We hear this theme all of the time: income inequality, class warfare, concentration of wealth, etc. The current populist champions are Bernie Sanders, Elizabeth Warren, and Russell Brand. The basic argument is that more and more wealth is being concentrated into fewer and fewer hands. Social justice is then predicated on the notion of removing inequality to make things more “fair” and bringing out “equality”. No one bothers to ask how did inequality occur in the first place and what should be done about it, if anything?
“In forcibly producing the sign, we cannot forcibly produce the thing, any more than by turning round the points of a watch we can alter the flight of time” – J. Sismondi
How can we even define wealth? People believe they are wealthy for different reasons: a monk because he is pious, an entrepreneur because he has capital, a professor because he is “intelligent”. Wealth is a matter of opinion. And equality, how can we compare the lives of heterogeneous individuals? It’s like arguing that all fruits and vegetables should be equal.
We could compare the wealth as per annual income, “income inequality”, but what will this tell us? A $100,000 salary in New York City is not equal to a $100,000 salary in Paris, Kentucky. Suppose we look at 2 people living in NYC, it still wouldn’t be equal; one person could have 3 kids, another person could live alone. Suppose further we looked at 2 people and both have no kids living in NYC; one may consume the entirety of his income, the other may save it all.
Is it really “fair” to take from the savers because they have chosen to save rather than consume?
Is it really “fair” to take more from people who choose to remain childless?
Is it really “fair” to take more from those who have chosen to risk more and work more?
Any definition of “fairness”, “social justice”, or “equality” is an arbitrary judgment. These words only have meaning because we assign them a meaning. They have no definable limit. They cannot even be quantitatively measured. There is no reliable method of comparing incomes due to the heterogeneity of individuals acting in society. Some people choose to work more, risk more, or save all their money; others not so much. In a free society, inequality is the result of individuals acting. They choose to be unequal, whether they realize it or not.
Suppose that we could compare incomes of people on quantitative terms. The only way to achieve the aim of income equality is by force. A must take from B to give to C. But once individuals are left to make their own choices, inequality will again rise as a result of human action, and can only be maintained by further acts of aggression. Those with greater productive capabilities will simply produce again and hence be unequal again. Forcing income equality does not produce equality any more than turning round the points of a watch we can alter the flight of time.
How inequality can arise
“Everything that restrains liberty would seem to disturb the equivalence of services, and everything that disturbs the equivalence of services engenders inequality in an exaggerated degree, allowing some with unmerited opulence, entailing on others poverty equally unmerited” – F. Bastiat
If I produce a good or service, sell it, and accumulate money, I can only do so if I provide a product to another that they willfully buy. This is the free market; I can only accumulate money if I provide a good or service; money is voluntary compensation for my productive capabilities only. Under voluntary exchange, both parties benefit; otherwise, one or both parties wouldn’t exchange.
In the free market, income inequality can only arise if 1) I produce a product, 2) you willfully purchase it, and 3) if I choose to save and accumulate this wealth that I have created and earned. In this case, income inequality is a positive thing. The most efficient and productive producers will earn and accumulate money and capital by the approval of the “voters” with their wallets. The unequal funds are compensation for their unequal contributions to production. There will be income inequality, but there will also be productive inequality commensurate.
The case is different under government intervention. I may produce a product and others are forced by law to exchange or accept certain conditions with me. Common artifices are government licenses or certifications. Under government intervention, there are really 2 exchanges: exchange of my productive services for your money, and the exchange of my government privilege for your additional money. I earn more at your expense under the protection of government.
The privileged earn more than their productive capabilities at the expense of consumers that must pay more for the former’s privilege. If this is how income inequality arises, then this is a negative thing. It is, to borrow a term from Marx, exploitation. You are forced to pay for an additional amount for the government privilege. This allows some, those of government privilege, the “unmerited opulence”, while others, the consumers, pay for the former’s unmerited opulence, being left with “poverty equally unmerited”.
For every forced exchange due to government privilege, the consumer loses on 2 fronts:
- The price of the product is above the market price and propped up by government coercion
- The company you purchase from has no incentive to innovate; you will eventually be paying for old technology, which will be less efficient than an industry that is permitted to innovate
Income inequality, then, is not a problem, if it arises naturally, and not as a result of government privilege. People can only earn more if they produce more. In the absence of intervention, exchanges are voluntary and therefore beneficial to both parties. There is no exploitation. Individuals have chosen to be unequal by their choice of production and exchange.
Unfortunately, the U.S. has fallen under pervasive government intervention. Income inequality is getting worse due to government privilege. For the reasons outlined above, one party benefits at the expense of another; such is the fact of all coerced exchanges. Every form of intervention is a guarantee of equality, an equality of exploitation by the privileged class at the expense of consumers. The consumers are equally fleeced.
As a test to this theory, look at some of the heavily government-regulated (or outright controlled) industries: telecommunications, public utilities, healthcare, and banking. Is there a single consumer that feels they get their money’s worth on any of the products these industries provide? Remember how you can’t even redeem your “money certificates” for gold? Or how you can only sign up for healthcare during specific times of the year? Or how every conversation with the cable company ends up like this?
Say “NO!” to government intervention
“The welfare of humanity is always the alibi of tyrants” – A. Camus
Those calling for more government laws or regulations unknowingly wish to exacerbate the problem they wish to solve. In reality, asking for more government intervention is building a Haman’s gallows, arte perire sua. It’s comparable to fighting a bonfire with gasoline. The alleged intent of government intervention is to improve the welfare of its citizens, but intervention only sets up the consumers to be exploited. Inequality arises in an unmerited manner only through government intervention.
There are no such means available that the government can use to attain the end of equality, and any rational being must abandon either this end or abandon logic itself and become irrational. The only success of government intervention is a further descent into tyranny. The government produces nothing and everything it has it must take from the people. It is absurd to think it can improve the welfare of its citizens given these primary truths. We must stop worshipping the Golden Calf of the State. We need a return to free markets.
If you learned from or felt inspired by this article, feel free to show your appreciation.
Economic thoughts according to the Austrian School of Economics.