All Commentary
Wednesday, July 1, 1964

The War Against Poverty

Once upon a time the people of the United States waged a war on poverty, the success of which has seen no equal.

They didn’t call it war on poverty. They said they were try­ing “to promote the general wel­fare,” and the device they used was a new Constitution for a gov­ernment of strictly limited powers. The government was to protect life and private property, thus providing the political framework within which all individuals would be free to produce and trade to their hearts’ content. If anyone wanted to be richer or poorer than others, that was his choice and his problem; and how well he suc­ceeded depended on how well he pleased his customers. The laws were designed, as best those men knew how, to render justice im­partially, neither harassing nor granting special privilege to the rich or the poor, or any class, or any individual. Of course, there were violations of principle, hu­man nature being what it is, but the principles themselves were sound.

Unlike their modern counter­parts in the United States, and un­like their eighteenth century con­temporaries in France, the early political leaders of the United States did not try to promote the general welfare through deficit financing and continuous infla­tion. They had suffered through the wild paper money inflation of the Revolutionary War period and concluded that the whole scheme was “not worth a Continental.” They took the position that the best way to help a debtor was to let him pay what he owed, thus establishing his credit rating against which he might want to borrow again some other time. They even went so far as to let bankers and borrowers and lenders compete in the money markets, and suffer the consequences of their own folly if financial panic ensued.

If a man acted so as to become a failure, he was permitted to fail.

If he couldn’t make good at farm­ing, there was no federal farm support program to discourage his trying to be useful in some other way. If he lost one job, he was free to seek another, with no powerful labor unions to bid him nay, and no unemployment compensation or state or federal relief programs to encourage him to remain idle. There wasn’t even a minimum wage law to tell him at what point he must stop working entirely rather than take a lower wage; no programs inviting or compelling him to retire at age 60 or 65. And if he chose to enter business at his own risk and responsibility, there was no federal Small Busi­ness Administration (with 3,400 employees) to help him remain a small businessman.

Perhaps most important of all was a reluctance on the part of many of the early statesmen of America to seek political office and political power. They knew of other ways to find happiness and achieve success. George Wash­ington wanted to return to farm­ing at Mount Vernon; Jefferson longed to be back at Monticello. Neither the governors nor the gov­erned looked to the government as the source and provider of all good things. The government was a police force of limited power for a limited purpose; and most of life was to be found and lived in peaceful and creative ways outside the scope of governmental control.

Situation Vastly Improved

It would be a gross distortion of the fact to presume that poverty was eliminated from the United States in an absolute sense under the comparatively free-market and limited-government practices of the nineteenth century, or to as­sert that there were not govern­mental interferences in the pri­vate sphere. Throughout the period, there were many individ­uals and families in the nation with earnings and savings well be­low a level they themselves might have considered necessary for a decent standard of living. All that one may conclude, without fear of reasonable contradiction, is that Americans prospered under those conditions to a greater extent than had the people of any other society at any time. If they knew that among them lived “a lower third,” it was not cause for panic. Com­petitive private enterprise kept open the market paths through which anyone could, and most everyone did, find ways to help himself by serving others. And the basic economic theory behind this miracle of progress was: those who produce more will have more.

One of the characteristics of human nature is an insatiable de­sire for more—materially, intel­lectually, spiritually. The more a person understands, the more in­quisitive he tends to be. The more he sees, the more he wants. The more he has, the more acquisitive he becomes. Now, the fact that individuals are forever wanting more and tend to act so as to ful­fill their most urgent wants largely accounts for the miracle of the free market, the fabulous outpouring of goods and services through competitive private enter­prise and voluntary exchange.

The Marxist View

A superficial view of this hu­man tendency to be dissatisfied led Karl Marx and many others to re­ject the market economy with its emphasis on production. A more satisfactory formula, they have presumed, is that “those who want more should have more.” The problem of production has been solved, the modern Marxists con­tend, and their “multiplier” for­mula stresses the speed of spend­ing; if each spends his income and savings fast enough, everyone will have more to spend.

This consumer doctrine or pur­chasing power theory of pros­perity has tremendous appeal to human beings who always want more. But it presumes too much.

The problem of production has not been solved. There is no endless free supply of the goods and serv­ices consumers want. Unless there is some incentive to save and in­vest in creative business enter­prises, all the spending in the world will not promote further productive effort. In short order, all available goods and services will have been consumed if noth­ing is done to replenish their sup­ply. It is not spending or consum­ing, but productive effort only, that begets production!

An individual surely must real­ize that he cannot spend himself rich, if all he does is spend. Nor can two individuals spend each other rich if all they do is trade back and forth what they already have on hand. Nor can any number of individuals long subsist if all they do is trade among themselves what remains of a nonreplenished, initial supply of goods and services.

Monetary transactions tend to obscure some of these most ele­mentary facts of life. In an indus­trialized market economy money enters into most trades, serving as a medium of exchange, a con­venient measure of exchange rates or prices which guide buyers and sellers in their further activities as consumers and as producers. Among these market prices are wage rates for services rendered, and interest rates for savings loaned and invested.

The Market Phenomenon

In a freely functioning market economy, prices, wages, and in­terest rates guide and encourage production for the purpose of satisfying consumer wants; and this occurs so automatically that many consumers spend their dol­lars without even thinking of the creative efforts that had to be called forth in some manner before those dollars would be worth any­thing. Failing to understand the market, political planners assume that the whole process of produc­tion and exchange might be stimu­lated to function even better if only the government will create additional money and put it into the hands of consumers. These planners fail to see that money’s only purpose, as a medium of ex­change, tends to be defeated by such arbitrary tampering with the supply. This inflationary tamper­ing distorts prices and wages and interest rates on which economic calculations are based. It encour­ages consumption and spending but it discourages saving and lend­ing, weakening the incentive and capacity to produce.

This is why the current political war on poverty is doomed to fail. If the government continues to subsidize the poor at the expense of all taxpayers, the result will be an increase in the number of those being subsidized—more poor taxpayers. If the power of the gov­ernment is invoked to favor debtors at the expense of credi­tors, more persons will try to bor­row but fewer will be willing to lend. If savings are to be system­atically plundered through infla­tion, the thrifty will learn to be spendthrifts, too.

The poor always will be able to obtain in the open competition of the market more of the life-sus­taining and life-enriching goods and services they want than can be had through political warfare against successful private enter­prise. The market leaves the plan­ning and managing to those who continuously prove their ability, whereas political class warfare tends to redistribute resources among those most likely to waste them.

When government becomes the guarantor of “freedom from want,” this means that the poorest managers within the society have been put in charge of human affairs; for they always do and always will outnumber those of superior talent. What is now ad­vertised as a war on poverty is really a confiscation of the fruits of production; and the conse­quence has to be disastrous for everyone, especially for 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.