Roger Clites is Associate Professor of Business Economics at Clarke College, Dubuque, Iowa.
A frequent criticism of advocates of the free market is that they do not care about the poor. The critics look about, see that some people are poor, and immediately propose to alleviate that poverty by taking from people who are better off (called “the rich”) and giving to the poor. They never stop to consider why some are richer than others.
Throughout history poverty has been the natural condition of mankind. Even today most of mankind lives in poverty. Instead of taking from that small portion of rich so that all may soon become poor, they should be asking how the few became rich and whether such a method might be used to raise the levels of the many poor. After all, when almost all were poor, it was not possible to take from others to become rich. Insufficient numbers of wealthy existed to make such action possible. Wealth had to be created, not taken from others.
Just as poor people cannot be made permanently better off by continually subsidizing them, poor societies cannot be made permanently better off by taking from richer societies. They must learn to create wealth. At one time there were no rich societies. Rich societies did not develop as a result of foreign aid. They had to create wealth. The only way for either an individual or a nation to continue to be richer over the long haul is to learn to create wealth. Handouts are, as the saying goes, “here today and gone tomorrow.”
The real concern which we need to address when we consider redistributing income and wealth is the effect on initiative and on capital formation. If we retard capital formation, we reduce the rate of productivity increase and, of course, of economic growth. That means that those who live in the next year, the next decade, the next generation, indeed, the next century, will be less well off than they would have been had capital formation not been sabotaged by short-term attempts to alleviate poverty through redistribution.
Only the most callous among us is truly unaffected by the plight of the present-day poor—be they next door, across town, or on the other side of the earth. But, those who concentrate on taking wealth-creating assets from the “haves” to give consumer goods to “have-nots” overlook the fact that they are creating a poorer society for babes of the future to be born into.
Putting it in another perspective, had the redistribution policies they advocate been in effect a hundred years ago, they and most other rich people alive today would have been born into poverty—if they had been bern at all. There would be even more of the present-day poverty which theydecry if economic growth had been held back in the past by the imposition of such policies as they advocate today.
We must not let our concern for present-day poor so impede progress and economic growth that we consign future generations to conditions of even greater poverty. Just as the individual can grow economically only through saving and investing for greater future production, so a society can grow only by engaging in capital formation. Spending all of one’s substance in the present leads only to poverty in the future—both for individuals and for a society.
Policies grounded in well-meaning but short-sighted attempts to help present-day poor by taking from those who produce and giving to others discourage current production so that even those alive today are not as well off as they otherwise would be. More important, such policies hold back economic growth so that children of the future will be condemned to live in a poorer condition than they otherwise would inherit from those currently living and enjoying the fruits of the capital formation of their forebears.