All Commentary
Saturday, August 1, 1964

How to End Poverty

Dean Russell argues most convincingly that there is a peaceful way to overcome poverty, whereas "war" is reminiscent of the old Marxian "class struggle."

Our political leaders have re­cently declared war against pov­erty in the United States. And they are now in the process of mobilizing the nation’s manpower and resources for the coming battle.

The general philosophy behind these recurring governmental campaigns to stop poverty is fa­miliar indeed to students of eco­nomic history. As merely one of countless possible examples on the same general theme, let us first look briefly at the so-called Indus­trial Revolution in the England of 150 years or so ago.

Perhaps the two most famous of the reformers of that era were the classical economist, Karl Marx, and the successful businessman who became his collabo­rator, Friedrich Engels. Those two men were the intellectual leaders of the war against poverty in their time. And as is still the case with most of our own intel­lectual and political leaders today, the only solution that Marx and Engels ever offered to end poverty was to have the government in­crease its compulsions and prohi­bitions over the people in their economic activities.

It is not necessary here to ques­tion the accuracy of those reports by Karl Marx in which he de­scribed the degrading living con­ditions of the people who worked in those early factory towns of industrial Britain. While his re­search was confined to extensive reading in the British Museum, I will here assume that his state­ments on the harsh working conditions of that time were essen­tially true in a reportorial sense. But most unfortunately for poor people everywhere, Marx com­pletely missed both the reality and the portent behind what he was reporting. And thus he offered a totally erroneous solution to the problems of poverty and how to raise the level of living of the general population.

The Socialist Theory

The famous theory endorsed by Karl Marx to improve the well­being of mankind was based firmly on governmental ownership and operation of the means of pro­ducing and distributing all goods and services; later on, he appears to have agreed that heavy govern­mental controls, without total state ownership, might also effec­tively accomplish the task. That ancient but ever-new theory has been increasing in popularity all over the world, ever since Marx refurbished it again in his pro­gram to end poverty by positive governmental action. Under a dif­ferent name (and with a few changes in nonessentials), that same socialist theory of economics is the inspiration behind the cur­rent governmental plans to end poverty in the United States.

Perhaps the best source for a summary of the philosophy and program of Karl Marx is his ma­jor book, Das Kapital. As I here list the main points of his theory, I am confident that you will find most of them as familiar as to­day’s newspaper or political speech or sermon or textbook on economics.

Departure from Classical School

Since Karl Marx was trained in the “classical school” of economics of Adam Smith and David Ricardo, he was well aware that increasing capital accumulation is necessary for increasing indus­trial growth. And he readily agreed with the classical econo­mists that as capital (machinery) increases, the result will be more and more production of more and more products. So far, so good.

But at this point, Marx devi­ated from the prevailing economic thought of his time and claimed that the unplanned and uncon­trolled production of a free mar­ket will result in general sur­pluses that can’t be sold; that is, the workers won’t have enough purchasing power to buy the prod­ucts they produce. This develop­ment will cause factories to shut down until the surpluses can be disposed of in some manner. Thus, booms will be followed at regular intervals by busts.Unorganized, oppressed and politically hopeless workers will be exploited mercilessly. Throughout the economic ups and downs of these business cycles, however, the rich will get richer and the poor will get poorer, according to Marx. This will continue as long as there is uncontrolled private ownership and production in a market economy that (according to Marx) is necessarily based on increasing monopolies, jungle competition, and anarchic produc­tion. The unorganized, oppressed, and politically helpless workers will be exploited mercilessly. Many (perhaps most) of them will lose their jobs to the ever-increasing and more efficient ma­chines. And while the workers who are fortunate enough to have jobs will increase their produc­tion, they will be paid lower wages than before.

Marx predicted categorically that widespread poverty, mass starvation, and death among the working classes are the inevitable results of capital formation and industrialization in a market (nonsocialist) economy of private ownership. His financial backer and literary collaborator, Fried­rich Engels, said much the same thing in his book, The Condition of the Working Classes in Eng­land in 1844. For example, he claimed that the peasants and their children in agrarian Eng­land were far healthier, happier, and more prosperous than the workers of industrial England after 1700 and the advent of ma­chinery for mass production.

Trimming the Facts To Fit the Theory

One of the most astounding facts of economic history is this: At the time that Marx and Engels formulated and published their theory, the statistical proof of its falseness was publicly available. Further, both Marx and Engels were aware of this evidence; one can only assume that they simply ignored it because it did not fit into their theory.

