For socialists, the solution to poverty is easy. All that needs to be done is for government to take money from the rich and middle class through taxation and give it to the poor. Or have government force employers, through minimum-wage laws, to pay more money to their workers.
Voilà! Poverty solved! Wasn’t that easy?
One big problem, however, is that for socialists wealth in a society is a given. An important question never enters their minds: How did this wealth come into existence? For them, society begins with a large amount of wealth, which is held by the rich and the middle class. Therefore, to combat poverty all that needs to be done is to confiscate a portion of their wealth and give it to the poor. Or just enact a minimum-wage law that requires employers to share their wealth with their employees, many of whom are likely poor.
Consider the United States. It’s a nation in which there is an extremely large amount of wealth. For socialists, that’s just a given. They don’t ask or even care how that wealth came into existence. They just see it as a great big pie that needs to be cut up and redistributed.
When I was a kid, I read two science-fiction books entitled When Worlds Collide and After Worlds Collide. The books posited that two planets were hurtling toward Earth. The larger planet was going to collide with Earth and destroy it and then keep moving through space. The smaller planet was similar to Earth and was going to replace Earth and remain in orbit around the sun. So, various nations began preparing to send select groups of people to the new planet in rocket ships.
Let’s imagine that that were to happen today. Let’s say that 50,000 Americans made it to the new planet but could take nothing with them except seeds and animals. The paper dollar would be worthless and so nobody would be foolish enough to try to take one-hundred bills with him. When they get on the new planet, everyone essentially has nothing. Everyone is alive but desperately poor.
The people immediately enact a government. What should public officials do? Socialists would say: Enact welfare laws immediately. Enact Social Security and Medicare to help the seniors. Enact farm subsidies to help the farmers. Enact education grants to help the young people. Enact a $15 per hour minimum wage.
Do you see the problem? In order to provide welfare in any form, there must first be wealth to confiscate or forcibly share. Without wealth to confiscate or share, the government lacks the ability to dole out money to welfare recipients.
That was essentially the case with America. When the English colonists first arrived at Plymouth Rock, they were desperately poor despite the fact that their new land was blessed with lots of natural resources. Being ultra-religious, they decided to form a society in which everyone was forced to share with everyone else. The result, however, was starvation. So, the system was changed to one where every family kept whatever it earned and decided for itself what to do with its money. The result was tremendous bounty. Those colonists had inadvertently stumbled on one of the principal causes of economic prosperity and rising standards of living.
When the Constitution was enacted, Americans brought into existence the most unusual economic system in history. It was one in which most people were free to keep everything they earned. No taxation on income or IRS. A sound monetary system — gold coins and silver coins — no paper money. No mandatory charity — people were free to do whatever they wanted with their own money. Free trade within the United States. Open immigration into the United States. Few economic regulations. No systems of public (i.e., government) schooling. No minimum-wage laws.
The result of this unusual system? The most prosperous society that mankind has ever seen! There was a reason for that: When people were free to accumulate wealth, they saved a portion of their income. Those savings went into banks. Employers would borrow that money to purchase tools and equipment that would make their workers more productive. More productivity meant higher revenues for the firm. Higher revenues meant higher wage rates for the workers, which meant more savings.
Americans had discovered a key to ending or drastically alleviating poverty — the accumulation of capital that inevitably accompanies a society based on the principles of economic liberty. For the first time in history, this continuous process of capital accumulation was lifting people out of poverty and into standards of living and levels of wealth that were even greater than the lifestyles of kings and royalty throughout history.
It is impossible to imagine what life could have been like here in the United States, especially for those at the bottom of the economic ladder, if only that process had been left to continue.
Alas, however, it did not continue. The reason it didn’t continue was that Americans with a socialist mindset saw all that wealth that had been created and decided that it would be better if the government seized it and redistributed it.
Nonetheless, for a long time, owing to the massive amount of capital that had already come into existence, the ability to produce wealth surpassed the rate of confiscation and redistribution, which caused socialists to conclude that their welfare state and regulated economy was the cause of the standard of living that was still rising.
Ultimately, however, the rates of enormous growth in wealth and standards of living begin to diminish in a socialist society. Taxes start increasing. So does government debt. Plunder through inflation starts taking place. People start having difficulty making ends meet. Savings diminish. Socialists are relegated to celebrating 1 or 2 percent increases in “growth.” Finally, the society begins to cave in on itself. The producers are unable to withstand the weight of the dole recipients.
There is only one solution to this socialist morass: Cast the welfare state and the regulated/managed economy way of life into the dustbin of history and get back on the right road — the road to wealth creation — the road to economic liberty — the road to ever-increasing standards of living, especially for those at the bottom of the economic ladder.