Capital Accumulation Is Better Than "Fairness"
We never tire of reviewing the basics of economics because it is so often ignored by the pundits and our fellow citizens.
When George Reisman has an essay on elementary economics we read it and serve it to our readers. In the von Mises website, Reisman writes in "For Society To Thrive, The Rich Must Be Left Alone" how the wealth earned in free market business (as opposed to wealth derived from government subsidies/harassment or class action lawsuits) has a double benefit to society.
We start by shelving the Keynesian concept of relative wealth meaning the inexhaustive consumption of goods. We look at wealth as CAPITAL.
This wealth, this capital, produces the goods which the average person buys, and as more of it is accumulated and raises the productivity of labor higher and higher, brings about a progressively larger and ever more improved supply of goods for the average person to buy.
But, besides creating cheaper goods, the first of our societal benefits, the capital creates businesses that dfreate jobs. And higher paying jobs as capital for businesses increase.
And the greater is that capital, the greater is this two-sided benefit to everyone. To the extent that the supply of goods produced is greater, prices are lower. And to the extent that the demand for labor is greater, wages are higher. Lower prices and higher wages: that is the effect of capital accumulation.
When the lower income earners spend all of their money, there is some benefit to the economy. But the economy soars when there is accumulated savings. That is because as banks increase their reserves from our collective savings, they lend the money to people for home purchases and entrepreneurial ventures. Absent capital, there can be no growth.
Economist Hernando De Soto has been studying the problems when a society cannot amass capital. In his book "The Mystery of Capital", de Soto explains how the absence of the evidence of title to property and the accompanying sharing out of ownership interest to that property denies the holder from expanding his capital base. The "poor" throughout the world possess massive amounts of money but cannot expand it through investment because of the lack of acceptable ownership rights that outsiders can rely upon for purchase. They have no access to secondary markets for mortgages or various securities.
So not only do governments world-wide refuse to assist in the amassing of capital, governments drive down investment opportunities, leaving these countries in 3rd-world status, by imposing wage, price, employment, safety and environmental regulations on those few local businesses.
Thomas Sowell discusses how South Africa, with massive unemployment (maybe higher than the reported 26%), has caused local firms to out-source in order to make a profit!
Some businesses are not expanding but are just trying to survive. Costs blithely loaded onto them by politicians can prevent some of these kinds of businesses from surviving -- and their employees lose their jobs. Over time, businesses can shift more and more of their operations out of places where extra costs are imposed politically and some just move their whole business elsewhere. That means taking their jobs, and the taxes they pay, elsewhere.
Yes, government everywhere does its best to stifle business as it seeks to assume more power. Back to Reisman:
The last forty years or so have seen the imposition of environmental legislation and consumer product safety legislation, and numerous other government programs that serve to increase the costs of production. The great majority of people assume that the higher costs simply come out of profits and need not concern them. But the fact is that the general rate of profit in the economic system remains more or less the same, with the result that increases in costs show up as increases in prices, or as decreases in other costs, notably, wages.
Opponents to a free market are resting their view on incorrect assumptions learned from ignoramuses in government and the media. They are hurting themselves. We continue to replay the lessons with hopes we can persuade people one at a time.