Wealth and Poverty

A New Edition for the Twenty-First Century

George Gilder

• Publisher: Regnery
• Year: 2012
• ISBN:
  9781596988163
• Topic: Business
• Subtopic: Government & Business
• Index: Business

A CLASSIC THAT WILL IGNITE THE NEXT ECONOMIC REVOLUTION Hailed as "the guide to capitalism, " the New York Times bestseller Wealth and Poverty by George F. Gilder is one of the most famous economic books of all time and has sold more than one million copies since its first release. In this influential classic, Gilder explains and makes the case for supply-side economics, proves the moral superiority of free-market capitalism, and shows why supply-side economics are more effective at decreasing poverty than government-regulated markets. Now, in this new and completely updated edition of Wealth and Poverty, Gilder compares America's current economic challenges with her past economic problems–particularly those of the late 1970s–and explains why Obama's big-government, redistributive policies are doing more harm than good for the poor. Making the case that supply-side economics and free market policies are–and always will be–the answer to decreasing America's poverty rate and increasing her prosperity, Wealth & Poverty offers solutions to America's current economic problems and hope to those who fear that our best days are behind us.

PART ONE

THE MANDATE FOR CAPITALISM

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CHAPTER ONE

THE DIRGE OF TRIUMPH

THE MOST IMPORTANT EVENT in the recent history of ideas is the demise of the socialist dream. Dreams always die when they come true, and the utter failure of socialism everywhere, in every partial and plenary form, leaves little room for idealistic reverie. In the United States, until recently socialism had chiefly ruled in auditoria and parish parlors, among encounter groups of leftist intellectuals retreating from the real world outside, where socialist ideals have withered in the shadows of Stalin and Mao, Sweden and Tanzania, gulag and bureaucracy.

The second most important event of the recent era is the failure of capitalism to win a corresponding triumph. For within the colleges, councils, governments, and churches from which arise the nebulous but nonetheless identifiable airs and movements of new opinion, the manifest achievements of free enterprise still seem less comely than the promises of socialism betrayed. If socialism is dead, in some sense intellectually bankrupt, morally defunct, as they say, why does the capitalist vision seem to teeter so precariously over the same ash can of history? Why do the same writers who most tellingly confute the collectivist argument sing the praises of free enterprise only in an almost elegiac tone, writing staunch conservative tracts that end in the cadences of a dirge for their favored beliefs?

Though sung in varied harmonies and arrangements, it is undeniably a dirge. It is a curious fact that the celebrated group of neoconservative intellectuals, heralded as saviors of business, discusses the nature and future of capitalism in the same dolorous idiom used by some of the chastened but still assured advocates of socialism. Meanwhile the intellectuals of the Old Right have usually shunned altogether the challenge of reconciling their philosophies and their economics, and they are equally likely to confide a belief that capitalism is in decline. Critically, they fail to passionately deny that capitalism is a historic and moral failure.

Yet Daniel Bell could survey the writers of the Right over the previous seventy-five years and conclude that “romantic or traditionalist, Enlightenment or irrationalist, vitalist or naturalist, humanist or racialist, religious or atheist—in this entire range of passions and beliefs, scarcely one respectable intellectual figure defended the sober, unheroic, prudential, let alone acquisitive, entrepreneurial, or money-making pursuits of the bourgeois world.”¹ This statement must be qualified, since many important thinkers have defended capitalism. But Bell was right that the defenses have usually not resounded clearly; they have been almost always faute de mieux, praising free enterprise for the lack of an alternative that accorded more easily with the writer’s religious and aesthetic convictions and with his sense of the way in which the world was going. Capitalism has been presented as a transitory and conditional compromise: the worst possible system, as Churchill once said of democracy, except for all the others.

This negative view allows to arise, without indignant refutation, something of a consensus among thinkers on both the Left and the Right that, for all its superficial virtues, private enterprise suffers from profound social conflicts and moral contradictions deriving from its continuing practical failures and lack of transcendent justification. Our affluence, it is said, springs from a consumer ethic with a hedonistic base, a continual whetting of appetites by advertising that is in the end destructive to the moral disciplines of capitalist production and distribution. Or capitalism leads inexorably to large bureaucratic structures that stifle the spirit of entrepreneurship that is the essence and rationale of private enterprise. Such contradictions may be relieved, for a while, by economic growth. But growth is dependent on a momentum of technology that creates a new elite and exalts a rationalist mindset also incompatible with democratic and religious values.

