others will be bad or worse. Some people will make a greater number of bad or worse decisions than good or better decisions while others will make a greater number of good or better decisions than they do bad or worse decisions. The varying results of these decisions will, over time, serve to move people to a state of inequality, with those that make good or better decisions ending up in a better condition than those who make bad or worse decisions.
Thus, if one was bent on achieving perfect equality, it would not be enough to simply distribute all resources and then let everyone get on with their lives. Instead, all outcomes of individually chosen action would have to be suppressed continually lest anyone was to act in such a way as to put himself in a position better than that of his fellow human.
Although such an endeavour would be undeniably totalitarian and despotic the more crucial point is that any such drive towards equality would require a complete annihilation of the pre-eminent quality of human nature – that of consciously chosen action, the ability that sets us apart from other animals and from dead, unconscious matter. The pursuit of equality would, therefore, reduce all of us to the level of automated robots, unable to act upon our own thoughts and desires while under the control of our political lords and masters. Hence, unless anybody is happy to become an unthinking cog in a society that represents nothing more than a giant machine, we must conclude that equality is an inherently anti-human goal.
This praxeological assault on perfect equality does not stop here, however. Let us concede the best possible case to the egalitarians and posit a world in which we were able to stifle all individual human action and create a perfect material equality between every human being – in other words, we successfully quash all independently wrought choice and action, and, moreover, we allocate everybody with an equal stock of material goods. Even if we were to achieve all of this it would still be the case that individual people would value their physically equal possessions differently and so the actual outcome as perceived in people’s minds would be unequal.
For instance, a white stick is likely to be very valuable to a blind man yet next to useless to a sighted man. If you give both of these men a white stick it is clear that, even though their physical, material possessions are identical, one has gained more in value than the other. Thus, if we have to strive for perfect equality it is useless to attempt to distribute resources equally, lest someone ends up more happy and content with the same possessions than somebody else, thus rendering them in unequal conditions.
Of course the nightmarish solution to this may just be to blind the sighted man – this would be the logical conclusion of equalising endeavours which, invariably, follow the path of least resistance by bringing everyone down to the lowest common denominator. But even if both men had approximately equal physical and mental attributes, it would still be the case that their tastes and attitudes towards different material objects would differ. If one man prefers to eat hamburgers whereas another prefers to eat fish fingers then the latter loses out if they each receive a hamburger.
Not to be perturbed, perhaps the budding egalitarian would retort that such a problem is resolved by simply giving everyone an equal amount of money? Wouldn’t everyone then be able to spend their equal amount of money on different things that are valuable to them?
Unfortunately this would not work either because one person may need to spend more money to gain the same amount of satisfaction as another person. People who are more satisfied with spiritual and non-material needs may be content with spending very little of the money allocated to them whereas those who are materialistic and seek value in possessions may require a lot more for them to feel as happy as the non-materialistic folk. What the egalitarian would have to do, therefore, is to attempt to provide for each person’s needs regardless of the precise quantity of goods required for those needs. So in other words one person may receive a lot whereas another person would receive very little if they are both made equally satisfied by what they receive.
This approach, however, turns the whole of economics on its head. Economising behaviour regulates needs according to the goods available – needs are insatiable whereas goods are scarce and so we must choose which of our needs we value the most in order to allocate to them the available stock of goods. Some needs are satisfied whereas others must remain unfulfilled. The equalising project, however, would end up trying to regulate goods to needs, as if there is a fixed number of needs (or a fixed quantity of happiness) shared by all people which can be satisfied by an abundant stock of goods.
Nevertheless, even if such topsy-turvy thinking didn’t matter, needs are intangible entities, existing in only the mind. They cannot be measured with any yardstick. Any practical attempt to do so would end up subordinating the real value of the needs as perceived by individual people to their value as perceived by some bureaucrat – and, of course, this bureaucrat will have his own motivations for determining who gets what. In other words, one’s own appraisal of one’s needs is subordinated to the appraisal of those needs as perceived by the state. Anyone who has needs deemed “unworthy” by the state, perhaps because they are “unpatriotic” or somehow not in keeping with the spirit of “the people”, will be left far worse off than those who toe the state’s line, which is how redistributionist policy always works in practice.
We should probably point out that the natural state of inequality does not, by itself, prevent equality from being a virtue. Simply because something is does not been that it ought to be. However, the manifold extent of inequality that has been presented to us by nature indicates that, in their quest for equality, egalitarians have both misdiagnosed the problem and prescribed the wrong cure. For if inequality is a problem presented to us by nature then it follows that what is required to counter it is a considerable and extensive power of man over nature. Thus, creating a condition of equality will not require, as is typically supposed, the implementation of socialism and a redistribution of existing wealth. Rather, in just the same way as we have to conquer the harsh reality of nature in order to provide more food, houses, cars, and so on, so too will the striving for equality require the generation of more wealth in order to overcome the formidable barriers to equality that nature has put in our path. Those who desire equality should, in fact, not be dreaming up ways in which to rob the rich to give to the poor but, rather, should be finding the best possible way to ensure wealth creation. As we shall explore now it is, in fact, a society of private property and free exchange – i.e. of capitalism – which, by virtue of its superior productive ability, accomplishes this and which makes a tendency towards greater equality more likely.
