Trickle Down Economics; G. North

Gary North Trickle-Down Economics "It's kind of hard to sell 'trickle-down,'" he [David Stockman] explained, "so the supply-side formula was the only way to get a tax policy that was really 'trickle-down.' Supply-side is 'trickle down'theory."1 DURING the Eisenhower adminis tration, critics of the Republican Party's economic policies called them the policies of "trickle-down eco nomics." There was even a lyric in a Joe Glazer "folk" song about "trickle down George" Humphrey, who was the Secretary of the Treasury. Trickle-down economics, the critics © Gary North, 1982. Gary North, Ph.D., is President of the Institute for Christian Economics. The ICE pUb lishes a newsletter, Biblical Economics Today. A free six-month trial SUbscription is available by writing to Subscription Office, ICE, P.O. Box 8000, Tyler, Texas 75711. said, was based on the theory that tax breaks given to the rich would multiply investment, provide jobs, and eventually create increased in come for everyone in the economy.

In other words, by "giving" the rich more after-tax income, the govern ment would foster economic growth, because the rich are more likely to invest than the poor, since any ad ditional money in their hands would not have to be spent on necessities. The critics resented the sugges tion that the rich should receive a reduction in their tax rates. They had campaigned long and hard for the "progressive" income tax-the grad uated income tax-and they were not happy with any suggestion that the reason why the American economy was not experiencing maximum eco nomic growth w~s because of the graduated income tax, which in the TRICKLE-DOWN ECONOMICS 269 1950s extracted a maximum of 91 per cent of "unearned" (investment) income. Value Theory It is one of the ironies of history that both the critics and the defend er~ of reduced tax rates in the high est brackets relied on the same view of income. What we call "welfare economics" was created at the turn of the century by a group of British economists, most notably A. C.

Pigou, who misused the crucial eco nomic doctrine -of marginal utility. They argued that since each addi tional unit of income (ounce of gold, dollar, pound sterling, etc.) is worth less to the recipient than the preced ing unit of income, we must con clude that it would increase total so cial utility within a society to impose graduated income taxes. Why? Be cause the goods bought by the thou sandth dollar received by a poor man are worth so much to him, whereas the goods that the millionth dollar will buy a rich man are valued very low by the recipient. The rich man will have purchased all those goods and services that were high on his value scale long before he receives his millionth dollar. Thus, con cluded the welfare economists, the civil government can increase total social utility in a society by taking (say) 75 cents of that final dollar away from the rich man and trans ferring the money to the poor man.

It took threepecades for an econ omist to come up with a theoreti cally precise rebuttal to this posi tion. Lionel Robbins, who had been influenced by t)le writings of Lud wig von Misesiearly in his career, provided the answer. Robbins ar gued that while it is legitimate for an individual tp compare the value to him of the fir$t, second, or nth dol lar of his own income, it is not legit imate for anyo~e to make interper sonal comparisons of subjective utility.2 We cap-not make scientifi cally valid state,imentscomparing the subjective value of the second dollar of income (or the millionth) in one person's incom¢ with the subjective value of the second, third, or nth dollar of another person's income. We cannot even m(~.ke cardinal (quanti tative) comparisons in our own minds-this is iworth precisely this much more to me than that-but only ordinal comparisons: this is my first choice, that is imy next choice, and so forth.

Common se~se may not accept Robbins' conclq.sion, but such is of ten the case in, matters of economic theory. Science!frequently produces conclusions that are in flagrant op position to comimon sense. We need to consider ani example regarding interpersonal c~mparisons of subjec tive value. The millionaire may value his millionth qollar very highly, if he has some iinvestment in mind which require~ a high initial pay270 THE FREEMAN May ment, or if he regards his income as a kind of measure of his value to so ciety. On the other hand, some mys tic or ascetic may not place a high value on his thousandth dollar of in come in any given time period. We do not have a quantitative measure of pleasure or utility; thus, we cannot, as scientists, make inter personal comparisons of subjective utility. Conclusion: it is not scientif ically demonstrable that total social utility within a society can be in creased by taking 75 per cent of the rich man's income in the highest tax brackets and transferring this money to a poor man (minus 25 per cent for government handling). There is no such thing, scientifically speaking, as total social utility. We cannot add up subjective utilities as if we were adding up a column of figures.

