Our Saving Grace; P. L. Poirot

The attitude toward private property is really the point at is sue here. Is the individual to be free to save and invest his own property for his own purposes, however complex and futuristic the eventual fulfillment of such purposes may be? And, especially, will his fellow men respect and defend these savings, this private property of the individual? In other words, will society's organ ized agency of force, its govern ment, be dedicated to the protec tion of life and property; or will it function instead as an instru ment for plunder? Whether plunder is deemed too harsh a word to describe the gov ernmental processes of the wel fare state will depend primarily 1969 OUR SAVING GRACE 77 upon one's understanding of the relationships between saving and investment and production and consumption. Is it right, for in stance, to expropriate from the baker of bread the stove he has saved and needs for that purpose, but wrong, on the other hand, to take the bread from the mouth of a babe? Or is it just as wrong to interfere with the production of bread as to prohibit its consump tion? The hungry babe may be quite unaware that the stove is an essential part of the bread he wants, that this and other tools involved in the roundabout proc esses of production in an indus trial age are forms of saving to which the great majority of us owe our lives. Otherwise, many of us never would have been born and most of us never would have survived.

Lifelong Immaturity Unfortunately, an understand ing of the vital importance of savings and tools does not come automatically as one emerges from childhood. Many so-called adults are content to warm their bodies with the stoves they have seized from bakers - or let the government confiscate in their be half. And if they want bread, they expect that the government also will provide it. They have not seen that government is neither a producer nor a saver; at best, it may be a protector, but even then the government itself is a consumer. In order for the gov ernment to give goods and serv ices to anyone, it first must take those goods and services from someone. And in the process of compulsory redistribution, there is a heavy loss or attrition of re sources. The government is always a consumer, withdrawing from the market scarce resources that individuals otherwise could con sume or use in further production according to their own choice and best judgment.

Any grouping of two or more individuals will reveal differences in ability and in habits of spend ing and saving - very often, marked differences. Under condi tions of comparative freedom, some few of the population will attain great wealth in contrast to the vast majority of their fellow men, simply because those few are exceptionally talented in their un derstanding of human wants and how to satisfy such wants. 1 The 1 Some readers may object here that the free market rewards the designer of tail-fins or enriches the Beatles. Whether these fads stem from freedom or from in~ terventions of one kind or another might be debated; but it seems reasonably clear that the market serves the most urgent wants of consumers, however peculiar some of us might think the tastes of others.

78 THE FREEMAN February scope of their understanding will include appreciation of the im portance of tools in the productive process. They will best know how to accumulate and combine re sources under prevailing condi tions for the optimum service of human wants. They will know how to draw from each individual his best performance, with his hands, his mind, his savings. A Power to Serve Now, what makes these talented few so wealthy in a free society is not a power to confiscate or tax the resources or to force the com pliance of others. On the contrary, they become wealthy through sup plying most efficiently what others want. Consumers thus express their appreciation and satisfaction for work well done. And the most remarkable thing of all is that the consumers themselves, who en rich the most efficient suppliers, are better off economically than they could hope to be under any other arrangement. The profit earned by the most successful competitors costs consumers less than nothing.

Every shopper knows that se cret when he looks around for the best bargain. But not every shop per knows this lesson well enough to remember it in the privacy of the polling booth. No housewife would think of proposing a tax on a can of beans before she buys it. She wants the best bargain she can find. But she may not realize that voting for an "excess profits tax" against the most efficient supplier of beans amounts to the same thing as paying more rather than less for beans. The very same consumers who volunteer their patronage to create million aires will turn right around and ask the government to confiscate the property businessmen need for efficient production of goods and services. Voters thoughtlessly assume that redistributing prop erty politically will have no harm ful effect upon the processes of production. They think that they can thus give added spending power to poorer consumers,. over looking that in the process they drive from the market the very goods and services the poorest otherwise might have been able to afford.

