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Libertarians versus Liberals on the Poor

by

Wouldn’t it be great to have a national debate between liberals and libertarians over whose philosophy and policies help the poor?

For decades liberals have claimed that the welfare-state/regulated-economy way of life helps the poor. That has been the major rationale for the statist way of life under which we have all been born and raised.

Libertarians, on the other hand, hold the exact opposite. We hold that economic statism is the very worst thing for the poor. Contrary to liberals, we contend that if people truly want to help the poor, the best way to do that is do embrace the libertarian philosophy of economic liberty.

Consider Cuba, for example. That country has taken liberal principles to their logical conclusion. The government took from the rich and gave to the poor by nationalizing everything. Everyone became an employee of the government, including physicians, lawyers, and industrialists. By and large, everyone became equal in terms of income. Prices for goods and services, which were all provided by the state since the state now owned everything, were kept within reasonable limits by the state.

In other words, the Cuban revolution was a dream-come-true for genuine liberals, at least in terms of taking from the rich to give to the poor, which is the driving rationale behind the welfare state.

But look at what happened. Most everyone in Cuba is desperately poor, verging on starvation. That’s not a coincidence. When the state took everything from the rich by nationalizing their businesses and placing them under ownership and control of the state, the government killed the means by which wealth is created. Once that happened, it was just a matter of time that the government would fritter away the wealth that it had confiscated. That was why the Cuban government ultimately had to turn to Soviet foreign aid to help out. The government lacked the resources to maintain all its employees.

By the way, it’s also not a coincidence that civil liberties are non-existent in Cuba. When the state owns and controls everything and when people’s survival depends on receiving a check from the state, the state will end up controlling every aspect of people’s lives.

Liberals, of course, blame Cuba’s suffering on the U.S. embargo on Cuba, as do Cuban leaders. The embargo certainly has contributed to Cuba’s suffering. But the crux of the matter is socialism — the welfare state — the paternalistic society — the managed economy — central planning — state ownership over the means of production. That’s the central reason for the horrific poverty that afflicts Cuba. Without the embargo, the privation would not be as bad but it nonetheless would be horrific.

The critical question is one that liberals never ask: What causes wealth in a society? The Cuban authorities saw that there was already lots of wealth in Cuban society and thought, “All we have to do is confiscate it for the good of the people and the poor will benefit.” In the short term, some of the poor did benefit in that they had more money or better housing than before. But as the pool of wealth that has been confiscated begins to dissipate over time, most everyone ends up becoming desperately poor.

How is wealth created in society? That’s the critical question. Wealth is created through the efforts of private individuals to produce goods and services that other people want and then trade with other people for the goods and services they’re offering. Most people naturally want a better way of life for themselves and their families. They put their talents and abilities to use and go to work in some enterprise.

As people enter into trades with others, their individual wealth begins to increase, especially as they save a portion of their income. They might risk their pool of savings to start a business, one that employs other people. That obviously helps the people who are being employed, who now have a stream of income, a portion of which they are able to save.

Others may simply prefer to work for people who establish businesses rather than start businesses themselves. They prefer the security of a wage as compared to the risk of starting a business. They benefit from people who start businesses because people who start businesses create employment for people who would rather work for a wage rather than start a business.

As individuals begin accumulating savings, they place that money into banks. That pool of savings becomes capital that is available to lend out to businessmen. An owner of an enterprise goes to the bank and borrows the money to purchase tools and equipment that will make his employees more productive. The increase in productivity benefits consumers, especially in terms of decreased prices owing to increased supply. It also benefits the employees of a firm, which now has more money to pay higher wages.

In fact, that’s the way that real wages rise — through increased levels of capital in society. There is no other way. For example, printing paper money in an attempt to increase wages only ends up debasing the currency, which is a surreptitious way for the government to plunder and loot the citizenry. The only way to increase real wages (as compared to inflationary wage increases) is by making workers more productive, which can only happen with increases in capital, which are brought about by increases in savings.

Therefore, there is a mutual harmony of interests between the rich, the middle class, and the poor. The rich invest in businesses that hire the poor. The poor earn wages. They save a portion of their income. The savings go into banks. The business owners borrow the savings to purchase equipment that makes the workers more productive. The consumers, who largely consist of the workers, benefit with lower prices. Moreover, with increased production, the employees are able to earn higher wages. The employees might continue to work for the firm, with real wages continuing to rise. Or they might go out and start businesses with their pool of savings.

That’s the way a society gets wealthier. That’s the way poor people get wealthy or at least move into the ranks of the middle class. An unhampered market economy — one that is unhampered by government — is the key to alleviating poverty.

The problem, of course, is that as the amount of wealth in society increases, statists become over-consumed with envy and covetousness. They can’t stand the thought that there are people who are much richer than they or richer than others. They want everyone to be equal. In the name of helping the poor, they end up taxing the rich and then the middle class and then the poor. They use the state to confiscate the wealth that has been accumulated, beginning the downward spiral that retards the wealth-producing process and ultimately reverses it.

If the poor were ever to discover the truth about what the welfare state/managed-economy way of life has done to them and were to realize that the libertarian philosophy of economic liberty is the key to alleviating poverty, we would stand a good chance at achieving economic liberty. After all, can you imagine how difficult it would be for liberals to attack the poor for wanting the jettison the cause of their poverty?

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.