This, with some reservations, was the essential message of the works of John Kenneth Galbraith and Robert Heilbroner, both professed socialists. And this, amid all the mazes of his learning, even the pedantry of his endless verbal distinctions, was the practical message of “neoconservative socialist” Daniel Bell. This, among their fierce denunciations of contemporary social and psychological science, was the thesis of cultural conservatives Christopher Lasch and Robert Nisbet. This, too, amid all his sparkling wit and wisdom, was a persistent theme of neoconservative and capitalist writer Irving Kristol.

One might ask whether, for sympathetic but firmly dolorous reflections on the decline of the bourgeois ethic, on the cultural contradictions of capitalism, on the inevitable emergence of a technocratic and possibly stationary state, we really need a neoconservative revival. We still have, after all, in those of our libraries not altogether devoted to the dissemination of bestsellers and audiovisual aids, the works of Marx, Tocqueville, Veblen, and Schumpeter. All these writers eloquently celebrate the vigor and thrust and immense historic role of the bourgeoisie, only to predict its decline and fall. All traffic in the same moral contradictions, technological imperatives, managerial transformations, material satiations, and social changes that animate the critique of capitalism now and that were at least partly evident even to the Swiss economist Simonde de Sismondi, a pioneer of dynamic analysis, who in 1815 nonetheless “wondered what we could possibly do with more production now that we had already met the essential needs of man.”²

Even Adam Smith, whose very name symbolizes the capitalist order, foresaw its eventual decrepitude, in which the devoutly wished-for achievement of general riches would dissolve the purposes and preconditions of the system. To other visionaries over the years, it was an exhaustion of resources as population grew that portended the obsolescence of capital. But for whatever reason, wealth or poverty or mediocrity or inequality or some other bizarre conjunction of complaints, agitated seers for centuries have been predicting the death, decline, stagnation, doom, and decay of capitalism and the emergence of some sort of more stationary state, some kind of benign equilibrium, some surcease of the human struggle.

In fact, the more recent prophets of ambivalent capitalism are in such ample and various company, reaching so far back into the past that one may guess that the meaning of their analysis resides less in what it says about capitalism than in what it says about the incapacity of great thinkers to believe that their own epoch is not the climax of the human story—when soon will be broken the seven seals of the revelation, shaking “the mountains and islands... from their places.”³ Both intellectuals and commercial “statesmen” show a persistent tendency, stemming perhaps from their own increasing disappointments before the mirror and on the stairs, to predict the decline and fall of the most permanent things, followed by some stationary nirvana, much resembling the Aspen Institute. Divorcees predict the transformation of the family, while aging intellectuals and businessmen foresee the declining vigor of capital.

Sociology, however, does not recapitulate biology. Even though senescence may afflict great men on their paths of glory to final equilibrium, it is not a characteristic of nations, and capitalism, like the family, is not an institution that can become obsolete or decrepit as long as human societies persist. Human needs and numbers annually increase; science and technology provide their continuing surprises. The exigency, complexity, and multiplicity of life on earth become yearly more unfathomable to any tyrant or planner. No nation can grow and adapt to change except to the extent that it is capitalistic; except to the extent, in other words, that its productive wealth is diversely controlled and can be freely risked in new causes, flexibly applied to new purposes, and steadily transformed into new shapes and systems. Time itself means continuous change of knowledge and conditions. Among all states it is the “stationary state” so favored by the prophets that is most sure of withering away.

The more important charge of the intellectual consensus is that capitalism is morally vacant. At the innermost reaches of the system, after crossing plush carpets and mincing down hushed halls, we enter the sacramental crypts, part the velvet curtains, and find, said Daniel Boorstin, only an empty sanctum. He was glad of this, regarding it a source of our freedoms. Other capitalist defenders agree. The great Austrian political economists Friedrich von Hayek and Ludwig von Mises, like Milton Friedman in Capitalism and Freedom, were all eloquent in their critique of collectivism and their celebration of liberty, but they were uncertain of what it is for; their argument tended to be technical and pragmatic. Freedom is good in itself and also makes us rich; collectivism compounds bondage with poverty. None of these writers saw reason to give capitalism a theology or even assign to its results any assurance of justice.