Admittedly, as policymakers we have to make judgments concerning the advisability of particular eco nomic programs. But Robbins' refu tation of welfare economics by means of the argument against the scien tific validity of interpersonal com parisons of subjective utility cannot be limited to the narrow case of the graduated income tax. It under mines all attempts to "tally up" so cial utility in the name of economic science. We cannot, as economic sci entists, say that any policy will in crease total social utility. There is no way to measure "total social util ity." So effective is this argument that it denies to economics the legitimacy of making estimates of the total value of any aggregates. What does Gross National Product mean, anyway, if we cannot assign any value (or meaning) to the columns of figures in a GNP index? If Robbins' thesis is correct-and since 1932, no econo mist has shown how it might be in correct-then most of what we know as modern applied economics, in eluding the formulation of economic policy, is an illusion.

Robbins had this pointed out to him by Roy Harrod, who later became Keynes' biographer, in 1938.3 In credibly, Robbins capitulated to Harrod and abandoned the obvious and inescapable logic of his earlier argument. 4 But he could never ex plain where he had been incorrect. He simply wanted to maintain the status of economists as scientific ad visors, so he abandoned the logic of subjectivist economics. Somehow, he and Harrod agreed, economists as scientists can make assessments of the total social utility of particular economic policies. Somehow, GNP (or other economic statistics) are mean ingful. They could not say exactly how, but somehow.5 It was a matter of faith. Capital Formation The welfare economists have long argued that if the State extracts a higher percentage of taxes from the upper income brackets, and then 1982 TRICKLE-DOWN ECONOMICS 271 transfers this money to poorer mem bers of society, total social utility can be increased. Robbins demolished the scientific validity of this statement, but his argument has never been taken seriously by economists, since it has so many implications that are unfavorable for the practice of ap plied economics.

On the other hand, advocates of capitalism have replied to the so cialist critics of the rich with this argument: the rich man has most of the food and clothing he can use, once he gets into the highest income brackets. Thus, he will be more likely to invest higher and higher propor tions of· his income as his income stream carries him upward. His "ne cessities" are taken care of early. Then his pleasures are taken care of. Finally, he has money left over. What is he going to do with it? He will be increasingly willing to invest it or give it to charity, the free mar ket economists have argued. The rich man has demonstrated his compe tence in making investments; thus, he acts as a public benefactor in his capacity as investor. What if the civil government at tempts to extract this money from him? He will then spend more time and effort in seeking out tax avoid ance schemes. He will be less inter ested in expanding his income. He will spend more money on luxuries.

For example, a person who was in the 98 per cent tax bracket in England, prior to ldrs. Thatcher's elec tion and the retluction of these con fiscatory top-br~cket tax rates, might have faced the: following decision. Perhaps he had:$50,000 to invest (or about 25,000 pqunds). If he thought he might get '10 per cent on his money-alway& a guess, given the inescapable un~ertainty of the eco nomic future~he could expect an income stream bf$5,000a year. But he would be allowed to keep only 2 per cent, or $lQO, after taxes. Or he could buy a Rolls-Roycefor $50,000 an asset which tends to appreciate over time. Wha~ was the real cost of driving his Roll$-Roycefor a year (not counting gasolline, insurance, and repairs)? The $100 he would have forfeited. Tell $e, if you could drive a Rolls-Roycefor $8.30 a month, plus insurance, maintenance, and gaso line, would youi consider it? So did a lot of rich Englishmen. 6 This, of course, increa~ed the demand for Rolls-Royces, thereby giving the buyer ownership of an appreciating asset. 7 Workers Lack Capital The problem facing British work ers is lack of capital investment. This problem always,faces all workers, but especially the British worker today.