The Equalising Tendencies of Capitalism
Before we proceed with task we should first admit, lest we be accused of creating a straw man, that equality is not usually advocated in any perfect or absolute sense in the manner that we just subjected to a praxeological assault. Egalitarians do not typically strive for the complete eradication of all differences and idiosyncrasies between humans, even if social systems founded upon equality have tried to decimate all independent and unapproved opinions, culture, tastes, and personal habits. The staunchest of such egalitarians will still admit that the division of labour – upon which human prosperity depends – requires, for example, some people to be garbage collectors while others are brain surgeons and that it would be a travesty for everybody to be garbage collectors or for everybody to practise brain surgery. Rather, the modern egalitarian tends to strive for some kind of approximate equality. After all, approximate equality could be achieved so long as everybody is doing the job that he most enjoys and/or is best at, and surely people having some kind of access to roughly the same amount of wealth would be better than nothing at all?
The problem, however, is that to implement such a programme through a socialist society rather than through a society of free market capitalism would produce the very opposite of equality. In a society governed by private property and free exchange, the ownership of all of the material wealth in existence is scattered between all of the private individuals who inhabit the Earth. As all persons are free to make their own decisions as to how best to deploy their wealth it is true that some people will accumulate more while others will accumulate less. However, those who accumulate more do so because they serve the needs of consumers better than anyone else – consumers entrust these resources to these particular people because the latter have, so far, proven themselves better at directing them to the most urgent wants of the consumers than anyone else. The wealthy in a capitalist society cannot abuse their position as their fortunes would soon begin to haemorrhage. Rather, they must continue to serve the needs of consumers better than anyone else or consumers will drop them and their products in a flash while the productive assets that form their wealth will be transferred to other people.
This difficulty appears to place something of a limit on how much of societal wealth any individual can command through capitalistic methods. As of 2018 the wealthiest man in the world, Amazon CEO Jeff Bozos, has a total fortune of $112 billion2 – a drop in the ocean compared to the approximately $4 trillion budget of the US federal government, and peanuts compared to the sums that central bankers like to print from thin air. Warren Buffett, widely regarded as the most successful investor in history, has admitted that achieving a significant annual return with billions of dollars is much more difficult than when you are investing with “only” millions – and that, consequently, the size of his firm Berkshire Hathaway will, henceforth, “preclude a brilliant result”.3 All of this is before we consider the effects of inflationary money printing which, no doubt, has served to swell the fortunes of these two individuals beyond the confines of their entrepreneurial talent.
It is typically believed that capitalism has a tendency towards monopoly, with more and more wealth being sucked into the clutches of a few powerful oligarchs. The opposite is in fact the case – one individual entrepreneur or investor can only direct his attention to so much before his talents are spread too thinly, or he has to delegate to lesser individuals. Hence, inefficiencies begin to creep in which provide an advantage to smaller, more nimble competitors and thus checking the growth of any established player.
In a socialist society, however, matters are completely different. If you deprive all of the individual citizens of their ability to direct their labour and their resources to the employments that they feel are best then it doesn’t follow that control over these resources is no longer necessary. Somebody has to decide, for instance, where to build a factory and to commandeer and direct the resources necessary to do so. In other words, there must be someone who has de facto ownership and control over resources in order for these resources to be utilised. These people are, of course, those who form the state and its planning bureaucracy. Clearly this amounts to an enormous concentration of wealth in the hands of a very small, political elite – a concentration which by far exceeds that of the wealthiest individual in a capitalist society.
These elites will proceed to direct resources according to what they value rather than what is valuable for everyone else. Not only will you get parades of missiles accompanied by goose stepping troops, and the construction of vanity projects such as the unfinished 105 storey hotel in Pyongyang, but even if the direction of resources is for the benefit of other people this light will be refracted through the prism of the elites’ own preoccupations. For example, if the minister of a particular socialist state or department thinks single mothers are hard done by then single mothers will get more; if he is an ex-railway worker then he is likely to account for the condition of railway workers more than someone who has no such background; if a relative of his died from cancer then he is likely to want to devote more resources to cancer research than someone who has had no such exposure, while those suffering from other illnesses and conditions must put up with lesser treatment. And, of course, he will have every incentive to direct wealth to personal favourites and political supporters that serve to keep him in his powerful position. No longer is his status and privilege determined by serving consumers who can choke off his supply of funds at any point they desire. Rather, he now depends upon currying favour with his political contemporaries. Furthermore, if he is able to maintain such favour he can simply resort, when directing resources to where he wants, to the use of force rather than the use of persuasion through offering a valuable service.
