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Source link: http://archive.mises.org/11149/why-some-people-are-poorer/

Why Some People Are Poorer

December 3, 2009 by

Throughout history, until about the middle of the 18th century, mass poverty was nearly everywhere the normal condition of man. Then came capitalism. FULL ARTICLE by Henry Hazlitt

{ 26 comments }

JULIO December 3, 2009 at 9:40 am

This article is shameful. What is poverty?? He did not say. I’ll tell you…………it varies from people to people, from country to country.

Also those countries that have the lowest level of poverty and income inequalities are not capitalists. They are mixed economies.

I think that proves this article is just talk.

Small Soldier December 3, 2009 at 9:50 am

Excellent article. Interventionism is always apparent in the name of some form coerced morality for the “public good.” Whether that is through the socalled academia and the development of “robust moral responsibility,” or through the vestiges of the state sanctioned “moral treatment.” Either way, those who lacked any capacity to produce and “required intervention” in the name of the “public good” remained impoverished. The result for the interventionists is a cry for “more intervention.” en.wikipedia.org/wiki/Moral_realism and en.wikipedia.org/wiki/Moral_treatment

Nate December 3, 2009 at 10:12 am

Julio,

Poverty can be inferred from item one of the “ideal” assistance program. It is characterized by someone who is in dire need of assistance because they are unable to maintain a reasonable level of health on their own.

JULIO December 3, 2009 at 10:15 am

Nate

So……..poverty is an individual’s own matter. Not a social problem. I am sorry but I disagree.

BTW what is a reasonable level of health??

Barry Loberfeld December 3, 2009 at 10:26 am

Libertarians can advance practically by focusing on the welfare that goes, not to the poor, but to everyone else. From here:

For decades now, the defenders of the statist quo have painted any electoral challenger to Big Government as intent on immediately abolishing poverty programs. Fear sets in, the challenger loses, and the entrenched defenders continue to make Big Government bigger. It is an obscene spectacle whereby the truly greedy hide behind the truly needy. It is both the perpetuation and the exploitation of poverty.

By declaring welfare for the poor off-limits and thereby disarming that fear tactic, we put an end to this travesty. Now let’s see the liberals (and “Big Government conservatives”) defend handouts for people who don’t need a hand up. Let us see them defend treating the middle class and the rich as if they were the poor. Let us see them defend their proliferating pork from the blade of budget cutting. And let us see them defend the regulatory policies that prevent everyone, including the poor themselves, from reducing poverty. (Also, by moving the fight against corporate privilege to the forefront, we effectively take it away from those Marxist die-hards — who point to such privilege as a validation of Marx — and their corrupt “solutions.” Social-democratic liberals, let there be no doubt, have always been the benefactors of Big Business. The latest example? Self-styled “progressive” E.J. Dionne Jr., who praises Fed chair Ben Bernanke for his $30-billion bailout of Wall Street: “He doesn’t want the economy to collapse on his watch, so he is willing to violate all the [free-market] shibboleths about the dangers of government intervention.” Evidently what’s good for JPMorgan Chase….)

American Poor December 3, 2009 at 10:49 am

Poverty is not having cable or satellite TV.

Nate Y December 3, 2009 at 11:45 am

Great article. Unfortunately, this little snap shot of Hazlitt’s thinking doesn’t do him justice. He clearly understood, and helped me realize, that “The Conquest of Poverty” is to be achieved through freedom (the market) and not through force (government). His writing is always a pleasure to read.

JustinTime December 3, 2009 at 12:18 pm

Julio,

The point of the article is not to define poverty but to point out that the aims of conventional assistance programs are largely mutually exclusive. The poor would be best served by increasing their productivity. However, as Hazlitt points out, discerning the reasons why they are not productive is an intractable problem, and therefore not readily solved by central planning. It is best solved by the free market, which provides general increased productivity.

“Also those countries that have the lowest level of poverty and income inequalities are not capitalists.”

It’s a bit ironic to complain that Hazlitt offers no objective definition of poverty (which was not his goal), provide no such definition yourself, and then follow with this quote. I hope you see the problem here.