The confiscat(j)ry tax rates have driven private capital into high pay off, high-risk i~vestments, into "off shore" (foreign) investments, which are less easily taxed, and into "con272 THE FREEMAN May spicuous consumption." Is this bad? Economists, as scientists, cannot le gitimately answer this question. It is a welfare question. But individual workers seem to want higher in come, and higher per capita invest ment-better tools-is the way we produce increased productivity. (This, at least, is Mises' contention. s The problem facing a consistent de fender of subjective utility theory is this: How can we divide the abstract idea of total capital-a statistical aggregate-by the total number of workers in a society, and come up with anything meaningful? Prof. Kirzner, Mises' student, has explic itly denied the legitimacy ofjust such a measurement. 9) So the defender of the free market argues that Britain's high taxes on the top income brackets are respon sible for the low rate of capital for mation in Britain. But is this argu ment correct? And if it is, haven't we granted too much credibility to the socialists' argument that the rich control sufficient capital to influence greatly the wealth or poverty of the average citizen?

Squeezing theApex Another problem faced by those who favor high graduated tax rates is this: there are not that many rich people. Also, the kinds of wealth that they hold are not generally cash as sets, but certificates of ownership in equipment, patented production processes, real estate, and similar capital. These physical assets can not often be cut into distributable physical units, except in the case of land. These assets provide a stream of income, so the things the State can redistribute most conveniently are legal entitlements (certificates of ownership) to the future income streams. But as income-seeking investors begin to see what is hap pening to their after-tax income streams, they tend not to reinvest. Without reinvested funds, the phys ical capital base begins to wear out, productivity falls, the income to workers therefore falls, and there is less wealth to redistribute.

Can we make the masses rich by confiscating the wealth of the rich? The socialists have officially argued that significant welfare gains can be achieved for the masses by such pol icies of wealth redistribution. Those who reject this contention point to the small number of wealthy people in capitalist societies. How can hun dreds of millions of people be signif icantly benefited by extracting the distributable forms of wealth held by the handful of super-rich? Debates then go on concerning the propor tion of a nation's wealth held by the richest 10 per cent or 20 per cent or 30 per cent of the population. Is it sufficient to make an impact on the total wealth of society? If this wealth is held in the form of distributable shares, what hap1982 TRICKLE-DOWN ECONOMICS 273 pens to the ownership of these shares after the initial distribution is com·· pleted? Will men be permitted to buy and sell these shares on an open capital market? If so, what is to pre·· vent the creation of a new class of wealthy owners? Will we not see the advent of "a new class"? Isn't the hi erarchy of wealth inescapable in a world filled with people of varying investment talents, organizational talents, and salable skills? Isn't the proper question this one: What is the most socially beneficial arrangement of ownership, private or socialist?

Which kind of hierarchy produces the greatest benefits? (Problem: we are right back to the question of social welfare, with its requirement that we make estimates concerning in terpersonal, subjective utility.) If the free market economists are correct in their contention that there are not enough rich people to squeeze for the benefit of the poor, then "trickle-down economics" has a problem. If the wealth of the rich is insufficient to enrich the poor under socialism, then how can the capital ownedby the richbe sufficientto en rich the poor under capitalism? If there is not enough wealth in the top income brackets to "go around," then why are the investment deci sions of the rich so important for the economic prosperity of the nation'? In short, what good is a trickle, whether the State squeezes the rich, or the rich are allowed to keep their income to invest one way or an other'? Whether the rich pay taxes, or buy tax shelters, or are allowed to keep large ichunks of their after tax income, why should it signifi cantly affect the welfare of the gen eral public? What difference will it make to the man in the street?