Consequently, socialism does not eliminate any unequal, societal statuses; it simply changes the game of who rises to the top. And once you are at the top you are more unequal from the rest of society than you would be in a capitalist economy. Moreover, socialism cements these statuses from a revolving membership determined by who best can serve consumers into semi-permanent and impenetrable political castes.
All of this can be illustrated today in some of the so-called democratic socialist countries such as Venezuela, where the daughter of the late, former President Hugo Chavez enjoys a personal fortune of approximately $4.2 billion4, while the country’s socialist policies have made basic necessities so scarce that the black market price for a dozen eggs has reportedly reached 150 US dollars. According to The Daily Mail, at the Caracas Country Club the nation’s super rich socialists “enjoy lavish parties and gourmet cuisine” at a membership cost of 458 times the average Venezuelan salary “while middle-class people are forced to scavenge for food”. The attitude of the elites is almost literally the modern day equivalent of Nero’s fiddling – “should we stop enjoying ourselves just because the country is burning?” one is quoted as saying5. Far from being a creator of any kind of approximate equality, socialism widens the gulf between rich and poor immeasurably, and to the extent that people are equal at all they languish in equal destitution.
Of course, after the twentieth century failures of communism and socialism, the aims of the equalisers and egalitarians have been watered down further into vaguer nuances such as the so-called “equality of opportunity” – i.e. that everyone may become richer and may become better off than other people as a result of their own talents and hard work so long as they all start off from the same supposed springboard. The idea is, in other words, that if an individual is born to wealthy parents resulting in a high quality of education and a comfortable upbringing he has a “head start” against someone from a poorer background who does not have these benefits, and that it is this kind of inequality that should be eradicated through redistribution. All of this is nonsense.
In the first place, any kind of birth into wealth and affluence does not, by itself, guarantee that the individual will have any talent or affinity for hard work. Indeed, the opposite is likely to be the case if he knows that, in order to stave off any hardship he encounters, Daddy will simply whip out his cheque book. Somebody who is less privileged, however, who has no alternative but to use his natural abilities and dedication to get ahead is more likely to do so. It is for this reason that most of the significant entrepreneurs and inventors were drop outs and rebels against the formal system of education and progression. The traditional path through school and elite university really only prepares one for a career in the establishment professions such as law, banking and the civil service – occupations which make you well off largely because the state ensures that your wealth is perpetuated. In a genuine free market it is highly likely that dynastic wealth would dissipate within a few generations as later heirs fail to demonstrate the entrepreneurial talent of their parents and grandparents.
However, if we accept the premise that equality of opportunity through providing equal resources to the young will benefit the latter then it would not follow that the best manner to achieve this would be through redistribution. Rather, it would be better to follow a path of wealth creation so that the poorest in society are able to afford, say, a high quality education – and an education of higher quality than the rich may have enjoyed in the recent past – sooner.
The reason for this is that it is not the relative difference between rich and poor that is the significant factor – rather, it is whether the poor have enough to put them in a position in which they can compete effectively. While it is true that, in a capitalist society, the rich will get richer as the poor get richer and thus the rich will always be able to afford “more” than the poor, there is only a finite amount that they can spend productively on, say, educating themselves highly and sharpening their talents for entrepreneurship before any additional resources in this direction will produce diminishing returns.
For example, a person can only read so many books in a day; if a rich person spends more on books he will not become more educated than a poorer person if he never has time to read those books. So if wealth creation results in the poor being able to afford as many books as the rich can read then both rich and poor will be equally well read. Similarly, the rich may be able to afford more tutors than the poor, but they can only absorb so much information from so many tutors before all these mentors will drown themselves out in a cacophony of confusion. Therefore, if wealth creation permits the poor to afford as many tutors as the rich can absorb information from then both rich and poor will be equally well tutored.
It is still true, of course, that the rich will spend more on educating themselves than the poor and it is also true that the rich will be the first to benefit from any innovations. However, as the poor get wealthier, the additional money spent by the rich tends to go towards pleasantries and luxuries rather than the substantial necessities of learning – for example, the classrooms may be nicer, the chairs comfier, the writing paper of a higher quality. But none of these things really matters a great deal when it comes to absorbing knowledge – or rather they matter far less than the poor being unable to afford any education at all. It is for this reason that wealth creation, through free market capitalism, rather than wealth distribution, produces a tendency towards equality and more adequately and permanently closes the gap between rich and poor, both in a very real sense but also in the sense of providing an “equality of opportunity”.
