The media love stories about the gap between the rich and poor in
America. But they rarely explore that gap, why it exists, and what
it means.
It is an interesting question whether a normal bell
curve of income is the prime indicator of a just or socially stable
society. This requires us to think about what we mean by justice
and what is likely to result in a stable society. Frederic
Bastiats The Law is one of the best places to look for a
definition of a just society. Bastiat begins with the hypothesis
that we all have a natural right to self defense. He then writes
that government is formed as the organization of this natural right.
In other words, we form government in order to protect
ourselves and our property against threat of assault. A just
government is one that serves this purpose. It follows that
government policies that take from one person and give to another
are in violation of this purpose of government, and thus unjust. A
law that would take my income and give it to you is nothing other
than what Bastiat calls legalized plunder.
We then might ask ourselves, if government is basically
stealing when it redistributes wealth, should we agree to a
government that does this anyway? We might if we thought that the
method by which people receive income is unfair in some sense. Is it
fair that Bill Gates has billions of dollars more than I do? This
question cannot be answered unless we understand how people become
rich in a market economy.
A market economy is based on voluntary exchange. No one
forces you to purchase anything and you cannot force anyone to
purchase what you are selling. Thus, I can only get wealth if I
provide something for others and they are willing to pay me for it.
The greatest wealth is gained by those who produce something for
which others willingly give up their income. A system that allows
for enormous wealth in this way is one that creates an incentive for
people to produce things of enormous value for others.
I would prefer to live in a society in which the
poorest among us were very wealthy. This can only happen if someone
is producing lots of goods and services for everyone. Bill Gates is
enormously wealthy because he produces something for which millions
of people all around the world voluntarily give up something. If
only the rich could afford computers and computer software, Bill
Gates would not be rich. In comparison, there are relatively few
people who give up something of value for my services as an
economics professor. This is the sole reason Bill Gates has billions
of dollars more than I do.
It is difficult to think of a fairer or more just
system than one where you are rewarded only if you produce something
for others. A wide distribution of income is actually consistent
with a system that creates great wealth for the poorest members of
society because great wealth for any individual is likely to occur
only when he or she produces something for which large numbers of
people are willing to trade. Would you prefer a society where Bill
Gates is poor and we write on typewriters, or where Bill Gates is
rich and most people can afford Microsoft Word?
A system that takes from one person to give to another
in order to limit the width of the income distribution will not only
be unjust from Bastiats perspective, but also will result in less
wealth for the poorest in society. An enormous strength of the
market system was pointed out by Adam Smith 203 years ago: It is
not from the benevolence of the butcher, the baker, or the brewer
that we expect our dinner, but from their regard to their own
interest.
Restrictions on peoples ability to earn wealth in the
interest of ensuring an equitable distribution of income are
merely restrictions on the incentives to create things for others.
Thus, measurements of income inequality are of no value for
discussing whether a society is just, or whether the system is fair.
A better measure is how wealthy the poorest members of society are.
Market capitalism produces, by this measure, the most just and
fairest of societies.
Dr. Gary L. Wolfram is the George Munson Professor of political
economy at Hillsdale College in Hillsdale, Mich. He also serves as
an adviser to the Business & Media Institute.
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