Getting Rich In a modern, welfare State, there is only one class with sufficient re sources to pay for all of the govern ment programs: the middle class. In a modern capitalist economy, with its tremendous demand for capital-if only to maintain the tremendous ex isting capital base in the modern economy-there is only one class with sufficient financial resources to maintain the ,capital base: the mid dle class. Middle-class societies have large middle classes. This is tauto logical, but significant nevertheless. Middle-class societies have to look to the middle iclass as the source of permanent, significant social change. Elites have their roles to play, as the sources of innovation, especially in the realm of ideas, but in the final analysis, the success or failure of a particular elite today depends on the fate of its innbvations in the culture of the middle ¢lass. What good ~oes the wealth of the rich do for sodiety? In a free market society, it serViesas a symbol of what efficient, market-serving producers can attain. In a collectivist society, 274 THE FREEMAN May it serves as a symbol of what the ruthless suppression of other peo ple's freedom can attain. It serves as a symbol of what relentless atten tion to bureaucratic forms, or politi cal intrigues, can attain. 10 The quest for the egalitarian so ciety has been a familiar one in ac ademic and utopian circles, but the quest is futile. Hierarchies are fun damental to human societies for many reasons, not the least of which are the varying talents of men. In a world of limited resources-where there is greater demand for than supply of certain goods at zeroprice men must compete for what they re gard as their share ofthe goods.They invariably regard their fair share in terms of certain gifts. or skills that they possess: good looks, strength, wisdom, a university degree, ability to forecast the future, commitment to an ideology, or a hundred other possible attributes.

Because men's skills differ, and because they view the legitimacy of property in· terms of differing moral or legal principles, they cannot agree on equality as a social goal. Equal ity of what? Wealth? But what is wealth? Is it capital? But what is capital? Money? Good looks? Strength ? We cannot equalize wealth without equalizing people. There is no way to equalize people, except by killing them. Men have equal skills only in the grave. People want to increase their wealth. They say they do, and they frequently act to do so. To increase their wealth, they must invest time, or .money, or both in a future-ori ented program of entrepreneurship. They must begin to forecast the fu ture more accurately. They may be forecasting the future demand of consumers on a particular private market. l1 They may be forecasting political shifts in the wind in some totalitarian society. But they have to deal with an uncertain future, with whatever capital they possess at any moment in time.

ResponsibleDecisions The free market economy opens the doors of economic opportunity to all those who believe that they can ben efit themselves by meeting the fu ture (uncertain) demands of the buying public. The free market so ciety does not say in advance who will be successful in the quest for greater personal wealth, nor does it specify the avenues that will offer the highest return on invested funds. The free market society does not even require that successful entrepre neurs affirm a particular ideology or religion. It does require that men abstain from the use of fraud or vio lence against each other in their quest for private gain. The free market society is a con sumer-oriented society. Those who produce what consumers are willing and able to buy at a price they are 1982 TRICKLE-DOWN ECONOMICS 275 willing and able to pay will prosper. The lure of profit is the control mechanism that other members of society have over producers. With out the hope of profit and the threat of loss, consumers would lose their leverage over the decisions of poten tial producers. Yet this leverage is strictly voluntary. Producers are not required by law to produce anything in particular. They are not even re quired by law to be producers at all.

(Vagrancy laws-laws that require people to produce evidence of "gain ful" employment-should not be re gardedas products of a free market philosophy.) But if they wish to en ter the markets as competing pro ducers, they must face the "whip" of the consumers: the threat of finan ciallosses. Consumers Offer Rewards to Prospective Producers By luring people into the produc tion markets, consumers benefit themselves. They tell prospective producers: "If you are more success ful than your. competitors in meet ing our demands in the future, we will make you rich." A society which does not allow consumers to make this offer to potential producers thereby discriminates against the interests of consumers. It takes away the key element in each consumer's quest to lure potential producers into the markets that serve his needs, namely, his legal right to make an offer to an entrepreneur, or a class of entrepreneurs, to make (and keep) a profit from serving his, the con sumer's, wants.

