Tuesday, July 26, 2011

"On Redistributing Wealth"

In "On Redistributing Wealth," a column published today on "The Catholic Thing," Father James V. Schall, S.J., a professor at Georgetown University and described as "one of the most prolific writers in America," noted that "If we really want to help the poor to become not poor, the first thing we must do is stop talking of 'redistribution,' which is, at bottom, a branch of envy theory. We have to look elsewhere, at innovation, thrift, incentive, proportionate justice, virtue, markets, culture, and growth." Father Schall concluded by saying, "If we really are concerned with the poor, talk of 'redistribution' is not worthy of us."

We agree, as the well-intentioned but mathematically illiterate would say, 110%. Father Schall's analysis of the alleged ethics and necessity of redistribution are right on the mark. We also agree, possibly even (illogically) 120%, with Father Schall's prescription to "look elsewhere, at innovation, thrift, incentive, proportionate justice, virtue, markets, culture, and growth" for a solution to world poverty.

What we don't agree with is the fact that Father Schall leaves everything completely in the air as to how we are to take advantage of "innovation, thrift, incentive, proportionate justice, virtue, markets, culture, and growth." That's a much more difficult issue to deal with. This is because most modern thinking about how people are to take advantage of these things is locked into the disproved belief that the only way to do so is to cut consumption and accumulate money savings before being able to finance productive activity.

Absent the ability to practice thrift — and it is unconscionable to demand that people with little or insufficient income to meet ordinary needs cut consumption — there are only three ways for people to gain income: wages, charity and welfare. Wages, if set by the free market, are payment for labor, but the latter two are forms of redistribution. The only difference is that charity is strictly voluntary ("It is a duty, not of justice (save in extreme cases), but of Christian charity — a duty not enforced by human law." Rerum Novarum, § 22), while all forms of welfare are, by definition, coercive, being carried out by the State.

Naturally we assume that Father Schall was not denigrating almsgiving, one of the chief corporal acts of mercy. We also assume that he was not objecting (too strongly) to redistribution of existing wealth by the State in times of extreme need. No, we assume that, as a rational person, Father Schall was objecting to redistribution of existing wealth as the normal way in which the economy functions.

Under the past savings assumption and the limited understanding of money and credit that necessarily accompanies that assumption, however, there are a number of things that most people take for granted, especially in Catholic circles, that turn out to be merely redistribution and State control of individual lives in different forms. Take, for example, progressive taxation.

A basic principle of taxation is that you don't tax what people need to live on. You would otherwise be put to the necessity of taking away people's wealth, and then handing back to them as charity what was an injustice to take in the first place. This is why CESJ advocates raising the exemption level to a realistic level, say $30,000 for a non-dependent, and $20,000 for a dependent.

Obviously you should only tax people who can afford to pay the tax without thereby being put into a condition of dependency on the State, forced to supplement their remaining income with charity and State subsidy — welfare. People should be taxed on their ability to pay. Those with more in income should pay more in taxes. In justice, everyone should therefore pay the same proportion above a generous exemption level. Progressive taxation takes more than a fair share because the higher income levels pay more proportionately. It thus constitutes redistribution.

Take, for another example, the redefinition of private property that seems to pervade, e.g., distributist circles. Forgetting that private property is a natural right, one distributist maven redefined private property as a right . . . but not an absolute right. If he meant that you cannot do whatever you like with what you own, and there are some things that, for prudence's sake, you should not own (such as nuclear weapons or the complete DVD collection of Gilligan's Island), that's fine. When we asked if that was what he meant, he sneered and claimed we didn't understand him. He was right . . . we didn't understand what the heck he was saying, because the right to be an owner is inherent — absolute — in every human being, however limited its exercise might be for the common good.

Major Douglas's "social credit" is a little more creative in its redefinition of property, and ignores the fact that (as Kelso pointed out) "control" (including enjoying the income from what is owned) and "property" are the same in all codes of law. Most people confuse ownership with the thing owned, so the error in social credit is very subtle. The idea is that any private person can own capital . . . but the income above a certain level is taken away by the State in the form of a "social dividend" distributed by creating money to the value of the "excess" profits, after subtractions for State expenditures, of course. As a result, the politicians are freed from the accountability to the electorate that taxation imposes, and everyone becomes a "mere creature of the State."

The worst redistribution, however, results from the bad definition of money used nowadays, and the belief that you cannot finance new capital formation without cutting consumption and accumulating money savings. This, more than anything else, limits the opportunity and means by which ordinary people without savings who cannot afford to cut consumption to become owners of the very capital that is decreasing the value of human labor as an input to production.

What happens is that, trapped by what Louis Kelso called "the slavery of savings," people and governments attempt to manipulate definitions of natural rights in order to "allow" redistribution without calling it redistribution, and manipulation of the currency without calling it theft.

This is what was puzzling about Father Schall's article. He was very strong and to the point on not trying to run an economy through redistribution. The problem was, he stopped there. It's all very well to tell people to do the right thing . . . but you really should remember to tell people not only what the right thing is, but how to do it. The Just Third Way as applied in Capital Homesteading affords one possible means of getting out from under the near-global problem of dependency on redistribution by the State mandated by worldwide acceptance of Keynesian economics — but only if people know about it.

#30#

2 comments:

Anonymous said...

locked into the disproved belief that the only way to do so is to cut consumption and accumulate money savings before being able to finance productive activity.

This is not a disproved theory...thousands of Americans did so throughout the 1930s and 1940s...Herman Cain's father for example

Secondly thrift...also means looking for better deals, buying for necessity and not luxury, or looking for discounts rather all these are matters "thrift" and easily attainable.

Michael D. Greaney said...

I think Anonymous misunderstood. I did not say that it is impossible to cut consumption in order to accumulate savings for investment. What is disproved is the belief that this is the ONLY way that new capital formation can be financed — demonstrably false, as can be seen in Harold Moulton's 1935 monograph, "The Formation of Capital."