Progressives have long bemoaned the wealth gap between the wealthy and the middle class. “It’s unfair for billionaires to have so much when the average person struggles to make ends meet.”
Their proposed solution: massive welfare spending, funded by increased taxes on the rich. This redistribution of wealth in the name of fairness and public good would attempt to raise the living standards of the lower and middle class.
This might sound good at first glance, even American. After all, doesn’t the Declaration of Independence say all men are created equal? If we want to be good people, shouldn’t we strive for fairness?
But that wasn’t the kind of equality our Founding Fathers meant. “All men are created equal” is referring to equality of opportunity, not equality of outcome – and certainly not equality of wealth.
The Founding Fathers were classical liberals, and the formation of America was a revolution against an age of aristocratic privilege for an elite few and serfdom for the masses.
In the words of economist Ludwig von Mises: “Two hundred years ago, before the advent of capitalism, a man’s social status was fixed from the beginning to the end of his life; he inherited it from his ancestors, and it never changed. If he was born poor, he always remained poor, and if he was born rich—a lord or a duke—he kept his dukedom and the property that went with it for the rest of his life.”
This old order was a world of forced choices. Laws determined what you could buy, whom you could trade with, where you could live, and what profession you could pursue. You were trapped in a life of bondage to the land and grinding poverty, unless you happened to be a hereditary aristocrat, with land, wealth, and power. Commoners had no opportunity to rise to a higher station, and few opportunities to earn wealth except through well-connected patrons.
Every advancement in society was created to benefit the aristocrats, Mises pointed out. “As for manufacturing, the primitive processing industries of those days existed almost exclusively for the benefit of the wealthy,” he wrote in Economic Policy: Thoughts for Today and Tomorrow. “Most of the people (ninety percent or more of the European population) worked the land and did not come in contact with the city-oriented processing industries.”
This system – a relic of the feudalism that had prevailed in most of Europe for hundreds of years – was precisely the social order the classical revolutionaries sought to overthrow, Mises noted.
They wanted to abolish aristocratic privilege, serfdom, and trade restrictions, and build a world where individuals could be free to chase opportunity no matter where or to whom they had been born.
Thomas Jefferson said of the supposed ‘natural order’ which condemned the poor to their poverty: “the mass of mankind has not been born with saddles on their backs, nor a favored few booted and spurred, ready to ride them legitimately…”
This extension of legal privileges to all was what the founders meant by equality—that anyone should be free to own land, leave land, enter any profession, or make any trade. They wanted a world of equal opportunity, equal access, and equal rights.
The Founding Fathers largely succeeded in overthrowing this old order, and the results were miraculous. Aristocracy was replaced by meritocracy, and the world opened up. The common individual was free to improve his fortunes through hard work and serving others. Those who were able to create something others wanted to pay for became rich—and unlike the old aristocracy, they got rich by serving and creating value for people around them, not by enslaving and subjugating them. When their investments and innovations paid off, these prosperous individuals hired others, opened businesses, paid wages, and so raised the living standards of those who worked under them.
This productive cycle of investment and wealth creation is what has driven the fast-rising living standards for the masses since the advent of the industrial revolution. When we look at poverty rates – a much more important measure of the progress of society than the wealthy outliers – we see that they’ve plummeted. Extreme poverty (less than $1.25/day, adjusted for purchasing power) fell by 80 percent globally and is so low in the US that it isn’t even measurable. The modern “poor” enjoy indoor plumbing, clean water, an abundance of foods, clothes, luxuries, and devices that the richest dandies of Jefferson’s day couldn’t have imagined owning.
We already have the very thing today’s progressives say they want to accomplish through redistribution: rising prosperity of the masses.
That rising prosperity didn’t come about through welfare paternalism or policies that guaranteed equality of outcome. Our abundance came about through the revolution against the restraints that kept people unequal – which freed individuals to cooperatively make things better for themselves, and by doing so, for each other.
The very mechanisms that generated this great prosperity – investment, innovation, hard work, value creation – are actually undermined by many policy proposals to address poverty. What’s the incentive to invest and innovate, if what you earn will be given to someone else? What is the incentive to contribute economic value to your community, if the government is going to give you something for “free”? Redistribution hurts the very people it’s supposed to help, by slowing the economic engine that’s been pulling us all out of poverty.
If we truly want to raise the living standards of the masses, we must promote equality of opportunity — the right of everyone to innovate and become rich – not spend our time policing equality of outcome.