By allowing ipeople to make prof its through market competition, free market societies increase the likeli hood that consUmers will be able to lure into the JP.arkets all those fu ture-oriented 1 producers that the consumers can afford to reward. In fact, given the reality of uncertainty in market acti(>n,and the optimism of producers, more producers will enter the markets than consumers can actually a,"ord to reward. Some producers will,lose money. This in volves waste, hut uncertainty is the cause of this 'waste, not the free market. The ~ee market actually reduces waste py removing the least successful forecasters from the mar ketplace. Losses eventually take their toll. Producers are made responsible by the carrot. and! stick of the market. The larger the offer, the larger the number of futu.re-predicting entre preneurs who Will enter into the ser vice of consuIIlers. If a society tells producers that their efforts, if suc cessful, will be met with higher taxes, then some Plioducers will cease bearing the burdens of predicting an uncertain future. The graduated in come tax discrfminates against suc cessful entrepreneurs; it thereby dis criminate.s al1:ainst consumers. It reduces the lure of profit which con276 THE FREEMAN May sumers would otherwise prefer to of fer producers, in order to get them working for consumers.

Squeezinginto the Apex There are no "sure things" in the hard task of predicting future mar ket demand. The consumers are re lentless. They keep asking: "What have you done for us lately, and what will you do for us tomorrow? And at what kind of discount?" Producers are constantly misforecasting the market. They sustain losses. Even the best of them fail. The "Fortune 500" of one generation bears little resemblance to those of the follow ing generation. Innovation, shifting consumer tastes, price competition, and a baffling number of other mar ket changes can catapult an un known company into the economic stratosphere, or toss another firm into the mud. What benefits consumers is not some utopian (and self-defeating) program to redistribute the wealth of those who occupy a position in the economic apex at any point in time. There will always be an apex. Any political program strong enough to capture the wealth of those in the apex is also a program which will enable political (or bureaucratic) elites to take the place of those who have lost the political battle. After all, that is the goal of political elites: to replacethose who presently occupy the places of wealth and prestige. They adopt political techniques to achieve this re placement.

In too many cases, those presently in the apex adopt political programs in the name of "making the apex re sponsible," or even "making those in the apex pay their fair share," in or der to lock in their existing position. They feel the innovators nipping at their heels, and they turn to politi cal coercion to protect their position from market competition. 12 The Fed eral regulatory apparatus was adopted in the name of democratic justice and consumer protection, but again and again, the chief 15enefici aries (and behind-the-scenes pro moters) of Federal regulation have been the threatened members of a particular industry or professional association. 13 And once a regulatory commission has been in place for a few years, the loudest opponents of deregulation are the senior officials of the largest firms in the regulated industry. Thus, what those in the apex fear most is the threat of their own trick ling down as a result of increased market competition. If they see the possibility of maintaining their long term positions of power and status by means of political manipulation, they frequently take up the cry against "cut-throat competition," and "unfair exploitation of consumer needs," in order to gain a predict able position in the market. Even if this involves higher taxes or more 1982 TRICKLE-DOWN ECONOMICS 277 interference from Federal officials, once they have achieved their mar ket position, they are willing to pay (Le., to put up with less freedom in general for everyone) in order to achieve a relatively secure share of the market. They lose a portion of their economic freedom-the right to compete on an open market-but they are willing to pay this price be cause their proportional share of this general loss of freedom is less (in the short run) than their gains from government protection. Never for·· get: the market does not pay them.

to be ideologically pure; it rewards them for making profits. This is one reason why Benjamin Rogge was so pessimistic regarding the future of capitalism. 14 What benefits the consumers is a. social philosophy which affirms the right of all those who wish to com pete economically for a place in the economic apex to make and keep their profits. By affirming such a. philosophy as a moral ideal-and not simply as a technically efficient means of increasing per capita in·· come-consumers cannot be misled into voting for a political program which would substitute political competition for economic competi·· tion as the pathway into the apex. The consumers, by their decisions to buy or not to buy, determine in a free market social order who will go into the apex of wealth, and who will be forced out. If they abandon the social philosoppy of the free market, they will find j that their economic decisions no lo~ger possess the same influence in c4lling forth the skills and efforts of spppliers to meet their demands. By ~bandoning the free market, consumers transfer a por tion of their sovereignty as economic actors to the $lite corps of bureau crats who ex!ercise monopolistic power as officials of the civil govern ment. Produc¢rs will begin to re spond to the ittcentives provided by the State, ratlljer than to the incen tives offered in open competition by the consumers~ The State will begin to establish the terms by which pro ducers compet~ for a position in the apex.

