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The Market Redistributes Wealth
by Jacob G. Hornberger

Given all the political talk about socialism and the redistribution of wealth, we would be remiss if we didn’t notice how effective the market process is in redistributing wealth.

The rationale for the progressive income tax and the estate tax is that such taxes provide the federal government with the means to redistribute wealth. The notion is that in capitalism, the rich only get richer while the poor get poorer. The idea behind antitrust laws is the same — big businesses only get bigger and they have “monopoly” power over consumers.

I’ll bet you’d have a difficult time convincing executives in Merrill Lynch, Wachovia, Citicorp, AIG, Goldman Sachs, Lehman Brothers, General Motors, and Chrysler of the validity of those principles.

Let’s go back, say, five years. Wouldn’t your standard socialist have claimed that those companies were so big and powerful that they could never go under?

Yet, look at the situation today. Those big, powerful companies have either gone under or are in danger of going under. Some of them are even looking to the federal government to extricate them from their financial difficulties. If they were so big and powerful — so monopolistic — how come they’re not still big and powerful today?

The fact is that the market process is an extremely effective redistributionist force. No matter how big and successful a company becomes, if it makes the wrong investment decisions or it fails to satisfy consumers, it is in danger of going out of business. Each firm, no matter how much market share it has been able to capture, must constantly be on its toes. One big mistake or several small mistakes can cause massive losses. Or just a simple shift of consumer tastes can cause a big company to become a little company in a very short period of time.

Here are the Top 10 Companies in the Fortune 500 in 1960:

1. General Motors
2. Exxon Mobil
3. Ford Motor
4. General Electric
5. U.S. Steel
6. Mobil
7. Gulf Oil
8. Texaco
9. Chrysler
10. Esmark

In 1960, those companies would have been considered by many to be “monopolies” or “oligopolies” or at least big, powerful companies that were immune from market forces.

Yet, take a guess at how many of those companies are in the 2008 Top 10. Only three of them: Exxon Mobil, General Motors, and General Electric. If the other ones were immune from market forces, how come they’re not still in the Top 10?

Also, consider those situations where a tremendously successful businessman dies and leaves his wealth to his children. If the children do not possess the same business acumen as their father, it is quite possible that they will lose the wealth that has been passed onto them. Even if they are able to hold onto the wealth, the same principle applies to the grandchildren. There’s an old saying: “From shirtsleeves to shirtsleeves in three generations.”

Americans have been sold a bill of goods with respect to the income tax and the estate tax. Socialists convinced them that such taxes were necessary to redistribute the wealth from rich to poor. Setting aside the moral implications involved in taking money from one person in order to give it to another person, all that such taxes have accomplished is to centralize power in Washington, D.C., by enabling the political class to put their hands on massive amounts of privately produced wealth to dole out to friends, supporters, and cronies.

Americans don’t need income taxes and estate taxes to redistribute wealth. The market process, which is based on the moral principle of leaving people free to accumulate wealth, redistributes such wealth quite effectively.

Jacob Hornberger is founder and president of The Future of Freedom Foundation. Send him email.