Wednesday, September 3, 2008

The Real, and Only, Wealth Creators

In an article published in the Washington Post on August 29, 2008, John E. Schwarz has used a series of fallacies in a thinly disguised call for expanded statism in America. Entitled Tax. Spend. Create Great Jobs, Mr. Schwarz inverts cause and effect by making the claim that not just free markets but governments, too, can create wealth through tax and spend policies. The fallacies are many.

Neither governments, nor free markets, create wealth. Only individual human beings create wealth, by a process of reason applied to productive work. Certain social conditions are required by men to produce wealth…to be able to think, act on his own judgement, and collect the rewards of his efforts, free from physical coercion of others. Only the free markets provided for under capitalism, the system of individual rights, are conducive to such conditions. Legitimate governments are confined to a single, vital function…to protect individual rights, including property rights, from force and fraud. Free markets enable wealth production. Governments ensure free markets.

Research is likewise done by private individuals. In a free society, the funding that the researchers depend on is provided voluntarily out of wealth already produced but not yet consumed…i.e., out of the savings of private individuals. Government-funded research is simply wealth expropriated…taken immorally by force of taxation…out of the savings of private, productive individuals. Either way, it is private wealth funding private research. Regardless of what results from that research, government’s only role was expropriative and redistributive.

Mr. Schwarz’s implication that “jet aviation, semiconductors, computers, the Internet, global positioning systems, laser technology, MRI technologies, high-strength steel alloys, fiber-reinforced plastics, [and] nanotechnologies” would not have come into existence without government’s expropriative funding is absurd on its face. The private researchers and private investment wealth would still have been there, had not government coercively appropriated the related investment fields with expropriated private wealth. Coercive taxpayer-supported government funding must necessarily discourage and suffocate private research, which must depend on voluntary funding, in much the same way that public education stifles the private education market. Indeed, Mr. Schwarz completely ignores the potential technological breakthroughs and related growth industries left stillborn by the government’s expropriations and redistributions.

Similarly, governments cannot create demand. Demand presupposes production. “Demand” is actually wealth produced but not yet consumed. A purchase…the demand…is in actuality a trade in which the purchaser exchanges previously produced but unconsumed wealth represented by his money for the product he receives in return. Government-created “demand” is no such thing…it is merely the confiscation and redistribution of existing demand…i.e., of unconsumed wealth.

Had the wealth confiscated to pay for the “government-funded” research and “government-created” demand been left in the hands of its rightful private owners, it would have gone into either consumption (demand), or savings (investment). The foregone demand and investment means that some producer lost a sale and some investment went unfunded. At the very least, on paper, you have a wash…no net gain in wealth. In reality, of course, the use of money expropriated for “public” investment and demand is determined by political pull, not potential return-on-investment (profit) for private gain, and is thus a source of extensive corruption and waste. The coercive transfer of wealth from the private producers to politicians and government bureaucracies is a net wealth destroyer.

When Mr. Schwarz advocates rights-violating government “tax and spend” policies to offset alleged “serious lapses [that] beset the private market,” he is merely rationalizing the practice of taking by force what cannot be obtained by voluntary persuasion. No matter how “worthy,” no one has the moral right to compel another human being to fund research or “demand” that one finds desirable. The “lapses” that he sees are merely decisions made by others with their own wealth, which he doesn’t like.

His claim that “not many rational investors will step up when there is no clear prospect of ready consumers for a new technology and the costs of research, development and initial production of that technology” is high is belied by the history of the 19th century, the greatest era of economic progress, inventiveness, and human advancement in history. The birth of huge industries in steel, transportation, electricity, energy, agriculture, banking and medicine, among others, occurred with minimal government “tax and spend” interference and laid the foundation without which the prosperity of the 20th century would never have occurred. And if “few private investors, even venture capitalists, are interested” in a particular field of research, by what right does Mr. Schwarz have to demand compulsory government funding?

Governments have existed throughout history. Free markets, on the other hand, have been fleeting and limited, historically speaking. Yet, the facts speak for themselves, to any objective person. Always, and throughout the world, human progress and prosperity has resulted from private productive work and investment in direct correlation to the extent that free markets existed, and in inverse relation to the size and scope, and tax and spend powers, of government. The fallacious, out of context and misleading arguments advanced in this piece are a rationalization for statism.

Rush Limbaugh is right on this one. Government, by its very nature, cannot create wealth. Government-created wealth is a logical impossibility. When government becomes not a protector of individual rights but a violator, in the words of Mr. Limbaugh, “it can only destroy [wealth] or confiscate and redistribute it.” Government is coercion, and nothing else. That’s why the Founders, however incompletely and imperfectly, sought to protect the individual by subordinating the role of government to “protect these rights” to “Life, Liberty, Property, and the pursuit of happiness.” When government steps outside these bounds...any short-term “benefits to society” takes on the role of destroyer.

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