The Balance of Wealth

The Balance of Wealth, PT1




“The rich get richer while the poor get poorer,” so the lament goes. Many solutions have been tried to fix this problem: high taxes, redistributions, usury laws, hyperinflation, price controls, labor camps and even mass exterminations. Usually these attempts fail. While one group of rich may be dealt with, another group arises. Power is a form of wealth[1]. Radical reform gives way to corruption, crony capitalism, or even cult of personality dictatorships that would make a god-emperor envious.

Some of the more moderate socialist movements have managed to close some of the income gaps, but even there many of the successes come at a price. Legacy corporations received freedom from competition since ambitious entrepreneurs are stifled by income-leveling measures. The result is something of a cuddly caste system.

Because of such a history, many freedom lovers and egalitarians have come to regard each other as enemies. This is ironic, since as I have stated elsewhere concentrations of wealth and concentrations of power have much in common. If wealth is to be distributed roughly equally, then responsibility needs to be distributed roughly equally, else the economy implodes. This same distributing of responsibility is also a prerequisite for a free society. Freedom lovers and egalitarians should be on the same side.

Instead, freedom-lovers often form alliances with modern-day aristocrats who spout free market rhetoric when it suits them, but whose primary objective is wealth preservation. The result is a tax system fraught with loopholes, government largesse showered on the rich and undeserving, and welfare programs for the middle and upper classes.

The deeper irony is that some of the most powerful egalitarian prescriptions can be found in the tomes of libertarian and even paleoconservative thought. However, these prescriptions are found in the middles of such books, bracketed with criticisms of the “welfare state” so that progressives rarely reach such chapters. Further, the egalitarian impacts of such prescriptions are usually noted as interesting side-effects of agendas whose prime purpose is to reduce the size of government and/or increase economic prosperity in general.

So what I will do in the next pages is dig up some of these ideas and show them for what they are: powerful steps for a more truly egalitarian society, steps that also lead to a more free society. But first, I will show why so many egalitarian activists have failed over the centuries. There is a subtle principle that must be understood, a principle that unlocks a plethora of ideas. The principle is actually quite simple, but not obvious. Simplicity is not simplistic.

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The Key to Equality
The key principle overlooked by most radical egalitarians can be easily summed up by a pair of fables. So without further ado:

The First Fable

Once upon a time, there was a kingdom, whose king and nobles supported the privileges of landowners at the expense of landless laborers. Life was hard in the cities, and workers struggled to afford enough bread. Eventually, the king was overthrown, and the king and many of the nobles were killed or exiled. The cry of “Liberty!” was shouted throughout the land. Alas, there was turmoil as the new leaders tried to change things too fast, and food prices stayed high.

So in their lack of wisdom, the new leaders decreed that bread should have a lower price so that the workers could afford it. Shortages arose, as the incentives and resources to produce more bread were reduced. The leaders accused the farmers of hoarding, and many farmers were beheaded. Hunger continued. Dead farmers are not very productive.

The Second Fable

In another land, the government chose to favor the small farming class. Tracts of land were granted on the frontier for below market prices. Peasants from across the sea came to this country to take advantage of these offers and farms sprang up across the wilderness. Then, intrepid inventors came up with clever machines to make planting and harvesting easier, and machines to make it cheaper to transport the food to the cities. All these things helped the farmers – for a while. Then, food prices dropped as farming became too easy, and there was more food than the people in the cities wanted to eat.

In the midst of an economic slump, the government moved in to help the farmers. Great quantities of food were bought and destroyed. Farmers were paid not to farm. Insurance programs were set up to give farmers money during years of bad weather. Food exports were subsidized. The poor were given vouchers so they could by more expensive food. These things did raise food prices a bit and provided great subsidies to the large corporate farms, but the small farmers they meant to subsidize still went out of business because the economies of scale of farming had grown so large.

The Moral of the Stories



The first fable reflects what happened during the French Revolution. Similar events happened in most Marxist revolutions and are still happening in much of the Third World. The result is generally hunger.

The second fable reflects what happened in the United States, and is now happening in many of the richer countries of the world.

The moral is: persecuting farmers is not the way to have lower food prices, nor is it the way to make farm income lower than other forms of income. Making it easier to farm and increasing the amount of food is the effective way to lower food prices and reduce farm income. The second parable also lists ways in which governments try to undo the effects of an abundance of food.

Now, let us replace “farmer” with “rich person” and apply this reasoning. Attempts to persecute rich people produce shortages of what rich people produce, resulting in economic calamity.

In order to reduce the income of the rich, the key is to produce a superabundance of what the rich produce, so the rich can charge less. Part of the way to produce this superabundance is to be on the lookout for government programs that try to reduce this abundance in order to keep the price up.

Repeat the above paragraph in your mind several times until it sinks in. It is the key for a workable egalitarian society. It can be applied in a surprising number of areas of law and society. All we have to know is what is it that the rich produce, and then either increase the supply or decrease the demand. And that is the subject of the next page.

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The Three Economic Pillars

An economy can be broken down into three major components: Land, Labor and Capital. Economists use the term “Land” in a special sense: that which was not created by people. “Land” includes the inherent value of real estate before development adds value; that is, land value before clearing, road building and the placement of buildings. “Land” also includes mineral rights; right-of-ways for railroads, gas pipelines, electric lines, phone lines and cable television; broadcast rights for radio and television; fishing rights; and so forth. Labor is simply value produced by work. Capital is stored wealth that is used to create new wealth: factories, roads, office buildings, trucks, farm machinery and so forth. I will try to capitalize the terms Land, Labor and Capital when I mean specialized economic definitions vs. common-sense usages.

Both capitalists and landlords make money by having money. The more you have to invest, the more income you can receive for the same level of risk. Since rich people can theoretically invest a greater share of their income, they can over time create a greater income stream, thus widening the gap between rich and poor. For this reason, progressives throughout history have called for more of the total share of income to go to Labor vs. the owners of “Land” and Capital, and correctly so.

Accumulation of capital and stewardship of natural resources are two major values produced by the wealthy. Persecute the wealthy and you end up with shortages of capital and often experience environmental destruction. Increase the supply of capital and land/natural resources and you reduce the income of the wealthy while improving the general welfare.

And here is good news for freedom-lovers: free market capitalism over time increases the quantity of capital. As capital increases, the rate of return on investment decreases; a greater share of the national income goes to laborers. This fact was noted and documented by Adam Smith! When I first read from “The Wealth of Nations” I nearly fell out of my chair when Smith talked about reducing profits and increasing wages through free markets. Adam Smith was an egalitarian! This was the opposite of what I was taught in high school.

So why aren’t the mature capitalist societies more egalitarian? Part of the answer is that they are more egalitarian than the feudal societies they once were. But the other part of the answer is that trillions of dollars have gone into government programs to halt this process of wealth leveling. In particular, the United States government has sunk trillions of dollars into programs which subsidize the owners of wealth much in the same way it spends billions of dollars to subsidize the owners of farms.

And to add insult to injury, income earned through wealth ownership is taxed at a lower rate than income earned through hard work.