Wealth doesn’t cause poverty, it cures poverty

(Centennial Fellow) Class warfare is alive and healthy in elite parts of America today. Yes, elite. Only elites—a tiny fraction of a fraction of the American public—are able to camp in public parks denouncing businesses, while other elites in high government offices and the media discuss them. The rest of us have to work.

So what do the elites want? From the repeated assertions of our president that the “rich” pay too little in taxes, to the anti-capitalism chorus of Occupy Wall Street, the echo chamber refrain seems to be that those who’ve earned less deserve what those who’ve earned more have. But in the idiom of Marxist political economy—the haves vs. have-nots—what do the haves, have?

It’s not money, simply. It’s wealth, of which money is merely a measurement. Money and wealth are commonly confused, but their differences are important if we’re to respond persuasively to the unjust demands of some for the property of others and explain why the creation of wealth solves, rather than creates, the problem of poverty.

Imagine several people shipwrecked on an uninhabited island. Nothing survives the wreck, save only one item: a printing press filled with paper. As the people crawl to safety, they’re exhausted. They stare in disbelief and shock.

But soon they begin to realize that they’re hungry, thirsty, cold, unprotected from the elements. They’re in dire poverty. They must think and act, or die. What shall they do?

Suppose one of them happens to be a member of the Obama economic team. He eyes the printing press and gets an idea: An economic stimulus plan of the kind he learned from his days in government.

He quickly prints lots of dollar bills and distributes them (unevenly) to his fellow castaways. They now have more money than they did before, true. But has any wealth been created? No. They still have no food, no water, no heat, no shelter, no anything. They remain as poor as they were before receiving the dollars. The stimulus plan stimulated nothing.

Suppose another castaway surveys the surroundings and figures out how to catch fish.

By ingenuity and sweat, he catches lots of fish, more than he can eat. Another sets out on her own to find fresh drinking water, collecting and storing more than she needs, while someone else gathers firewood, and another designs a shelter while yet another builds it.

Unlike the government economic advisor, these entrepreneurial castaways are not making, i.e. printing, money. Instead, they’re creating new wealth by producing things that others find valuable.

But how will the others obtain some of the valuable things being produced? Unless they resort to stealing, they must produce something of value themselves in order to engage in exchange. Production of wealth stimulates production of more wealth.

Our motley crew of imaginary castaways began desperately poor, but now they are wealthy, relatively speaking. They prove an economic truth of human life: Production precedes consumption. Contra Keynesianism, it makes no more sense to “stimulate” consumption by printing more dollars than it does to hand a starving, dehydrated castaway a crisp new dollar bill. They also prove that the creation of new wealth is the solution to problem of poverty.

The genesis of all new wealth is the mind, not money. Wealth is born as an idea, and made real through work, whether physical or intellectual.

Wealth does not grow on trees—even apples remain worthless for human beings until someone thinks to pick them, eat them, and cultivate the growth of more. Wealth must be produced, and production requires work.

But people are unlikely to work productively if they have good reason to believe they’ll be punished for their work product (say, in the form of progressive taxation), or it will be taken away (whether by force or regulations).

In world historical terms, the total amount of wealth on Earth remained relatively flat—and world poverty remained relatively constant—until the Enlightenment, when the global stock of wealth began to skyrocket. Why?

Individual freedom, property rights that allow a person to keep what he acquires, the rule of knowable, fair, stable laws that provide equal protection for all who live under them, and minimal government interference in the economy led to increases in the production of new wealth, living standards, and levels of philanthropic aid for the poor unknown in the annals of history.

Occupying Wall Street and envying the “rich” for not paying their “fair share” creates no wealth. It does not alleviate the plight of the poor.

But we know what does: Let’s restore the conditions that stimulate the creation of wealth and provide have–nots an opportunity to become haves.


Krannawitter teaches politics at Colorado Christian University and is a Centennial Institute Fellow. This article originally appeared in Investor’s Business Daily.

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