We can illustrate this further through examples in the wider economy. When the automobile was first invented and only the rich could afford to purchase one, the gap between rich and poor was very wide. The rich had personal, motorised transportation while the poor had to go barefoot, put up with animal powered transport, or use the railway. Once, however, society became wealthy enough to mass produce cars that were affordable by the poor, both rich and poor now had access to motorised transportation. It is true that the rich spend more of their money on their cars than the poor do – and often a lot more. However, most of this additional money is spent on luxury additions such as higher quality paint and body work, sleeker aesthetics, leather upholstery and the fineness of the engine. The basic purpose of the car – to transport a person from A to B – is available to everybody and no amount of additional spending by the rich on their own cars can change this. This was not so before the poor could afford any car at all. Thus the gap between rich and poor has been narrowed through wealth creation.
Similarly, the difference between a two bedroom terraced house and an enormous mansion is less than the difference between a house and no house at all; the difference between a gold plated toilet and a ceramic toilet is less than the difference between a toilet and no toilet. If a “poor” individual possesses a genuine talent then his ability to afford only bread and cheese rather than champagne and caviar is unlikely to prejudice his efforts to capitalise on this talent; but clearly he would be very disadvantaged if he could not afford food at all.
In sum, what the rich spend on themselves goes towards luxuries and comforts which, while delightful, do not provide any significant material advantage to insulate themselves from a poorer person who can still afford the basics – and of course, the process of wealth creation soon places these luxuries in the hands of the poor anyway.6 Although the rich consume more goods and services than the poor, they also consume a lower percentage of their income than the latter do simply because more of their most urgent wants have been satisfied and additional consumption brings fewer and fewer benefits. The remainder of their resources therefore goes into investment or philanthropy – indeed, a wealthy society is awash with charitable giving simply because people have so much more to give.
It is true, of course, that a poorer individual may have to demonstrate his talent if he is to persuade other people to fund him in his ventures, whereas a richer person could easily self-fund from his fortune. This, however, is arguably not a disadvantage. When you are risking other people’s money you have to rise to their standards and ensure that the decisions you are making are absolutely the right ones, decisions in which they will take a keen interest. Thus the talents and efforts of a poorer person are enhanced and focussed when he has to use other people’s money. Devoid of third party scrutiny, however, a rich individual, if he does not merely pursue his own flights of fancy without any check upon the hubris of his deluded conviction, is likely at the very least to be more slovenly and less disciplined in his approach. And in any case, if a poorer individual is genuinely talented then what is wrong with expecting him to establish this fact before others?
What we can see therefore is that any drive towards “approximate” equality or some kind of “equality of opportunity” is delivered not by a system of wealth redistribution but by a system of wealth creation. The only system that produces wealth creation, or at least produces it to its strongest possible degree, is a system of free market capitalism. Thus, even on their own terms, promoters of equality should, in turn, be promoters of capitalism.
We might as well conclude with a final observation which is that people seem to be highly selective when it comes to advocating equality through wealth distribution. Apart from the occasional grumble it seems to be perfectly OK for elite sportsmen/women and movie starts to earn large amounts of money. Football enthusiasts in the UK are happy to wax lyrical about how many millions such-and-such a player is being “bought” for by a particular club, or how much one of them earns in a week, fully accepting the essence of the market and voluntary exchange in this arena. When it comes to the CEOs of multinational companies worth billions of dollars, however, it is always a different story – they are greedy fat cats, profiting off the work done by their underlings in the factories and production lines. This is so even though the multinational company may provide “essential” benefits to people such as food to eat and homes to live in, whereas the achievements of even the greatest athlete or actor basically boil down to providing entertainment.
The reason for this anomaly is that sporting and acting achievements are readily perceivable by the individual, whereas the benefits of entrepreneurship and the stewardship of productive assets are not. If the cries for equality are to be consistent this should not really matter, of course – it should permeate all areas of human endeavour. However, if the perception of a wealthy person’s achievement is enough to justify it in the eyes of everybody else then clearly libertarians and free market enthusiasts should continue to extol the benefits of entrepreneurship and attempt to elevate, to the level of sportsmanship and acting in front of a camera, the status of businessmen, investors and capitalists who provide goods and services which people want to buy at prices they can afford. This may be the surest way to purge mindless egalitarianism from mainstream social thought.
1Rev. Rory McClure, Defending Inequality, https://misesuk.org/2018/04/20/defending-inequality; Idem, The Absurdity and Cruelty of Trying to Create Equality, https://misesuk.org/2018/05/09/the-absurdity-and-cruelty-of-trying-to-create-equality; Rev. Rory McClure and Andy Duncan, Marx, the Pope & Inequality, https://misesuk.org/2018/05/09/marx-the-pope-inequality.
6Cf. Ludwig von Mises Liberalism, pp. 30-33.