Often we hear allegations that our economic problems are a result of some people being too wealthy. Often I think that argument is made out of envy or an inability to be happy when someone else has success. But leaving that aside, is there any truth to this allegation that the wealthy are hoarding to much stuff, and that this is bad for society? On the contrary! Wealth is good for society, and concentrations of wealth (that’s rich people) are not bad for society unless the wealth is concentrated through aggression.
The economy isn’t a zero-sum game – trades only occur when the parties to an exchange each perceive that they will benefit. This implies that in any voluntary trade between any two people (rich with rich, poor with poor, or poor with rich), both will leave richer in their own estimation. Thus when one person become richer others don’t need to become poorer.
Lets say you are a rich person with a billion dollars, what can you do with that money?
- You can save it under your mattress
- You can save it in a bank
- You can spend it on all sorts of things the average person doesn’t need a lot of (parties, cars, booze, yachts ….)
- You can invest it in a business or in the bond market
- You can speculate and spend the money on things that poorer people need and drive up prices
- You can spend it on crime that hurts others
- You can spend it on “crime” that doesn’t hurt others
- You can buy stocks
Only one or two of those eight can be bad for the rest of us:
- If you stuff it under your mattress, then there is less money being used to purchase goods (kind of like deflation) so prices go down. This is good for people who have to buy things, especially the poor.
- If you put it in the bank then the bank will lend it out to people who need it or to other businesses who create thing consumers want. This is also good.
- If you spend it on parties and cars then that is good for non-wealthy people too because some have jobs working to provide those things.
- If you invest in a business that is also good. It creates wealth, and lowers prices we pay.
- If you speculate and drive up prices then this is bad in the short term for the poor. Longer term it businesses will recognize a profit opportunity and expand production of the goods; driving down prices and creating a wealthier society.
- If you spend the money committing crimes which hurt people, then this is obviously bad.
- If you spend it on crimes that don’t hurt anyone, then you aren’t hurting anyone; and there is a chance you are doing good, like a normal business, by supplying a good to others in a voluntary transaction.
- If you buy stocks, then the previous owner of the stocks has your money and can use it on one of the above uses.
In conclusion, unless the wealthy use their money in outright aggression against someone, they do no harm over the long term, and in most cases quickly bring gains to society. Don’t condemn a wealth disparity unless it is being created or maintained through force (including government force).
- Comparative Advantage (how two parties can gain from trade even if one party is better at everything)
- Not a Zero-Sum Game: The Paradox of Exchange by Manual F. Ayau
- The Theory of Idle Resources by William H. Hutt (an early rebuttal to the Keynesian idea that if something isn’t being used right now it is being wasted)