None of them cogently refuted the thesis that the greatest of capitalists—the founders of the system—were in some sense “robber barons.” None convincingly demonstrated that the system succeeds and thrives because it gives room for the heroic creativity of entrepreneurs.

These capitalist writers had neither a satisfactory reply to Kristol’s question, “Can men live in a free society if they have no reason to believe it is also a just society?” nor a response to his answer, “I do not think so. My reading of history is that, in the same way as men cannot for long tolerate a sense of spiritual meaninglessness in their individual lives, so they cannot for long accept a society in which power, privilege and property are not distributed according to some morally meaningful criteria.”⁴ It is the new consensus that capitalist freedom undermines capitalism both because freedom defines no moral basis for its results, and because its successes are really dependent not on liberty but on bourgeois disciplines and restraints—diligence, integrity, and rationality—all inconsistent with the drives and appetites of the unfettered consumer in a heat of commerce, who is believed to give impetus to the system’s growth. Capitalist freedom, it is suggested, leads to a vulgar and decadent civilization, afflicted with libido for the ugly and the trivial, the shallow and the ungodly, and lacking the discipline and courage to survive or the values to be worth preserving.

The leftist critique includes such charges and goes beyond them. Capitalism is not only morally vacant, it also perpetrates gross immorality: racism, sexism, inequality, and environmental abuse. It is a practical failure as well, because it brings inflation and unemployment, and it prevents the emergence of the large-scale planning that is indispensable in a time of world ecological crisis, resource scarcity, and rising expectations in the populous Third World. Above all, capitalism creates and perpetuates inequality—between the rich and the poor, rich countries and poor ones, men and women—and destroys balance between man and nature, consumption and conservation, individual appetites and social needs. This argument does not contradict the conservative one. The radicals agree with the idea that the goods of America are materially shoddy and that the consumer society is morally erosive. But they add a series of further charges that conservatives regard to be overwrought or misconceived, and they propose corrective programs that conservatives perceive as futile, wasteful, and often perverse.

Nonetheless, I believe that the two themes of criticism of American life converge as much as they divide. Robert Heilbroner, Daniel Bell, Irving Kristol, Aleksandr Solzhenitsyn, and Tom Hayden had more in common than they supposed. Most crucially, they assumed that capitalism is an edifice without an inherent foundation in morality and religion, and that therefore it engenders a shallow and dubious order of human life. None of these men, it would seem, could have done much better than the dumbfounded President Dwight D. Eisenhower when he was confronted with Nikita Khrushchev’s charge that our system is immoral because it is based on greed.

What has happened, one might ask, to the dreams of The Good Society, firmly and necessarily capitalist, that Walter Lippmann celebrated in his masterpiece of the late 1930s? Then he could assert in the face of impending war and from the still bleak ruins of the Great Depression that our system was based on an ideal that “for the first time in human history” gave men “a way of producing wealth in which the good fortune of others multiplied their own,” in which at long last “the golden rule was economically sound,” and in which “for the first time men could conceive a social order in which the ancient moral aspiration of liberty, fraternity, and equality was consistent with the abolition of poverty and the increase of wealth.”⁵ Lippmann continued the theme: “Until the division of labor had begun to make men dependent on the free collaboration of other men, the worldly policy was to be predatory. The claims of the spirit were otherworldly. So it was not until the industrial revolution had altered the traditional mode of life that the vista was opened at the end of which men could see the possibility of the Good Society on this earth. At long last the ancient schism between the world and the spirit, between self-interest and disinterestedness, was potentially closed.”

Although a masochistic intelligentsia insists on seeing radical transformations and moral contradictions everywhere in the free world, the fundamental beliefs uttered by Lippmann in a far more perilous and impoverished epoch remain luminously true. Today, in a time of abundance haunted by specters of peril, we should try to recover the faith proclaimed by a great man in the truly desperate plight of the thirties and forties.

