Sunday, July 03, 2005

Poverty not created by man

Here is a most interesting observation by Tim Worstall’s Blog:

“A Gross Fallacy
‘Interesting piece in the
Guardian. It contains one gross fallacy: "A small group of visionaries, the followers of Tom Paine in England and Antoine-Nicolas de Condorcet in France, ceased to regard poverty as a divine imposition on sinful humanity. It was seen as remediable in principle, since it was man-made in practice.”

The fallacy is not the statement that they believed this, but that the belief [that it] was true. Poverty is not man made. It is wealth that is man made.

Armed with those two we then need to ask what are the things that increase those … desirable trends? We seem to get to where Adam Smith put us, along with Ricardo. The tolerable administration of justice, easy taxes and the secure administration of property along with trade, lots and lots of lovely trade (no, it doesn’t matter of the trade is inside a family, across a city or between nations).’

(You should read the whole article to appreciate its good sense.)

Getting the main point across is absolutely essential if we are ever going to put a dent into poverty. Up to Adam Smith’s time poverty was accepted as the natural lot of the poor. It’s in the Bible: “the poor are always with us”. What we now call distributive justice began with Adam Smith. Before Smith, Distributive Justice was about justifying why the talented and the hard working deserved their share of the national cake. The poverty stricken were assumed not to deserve any more than they got! After Smith the modern meaning of distributive justice began.

See Sam Fleischaker’s excellent short book, “A Brief History of Distributive Justice” (Princeton, 2004) for the full case.

But Smith did not see it simply as re-distributing resources from rich to poor. That is a quick fix and unlikely to be more than a palliative, and would never raise the poor to the living standards of the moderately well off. It would only reduce all living standards well below what market economies can provide. Smith was more ambitious, and so should we be.

He recognised that wealth can only be created by the division of labour and trade. Redistribution to equalise misery requires tyranny and breaches of natural liberty, which would undermine, if not destroy the growth essential to raise the poor to significantly higher living standards. That is why, we might note, all communist regimes soon become tyrannical dictatorships (though the communist elite do very well, thank you very much).

Violence, tyranny and theft can only redistribute wealth; they cannot create it. Only the division of labour producing and distributing in myriad markets can raise living standards for all – and they do. Smith noted this truth in the mid-18th century after the long interregnum following the fall of the Roman Empire. By the 1760s, per capita incomes were rising, albeit slowly, and they continued to do so for more than two hundred years after. “Wealth of Nations” is about why this happens.

Tim Worstall is absolutely right: poverty is not created by man; wealth is created by man and the freer the society is to allow millions – now billions – of people to create their share of wealth, the faster poverty will be eliminated. Of course, today, we would expect there to be some measure of redistribution to relieve the poverty of those afflicted by it, but by far the fastest way to relieve poverty permanently is to create work for those who can work by allowing markets to function for them to work in. That is best done by markets not handouts (though handouts may be needed in the short run).

As more and more former communist countries are adopting freer markets in place of the choke holds of state regulations, tens of millions of people are being lifted out of poverty today. As formerly over regulated ‘socialist’ and semi-socialist economies are liberalised tends of millions more are being lifted out of abject poverty. If the so-called ‘social capitalism’ of continental Europe were liberalised, so the millions of unemployed in the richest countries of Europe would find dignity in work and the means to share in their countries’ wealth.

To the problems of State run economies in Africa they suffer from the added problems of corruption, tyrannical governments, insecurity of property and the lack of independent justice. Aid is a palliative that does not get through to the very poor or to those willing to work and trade. The real challenge is to open freer trade in the rich European countries so that the poor in the poorest countries can trade their way out of poverty.

Smith understood this in terms of the problems of 18th century Europe. His legacy in these matters applies still today.


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