On Riches and Poverty
We hear a lot of sneers directed at the rich. Like “the 1 per cent,” “greedy” or “fat cats.” Today, I’ll ask: To what extent do the rich deserve these insults? Then, I’ll look at poverty, and ask: Why are so many people poor? And how might the problem of undeserved poverty be solved?
First, is being “rich” a relative or an absolute thing? Were, for example, the Roman emperors rich? At one level, they were indeed rich; they had far more money and resources than the people around them. At another level, because of economic expansion over the centuries, many Western people today can afford things the Roman emperors could not have dreamed of. Beef from Argentina, bacon from Denmark, wine from Chile, or out-of-season fruit from Morocco, for example. So, while absolute standard of living is important in determining whether or not someone is “rich,” it’s also necessary to look at what they enjoy relative to those around them.
I’ll briefly re-cap the economic fundamentals. It is natural for convivial human beings to create well-being. That is, to deliver what others are voluntarily willing to pay for. There are many ways to do this; every one of us must find the way or ways that best suits us. To support this vital function, and to encourage it to continue, a framework is necessary, in which each individual will receive just rewards in exchange for his or her skills and efforts.
In an earlier essay I identified four things this framework must provide. First, sound money. Second, property rights. Third, a system which implements objective, individual justice; that is, the condition in which each individual is treated, in the round and as far as practicable, as he or she treats others. And fourth, a free market, in which there are no arbitrary barriers or obstacles to who may trade and with whom.
There is, however, a fifth condition necessary before people can flourish economically; and that is a negative condition. Unlike today, there must be no privileged political class, that has the power to bleed individuals and the economy, and to use the proceeds for their own selfish gain, to enrich their supporters and cronies, or to fund their pet – and often nefarious – projects.
So, how can people become rich, or at least comfortably off? There are several ways. First, and very much foremost, by earning it. That is, by creating wealth through honest work and business in the free market. Not only is this by far the most praiseworthy means of building personal wealth; but it’s also the one which is natural for convivial human beings. In a free market with justice, good people can fully enjoy the well-being, which they have justly earned through delivering what others are voluntarily willing to pay for.
Unfortunately, the rapacious political classes and their cronies make it forever harder and harder for people to reap the rewards they deserve for their good work. They see the profit from honest business – that is, the excess of the value produced for others over the costs of producing that value – as a bad thing, not the unmitigated good which it really is. They seek to re-direct as much of that profit as they can to themselves, and to their cronies and supporters. To make things worse, many new business ventures today fail before they ever really get going. And for professionals (like me) who have developed strong and saleable skills, it’s worse yet; we are denied access to the market by bad, political “laws” that favour big companies over small ones.
A second way to get rich is through luck. For example, by inheriting the millions that Daddy earned, or by winning a big lottery prize. There is nothing wrong with these; but for obvious reasons, very few get rich in such ways. A third way to get rich is through canny investment; by providing resources to people who will use them well, in exchange for a share of the profits. The problem here is, that you must be already quite well off in order to do this at all.
Moving down the scale, another way to bring in money – often in large quantities – is to suck wealth out of the system like a parasite. For example, through asset stripping of companies, or through becoming adept at corporate politics. Further down again is scheming, gaming the system to your own advantage. For example, accepting subsidies, or lobbying for advantages or to harm your competitors. Then there is the criminal means; such as theft, fraud, intimidation and violence, as practiced by organizations like the Mafia. And at the very bottom of the scale is what Franz Oppenheimer called the “political means,” in essence, legalized robbery.
It’s plain from all this that – luck aside – it is extremely hard for anyone to become rich without either already being rich, or taking money from others by means parasitic, criminal or political. Thus, sneers directed at the rich are entirely justified, if their riches have been acquired by such means. Meanwhile, those who deserve to be comfortably off, or even to become rich, are drained of their earnings and life-chances by the criminal political class and their parasites and cronies. Further, these good people are often the targets of hatred and slurs from those that are draining them dry. So the rich get richer, the poor don’t get any better off, and those in the middle get screwed.