Here are the statistics referred to—the population figures for England and Wales from 1600 through 1831, figures that Karl Marx could not possibly have missed during his years of exten­sive research in this general area.

Year          Population

1600     around 5 million*

1700     more than 5 million*

1750     more than 6 million*

1801     9 million (census)

1820     12 million (census)

1831     16 million (census)

*Rough estimate

Among the voluminous statis­tics of this same type that were available to Marx and Engels, one also finds this: In London in 1750, about 70 percent of all children died before age five; by 1830, the figure had fallen below 30 percent.

If the theories of economics and history advanced by Karl Marx were valid, these population fig­ures would have to be the reverse of what they are. If there were any merit at all to the theory of socialism, children would have died earlier (and the population would have diminished) as the number of machines increased in Great Britain from 1700 to 1900 in an increasingly free market.

They Lived Longer

But the truth of the matter is, of course, the reverse. As indus­trialization in the competitive market economy grew, the life ex­pectancy of children (and also of adults) grew right along with it. The population had been barely moving forward for two or three hundred years in an agrarian economy with few machines. But with increasing machinery—and especially the invention of the steam engine and the rapid indus­trialization that followed it—the population soon doubled and then trebled.

One should also remember that it was during this period that hundreds-of-thousands of British subjects were migrating to all parts of the world. Thus, the sta­tistics on population growth given above are really understated.

The reason that the evidence is contrary to socialist theory is sim­ply because (basically) socialist theories of economics and history were (and still are) totally false. But before we examine the valid­ity of that sweeping condemna­tion, let us mention two possibili­ties other than machines in a mar­ket economy that might explain this increase in life expectancy.

Was it due to new medical knowledge and practices? No, for the most part, those improvements came after the machines, not be­fore.

Was it due to more governmen­tal controls and welfare schemes? No, governmental interferences in the economy were decreasing dur­ing this period. Percentage wise, there was less government welfare instead of more. The economy was becoming increasingly free.

A False Theory

At this point, however, I would like to agree with Marx on one of his ideas—that is, before one can understand history, he must first have some understanding of eco­nomic theory. Economics is cer­tainly not the sole determinant of history, as Marx claimed it to be. But at least it is important enough to explain the nonsense that is so often encountered in the deduc­tions of historians who have no real understanding of economic theory. The misinterpretation of history by the socialist philoso­phers, however, was, of course, not due to the absence of economic theory but rather to the endorse­ment of a false theory.

A Better Theory Proposed

Since it is obvious that the so­cialist theories of history and eco­nomics do not fit the facts of the Industrial Revolution, and are thus false, then what theory does explain this period of fantastic economic growth? Well, here is my own theory, in four simple parts. Let us see if it helps in any way to explain the facts:

1.      Persons who have enough to eat will live longer than persons who don’t have enough to eat. That statement is not intended to be humorous; actually, it is an oft-ignored fact that is funda­mental to any economic theory that explains why human beings act as they do. And I am reason­ably confident that Karl Marx would have agreed with it.

2.      Other things being equal, a man with a wheelbarrow and shovel can move more dirt from “hither to yon” than can a man using only his hands. That is, a man with a machine can produce more than a man without a ma­chine; or, capital formation in­creases production. Again, Marx would surely have agreed with me. But on the heart of my theory—the next two points—he would have been in total disagreement.

3.     The employee who is working in a factory for wages in a free economy will be paid more if he produces more. I could here use marginal analysis to support the theory. But for my present pur­pose of simplified explanation, I need only point out this fact: Competition among employers in a free economy will guarantee that result; for since each employer is in business to earn profits, each will try to secure the services of the workers who produce the most in the shortest period of time. The only way this can be done in a free market is to offer higher real wages. If that is not so, then we are faced with the absurd theory that the policy of employers in an economy of choice is to voluntar­ily pay most to the employees who produce the least.