Trickle-UpEconomics There are limits on the number of people who can be in the top tenth of the income!level. The amount of capital in the whole society is inde terminate. It c~n be large or small. I5 This depends on the willingness of a society's memlbers to save, and on their ability as economic forecasters (entrepreneurs). This means that only a minority ofentrepreneurs will be successful in their quest for a place in the economi~ apex. Only a few will "trickle up" injto the highest income or capital levels. Even fewer will re main there, le~ alone generations of their descendants. They will "trickle up" and "trickle down," depending on their abilities in forecasting fu278 THE FREEMAN May ture consumer demand and meeting these demands at prices lower, or quality higher, than their competi tors. The issue is not the amount of wealth held by the rich. The issue is rather the terms by which they hold such wealth. Are they meeting the demand of consumers, or the de mands of bureaucrats? Are they competing in a free market or in an economically controlled political market? Do citizens exercise control over producers directly, by means of their decisions to buy or not to buy, or do they exercise control indi rectly, through politics, and then (very indirectly) through the politi cians' ability to control the various bureaucracies?

If citizens decide that they should exercise power primarily through political means, they are going to be thwarted continually by the bureau cracy. The great German sociologist, Max Weber, commented on this in the years immediately following the First World War. "Under normal conditions," he wrote, "the power position of a fully developed bureau cracy is always overpowering. The 'political master' finds himself in the position of the 'dilettante' who stands opposite the 'expert' facing the trained officialwho stands within the management of administration. This holds whether the 'master' whom the bureaucracy serves is a 'people' equipped with the weapons of 'legislative initiative,' the 'referendum,' and the right to remove officials, or a parliament, elected on a more aristocratic or more 'democratic' ba sis and equipped with the right to vote a lack of confidence, or with the actual authority to vote it. It holds whether the master is an aristo cratic, collegiate body, legally or ac tually based on self-recruitment, or whether he is a popularly elected president, a hereditary and 'abso lute' or a 'constitutional' mon arch."16In short, the "amateur" pol itician, who may be out ofoffice after the next election, is no match for the entrenched power of the Civil-Ser vice-protected lifetime career bu reaucrat.

Modern Bureaucratic Methods The modern bureaucratic system of administration is far more cen tralized than anything in the past. The old administration by feudal barons or Near Eastern satraps was essentially decentralized. Local in come financed such systems of polit ical. rule. Only the surplus reached the central treasury. Not so with modern bureaucratic methods. "The bureaucratic state, however, puts its whole administrative expense on the budget and equips the lower author ities with the current means of ex penditure, the use of which the state regulates and controls."17 Thus, the expansion of State power over market forces has centralized 1982 TRICKLE-DOWN ECONOMICS 279 the economy in a way that the free market, because of its decentralized. source of financing-the economic power of millions of individual con sumer~annot possibly achieve. On this point, Weber was incorrect and.

Mises was correct: bureaucracy is different from profit management, since the source of the funding is dif·, ferent. 18 The rise of bureaucracy in private industry is always limited by market pressures, since consumer choices determine the fate of private firms. However, when government regulations begin to replace market demand as the source of a firm's sue·· cess or failure, the statist bureau·· cracies steadily recreate in their own image the management structures of private firms.19 Conclusions The hope of people in the eco·· nomic power of the rich to bring prosperity toa society, whether through redistribution or invest .. ment, is a false hope. The hope of a society should be in the willingness of large numbers of future-oriented people to forgo present consumption and to invest. An upper-class society is a future-oriented society, what·· ever the present income level of the bulk of its citizens. 20 When we read, for example, that the Japanese in·· vest 25 per cent of their income, we are not reading about a handful of rich Japanese who are future-ori ented, but about a large segment of the populatiom of Japan. This, un questionably, lS an important aspect of the "econo~ic miracle" of Japan.