Income inequality is natural to the extent that it is a result of varying levels of productivity among the population. However, much of the inequality you cite is the result of the distortions of interventionist and inflationary policies (think Goldman Sachs bankers). Free-market capitalism is not represented by the United States, and the only redeeming qualities of the US market are the few remaining capitalist aspects.

Mark December 3, 2009 at 12:48 pm

Charles Murry covers this subject in detail and has been doing so for decades. The main predictor of poverty in industrialized societies is IQ.

Having said that interventionist policies by the government distort a merit based distribution of goods and services leading to unproductive uses of capital and corruption.

I would classify the current government as being on a looting and pillaging rampage of America. This is what happens when the lower educated and lower IQ members of society align themselves with political thieves.

Inquisitor December 3, 2009 at 3:27 pm

Julio, why are you whinging yet again? Yes, poverty is an individual’s problem and if others want to help that is their issue. Oh and as for mixed economies having the lowest level of poverty… um, compared to what? African tin pot dictatorships? It’s pretty easy to come out on top when a) there’s next to no laissez-faire competitors atm b) nearly all the big industralised nations are adopting socialist ideology in watered down form. If you want to prove that mixed economies lower poverty do provide the theoretical apparatus showing this, or simply stop relying on post hoc, ergo propter hoc nonsense. K?

Inquisitor December 3, 2009 at 3:29 pm

Oh and by the way just stating they have lower income ‘inequality’ (so what?) doesn’t really prove much at all even if it is true (is it? relative to… other mixed economies?)

Paul Stephens December 3, 2009 at 10:57 pm

There’s one universal which “advocates of capitalism” never seem to admit or understand.
IDEOLOGY REFLECTS CLASS AFFILIATION
I don’t know if Marx invented this maxim, but it is a basic tenet of Marxists everywhere. That doesn’t make it any less true. Even Ayn Rand was egalitarian, pro-working class, etc. until she became rich off of “The Fountainhead.” By “Atlas Shrugged,” she had become a total elitist, with “the public be damned” attitudes coloring her every thought and word.
And so, most of the “capitalist”, “free market” apologists are from the upper classes. And even if a poor, working-class person should be indoctrinated and come to accept “free market” principles, it is usually with the understanding that by doing so, he will “advance” into one of the upper classes.
Imagine, instead, a really egalitarian society, like Sweden. EVERYONE is middle-class, and if some sports star like Bjorn Borg, or film producer (like Ingmar Bergman) manages to earn a few millions, he will be taxed out of nearly all this “surplus” earnings – hence, they give up their Swedish citizenship, and move to Monaco or wherever.
I couldn’t believe it when exchange students here a few years ago told me that every high school student in Sweden gets about $100/month “allowance” by the state. I asked, “Do they get more if they’re A-students? Do they get more if they’re from poor families?”
No. All they have to do is stay in school – show up, in other words.
And what about earnings? Does a doctor make more than a factory worker or janitor?
The answer, here, was incredible, as well. Maybe 1/3 more. A doctor may be paid $40,000/year, while a janitor makes $30,000. Of course, they can start a business, and make money that way, or write books, sell crafts on the street, or whatever, and keep that extra money. But if they make a lot that way, it will be taxed at very steep, progressive rates (like Borg or Bergman). But as far as wages and salaries go, everyone makes pretty much the same.
I checked The Economist, with its various statistical tables and found, indeed, that Sweden is far and away the most egalitarian country in the world! Much more so than even “communist” countries like China or Vietnam!
So, do the Swedes hate their government and think it oppresses them? Not in the least. They love their equality, lack of snobbishness and class oppression.
They not only get paid to go to high school, but have free tuition for as much additional education as they might want, plus living stipends. Free medical care, subsidized housing, encouragement to travel, cheap concerts, museums, and other cultural experiences, etc. Anyone who is doing anything constructive and useful is supported in their endeavors. And workplace democracy, besides.
Sounds like a good deal to me!

Hard Rain December 4, 2009 at 3:26 am

@Paul Stephens

Here is some reading material on Mises.org regarding the myth of Swedish “prosperity”:

Sweden: Poorer Than You Think: http://mises.org/daily/955

How The Welfare State Corrupted Sweden: http://mises.org/daily/2190

The Sweden Myth:
http://mises.org/daily/2259

As the old adage goes, if it’s too good to be true then it probably is. Since when can everything in life be free? I guess only in the fairytale world of Sweden…

Calculation Argument December 4, 2009 at 3:48 am

“They love their equality, lack of snobbishness and class oppression.”

But the State is the oppressing class.

“Anyone who is doing anything constructive and useful is supported in their endeavors.”

Except you forgot one thing.

Anyone who is NOT doing anything constructive and useful is supported in their endeavors.

Magnus December 4, 2009 at 7:30 am

Sounds like a good deal to me!

That means you are a thief, or at best an aspiring moocher.

fundamentalist December 4, 2009 at 8:38 am

Paul: “There’s one universal which “advocates of capitalism” never seem to admit or understand.
IDEOLOGY REFLECTS CLASS AFFILIATION”

That’s because it’s a lie.

fundamentalist December 4, 2009 at 8:56 am

My daughter returned recently from a semester in Paris as an exchange student. She lived with an upper class French family and enjoyed her experience very much. Of course, they spent a great deal of time witnessing to her about the benefits of European socialism. So when she came back she told me how happy the French are with socialism.

The fact that Europeans are happy with socialism is the main argument for it among many Americans. But they main the most common mistake in economics–focusing on the short run. Someone writing on this web site recently said that at any time in Rome’s decline, you would find the citizens happy with their situation, but they couldn’t see the long term decline. And as an aside, happiness is not a good measure of anything. Happiness depends upon expectations. If you expect things to be miserable, you can be fairly happy that things aren’t worse.

As Mises wrote many times, everyone focuses on the short run, so there is no need for economists to waste time doing what everyone else is doing. The only thing economics has to offer people is the long run perspective. No critic of socialism ever claimed that people would suddenly fall down writhing in excruciating pain when they realized they were living under socialism. Socialism’s effects aren’t felt for a long time, that’s why it’s so hard to fight.

In the long run, socialism destroys wealth and impoverishes everyone but those in power. But it doesn’t happen overnight. And the decline is slower in mixed economies, but it is inevitable. Two generations from now someone will survey US citizens and find them very happy with life in socialist America, even though the standard of living has fallen by 2/3. They will be happy because they won’t remember a time when Americans were richer and freer and they will assume that because they occupy a later point in history that they have achieved the pinnacle of human existence.

Tina Brewer December 4, 2009 at 9:46 pm

I agree, basically, with what fundamentalist is saying. People’s horizons shift, its a natural coping mechanism.

I think another powerful factor working in favor of socialism is the fact that most humans basically prefer security to freedom. I know that is an unpopular view to express here, but I think it is true. People feel spiritually uplifted by idealistic statements like “give me liberty, or give me death” etc. In the end, though, they will readily give away a million liberties if it means they don’t have to experience “worry” about the basics of physical life. Its sad. This one fact of the largest segment of human beings contributes powerfully to the “socialism cycle”.

Thats the tina school theory of the socialism cycle, btw.

Paul Stephens December 5, 2009 at 2:12 am

Well, I’ll check out the references to the “myths” of Swedish prosperity and satisfaction by its people. I only got this from talking directly with Swedish people, not from reading about them, or actually visiting that country.
Unfortunately, the trends are the opposite of what my critics represent. It is the U.S. which is falling behind, and into increasing poverty, civil strife, some of the worst education and healthcare statistics in the “developed” world, etc., etc. (And we were once, of course, the envy of the world and pioneers in most of this).
I’m sure that many of you will say, “See? That’s what socialism does! We used to be the freest country in the world, and the most reliant on the market, low taxes, individual initiative, etc. But due to Marxism and the importation of “socialist” ideas, we are getting poorer every year.”
But the fact is, the Scandinavians are getting richer every year, healthier, better-educated, and all the rest. Denmark, a country with no coal or oil, now produces 40% of its electricity from wind. Norway produces even more from hydro and other renewable technologies – all state-owned, as are Norway’s vast oil reserves, the revenues from which are held in trust or invested for the future good of everyone.
Yes, they use market mechanisms and trade as much or more than we do. It’s just that everyone benefits from it there, instead of a few monopolies gaining control of everything.
There are many ways to organize economic life and protect individuals from all the vicissitudes of class oppression, slavery, disease, poverty, etc. Nearly every other country does these things much better than we do. Our only comparative advantage, now, is in oil imperialism and the use of military force to loot, terrorize and oppress any part of the world which looks cross-wise at us, or “challenges” our hegemony.

Paul Stephens December 5, 2009 at 3:20 am

Well, I read most of these three articles.
Sweden: Poorer Than You Think: http://mises.org/daily/955

How The Welfare State Corrupted Sweden: http://mises.org/daily/2190

and The Sweden Myth:
http://mises.org/daily/2259

Without going into all the macroeconomic statistics (which I didn’t think Libertarians paid attention to or supported, anyway), I am not dissuaded from my original statements.
For one thing, Sweden (like Germany, Switzerland, and the other Scandinavian countries) are very much more dependent on trade (and thus macroeconomic policies) than we are. Even now, when very few consumer goods (such as Wal-Mart sells) are actually produced in the United States, we still have a much lower ratio of imports to domestic goods than these countries do. And much fewer exports, as well. Whatever leads in new technologies we might have had are soon overcome by production in countries whose wage levels are a small fraction of our own.
So, we import more every year, simply because we don’t balance our current accounts – now running at a nearly $1 trillion/year deficit. We have been the largest “debtor nation” since the “Reagan Revolution” in the 1980′s. How much “free trade” would Americans be benefiting from if we had to balance our accounts?
When the Chinese or Japanese want to spend their dollars here buying real estate or companies like Texaco or Union Oil, we tell them, “No thanks.” Just buy our worthless Federal paper debt. They are about to quit accepting dollars altogether, and oil exporters are shifting to Euros wherever possible. The only things we have to sell them is wars and weapons, and they are very tired of that, as well.
But now, China and Russia are being compelled to see their national interest as requiring armed forces which can resist or stand up to American aggression. Military Keynesianism is the result. We’ve doubled our military budgets in recent years, at the expense of health care, education, and investments in infrastructure, public transportation, renewable energy, and other pressing needs.
NAFTA was an attempt to integrate the North American (and later, Western Hemisphere) economies to mimic the Common Market and European Union (which are themselves an attempt to emulate the “United States” of America) – a free-trade zone with optimal specialization and division of labor and manufacturing – much as the Nazis tried to do during WWII and Japan attempted with the Far East Co-prosperity Sphere, both of which have now been largely realized.
The success of the EU in recent decades, though, is due to the inclusion of many low-wage areas and massive capital transfers making such countries as Spain and Ireland (and now the former Comecon countries of Eastern Europe) nearly as wealthy as Sweden (or Germany and France.)
But of course, many problems are occurring as a consequence of this, including the recent financial crises which have bankrupted such “bubble economies” as Iceland. It’s all a house of cards, which seems ever closer to a total collapse. I’ll blame it on “monopoly capitalism” or “finance capitalism” – thoroughly Marxist concepts. You can blame it on “socialism” if you like.
As a Green, I don’t believe in “economic growth” as an end in itself – especially if it requires depletion of non-renewable resources and environmental degradation. Quality of Life is what we need to be concerned about, not “Standard of Living” or some arbitrary and ill-defined GDP. Norway, Sweden, Denmark, and New Zealand are perennial leaders by this standard, with the U.S. well down the list behind even such densely-populated and cartelized economies as Japan and S. Korea.
We obviously produce and consume far more than we should, most of it junk which is threatening to smother us (along with sea life and other natural systems) in our own non-bio-degradable garbage. Our houses are twice as big, our cars half as efficient, and our diet atrocious, making us the most obese and unhealthy people in the world. This is not “progress”, and it certainly has nothing to do with liberty or “social welfare” in any meaningful sense.
Add to this, the lack of any open, free and democratic political structures, or a diverse and free press, TV, and other information networks, and it’s easy to come to the conclusion that if this is “capitalism,” then the sooner it is gone, the better. It’s “Capitalism OR Freedom,” not the identity between them which Rand and Friedman tried to elaborate and defend.

Magnus December 5, 2009 at 10:34 am

We obviously produce and consume far more than we should

Here is the truth, at last.

First, your macroeconomic analysis in no way rebuts (or even addresses) the points made very clearly in the 3 articles on Sweden’s welfare cancer.

Second, your statement that “we obviously produce and consume far more than we should” is patently ridiculous.

Also, you clearly have a whole slew of unresolved feelings that lay behind this statement. It is obvious that your entire Marxist philosophy, such as it is, is motivated entirely by the sentiment that “we obviously produce and consume far more than we should.” It’s not rational. It’s not logical. It’s not scientific. It’s not based on evidence and reason.

Your economic philosophy is based entirely on the fact that you are filled with hate and envy, and it has metastasized into a hard, black lump of resentment inside you.

This article describes you in a nutshell: http://blog.mises.org/archives/011113.asp

See, a sane, stable, rational person would not care what other people produce or consume.

If you want to sit in your colorless hovel, scribbling your anti-bourgeois screeds, wearing potato sacks and pining for the days of Lenin, go ahead. The glorious benefits of economic liberty allow you to choose to live that way, if you choose.

Just leave the rest of us alone to enjoy life and the economic bounty that springs from property and the division of labor that property enables.

Paul Stephens December 5, 2009 at 10:58 am

look in the mirror, Magnus. You’re talking about yourself, not me. And you’re making personal attacks.

Havvy December 6, 2009 at 2:15 pm

Magnus: That was an ad hominem…

Stephens: You point out government controlled areas as your reason against capitalism…or are emergent results of what the government has done. Monopolies in many fields only stay around because government imposes barriers to entry in the form of regulations and the general wage laws. I see nothing about the free choice needed for capitalism in your arguments. Just a bunch of organizations that rule by force.

pbergn December 7, 2009 at 1:06 am

Good article. Author manages to show the subjectivity of human mind and uneven distribution of talent and resources, which some might call “luck”… In other words, “Life is unfair!”…

I applaud the author for his attempt to depict the reality of human conditions as is. I agree with Dr. Hazlitt, that essentially there is no fair way of determining who deserves a better lot… The only “fair” way is to let the Nature run its course, and let market forces balance it out…

On the same note though, the blogger named “Paul Stephens” is also right in his assertion that certain European countries enjoy higher standard of living. Although he makes a common mistake by attributing it to more social governing style:

The reason why certain European countries enjoy higher standard of living than the others, is mainly related to several historical and geographical factors, such as abundance of natural resources, ability to import advanced technology and export hard labor, coupled with relatively small, monolithic demographic, with almost no expenditures on defense or other, not immediately productive activities, such as Space Exploration or Fundamental Science on grand scale…

Let’s take Sweden, for example. They have natural resources, they have relatively small population (relative to the size of the country), they have homogeneous demographic, they import the technology from other European Union countries, and they export the hard labor to the less-fortunate neighbors, such as Eastern European countries… In other words, if you have natural riches, you import the good stuff and export the hard and dirty work – you’ll do just fine (not to say probably zero expenses on defense and such)…

Yes, sometimes not only individuals get lucky, but whole countries, too…

Rodney December 7, 2009 at 11:46 am

Hazlitt, like all libertarians, is right about the desirability of free markets. However, like some other prominent libertarians, Hazlitt’s analysis lapses almost seamlessly from a defense of what remains an ideal to a defense of the status quo.

We do not have a capitalist economy. While some markets are freer than others, there is virtually no market that is free from government interference–not even the black market.

The existence of a central bank that controls the money supply and influences interest rates allows government to reach into every aspect of the economy and attack the invisible hand with an iron fist. In such a political economy, the rise and fall of many lines of industry and commerce (e.g., real estate) are to a large extent determined by Fed-manipulated interest rates–over which (taking real estate as an example) realtors, construction companies, house-buyers, renters, and landlords have little to no control. Yet these people are very much affected by the decisions made by the Fed chairman, who is very much insulated from democratic accountability to the same people most affected by his decisions (not to mention the presidents who appoint him). He operates from a position of invulnerability. He and the Fed board of governors are the epitome of what C. Wright Mills calls the Power Elite.

Yet, in this excerpt, Hazlitt seems to pretend that the shifts in the fortunes of certain sectors of the economy and the fortunes of those most heavily invested in them–from owners to managers to workers and their families–correlate with certain psychological attributes. Quoting approvingly from the book The Unheavenly City, Hazlitt entertains the elitist idea that the rich are somehow morally and intellectually superior to the poor. As a result of this alleged superiority, the rich are more future-oriented, and this psychological trait accounts for their prosperity–even though with a flick of a pen the Fed chairman can alter the course of the economy and send millions out of work.

Now, this conservative argument is certainly plausible and may in fact be true in some cases; however, it could only be valid as an explanation of economic inequality (as it is) in a system of truly free competitive enterprise–which we clearly do not have.

Power, central planning, interventionism, cronyism, and nepotism have corrupted the merit-based system that would otherwise have prevailed under a “truly” capitalist economy. (On the face of it, the argument that the poor are much more sex-crazed, morally compromised, and licentious than the rich is preposterous. How about Tiger Woods, Bill Clinton, Paris Hilton, Italian Prime Minister and media mogul Silvio Berlusconi? Oh, and there was a book called The Prince, in which a rich courtier offers advice on how to acquire and maintain an empire. How does one do it? One does it by lying to people and by “appearing” to be guided by moral principles. In reality, however, self-preservation trumps morality and one adopts an “ends-justify-the means” approach to maintaining and extending one’s power and privileges.)

But one would never suspect (in this excerpt at least) that Hazlitt has made this distinction between “what is” and “what isn’t.” And so he seems to defend the status quo by resorting to the crudest form of conservatism.

Now this line of argument is warmly embraced on the Right while certainly provocative to those on the mainstream Left. This kind of analytical carelessness causes needless division between those on the Left and liberatrians, who, because of this apologist rhetoric, appear to be allied with the conservative Right.

But, as Murray Rothbard shows in his brilliant essay “Left and Right: The Prospects of Liberty,” Libertarians are really “classic liberals” in the tradition of Thomas Jefferson, Thomas Paine, and Henry David Thoreau. Libertarians are actually left of the mainstream Left: They “out-Left” the Left (which, according to Rothbard, is actually middle-of-the-road on the political spectrum).

So in order to bring those on the Left to the Libertarian cause, libertarians must stress their emphatic disgust with the status quo as morally unacceptable and demonstrate that true capitalism has nothing to do with the present order. Libertarians have to show the “radicals” that they aren’t being radical enough. The mainstream Left has been falsely led to believe that bigger government is a desirable remedy to monopolies, power consolidation, and corporate misconduct under an increasingly centralized political economy.

But that’s not the case. Government has been the primary instrument by which elites have achieved this monopoly and centralization of power. It wasn’t the result of some inherent tendency of capitalism towards monopoly and cartelization. In fact, leftist historians such as Gabriel Kolko have long pointed out that free markets are very effective in breaking up cartels and monopolies.

So the best thing to do, if you value freedom, democracy, and a sound economy, is to begin dismantling the instruments of centralized, regulatory power: the state itself. With a limited government that is not allowed by the people to intervene in the economy on behalf of special interests, we may progress toward a true prosperity based on the ideals of the Founding Fathers (self-determination, self-government, self-development), with more opportunities for employment and self-employment for everyone.

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