All Commentary
Monday, July 1, 1974

For the Sake of the Poor

“That some should be rich,” observed President Lincoln, “shows that others may become rich and hence is just encouragement to industry and enterprise.” Four years earlier, shortly before he gained the Republican nomination, he had similarly testified about the desirability of property: “I don’t believe in a law to prevent a man from getting rich; it would do more harm than good.” And he might well have said the same about a law to prevent a man from being poor: it would do more harm than good.

Abraham Lincoln had known abject poverty and would rise above it to the Presidency. It is not the only way, of course; some of the children of some wealthy parents also have lived worthy lives. And whether it is easier to grow out of poverty or to emerge successfully from a condition of affluence is a moot question. The point is that poverty serves a purpose. It is painful to a sensitive individual and stimulates him to take corrective action, much as a sense of pain activates one to remove his hand from a hot stove. However great the pain, it would be far worse to be burned without feeling it. Almost as deadly, for most of us, would be to find comfort — to experience no pain or uneasiness — in a condition of poverty.

What’s the point of all this? The point is that American citizens are being burned to death, and we don’t seem to know it. We are letting ourselves be persuaded that the only way to get a scarce item is to stand in line waiting for it. And why should we do that? For the sake of the poor, of course! What are we waiting for? Yesterday a roast of beef, today a tank of gas, tomorrow a carton of milk or eggs or cereal, a bag of onions or potatoes or apples, or who knows what then will be the object of greatest intervention for the sake of the poor!

If an individual is allowed to respond to his senses, he need not be a genius to deduce that waiting in line is unproductive; it produces poverty rather than more of the goods and services he’d like to have. No man, unless he be one of the least productive among us, could afford to stand in line for a subsidy of less than $3.00 an hour; he could make more than that by working. If necessary, he could pay double the subsidized price of gas and still be ahead on the deal if he didn’t have to wait to be served. And the saddest part is that no such price increase as that would be necessary to clear the market immediately.

Government in Business

When the man with the gun, the one whom we collectively empower to defend life and property and to keep the peace, interferes with market pricing — artificially depressing the price of gasoline to curb the profits of sellers — the excuse is that the underpricing is for the sake of the poor. What it amounts to, strictly in terms of price, is a subsidy to the consumer of gasoline, which means that some of the pain of poverty, some of the penalty of failure, has been killed or diminished. The law of the land says that it is 2 cents or 5 cents a gallon less painful to be poor than says the law of supply and demand. Production and consumption of gasoline is thereby removed from the world of reality, and instead of gasoline enough to satisfy the demand at the free market price, the artificially depressed money price creates a real shortage of gasoline and a high extra cost of waiting in line for an unsatisfying combination of gas and subsidy.

Ask yourself the next time you’re waiting in line, or check the faces and the behavior of those in the next line you see: Is this the picture of a peaceful and friendly society? It is not. It is a picture of anger and hatred and violence barely suppressed — a situation closely patrolled and supervised by armed policemen. Why the policemen? Why, to enforce the law that was enacted to help the poor, the law enacted by the agency of force that was constituted to preserve the peace — not to disturb it.

Seeds of War

Personal liberty and private property are results of peaceful production and trade rather than coercive practices. You have life and liberty because I respect you and what is yours. I respect you and yours because I believe you respect me and mine. And out of such a chain of respect comes freedom and a peaceful and progressive society. But let one person break the pattern, bring coercion to bear against one or more other peaceful persons, and there will be a chain reaction of ensuing disrespect and violence.

Is it a sign of respect for an individual to forcibly prevent his being as poor as he chooses? Not that he chooses necessarily to be poor, but that he chooses to avoid various actions or efforts that could alleviate his condition of poverty. Is he to be denied the freedom to make such a choice and to assume responsibility for the consequences? How is a person to develop a sense of self-responsibility if he is not permitted to experience the results of his actions? How is it possible to relieve some persons or groups of the burden of their failures, by the process of governmental subsidy, without at the same time taxing from others some or all of the earnings derived from proper or successful action? By what process can we relieve the poor of their own responsibilities without forcing the producers and savers to be equally irresponsible?

Let us bear constantly in mind that we are not so much concerned here with the possession and use of pieces of paper money or other currency. Our concern, rather, is with the possession and use of scarce and valuable goods and services. In whose hands, under whose management, would such scarce resources be used least wastefully, most efficiently?

Dividing Wealth Does Not Increase the Supply

We tell one another that man does not live by bread alone, but are we sure we know what we mean? We see clearly that a loaf of bread may help to sustain life if it is available for consumption. Do we see as clearly that some of the wheat must be saved and used as seed, along with other productive resources, if there is to be a continuing and ample supply of wheat and bread? So, we do care — as much as any socialist cares —who has bread enough to eat; and if we care enough, we will do everything in our power to see that the ownership of wheat is concentrated primarily in the control of those individuals who waste it least and use it most productively and efficiently. It is no service to the poor to forcibly confiscate private property and redistribute it among the least productive persons in society. For once they consume it today, who will bother —or have the means—to feed them tomorrow?

Still, there tends to be a feeling of resentment against those who earn their living producing the goods and services consumed by the poor. Some of those producers are rich! Sometimes it is highly profitable to have correctly anticipated consumer demand and to be among the first to supply in quantity what they want. But profits are ephemeral and tend to disappear or merge into losses under competitive pressure. And in any event, entrepreneurial profit is never something that is added on to the price which consumers pay for an item. Rather, it is taken out of costs, and goes to the most efficient producers of that item. The least efficient producers barely break even, may even suffer losses for their efforts to supply goods and services consumers want.

The point is that the property accumulated in the hands of the so-called rich through the market or business process (as distinguished from the opulence of political rulers and kings) is not necessarily and probably not primarily a result of profit-taking. Savings may originate in many ways. A man may save some of what he earns as wages. Studies of industrial production indicate that industries on the average in the United States pay out in wages, directly or indirectly, about 85 cents of every dollar received from sales. So, if wage earners want to save, theirs is the biggest chunk of the pie from which to draw. The next largest chunk goes to creditors, savers who lend the resources needed to provide the buildings, tools, and other capital required to carry on the business. Creditors earn interest — not profit — on the capital they lend. Hopefully, the owners or stockholders may earn some profit for the entrepreneurial risks they assume; but many of them lose their investment, too, or fail to earn as much as if they had put that amount in a savings bank at interest.

So, some of the property of some of the rich may represent an accumulation of profits earned. But it is far more likely that most of the property of the rich will have come about from saving and wisely investing or lending what had been earned in wages. And surely that must have been the formula Abraham Lincoln had in mind when he cautioned against “a law to prevent a man from getting rich.” He was a friend of the poor.  

  • Paul L. Poirot was a long-time member of the staff of the Foundation for Economic Education and editor of its journal, The Freeman, from 1956 to 1987.