One of the primary arguments employed by statists to justify the welfare state is the necessity to equalize incomes. The rich just get richer and richer, and the poor just get poorer and poorer, in a free-market economy, say the statists. To balance things out, they say, the state must take from the rich and give to the poor.
Nothing could be further from the truth. Actually, a free market is a tremendous engine for the redistribution of wealth, one in which the poor become rich and rich become poor.
In other words, you don’t need the state to confiscate and redistribute wealth through income taxes, estate taxes, or any other taxes. The market does a fine job in redistributing wealth.
In fact, the market is the most just vehicle for redistributing wealth because it’s based on voluntary choices, not the coercive action employed by the state. In the marketplace, consumers are ultimately sovereign. Through their buying decisions, they decide which businesses are going to stay in business and which ones are not. If a business fails to satisfy consumers, it will lose market share and possibly go out of business. New, upstart businesses have the opportunity to become wealthy by providing goods and services that consumers want.
By the same token, a rich person must make decisions as to how to manage his money. Nothing is guaranteed. If he makes the right choices, he keeps his wealth and even expands it. But if he makes the wrong choices, he stands to lose part of it or even all of it.
Consider, for example, the Wyly brothers of Dallas, Texas, who were the subject of a recent New York Times article.
The Wylys are billionaires. So, they’re rich, right? Well, yes, but it’s really not that simple because they actually were poor before they were rich. According to the Times, “Depression-era babies, they were raised in rural Louisiana by a well-educated mother and father who fell on hard times by failing to hedge a cotton crop. For a time, the family moved into a shack without electricity or plumbing.”
So, here were two poor brothers. But the state didn’t take money from the rich and give it to the Wyly brothers. Instead, these poor people became rich entirely through their own efforts by buying and selling businesses in the marketplace.
And there were no guarantees. In the 1970s, they lost almost $100 million of their and their shareholders’ money in the purchase of a company that went bad. As Sam Wyly put it, “It’s a game. You win some, you lose some. Some are sort of a tie.”
Or consider the case of Larry Dean, who became a multi-millionaire through a software company he founded in the 1970s, who was also recently featured in the New York Times.
Dean used $25 million of his money to build a 32,000 square feet, “Xanadu-like” mansion in Atlanta that included $17,500 leaded glass and mahogany double front doors.
Dean, however, has fallen on hard times. Now on his third divorce, he recently sold the house for $7 million, after having it on the market for 17 years. TheTimes stated “The estate sale brought down the curtain on a particular kind of spectacle, a rags-to-riches tale that somewhere along the way slipped into reverse and played itself out in the unforgiving glare of the real estate market.”
You don’t need the welfare state to redistribute wealth. The free market does that. Moreover, since the market is based on voluntary choices rather than coercion, it’s a better and more just method of deciding the allocation of wealth in a free society.