Unjust forms of accumulating wealth have always been open to, and practiced by, human beings, but progress depends on the restraints placed on this type of money-making. If six billion people can be fed today, it is because the normal way of becoming rich is not stealing or plundering or pirating, but something more beneficial: production in the market.
The market is a complex order. A thief needs only violence to get rich; a cattle trader needs more things, such as order and justice; in other words, an environment where transactions can be safely completed. The market does not obey “the law of the jungle”—just the opposite: The law of the jungle prevails where there are no markets. Peaceful exchange with secure property rights is more productive than widespread robbery, but many criticize the rich regardless of the path they followed to opulence, as if they all had achieved their wealth illicitly. Apparently, George Bernard Shaw’s fallacious quotation still rules the day: “I am a gentleman: I live by robbing the poor.”
The most common way to make a fortune in a free market is organizing a successful company. How can this company succeed and pay handsome salaries? In a free market there is only one answer: by making something consumers appreciate. Under such circumstances, the businessman’s wealth is linked to the social utility of his labor, a utility proved by consumers who buy because they too benefit from the deal.
Of course, one can always make money breaking the law, as thieves and swindlers do. And there is also another method that, while unjust, does not always appear that way: to become rich by avoiding competition or gaining other privileges that only the state can grant.
Monopolies and protectionism exemplify these strategies. Both became the enemies of classical liberals, who argued in favor of the free market and against the privileged groups that injured the majority of the population by imposing high prices and limiting the ability to choose.
Alongside the state’s expansion during the past century, opportunities to profit from using the state to avoid competition have proliferated. Through the apparatus of government, lobbying groups have obtained power over their markets, subsidies, and every other kind of anticompetitive protection.
Blocking market activity breaks the connection between social needs and the supply of goods and services aimed at satisfying them. But it may turn out to be profitable: Fortunes have originated in anti-competitive privileges bestowed by political power or made possible by its regulations. In such cases it is fair to distrust the wealthy.
Often, however, no distinction is made when it comes to criticizing rich people. They all appear reproachable, and few dispute the need to impose on them specific burdens and progressive tax scales aimed at dealing with the “problem” of inequality. The state must force-fit all of us into a Procrustean bed.
Internal Robin Hood Service
Many thus would have the state play Robin Hood, robbing from the rich (no matter how they got the money) and giving to the poor. I do not dispute that this legend is open to several interpretations, including a plausible libertarian one. Robin Hood can be seen as an enemy of tyranny and the abuse of law, a friend of the people, a man who robbed tax collectors and privileged aristocrats, returning the money to the victimized peasants. This is a very appealing version of the story. My objection, however, is directed exclusively at the danger of casting the modern state in the powerful image of a hero seeking redress and justice. It uses this image to legitimize its vast distribution operations and to show its supposed liberality.
The notion of the state playing Robin Hood has two weaknesses. First, there is no way to prove that if the authorities take a dollar by force from a rich person and give it to a poor person, the collective happiness increases. As Anthony de Jasay says, the only way to solve the problem of comparisons between individuals is for the state to impose its preferences on the community. The outcome of these operations, in the words of Bertrand de Jouvenel, is not a redistribution of income from rich to poor but from everyone to the state.
The second weakness in the state-as-Robin-Hood argument is that it only works if the treasury is small. The state in the days of Robin of Locksley was limited, but when it takes on modern proportions, no matter what Barack Obama may say, it can no longer finance itself only by taking money from the very rich, who are by definition a minority. The state might pretend to do this, but in practice its only financing option is to take money from everyone.
One of the main arguments for the growth of the modern state is the fight against inequality. Some claim that without the state’s intervention, human beings would abandon the poor to their own devices and charity would prove both insufficient and insulting.
The allegation that, without the state’s helping hand, people would ignore their fellow human beings in poverty can’t stand even a cursory analysis. From the dawn of civilization, examples to the contrary abound. Voracious tax increases have not managed to extinguish the humanitarian impulse.
Charity is a noble and deep human feeling. Why is it dismissed and devalued? Why is it deemed humiliating, while state aid is viewed as a display of compassion?
Virtue Requires Liberty
Helping our fellow man and political distribution are very different actions. Let us take as an example the noble conduct of the Good Samaritan, a beautiful portrait of humanitarianism. A basic assumption—in truth, an essential element—of the parable is liberty. The Good Samaritan’s virtue stems from the fact that he acts voluntarily; if a centurion forced him to help the poor Jew, beaten and abandoned in the road, the parable would have made no sense. Virtue, in effect, demands liberty.
In this example, we see the demoralizing effect of state expansion. Many nongovernmental organizations, particularly in Europe, do not ask citizens to freely and voluntarily hand over a fraction of their income. Instead, they ask the state to extract sums from taxpayers’ pockets. Amazingly, the sacrifice of liberty and responsibility on the altar of political power is praised, while providing free and voluntary aid to one’s fellow man is dismissed as humiliating charity.
The fact is that where markets are permitted to work, fewer people need economic assistance of any kind. The centuries since Adam Smith wrote The Wealth of Nations have provided ample evidence to support his message: Free trade and security in one’s rights are the pillars on which individuals can improve their condition. Despite this, many people criticize the market economy and allege that it encourages marginalization. It is common to read statistics showing great poverty and accusations that market-oriented countries like the United States are infernos of inequality.
Not Condemned to Poverty
The problem with such statistics is that they are based on surveys that fail to track the same people through time. Thus they cannot provide the most important piece of information: Are the poor condemned to poverty or are they able to rise out of it? The statistics, in short, rarely measure social mobility. But when they do, they show that the poor have large possibilities of escaping the lowest percentile of income distribution. It is in fact more probable that a very poor person in America will climb to the highest income rung than that he will remain in poverty. One could argue that the data indicate mobility but not improvement, given that there is always a poorest 20 percent. Incomes in an advancing society like the United States, however, are not constant but rather are increasing—despite pervasive government interference—and this, not welfare, offers everyone the opportunity and the incentive to progress.
Socialists and interventionists of all parties have reluctantly ended up accepting the market, but they claim government intervention is necessary to tackle inequality. However, inequality is only objectionable if there is a lack of competition and freedom. The modern state’s onerous and inefficient distributive structures, ostensibly built to wipe out inequality, have had perverse effects and a demoralizing impact on society, pushing different groups to fight over public favors. It is an out-of-control process in which, as the German liberal Ludwig Erhard said, everyone puts his hand in the pocket of everyone else.
The clamor from interventionists against inequality morphs into a clamor for a larger and larger state. This path leads to the loss of liberty and a distortion of both democracy and justice. It distorts democracy because, by attempting to solve inequality, it removes limits to power and expands the field of state action. It distorts justice because the only way to solve inequality politically is for the state to have the power to treat individuals unequally. Thus the struggle to eliminate inequality ends up destroying the most important form of equality for an open society: equality before the law.