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Monday, March 2, 2009

Are the Rich Necessary? Great Economic Arguments and How They Reflect Our Personal Values

George Leef is book review editor of The Freeman.

In my high school days I had a friend who had been thoroughly imbued with the socialist mindset. He was willing to concede there might be some adverse consequences if the government went too far toward equality and economic control, but was adamantly in favor of the “humanity” of socialism. We amiably debated the role of profit, income inequality, just prices, greed, and similar questions.

Reading Hunter Lewis’s Are the Rich Necessary? made me think back on those discussions, for it delves into the basic economic and philosophical disputes between advocates of socialism and advocates of laissez-faire capitalism. Throughout, Lewis gives readers a dialogue between opposing points of view similar to but much more learned than my debates back then. I regard his presentation of the socialist/egalitarian philosophy as fair (Lewis is not merely pummeling a strawman), but the pro-market side clearly comes out on top. If you were to give the book to a libertarian son or daughter, you need not worry about turning him or her into a Marxist.

At the outset Lewis says he isn’t trying “to propagate a particular set of ideas.” It is obvious, however, that he knows the free-market arguments very well and is not indifferent between the two camps.

His first chapter digs into the title question: Are the rich necessary? Lewis presents several arguments that they are not: that they are parasites, cause poverty, and exploit the poor. In support of that litany of complaints Lewis quotes Abby Rockefeller (yes, a descendent of oil billionaire John D. Rockefeller), who said, “Many suffer because of the few.” Lewis then follows up by making the case that the rich (at least those who earn their money) are beneficial.

In presenting the pro-market side, Lewis quotes extensively from Henry Hazlitt: “No matter whether it is their intention or not, almost anything that the rich can legally do tends to help the poor. The spending of the rich gives employment to the poor. But the saving of the rich and their investment of these savings in the means of production gives as much employment and in addition makes that employment constantly more productive and highly paid.”

It’s hard not to notice that the argument against income inequality has a bumper-sticker quality to it, while Hazlitt’s rejoinder aims at the rational faculties. I don’t think Lewis is being unfair here. You could make the anti-capitalist argument longer, but you can’t make it any better.

Another topic Lewis addresses is profit. My high-school friend was against profits because in his view they made things more expensive. We find that childish notion in the arguments that profit is unnecessary. Lewis cites historian Howard Zinn, who contends that the profit system “distorts our whole economic and social system . . . leaving important things unproduced.”

In the following pro-profit arguments he presents, Lewis adduces facts that show the silliness of Zinn’s position. For example, he refers to Mark Kurlansky’s book Cod to show how the profit motive led people to make the discoveries and investments necessary for large-scale cod fishing to begin, which in turn made it possible for great numbers of Europeans to increase their protein intake substantially. People made the investments in commercializing the cod fishery because they thought they would be profitable. Progress in overcoming hunger hinged on the market’s profit motive. Lewis also goes into the alternatives to privately owned, profit-seeking business (government ownership and worker-owned firms) and points out that they entail serious difficulties.

How about economic depressions? Opponents of the free market often point to depressions as proof of the need for pervasive government regulation of the economy or even state ownership. Freeman readers will be delighted to read the counterarguments that Lewis gives. They are based on Austrian insights that government manipulation of money and credit causes widespread misallocation of capital to projects that have to be liquidated once the tinkering ends. Lewis deserves a round of applause for making Austrian business cycle theory comprehensible to the average reader.

Are the Rich Necessary? also plows into other key aspects of the intellectual battle between free-market advocates and their opponents, including globalization, central banking, and “just prices.”

This highly readable book would be an excellent gift for anyone whose economic thinking is at the same level as my friend’s was. I am going to pass my copy along to my sons. Their economic understanding is much better than his was, but the book is certain to sharpen their understanding and give them an arsenal of arguments to use against the anti-capitalist mentality.

  • George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy.