As my name suggests, I am a neophyte to Austrian Economics, largely due to the current economic crisis, which I am more and more convinced is caused by the Fed.
One common complaint against free-markets is that it ends up concentrating wealth in a few hands or the top so many percent. We often hear (and I’m making up the specifics) “the top 3% has 60% of all the wealth” and that the United States has the greatest amount of wealth inequality than any other “developed” country.
Some assumptions, ideas, & thoughts:
In Communists countries - it is clear that the top few control all the wealth, so they are clearly no better off with respect to wealth distribution than free markets.
In and of itself, this really isn’t a problem, is it?
What industries do these people work in? How great are the barriers to entry? I am assuming that if someone is profiting in a major way in an industry that others would soon enter that market.
Anyone know what wealth distribution is like in socialist countries, namely Sweden, Denmark, etc.? Is it similar to the U.S.
Take a look at the list of 10 the most wealthy people in the world. Not one of them would have become as wealthy in a truly free market. They all gained their wealth through the state with a state granted monopoly or in a heavily regulated or subsidiesd sector. Telecommunications, IP, oil, minerals… Or in case of Russia - very outright, very brazen state enabled theft.
So the gap in a free market would actually be smaller. Logicaly since it is far easier to make money by stealing than by serving the needs of your customers.
I think another important distinction that should be retained and protected is that of a so called Equal distribution of wealth and a Just distribution of wealth.
The ostensive aim (and I am by no means naive to the falsity of such claims) of governments (of countries) such as Sweden and the UK is to achieve a more more egalitarian distribution of wealth, however it should be noted that this is incompatible with just distribution of wealth as I see it. It seems the two are mutually exclusive.
It’s worthy of note that people who employ such arguments reason with a fallacious understanding of the concept of wealth. In their minds, the term wealth means ‘money’ or ‘things’, though a more accurate rendering would be to the effect of ‘one’s capacity to achieve one’s economic inclinations’. (Under this definition, it’s clearer that cookie-cutter egalitarian indignation is just envious blather).
as already mentioned, the greatest profit comes form industries with either artificial monopolies or high barriers to entry imposed by regulators. the higher the barrier to entry the more the current players can raise prices.
I suppose the concentration of wealth is just one of those things I could not care less about, though in all honesty what controls the most wealth in the world? The government. What entrenches inequality (which inheres in its very fabric)? Same answer. Roderick Long, Kevin Carson (oh noes, heresy!) and Charles Johnson have some good writing on how the government privileges the wealthy and often makes them so. By the way be very wary of statistics - it’s very prone to manipulation, and often relies on defining terms in certain ways so as to mislead. If you can pick up David Schmidtz’s Elements of Justice give it a read, as he discusses the role of statistics and their use by the left. I disagree with him on wage stagnation though - wages can and have stagnated due to inflation.
“Egalitarian distribution of wealth” is nonsense anyway. Distribution of wealth can not be “egalitarian” or “non-egalitarian”. Distribution of wealth can only be “even” or “uneven”.
Egalitarian means, treating everyone as equals, treating everyone under the same set of rules, but if you are taking money from one person to give it to another then you are obviously not treating them equaly and are thus an anti-egalitarian.
If I said we need “egalitarian distribution of brainpower” would that make sense? So we need to make up a treshhold and if you are bellow it you need to be given some brainpower from someone smarter than yourself? Would that be saying all people are equal? No, that would be saying those bellow the treshold are less, because they first need to be made equal through implanting them with more brains.
So if I take the money from the successful to give it to the unsuccessful I am actually admiting they are not equal, instead of asserting that they are. Because if they were equal they would also have equal rights, but apparently they do not thus my unequal treatment of them.
If the poor and wealthy are equal (as I maintain) then as the wealthy have no right to prey on the poor, also the poor have no right to lay claim on the wealth of the wealthy. Thus they are different but equal.
But anyways the whole deal of state as a force for even distribution of wealth is really a state propagated myth. The state is very good at pretending to be everything to everyone and thus making allies from even its biggest victims. The state pumps big monies from everywhere to the power elite, but like every inferfearance in the economy it forces them to interfeare stil more, so they must take some of that money and return it to the poor as welfare or face unrest. But it suits them perfectly as it creates a class of people whose first instinct will be supporters of the state and of the status quo albeit they are hurt by it on the whole.
It is a similar situation to the retirees, who are perhaps the biggest knee-jerk socialists and statists because they are thankful to the state for the tiny monthly check from its forced saving scheme it sends them and provides them with “free” health care. Albeit in reality they are its biggest victims, since being old they have paid up the most money in taxes and since with private health care those services would be far more accessible being cheap and not connected to giant waiting lists, often discriminatory against the elderly.
Warren Buffet and Ingvar Kamprad do not. One trades in stocks and the other sells cheap household goods and furnishings. And I think it is misleading to call IP a “state granted monopoly”.
Buffet is a long time holder of Wells Fargo and just bought 5 billion of Goldman Sachs. He owned stock of electric power companies, of Coca Cola (patent), of Enron, of Citigroup (bonds) and Im sure many other examples could be dug out. Youd have to be very naive to think he was not bumped along the way by the state and would have made as much money in a free market.
My reply has nothing to do with who has what stuff. It is simply this:
In a free market the wealthiest folks are those that produce things that consumers want to purchase. The wealthiest producers are simply better at it than the not so wealthy producers. Regardless of the wealth of the producer, In a free market economy, every producer has an incentive to lower the price of their product to attract more consumers to purchase their product. If producers fail to do this then they will lose customers to other producers. So the only system that distributes wealth from the wealthiest to the less wealthy is free market capitalism. The only way to stop this process is for the government to use force.
Coca Cola, patent? Coca Cola survives by using trade secrets and skilful marketing. Patents are of marginal importance. Their famous drink is not itself patented, and if it ever had been, that patent would have expired many decades ago. The company does have some patents, but these patents do not give it any important monopoly. For instance, a design patent on the famous bottle does not prevent anyone else coming up with cute designs for soft drink bottles. Their trademark is of course very important, but would you abolish trademarks? All the trademark does is offer a convenient and reliable way for customers to identify their preferred brand before making a purchase. Is that a bad thing?
The other person you tacitly accused of being rich through IP was Bill Gates, but again this is dubious. While copyright and patents helped Microsoft earn their crust, trade secrets, barriers to entry, anti-copying hacks, skilful marketing, and so on, were and are even more important. Furthermore, if there were no independent software industry, of which Microsoft can claim to be the chief pioneer, all or nearly all software would be controlled by integrators (like Apple, Sun and IBM), who would provide you your software as part of a package including leased hardware and support (using contract law to prevent you from installing any rival software on the machines). Barriers to entry would be higher, cost to the end consumer would be higher, interoperation would be less standardized, and the winners in the competition between integrators would probably be, if anything, richer than Gates.
I very much doubt that the cause of people being very rich is in most cases government distortion of markets. In many markets, including manufacture, transport, distribution, energy supply, and communications, there are big advantages to being the biggest player: not just that you can raise the barriers to entry, or that you can undercut rivals with loss leaders, or that you benefit more from economies of scale, but merely being the biggest has a network effect, which multiplies your advantage over rivals. Add to this the conditions of a capitalist libertarian “anarchy”, where there are no antitrust laws, and, for instance, there would have been nothing to prevent W. E. Boeing fulfilling his plan to acquire a monopoly of airlines and airports (at least, for all major routes), as well as aircraft manufacturing.
I suspect that in many markets, businesses will tend to evolve into monopolies or narrow ologopolies under any system, unless there is a specific effort to prevent this from happening.
I note that bubbling under the top ten on the billionaires lists are the proprietors of ALDI and Walmart. In the 2004 list, fully six of the top ten richest people in the world were these retail proprietors:
first of all, no one is saying that you cant get rich without government help. Some people would still be rich in a free market. The argument is that they can only get rich by being the best at producing what consumers want. Another argument is that they would generally not be as rich compared to everyone else, and that the poor would be richer, so the wealth gap would be smaller.
Also, sometimes it is hard to see how coroporations benefit from government intervention. Im pretty sure IKEA for example acquires land which the government gets through eminent domain.
people often forget that to benefit from some ‘means of production’ one neednt own the means of production, one need only be able to bid for some of its product. in fact, it may be positievly better to have the means owned by someone else, i.e. a more competent manager.
e.g. if no-one has a shoe factory, everyone has expensive shoes. if someone has a shoe factory, everyone can have cheaper shoes. the so called ‘poor’ benefit. this is what the ‘benevolence of capitalism’ is all about
It’s irrelevant. It’s unlikely that individuals will be able to enrich themselves to the same extent that we see today, but not impossible. It’s an empirical matter.
If it were to happen, however, it would be beneficial to society as a whole. Of course, the Marxists would rather point out that inequality is evil or whatever it is they like to whine about.
It’s not heresy. It’s just awkward referencing someone who is wrong so often, for the few times he might provide something of value. I mean, I’m sure Paul Krugman has written something that isn’t complete nonsense, but I don’t think you will see many Austrians make a point of referencing it.
Very well. Three hurrays for Coca Cola then. That stil leaves plenty other fishy investements of Buffet.
Sure Microsoft is a well run company, but the real reason of their mega-success is simple, they don`t sell CDs, they sell “licenses”.
Anti-copying hacks as reason for their success? Much more important than anti-copying protection that gets cracked in an afternoon is the police enforcement (socialised enforcement) of Microsoft`s bogus IP rights. Inspections of companies by anti-piracy agents forces them to pay exorbitant prices for the “license” to use a CD which they own, or face a fine.
It is absurd to think without Microsoft there would have been no independant software makers.
You do not require willful government patronage. All that is required is government distortion of the market. Minimum wage is not meant to patronise anyone, but it does serve as an artificial entry barrier.
But ok, very well then. We would stil have mega-rich retailers. So? There would stil be less mega-rich than there are today (certainly there would be no Russian oligarchs hoping around), so the “concentration of wealth” OP was concerned about would be more even rather than less even. (Not to mention none of the 2004 retailers would have made it into the top10 today and were not on the very top even then.)
If you continue your study into Austrian Economics, you’ll discover quickly that money and wealth are not the same thing. And this can be clearly explained by the Angel Gabriel analogy… Rothbard likes to use this argument, but it’s borrowed from previous writers.
Mainstream economics like to use “wealth” distribution metrics especially in Labor Economics with the use of the Gini coefficient. The problem with the gini coefficient (other than one has to use a proxy for total amount of money at any given time) is that it doesn’t tell you much from you couldn’t have already observed on a prima facie level. There’s nothing inherently wrong with studying the distribution of money, but to add a statement like “this is a more fair distribution” or a more uniform distribution is “better” betrays the statistical excersise.
You can generally glean a considerible amount of insight into money distribution by observing the treatment of property rights within a given country. The countries that have a noticeable lack of capitalism generally have the most unequal (highest) gini coefficents. So when someone says “Capitalism causes wealth to be concentrated” they generally have not looked across the landscape of countries with high gini numbers. The countries that are most abusive to property rights and liberty generally have the most unequal wealth distribution. It’s never been the experience that communist countries have a low gini coeffecient because there’s generally a small group of people running the country that concentrate the money and the wealth.
The United States gets somewhat of a bad rap on Gini because there’s a class of hyper-rich individuals, but I’d rather be poor in the US than be middle class in Slovenia. Gini alone won’t pick this up.
Also to expand further I dont understand the Socialists obsession with wealth. As if everyone longs to have loads of money or something. Most people don`t even want to have 5 swimming pools or whatever.
Why is wealth this ultimate measurement? Why not a Gini coefficient for intelectual exercise? Maybe quality of human life is only satisfactory enough if we all read aproximately the same number of books per year, and write approximately the same amount? Maybe there should be a book reading poverty line, and if you are bellow it you will get some literature lessons by someone well above it??