The opposite of rich is poor. And like riches, poverty has both absolute and relative aspects. Clearly, in those Western countries which have had a history of relative economic freedom, most people are better off than those in third world countries with no such history. This is not surprising; for social structures, that are based on political power and cronyism rather than on the free market, virtually always result in a few rich and very many poor.
There are many reasons why individuals are, or become, poor. But all of them can, I think, be put into one of four categories. One, lack of access to the free market. Two, lack of ability to create wealth or well-being. Three, lack of just reward. And four, debt.
Lack of access to the free market can be due to a variety of causes. For example: Wars or political oppression. Regulatory burden, such as business licensing, or bad laws made to favour some economic actors over others. Tariffs, prohibitions or sanctions. Anti-business culture. Or minimum wage legislation, which prevents people not yet skilled enough to be worth the minimum wage from getting jobs at all. It’s sobering to realize that most, if not all, of these causes of lack of access to the free market are down to acts of political governments.
As to lack of ability to create wealth, there are two main groups of causes. First, things which are the individual’s own fault. For example, if they’re too lazy or too dishonest to use Franz Oppenheimer’s “economic means,” that is, honest work and fair exchange. And second, things which are no-one’s fault, like accident, illness or disability.
Lack of just reward can sometimes be caused by exploitation of the individual, for example by abusive management or by criminals. But more often, it’s caused by political action. For example, by heavy taxation. Or by deliberate currency inflation, making it impossible for people’s savings to keep pace with ever rising prices. Or by a dishonest, unstable banking and financial system. Or by a lack of respect for property rights.
Lastly, debt can be a self-caused source of poverty, such as when individuals have spent on credit beyond their means, or done real damage to others for which they must pay compensation. But debt for individuals can also be brought about by the deliberate actions of others. For example, overblown damages or maintenance payments imposed by a politicized legal system. Or a corrupt, gluttonous state that seeks any means possible to force its debts on to those it rules over.
Solutions to poverty
To look for solutions to poverty, I’ll re-arrange the causes I listed above according to who is at fault for each.
If an individual is poor through that individual’s own fault, the remedy is in the individual’s own hands. No more need be said than: reform your conduct, get earning, and if you’re still in debt, pull yourself out of it.
If, however, individuals are poor through someone else’s fault, then it must be the responsibility of those at fault to fix the problem. In today’s system, those at fault – common criminals excepted – are almost always the political class, their henchpersons or their corporate cronies. But the framework of justice, which I outlined above, would solve the great majority of these problems. Removing political operators and their cronies from positions of power and privilege, bringing them to justice as they deserve, and making them compensate their victims, would go a long way towards achieving this. And the combination of sound money, freedom of trade, property rights and objective justice will then be able to fix the problem for good.
Where individuals’ poverty is no-one’s fault, then it is appropriate to set up systems of insurance or mutual aid. Such schemes existed in the 19th century, for example the friendly societies. But they were elbowed out by politicized welfare states.
Welfare is a large subject, which demands an essay in itself. But in the framework of justice I described, re-vitalization of private welfare schemes is one of three elements which I think can help to cure poverty. The second is removal of disincentives to saving for the future. And the third is non-politicized means of education and training for whatever skills are in demand. These elements together should be enough to ensure that no-one becomes poor through no fault of their own. But even so, voluntary charity is always available as a final back-stop.
To sum up
Today, a rapacious political class makes it far harder than it ought to be for people who deserve to be comfortably off, or even rich, to get what they deserve. Instead, good people are ripped off, and the benefits go to the state and its political class, and their cronies and supporters. The rich get richer, the poor don’t get any better off, and those in the middle get screwed.
Many of those, who today are rich, have not earned their riches, but got them through parasitism, cronyism or politics. Such individuals fully deserve all the sneers and slurs that we hear so often directed at “the rich.”
Undeserved poverty is often the fault of individuals and groups other than the people who are made poor. Leaving aside laziness and dishonesty, most poverty is caused by the acts of political governments and their parasites and cronies.
The problem of undeserved poverty can be solved by a combination of the following: Sound money. Property rights. Objective justice. The free market. Removal of the political class and their cronies from their positions of power and privilege, and bringing them to justice. Removal of disincentives to saving. Re-vitalization of private systems of insurance and mutual aid. And de-politicized systems of education and training.