All Commentary
Sunday, February 1, 1981

In Defense of Millionaires

Dr. Peterson is director of the Center for Economic Education and the Scott L. Probasco, Jr., Professor of Free Enterprise at the University of Tennessee at Chattanooga.

Millionaires are proliferating in Tennessee, and that is both good news and bad news.

In 1979, according to the U. S. Trust Company of New York and its annual wealth survey, 11,705 millionaires resided in Tennessee. As of September 1, 1980 the survey has the number of millionaires bounding up to 13,230, giving Tennessee more than its pro rata share of the 574,342 millionaires in the nation.

In terms of millionaire density—the number of millionaire residents per thousand of state population—Tennessee has a 2.95 total—practically three millionaires for every thousand Tennesseans—man, woman and child.

First, this proliferation is bad news because a millionaire, like that old gray mare, “ain’t what she used to be.” Inflation, in other words, is breeding a new caste of millionaires who, because of a runaway inflation rate, have seen a sharp appreciation in the nominal value of their personal holdings and investments such as oil stock, defense investments, gold, silver, platinum, antique furniture, diamonds, jewelry, real estate and especially farmland. (Farm states show the highest millionaire densities.) The upshot is that thousands of Tennesseans and other Americans are realizing the Horatio Alger dream of piling up a cool million dollars in personal assets. But in terms of, say, 1940 dollars that million dollars would be more like $200,000 or so. Indeed, if inflation keeps escalating, everybody will be a “millionaire” before very long but a rather pauperized one.

The further bad news is that envy and social harassment still dog the millionaire. Look at our plays and novels, our movies and television programs. Millionaires are usually if not always portrayed as venal, grasping, shallow men and women. The TV phenomenon of “Dallas,” which I confess I greatly enjoy, is about par for the course. As a character in F. Scott Fitzgerald’s The Rich Boy put it: “Let me tell you about the very rich. They are different from you and me. They possess and enjoy early and it does something to them, makes them soft where we are hard, and cynical where we are trustful in a way that, unless you were born rich, it is very difficult to understand.”

Even some church officials get into the act: “Ours is a world in which wealth is superabundant, exists beside and depends upon, the poverty and starvation of countless of God’s human children. Some humans devour the resources of the earth while innumerable others languish in want and despair. The church must stand within that struggle, making its voice heard in behalf of the powerless and the forgotten. It must point out the superfluous wealth is an abhorrence to God in a world where, for the majority, economic failure, means permanent disaster.”

The war against wealth has taken more extreme forms: the holocaust of Jews in Germany, the liquidation of Kulaks in Soviet Russia, the slaughter of the Ibo tribesmen in Nigeria, the killing of nearly a million overseas Chinese in Indonesia, the massacre of whites in Uganda. To be sure, in all these cases there were factors besides that of an anti-wealth mentality.

A subtler form of that mentality lies in the progressive income tax, which Karl Marx and Friedrich Engels expressly called for in their Communist Manifesto as a means of making “inroads upon the old social order, and . . . revolutionizing the mode of production.” Today the progressive income tax is especially nefarious in our inflationary age, cutting ever more deeply into the ability of everybody, especially salaried people, to reach the nirvana of millionaire status.

As it is, the top 50 percent of income earners pay 93.5 percent of the Federal income tax bill, according to the 1978 figures compiled by the Tax Foundation of Washington, D.C. And of course, with mounting inflation, this concentration of the tax burden at the upper end of the income spectrum is on the increase.

Thus the irony of the progressive income tax is at least two-fold: First, through “bracket- creep,” the effective federal income tax bite is making upward mobility in real income terms harder and harder.

Secondly, millionaires and other high income earners are blunted in their ability to inadvertently serve the poor. The rich, you see, have a function in society not unlike that of the honey-seeking bee spreading pollen as it flits from flower to flower. Millionaires, in other words, are savers and investors par excellence, and thus they are our chief creators of capital formation, which is the raison d’etre of the well-being of our society—public sector and private sector, rich and poor but especially the poor. Inflation and the progressive income tax thus become harsh regressive taxes on “the underprivileged.”

Further, envy of the rich is mostly misbegotten. Many believe that the rich exploit their wealth from the poor, that one man’s profit involves another man’s loss, that Corporate America rapes the environment, that the consumer stands helplessly before “shared monopoly,” that the poor become poorer and poorer and so on.

To meet all these and other arguments of what Ludwig Mises called “the anti-capitalist mentality” is impossible in terms of time and space. Enough to say that the consumer—mostly the little fellow—is sovereign if not dictatorial in the marketplace, that the marketplace is strictly voluntary in contrast to the coercion involved under socialism, that both parties in an exchange profit, that if Reggie Jackson, Sophia Loren and many entrepreneurs are millionaires their wealth is most willingly bestowed on them by consumers, including the poor, for coming up with better and better goods and services at lower and lower cost.

But, lo and behold, some good news for the poor: Their secret friend, the millionaire, is acquiring some powerful friends of his own in the court of public opinion. For example, ac cording to Thomas Sowell, the brilliant black UCLA economist, the rich, like the poor, have become a full-fledged “Social Problem.” Dr. Sowell worries that forthcoming tax reform could conceivably stalk “the rich in their tax shelters,” and he would have none of that.

Again, Nobel laureate Milton Friedman calls for wiping out all progressivity in the federal income tax. He advocates a low fiat rate—under 20 percent—on all income above personal exemptions with no deductions except for strict occupational expenses. Such a fiat rate tax, he argues, would yield Uncle Sam more revenue than the present unwieldy structure with all its loopholes, special privileges and deadening impact on personal incentive and capital formation.

Meanwhile, let’s hear it for millionaires-the poor’s unknown, unloved, envied, socially harassed, politically abused and much misunderstood friends.

  • William H. Peterson (1921-2012) was an economist, businessman and author who wrote extensively on Austrian Economics. He completed his PhD at New York University in 1952 under the supervision of Ludwig von Mises.