Every enlargement of the "pub lic sector" that authorizes the government to use scarce re sources necessarily diminishes the private sector that allows man to produce and save and consume as he chooses. The military machine in Vietnam functions as a giant consumer. The multifaceted do mestic welfare program in the United States, along with the for eign aid program, divert resources to consumption. The Space pro~ 1969 OUR SAVING GRACE 79 gram is a consumer of goods and services. Whether government spending on education, airways, highways, seaways, subways, and numerous other subsidized opera tions constitutes a net investment for productive purposes is highly debatable, to say the least. In gen eral, the small part of govern ment spending that goes toward keeping the peace, insuring j us tice, protecting life and property, and maintaining the essential market climate for open competi tion and trade· may be deemed productive; the great balance of government spending constitutes consumption of scarce resources.

The Impact of Taxes To view the matter in another light, consider the nature and im pact of the various taxes to cover government expenditures. Do they hamper or do they encourage pro duction? There seems little doubt that corporation income and excess profit taxes - progressive, in the sense that the burden falls most heavily on the more efficient opera tors - must tend to hinder pro duction. They take earnings that would most likely have been in vested in further production by competitors who thus would have tended to bring costs and prices down. - The personal income tax, as thought of generally, is also pro gressive and thus tends to fall most heavily upon incomes that otherwise would most likely have been saved and invested produc tively. The exemptions tend to en courage consumption. The Social Security tax also is a personal in come tax, though it is regressive in nature, falling hardest on those of least income and applying not at all in the higher income brack ets. It tends to encourage many workers to quit productive em ployment and rely on tax-exempt relief payments instead.

Property taxes often fall heavily on business properties and thus raise costs of production. This has special impact in areas where much of the real estate is owned by churches, schools, and other tax exempt organizations that gen erally fit the consumer definition, leaving a correspondingly greater burden on taxpaying producers. Licenses and tariffs and similar privileges at the expense of po tential competitors necessarily narrow the market or keep down competing suppliers, thus raising prices. Finally, there is the tax-like phenomenon of inflation, the legal ized printing of money to pay Federal bills, letting the govern ment draw goods and services out of the market without supplying anything of value in exchange.

80 THE FREEMAN February The process tends to hurt those on fixed incomes or pensions; it dis courages traditional saving and encourages wasteful spending in attempts to hedge against further inflation. It may make for an ap pearance of busy-ness in com merce and industry, but often in lines of production that otherwise would be neither sound nor use ful-a malinvestment of produc tive resources in boomtime, thus aggravating the problem of ulti mate correction. So, there is a two-pronged at tack upon productive private en terprise as a result of the expan sion of the "public sector": (1) the excessive government spend ing is heavily concentrated on consumer goods - on consumption rather than production; and (2) the methods of taxing and finan cing government expenditures, in contrast to voluntary spending in the market, tend to penalize and discourage thrift and productivity - to reward and encourage indo lence and waste.

Trading for Mutual Gain It is well to bear always in mind that voluntary trade occurs only if and when each party sees a gain to himself from the transaction. That both parties gain from free trade is the reason why either or both will tend to specialize and become skilled and efficient in a given line of production. This is the great advantage the market economy affords in contrast to so cialism or other coercive arrange ments. But that advantage can be wiped out by government inter vention, taxation, and confiscation of private property. Taxes on earnings and on transactions easily can become so burdensome that men lose the incentive to spe cialize and trade; the do-it-your self business is the only one that thrives under such conditions, and civilization reverts toward the low levels of self-subsistence. The followers of Keynes are wrong when they assume that the problem of production has been solved, that the world is plagued by an abundance of goods and services of all kinds, and that con sumer desire "is the final scarcity that needs to be overcome."2 What they will not see is that human wants are now and forever in satiable and that the scarcity of productive resources is man's eternal problem. M,eanwhile, if we are to survive and hope for eco nomic progress, we must continue to curb our appetites for current consumption and continue to ac cumulate the tools and capital that are needed to expand production.

This is indeed our saving grace. ~ 2 See George Reisman, "Production versus Consumption," THE FREEMAN, October, 1964.