… is from page 17 of my emeritus colleague – and 2002 Nobel laureate – Vernon Smith‘s 2008 book, Rationality in Economics:
Adam Smith understood that consumption by the rich has an insignificant [negative, today] effect on the welfare of the poor, because most of the income of the rich is invested in the tools and knowledge of production (or “improvements”) that provides external benefits for every consumer.
Of course, both Smiths – Adam and Vernon – here are speaking of market economies sufficiently free of government interference, special privileges, and predations that entrepreneurial activities and investments remain attractive options. Kill the attractiveness of those options with interventions and taxes intended to “help” the poor and you kill, ironically, one of the chief means by which today’s rich generate benefits to society at large, including especially to the poor.