4.      Persons who are producing, selling, and buying what they choose to produce, sell, and buy will have more of what they want than will persons who are com­pelled to produce, sell, and buy what they don’t want. If that sounds like a mere play on words, it isn’t. For what I have said is that the market economy of free choice (with the government re­stricted to preserving the peace and suppressing fraud) provides more people with the things they want than does any other eco­nomic arrangement. Or expressed in other words:If the objective is to provide the maximum amount of goods and services that peaceful persons want, obviously there must be freedom in choice. If the objective of an economic system is to provide the maximum amount of goods and services that peaceful per­sons want, obviously there must be freedom of choice and ex­change. This essential require­ment for maximum material well­being exists in a free market econ­omy, and only in a free market economy. The socialist theory of a controlled economy (that is, a controlled people) is necessarily based on the idea that when peace­ful persons are compelled to pro­duce, sell, and buy what they would not voluntarily produce, sell, and buy, they really have more of what they want than is the case when they are free to choose.

A Priori Reasoning

Well, there you have the non-socialist theory of economics as best I can state it in brief form. It is, essentially, the exact oppo­site of the socialist theory. And thus you can now better under­stand my sweeping statement that the socialist theory of government ownership or control of produc­tion and distribution is totally false and must always finally pro­duce the reverse of what its ad­vocates say they wish to accom­plish. That is as true in the United States as elsewhere, cur­rently or at any other time.

Now I wish to say two things about this theory. First, of course, I didn’t invent it; I suspect, how­ever, that I have simplified it con­siderably. Second, the inventors did not first look at the facts and then work out a theory to fit them. That isn’t how theory is de­veloped. For example, the first “sputnik” that circled the earth did not generate a theory; in­stead, the prior theory generated the first man-made orbit around the earth.

You and I know a priori that a man with a wheelbarrow and shovel can move more earth in a given period of time than can a man without a wheelbarrow and shovel. We don’t need any facts to prove it. The theory is self-evident. The man who invented the wheelbarrow did it because he knew in advance that he could thereby “produce more” with that tool than he could without it. And so it is with the three other a priori theories I have cited above. Since they are unquestionably true, I know that certain results must necessarily follow their ap­plication.

I know that as more machines appeared in an increasingly free market in Great Britain after 1700, there would be more food and other goods and services. The people would live longer. And un­der the conditions of that partic­ular time, the population could be expected to increase rapidly. That economic theory doesn’t really need “statistical proof” since it is self-evident and is based on the fact that every person is well aware that he will live longer with food than without food. The op­posing socialist theory is not false merely because the statistics dis­prove it; the theory is false on a self-evident basis. Since socialist economic theory is false a priori, naturally the results in practice must finally be disastrous. That is why millions of Russians starved to death under the communist eco­nomic system after 1918; persons were literally prevented from pro­ducing food. It was not due so much to lack of political freedom as it was to the utter nonsense of socialist economic theory; the re­sults could not be otherwise.

The Communists Cheat!

And even today, the only reason that the Russian people manage to stay alive at all is because they cheat against their socialist theory. This cheating is on a mammoth scale and, fortunately for the Russian people, it appears to be increasing. The officials per­mit a tremendous amount of “free enterprise” food growing; they use unrestricted market prices to distribute vast quantities of food and considerable amounts of con­sumer goods; the managers of factories can now fire inefficient workers and hire ones who pro­duce more; the government plan­ners have rejected the Marxian idea of government unemployment compensation that pays a person not to work; If Russians didn’t cheat against the economic theory on which their system is based, they would all literally starve to death.further, make-work schemes that are now protected by law in the United States would re­sult in long prison sentences for persons who openly practiced them in the Soviet Union; the free market prices of the world are used by the socialist planners in Russia to guide their production procedures and goals; the “profit motive” rather than the “firing squad” is now increasingly used as the incentive to get better management and more produc­tion; and so on through thousands of free market violations of so­cialism.

The truth is simple and harsh: If the Russians didn’t cheat against the economic theory on which their system is based, they would all literally starve to death. And even at best, they must still depend on other nations to send them food. It is to be hoped that future leaders in Russia will finally accept fully the fact that persons who have enough to eat will live longer than persons who don’t have enough to eat, and that they will then adopt the policy of leaving persons free to produce the food they want instead of compelling them to produce “moon shots” that they would never pro­duce voluntarily.

The adoption and practice of false economic theory explains why millions of men, women, and children are literally starving and dying in China today. The total economic collapse in Cuba today is not due primarily to the fact that Cuba has a dictator; it is because that dictator operates on socialist economic theory. The present socialist economic system in Cuba can’t possibly work in practice because it is false in theory. It is totally contrary to how all human beings choose to act when they are free to do so.

Some Things Explained

With my own theory cited above, I know in advance that (other things being somewhat equal) the people in a compara­tively free economy will have a higher level of living than will the people in a less free economy.