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CHAPTER TWO

THE ECONOMY OF FRUSTRATION

THE BELIEF THAT THE good fortune of others is also finally one’s own does not come easily or invariably to the human breast. It is, however, a golden rule of economics, a key to peace and prosperity, a source of the gifts of progress. It is the belief that finally confounded the predatory economics of mercantilism, in which nations used regulation and beggar-thy-neighbor trade campaigns to gather surpluses and bullion. It was this golden rule that inspired the first great book of economics, The Wealth of Nations, by Adam Smith. It was this belief that David Hume proclaimed in 1742, at the end of his essay “Of the Jealousy of Trade”: “I shall therefore venture to acknowledge, that, not only as a man, but as a British subject, I pray for the flourishing commerce of Germany, Spain, Italy, and even France itself. I am at least certain that all nations would flourish more [with] such enlarged and benevolent sympathies toward each other.”¹

The golden rule finds its scientific basis in the mutuality of gains from trade, in the demand generated by the engines of supply, in the expanded opportunity created by growth, in the usual and still growing economic futility of war. On this foundation have arisen most of the world’s economic gains since the times of Smith and Hume. Its abandonment during the tariff wars of the thirties precipitated, deepened, and prolonged the Great Depression. Its continuing survival is our greatest patrimony as a free people. But it is a belief that is always in danger of erosion and attack.

A prominent source of trouble is the profession of economics. Smith entitled Book One of The Wealth of Nations, “Of the Causes of Improvement in the productive Powers of Labour and the Order according to which its Produce is naturally distributed among the different Ranks of the people.” He himself stressed the productive powers, but his followers, beginning with David Ricardo, quickly became bogged down in a static and mechanical concern with distribution. They all were forever counting the ranks of rich and poor and assaying the defects of capitalism that keep the poor always with us in such great numbers. The focus on distribution continues in economics today, as economists pore balefully over the perennial inequalities and speculate on brisk “redistributions” to rectify them.

This mode of thinking, prominent in foundation-funded reports, bestselling economics texts, newspaper columns, and political platforms, is harmless enough on the surface. But its deeper effect is to challenge the golden rule of capitalism, to pervert the relation between rich and poor, and to depict the system as “a zero-sum game” in which every gain for someone implies a loss for someone else, and wealth is seen once again to create poverty. As Kristol said, a free society in which the distributions are widely seen as unfair cannot long survive. The distributionist mentality thus strikes at the living heart of democratic capitalism.

Whether of wealth, income, property, or government benefits, distributions always, unfortunately, turn out bad: highly skewed, hugely unequal, presumptively unfair, and changing little, or making things worse. Typical conclusions are that “the top 2 percent of all families own 44 percent of all family wealth, and the bottom 25 percent own none at all”; or that “the top 5 percent get 15.3 percent of the pretax income and the bottom 20 percent get 5.4 percent.”² The statistician can make great play with medians (the centerpoint of a distribution, with half of the entries above and half below) and means or averages. The median income of individual Americans, for example, is zero (because a majority of Americans are housewives and children).

Statistical distributions, though, can misrepresent the economy in more serious ways. They are implicitly static, like a picture of a corporate headquarters, towering high above a city, that leaves out all the staircases, escalators, elevators, and the Librium on the executive’s desk as he contemplates the annual report. The distribution appears permanent, and indeed, like the building, it will remain much the same year after year. But new companies will move in and out, executives will come and go, people at the bottom will move up, and some at the top will leave their Librium and jump. The static distributions also miss the simple matter of age: many of the people at the bottom of the charts are either old, and thus beyond their major earning years, or young, and yet to enter them. Although the young and the old will always be with us, their low earnings signify little about the pattern of opportunity in a capitalist system.

Because blacks have been at the bottom for centuries now, economists often miss the dynamism within the American system. The Japanese, for example, were interned in concentration camps during World War II, but thirty years later they had higher per capita earnings than any other ethnic group in America except Jews. Three and one-half million Jewish immigrants arrived on our shores around the dawn of the twentieth century with an average of nine dollars per person in their pockets, less than almost any other immigrant group. Six decades later the mean family income of Jews was almost double the national average. Meanwhile the once supreme British Protestants (WASPs) were passed in per capita earnings after World ...