More on those nutty millionaires

7 04 2010

Though it’s cathartic to simply rant about rich people who have dumb ideas about taxation, even I realize that it isn’t terribly constructive.  Instead, we must try to grasp the fallacies that shape their conception of the world and the economy in order to prevent their contagion of ignorance from spreading.

It is a bit difficult to understand why these unfortunate souls feel guilty about their wealth (whether they inherited it or created it themselves) and why they feel that government is the only institution through which their wealth can be properly redistributed.

Fortunately, this topic is addressed succinctly in The Anti-Capitalistic Mentality by Ludwig von Mises.  The text is available free of charge here, if you want to take a look at it.  It’s short—honestly.  Of particular interest is Section I.

The apparently weighty guilt of wealth seems to stem from the failure to realize that wealth is in fact created; honestly accumulated fortunes come from providing value to individuals (by supplying people with eco-friendly laundry detergent, for example), not by carving up some giant and finite pie.

If the world’s wealth is viewed as more or less static, it is somewhat understandable to be concerned that the riches of the wealthy could perhaps be better used by others.  I’ll admit that once I make more than two or three billion dollars, I will probably run out of yachts to buy.  And you can only purchase two or three island nations before it just gets old.

But there is no limit to the amount of wealth mankind can create.  There is probably more wealth in the decrepit state of Michigan than there was in all of Renaissance Europe.  Don’t believe me?  Compare the standard of living of a middle class Michigander with one of the Medicis.  Who is or was able to enjoy luxuries like air conditioning, microwave dinners, and daily reruns of old cop shows on WADL Urban Television?

There is also the perceived “unfairness” of inherited wealth: because an individual didn’t work to build the fortune, they might have no conception of how wealth is earned, and therefore may not appreciate the gift placed in their lap.  A few of the selfless millionaires in the previous articles are indeed wealthy heirs or heiresses who likely take wealth for granted to some extent.  So it might be easy for them to dispose of their own wealth—but I’m sure they will find a less than receptive audience if they try to persuade those who earned every penny.

All of this, though, misses a broader truth, and one that I suggested previously.  Even if Warren Buffett got all Scroogey and decided to hoard his fortune, placing it in some bank in Omaha, that wealth is still hard at work.  Hell, he could put the money anywhere—corporate bonds, stocks, or pretty much any place other than under his mattress—and it would still spur economic growth far more efficiently than that same amount of money could if it was redistributed by government.

Your savings don’t simply sit locked away in a vault when you put them in a bank.  They get lent out to fund other economic activity.  Corporate bonds can spur research and development; same with stocks.  The market weeds out unsuccessful enterprises and redirects resources to those with potential.  The government, on the other hand, is notoriously bad at picking winners and losers.

All arguments aside, the bottom line is: you know what to do with your wealth—the product of your own labor—better than any bureaucrat does.  This applies equally if you are poor and frugal or rich and frugal, sitting on “untapped” and “unredistributed” piles of wealth.  Don’t let any misguided heirs or heiresses dabbling in social justice tell you otherwise.

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One response

16 04 2010
kathusitalo

Bravo on the film review.

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