I know that West Germany has to be more prosperous than East Germany. My a priori theory says that it cannot be otherwise. And since the economy in Poland is a little bit more free than the econ­omy in Russia, my theory says that the Poles should be expected to have a slightly higher level of living than the Russians. They do, even though the still-heavy con­trols over the economy in Poland still mean a distressingly low level of living for the unfortunate Polish people.

My economic theory says that the Japanese in their compara­tively free market should have a higher level of living than had the Japanese under the former con­trolled economy. They do. Fur­ther, my theory implies that the economic “growth rate” in Japan should be high. It is; in fact, the rate there appears to be the high­est in the world.

With my theory, I can now make some sense out of history, a thing that Karl Marx was never able to do. I now better under­stand why ancient Athens en­joyed its phenomenal growth rate for 150 years or so. I can now better understand why it declined and collapsed. In each case, the key I search for is the compara­tive freedom enjoyed by the citi­zens in the economic areas—that is, the extent of private ownership and of the freedom of persons to exchange goods and services vol­untarily.

I now know why a much higher level of living developed in Vene­zuela than in Brazil in our own era. And I also now understand why the level of living in Vene­zuela has (percentage wise) not increased as fast during the past few years as it did formerly. I can now also understand the situ­ations in Argentina and India. Finally, I can now understand why the real level of living per capita in my own country is not increas­ing (percentage wise and on the average) as fast as it used to before 1930 and the general ac­ceptance of the philosophy of the welfare state and the controlled economy. Further, my theory says that the battle plans of the cur­rent war against poverty in the United States (more socialism) must eventually bring the reverse of the announced aims.

Well, you pick your own time and place and examine it from the viewpoints of the two theories here advanced—Marx’s socialist theory of economics and my own free market theory. If other things are reasonably equal, you will always find that (over a sig­nificant period of time) the peo­ple in the “more free” economy will be more prosperous than the people in the “less free” economy. This is self-evident because free people will always produce more of what they want than will peo­ple in a controlled economy who are prevented from choosing what they will produce. It cannot be otherwise.

The size of the country and the extent of its natural resources are not as vital for a high level of living in today’s world as is the economic philosophy endorsed by the nation’s leaders; for example, small and resource-poor Switzer­land has a comparatively high level of living. When one con­siders the amount of foreign capi­tal that goes there—and why it goes there—no one should be sur­prised at this result. And no one who understands the economic theory is in the least surprised at the fantastic “growth rate” of tiny Hong Kong with essentially no natural resources.

The More They Produced, the More They Could Have

Now I would like to end where I started—with the Industrial Revolution. Please note that I have not denied the horrors of that period. I am aware that there were cases of six-year-old children who worked ten hours a day—and that they lived in filth and often suffered injury from those primi­tive machines. All I have said is that life expectancy for children working in those factories was higher than was the life expec­tancy of children in the preindus­trial society. The children of the Industrial Revolution era had more to eat, even though they still didn’t have enough. They had more to eat because they could produce more with machines than without machines, and could trade their industrial products for more and better food. They still didn’t have all they wanted to eat be­cause they still couldn’t produce enough with the still-primitive machines they had. But as capi­tal accumulated and more and better machines came into exist­ence, they produced more. And thus they had more to eat. And thus they lived longer.The private accumulation of capital … has always meant an increasingly higher level of living.

I maintain that living to age nine is better than dying at age five. As more capital was accumu­lated in an increasingly free mar­ket economy, the children lived even longer. Finally, there was enough capital available to permit a man to produce enough to put his children into schools, and for his wife to change her factory job for the job of home keeping. It was machines under private ownership, not child labor laws, that finally took the children per­manently out of the factories and put them into schools. If you doubt this, think of what would necessarily happen to children to­day if there were no machines.

The private accumulation of capital in a free market economy has always meant an increasingly higher level of living. This is what it always will mean. Thus the most practical thing that you and I can do to end poverty in the United States or elsewhere is to insist that the market shall be free. Nothing else is required; anything else will fail.

If We Will Let It Work

I have deep faith in the stimulating power of competition and in the capacity of the free market to allocate resources and to bring us optimum growth and progress if we will only let it work. And we will let it work if we can bring ourselves to accept a few very simple ideas about business: that business is a tool, and that the sharper its cutting edges are and the stronger its motivating power, the better job it will be able to do for all of us.