23. Theft and Prosperity

ONE’S GOODS CAN BE transferred to another person voluntarily, as in trade, or involuntarily, as in theft. In a voluntary transfer of goods, both parties gain because each party values the goods received more than the goods relinquished. However, more essential than the value gained in a trade is the prerequisite that each party must have produced something of value in order to carry out the trade.

One’s labor (a service) is no different. Labor can be provided voluntarily, as in a job, or involuntarily, as in slavery. One’s willingness to provide an hour of work in exchange for X dollars means that a worker values X dollars more than the hour of his labor, while the employer or client values that hour of service more than X dollars. The prosperity of a voluntary society is the sum of each person’s production of goods and services, plus the added value realized as those goods and services are traded in the marketplace.

In an involuntary transfer of goods, such as theft, one party suffers a loss while another party realizes a gain. In such cases, the prosperity of a society is only enhanced by the victim’s production of goods; the thief, as a member of that same society, does not enhance its prosperity. With theft, society does not realize the thief’s potential productivity. Additionally, society continues to lose as long as the threat of theft exists. That threat hinders a producer’s incentive to produce; it also diminishes his production because some of his time and energy is diverted from productive activity to defensive activity.

Taxation has a similar effect on the productivity of the members of a society. With taxation, a society’s prosperity is diminished by all the benefits that could otherwise have been realized from the productivity of those involved in enforcing and collecting taxes. The productivity is further diminished by all that could otherwise be realized from those acting as professional tax consultants, and further still by the disincentive to produce and by the amount of the taxpayer’s productive energy that is diverted to defensive activity, and even further by the production that might have been realized by otherwise productive members of society who are being subsidized with a portion of the tax.

To illustrate, let’s return to our five-person community, in which each member is producing 20 units of goods per time period. What happens if one member—let’s call him Fred—stops producing, and, instead, decides to take 20 percent (four units) of each of the others’ production? At first, it appears the group’s production is reduced from 100 units to 80 units, with each member, including Fred, equally enjoying 16 units of wealth. However, the loss of Fred’s production is not the only loss to the community. Additionally, each of the four producing members must now expend some of their time and energy trying to defend against Fred’s intrusion. Their time defending takes away from their time producing, resulting in fewer units being produced. Now, instead of producing 20 units each, they only have the time and energy to produce 15. As a result, the community’s prosperity has decreased to 60 units, with each member, including Fred, only enjoying 12 units.

Unfortunately, this is not the end of the damage caused by Fred. He discovers that, by giving some of his takings to certain members of the community, he can gain enough support to thwart a revolt and increase the level of future takings. To illustrate, let’s say Fred, in our five-person community, decides to share some of his takings by offering to subsidize the lowest producing members of that society (besides himself).

Before Fred’s “gracious” offer, each of the four productive members was producing 15 units of prosperity and enjoying only 12 units, since 3 of their units were going to Fred. Now, let’s say one member is more industrious and produces more than the others. Fred, keeping his promise, gives one of “his” units to each of the other three members. By sharing his takings with lesser producers, Fred encourages some members to become slackers, while gaining their support to continue his takings from the more productive members of the community. Consequently, Fred’s offer reduces the prosperity of the community even more. If Fred had simply destroyed or consumed all of his takings, the community would have been better off than by his sharing them with other members of the community. In summary, Fred has not only reduced the productivity of those from whom he has taken, but also has further reduced the productivity of those to whom he has given.

The State, like Fred, would also do less damage by not using its takings to subsidize its members. Subsidies reduce the free-market efficiencies of competition and incentives, while diverting the efforts of some from producing goods and services that people value more to those they value less or not at all. Providing subsidies to farmers to curtail production and to shirkers unwilling to work defies common sense. I recall my father telling me sometime in the 1930s about the government’s policy of paying farmers to destroy their pigs.⁴³ Although he highly admired President Franklin Roosevelt, he could not make sense of that policy, and even though I was only a tyke at the time, it seemed rather strange to me too.

⁴³Chris Edwards, “The Government and the Great Depression,” Cato Institute Tax and Budget Bulletin, no. 25 (2005). Under the Agricultural Adjustment Act of 1933, while millions of Americans were going hungry, the government plowed under ten million acres of crops, slaughtered six million pigs, and left fruit to rot.