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Wealth Creation vs. Wealth Redistribution

Posted By Don Boudreaux On December 27, 2012 @ 5:34 pm In Civil Society,Other People's Money | Comments Disabled

Here’s the full text of a letter, in today’s Wall Street Journal [1], written my and Russ’s friend Dave Rose:

In his Dec. 20 op-ed “America’s Dangerous Powerball Economy,” [2] Arthur Brooks quite correctly points out that earned income, indeed earned success generally, affects our happiness very differently than unearned income or success.

I would like to extend his point further with something I’ve told my college students for years.

In general, the creation of wealth is edifying. When only voluntary transactions are permitted, the creation of wealth requires cooperation, and this brings out the best in us.

Piles of wealth, however, tend to be corrupting. The fixed nature of a pile is all about apportionment, not cooperation, and this zero-sum game tends to bring out the worst in us.

It follows directly that no matter how noble the ends, government redistribution (which is hardly voluntary) tends to bring out the worst in us. Rising government redistribution over the past 75 years has produced ample evidence of this point.

We are in this mess because we have allowed our culture to be dominated by those who are bent on spreading the false and self-serving narrative that our economy is a giant zero-sum game.

As such, we might as well have the government do the dividing.

Small wonder why our politics have become increasingly about who you are for rather than what you are for.

David C. Rose

Department of Economics

University of Missouri-St. Louis

St. Louis, Mo.

Spot-on.

….

I feel compelled to offer a kinda, sorta apology for the title of this post.

David Henderson convinced me long ago that there’s a real problems in talking about wealth redistribution in a market-oriented society – the reason being that redistributing wealth requires that any wealth that is redistributed must earlier have been distributed.  In market economies, though, wealth isn’t initially distributed; it is created, and is first owned, by its creators and then flows naturally, without any plan – insofar as the economy is governed by the rules of private property and freedom of contract (rather than of cronyism and rent-seekers) - to where it will, according to the particular patterns of market demands and other conditions that are outside of anyone’s conscious control.

So while it’s possible for Sam to take wealth from Suzy and then give it to Sally, Sam here – properly speaking – isn’t redistributing anything, for that which we now conventionally speak of as being redistributed wasn’t ever initially distributed.

All that said, I continue to use the term “redistribution” because it is so well-established.  (It’s all that I can do to fight my futile battle against ever using “law” as a synonym for “legislation,” and against using “liberal” as a descriptor of those who, perhaps with the most kind-hearted motives, believe that the state is justified in using force in order to structure society in ways that these “liberals” statists fancy society should be structured.)

I remind readers again of Ludwig Lachmann’s deeply insightful 1956 essay on this matter [3].

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URLs in this post:

[1] today’s Wall Street Journal: http://online.wsj.com/public/page/letters.html

[2] “America’s Dangerous Powerball Economy,”: http://online.wsj.com/article/SB10001424127887324024004578171444161023374.html?mod=article-outset-box

[3] I remind readers again of Ludwig Lachmann’s deeply insightful 1956 essay on this matter: http://cafehayek.com/2011/06/ludwig-lachmann-on-income-inequality.html

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