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Tuesday, November 30, 2010

Lessons From A Coat

The FEE archives are full of correspondences, essays, books, and many other artifacts from the history of the free market movement in the US. Today’s document is one such example. It may just be a short cartoon about the tale of a coat but the message is an extremely powerful one that should not be forgotten.

As we can see, the tale of a coat displays three different ways one can transfer a coat from A, the person who has the coat, to B, the person who does not but is in ‘need’ of one. The first is through charity. Seeing how cold the individual in ‘need’ is the person with the coat voluntarily hands it over in an effort of kindness. The second is through theft. The person in ‘need’ uses coercion to transfer the coat from the person who has it to himself. And finally, the third is the use of the welfare state. Which, if we are being honest is no different from the previous method. Instead of the person in ‘need’ doing the stealing, a third party, namely the state, performs the redistribution, through coercion.

Morally libertarians and classical liberals find methods two and three to be of the same character. As Leonard Read once said, “…statism is but socialized dishonesty; it is feathering the nests of some with feathers coercively plucked from others—on the grand scale. There is no moral difference between the act of a pickpocket and the progressive income tax or any other social program.” But more importantly there is an economic lesson to be learned.

Economics is neither moral nor immoral. It can only tell us what is. An economist would look at the tale of a coat and say all three methods are simply ways of transferring the coat from A to B. But if our goal is a wealthier more prosperous society than the economist would tell you that both theft and the welfare state would hinder society from achieving this goal. Why? Incentives!

In a world where theft runs rampant no one would produce beyond subsistence because anything produced is likely to be taken. So, few would disagree that it is beneficial for society to prevent theft, which we do in many different ways. But, few see the same problem with the welfare state; but everyone should. Why work when what you work for will be taken from you to go to the ‘needy’? Why work when if you don’t things will be provided for you by the state anyway? But if no one produces everyone will suffer in the long run. This prisoner’s dilemma, or what Gordon Tullock called the Social dilemma, will create a society of dependence rather than production. Some societies may be wealthy enough to afford to engage in social welfare programs but by doing so they set themselves down a path of economic and moral decay. Theft is wrong no matter who performs it and it is wrong because it inevitably reduces social cooperation, which is essential for a prosperous society.

Download the Tale of the Coat Cartoon here.

  • Nicholas Snow is a Visiting Assistant Professor at Kenyon College in the Department of Economics, and previously a Senior Lecturer at The Ohio State University Economics Department. His research focuses on the political economy of prohibition.