By Jared Miller
Inequality is a much bigger deal than most libertarians like to admit. Ignoring the gravity of the problem isn’t doing us any favors either. It undermines our credibility, but not because we are completely wrong. It weakens us because it makes us far too willing to dismiss the validity of the opposing view. Instead, we need to be able to admit that it is an issue, and then address the incorrect assumptions that lead people to incorrect answers.
The misunderstanding starts with conventional wisdom that says putting so much wealth in the hands of so few makes everyone else poorer. It does make a certain sense; there is only so much money in circulation, and the more you have, the less I can have. It is certainly the case that extreme inequality has the potential to cause obvious economic harm to those without.
People often try to fight this idea by saying that there will always be a high level of natural inequality no matter what system we have. This is true, but incomplete. We cite things like regulatory capture (which includes general cronyism, punitive tariffs, overzealous occupational licensing, targeted taxation, and other forms of economic protectionism) that make the problem worse by limiting both opportunities for personal growth, and the kind of competition that benefits workers more than employers.
We’ve covered those topics so thoroughly that halfway through that list you probably got bored and skipped to this paragraph. Don’t worry. I won’t judge. Anyway, it’s much more important to challenge our perception of inequality in general. The assumption that all inequality is harmful relies on two of the most prevalent misunderstandings in our culture: the idea that the amount of wealth is fixed, and that wealth equals money.
But wealth isn’t money. I mean, of course it is, but it isn’t only money. This isn’t just philosophical nonsense either. It’s a cold, hard, economic fact. So what is wealth? Wealth is all the things that money does. Though it seems minor, this little nitpick is all the difference in the world.
Money is a shortcut. It is a tool – like a shovel, or a ruler. We use it to measure value, and also exchange the value of labor or investment for the things we want or need. (Since investment is using the fruit of your labor to make someone else’s labor possible, labor and investment are nearly identical for the purpose of this discussion.) If you can satisfy those without money, or with less money, your wealth has increased even if your financial situation is unchanged.
if you meet your personal needs and desires with less money than you make, you are as wealthy as you ever need to be — regardless what the rest of the world tells you. So long as it is the life he wants, a man living in the mountains selling just enough moonshine to keep the lights on and the fridge full is as wealthy as any Wall Street broker. Obviously most of us aren’t content with a shack in the woods, so our desires tend to be a little more extensive.
The good news is that in the modern world, most of them can be met as easily at the low end of the economic spectrum as the top. Housing, transportation, food, electronics, leisure activities, etc… all are within the grasp of the majority of the population. With very little money, we are able to do many of the same things as those with much, much more.
So why doesn’t it feel any better for those of us who have struggled, or are struggling? What about those of us who, no matter how hard we try, can’t seem to get any further? Sure, people with less income have access to the same things, but they may be less desirable or of lower quality: like owning a used Ford Tempo vs a brand new Cadillac. Both satisfy the need for transportation, but one is notably more desirable than the other.
This is a big problem when thinking about our own lives. Typically, as our situation improves, so does the quality of our possessions. This process of slowly “trading up” can leave us feeling as if we haven’t gained a thing. “Yeah, I have a nicer phone, but I’m still living paycheck to paycheck.”
That’s because, in a way, we haven’t improved at all. Since we are fulfilling the same desires as before with no additional savings or satisfaction of wants, we have not made real progress. We have only “upgraded.”
That’s the funny thing about wealth — it doesn’t always pay the bills. It is an indisputable fact that even the lower class in this country is considerably wealthier than previous generations. For God’s sake, most of us have one of the most powerful pieces of technology in human history in our living room and we use it to kill zombies or play fake football on a television screen the size of a Buick… But when it comes to paying the mortgage or buying groceries, we find ourselves struggling, and barely getting by.
Because of this, we tend to forget the work our money does as soon as it’s complete. This is often why the magnitude of our prosperity escapes us, and is another important opportunity to separate money from our idea of wealth.
It’s also the reason the virtue of contentment holds the key to accumulating the kind of capital associated with traditional wealth. If you can stop upgrading and focus on developing your financial future, you can start saving money immediately. You can divert resources towards retirement, buying your own home, or starting your dream business.
And yes, everything on that list takes money. But that doesn’t change the truth that the product of your labor is going further than it could have. Instead of only having a new car, you could be driving a dependable, used Toyota and saving the other 20 grand for a down payment on a house. One develops your own wealth, the other gives it away to the landlord and the car dealership.
You can even stop taking out loans and paying other people interest for the privilege of using your own property. There is no more obvious example of self inflicted wealth destruction than consumer debt. It is such a direct transfer of wealth from the bottom to the top that you can see it happening every time you get your bill.
You may say the availability of low cost alternatives is just the result of technological innovation. You’re absolutely right! But in saying that, you are already implicitly accepting the premise. If you accept that technology makes things cheaper and more accessible, you automatically accept that labor is accomplishing more while expending fewer resources. Money is doing more — in other words, wealth has increased — even though there is no more money in circulation than before.
Of course, it will be much harder (sometimes impossible) for low income households to make these changes. But the only purpose here is to encourage you to think about wealth in real terms, instead of dollars and cents.
Income and wealth inequality are only truly a problem when they cause others to do without, or when they prevent people from improving their personal situation. Someone may be able to make the claim that this is already happening. But if it is, increased inequality is a symptom, not the cause. It may be an important indicator for the state of the economy, but attacking it directly is missing the point.
In fact, as we will see in Part Two, their profit may be increasing your wealth, too.
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