The J apanes~ are future-oriented, and have b~en future-oriented throughout t~is century. It has led to the creationj of a huge capital base which has improved the productiv ity of J apanes~ workers. What is sigrlificant is not that rich people invest i a high proportion of their incomes~ but that large num bers of citize~s maintain a steady investment prpgram, whether in the hope of getting rich personally, or only in the hope of having a comfort able retiremellt, or leaving an eco nomic heritag~ to their children. The rich may inde¢d set the pattern. The example they! set as investors is no doubt import~nt indirectly. But un til the advocates of free market eco nomics focus their attention on the decisions of t\le middle class, they will be caughtlin an intellectual trap set for them qy the socialists. They will continue i to believe that what the rich minortty does with its money will "make on break" an economy.

They will continue to have faith in the "trickle-ddwn economy," and the socialists can !always use this faith against the defenders of the market. The critics of the rich can use the emotional appeal of envy-the de sire that no one benefit from wealth against the m+.rket itself, calling for universal redjstribution of private fortunes. 21 They can also appeal to 280 THE FREEMAN May THE spurious catchwords and fallacious doctrines of the advocates of government control, socialism, communism, planning, and totalitarianism cannot be unmasked except by economic reasoning. Whether one likes it or not, it is a fact that the main issues of present-day politics are purely economic and cannot be understood without a grasp of economic theory. Only a man conversant with the main problems of economics is in a position to form an independent opinion on the problems involved. All the others are merely repeating what they have picked up by the way. They are an easy prey to demagogic swindlers and idiotic quacks. Their gull ibility is the most serious menace to the preservation of democracy and to Western civilization.

LUDWIG VON MISES,Bureaucracy jealousy-the naive hope that there really is sufficient wealth held by the rich to increase the per capita in come of everyone by a wholesale confiscation of wealth by the State. The "trickle-down" economists are playing into the hands of the social ists, by providing opportunities for both the envious-"N 0 one should enjoy such advantages!" -and the jealous-"Let the less prosperous enjoy a per capita increase in such advantages!" -to justify the at tempted destruction of the economic apex. And without the lure of the apex, the efforts of the producers will be redirected: from satisfying present and future consumer demand, to satisfying present and future bu reaucratic demand (or satisfying black market demand). This is not to argue that we should not applaud the reduction of taxes in the higher brackets. But our sup port should be a matter of principle, a defense of the rule of law. No eco nomic group should be singled out as "the enemy of the social good,"

and therefore subjected to discrimi natory taxation. But the defense of lower taxes for the rich should not be made in terms of the supposed creativity and future-orientation of the rich, in their role as investors. It should be made in terms of each man's right to become rich, if he chooses and if he has the ability to do so in competitive markets. Our goal should be the creation of a non discriminatory tax structure that symbolizes the commitment of vot ers to the principle of the rule of law, the rights of private property, and the legitimacy of entrepreneurship. Everyone should be permitted to have a shot at the apex. Trickle-down 1982 TRICKLE-DOWN ECONOMICS 281 economics, as an explanation of the wealth of nations, is misleading. It is not what the rich do with their money that matters most; it is what the broad mass of citizens do with their money that shapes the wealth of nations. , -FOOTNOTES1William Greider, "The Education of David Stockman," The Atlantic Monthly (Dec., 1981), p. 47. Mr. Stockman is the Director of the Of fice of Management and Budget.

2Lionel Robbins, An Essay on the Nature and Significance ofEconomic Science (2nd ed.; Lon don: Macmillan, [1935] 1962), ch. VI. Re printed in the United States by St. Martin's. 3Roy Harrod, "Scope and Method of Econom ics," The Economic Journal, XLVIII (Sept., 1938). 4Lionel Robbins, "Interpersonal Compari sons of Utility: A Comment," Ibid., XLVIll (Dec., 1938). 51 have dealt with this theoretical problem at some length in my book, The Dominion Cove nant: Genesis (Tyler, Texas: Institute for Chris tian Economics, 1982), ch. 4. The problem of interpersonal comparisons of subjective utility is perhaps the most far-reaching epistemologi cal problem in modern economics. 6Thisexample was providedby economist Paul Craig Roberts. It is cited by George Gilder, in his book, Wealth and Poverty (New York: Basic Books, 1981), p. 173. 7When Prof. Roberts first offered this exam ple in The Wall Street Journal (August 1, 1978), the figure he used for a new Rolls-Royce was $50,000. Today, that figure is out of date. It is close to $100,000. Price inflation and high de·· mand have raised the stakes considerably.

8Ludwig von Mises, The Anti-Capitalistic Mentality (Princeton, New Jersey: Van Nos trand, 1956), pp. 5,38,87. 9Israel Kirzner,. An Essay on Capital (New York: Augustus M. Kelley, 1966), ch. IV See especially page 120. lOF. A. Hayek, "Why the Worst Get on Top," Chapter 10 of his 'book, The Road to Serfdom (Chicago: Univers~ty of Chicago Press, 1944). llFrank H. Kn~ght, Risk, Uncertainty and Profit (New York:] Harper Torchbook, [1921] 1965). See also ~udwig von Mises, Human Action (3rd ed.; Qhicago: Regnery, 1966), pp. 289-300. 12D. T. Armentano, The Myths of Antitrust (New Rochelle, New York, 1972). 13Gabriel Kolko, The Triumph of Conserva tism (New York:The Free Press, 1966). See also Frederic C. Howe,'Confessions of a Monopolist (Upper Saddle River, New Jersey: Gregg Press, [1906] 1968); How~, Confessions of a Reformer (Chicago: Quadrartgle, [1925] 1967). 14Benjamin Rogge, Can Capitalism Survive?

(Indianapolis, Indi~a: Liberty Press, 1979), ch. 1. 151 think we car" make estimates regarding the value of capiml, in contrast to Kirzner's view, but we make such estimates by means of assumptions that (Lre not strictly economic in nature. See my di~cussion in Chapter 4 of The Dominion Covenant: Genesis. 16MaxWeber, "aureaucracy," in H. H. Gerth and C. Wright MiUs (eds.), From Max Weber: Essays in Sociology (New York: Oxford Univer sity Press, 1946), RP. 232-33. 17Ibid.,p. 223. 18Mises, Burea4cracy (New Rochelle, New York: Arlington Hause, [1944] 1969). 19Gary North, '~Statist Bureaucracy in the Modern Economy,'~ in North, An Introduction to Christian Economics (Nutley, New Jersey: Craig Press, 1973); ch. 20. 20Edward Banfiield, The Unheavenly City Revisited (Bosto~: Little, -Brown, 1974), pp.57-59. 21Helmut Schoeck, Envy: A Theory of Social Behavior (New York: Harcourt, Brace, 1970). Cf.

Gary North, Succ~ssful Investing in an Age of Envy (Sheridan, Jndiana: Steadman Press, 1981), ch. 1. ' Sheldon Richman ~::::=~,,~ THERE is an easy way to tell when a person misses the fundamental point of economics: He or she discusses the subject in the metaphors of warfare and the animal kingdom. This is so common it goes unnoticed. But the significance of using terms of vio lence to describe voluntary ex change for mutual benefit should not be underrated. We're familiar with the terms cut throat competition, predatory pric ing and import invasion to describe processes in which people freely of fer to trade their property at the best terms they can find. How ironic that such processes are couched in these metaphors, while actual violent pro cesses are called "economic plan ning." Nowhere is this more vividly ilSheldon Richman is editor of Competition, published by the Washington-based Council for a Competitive Economy. This article is reprinted from the October 1981 issue of Competition.