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Donald Boudreaux

An outdated notion about 'the rich'

| Tuesday, July 29, 2014, 9:00 p.m.

The human mind is impressive relative to the minds of other earthly creatures. Still, the capacity of our minds is more limited than we often realize. Even Socrates could not question everything. The puny size of our mental capacities relative to all the knowledge that exists just on our little planet means that we must use mental shortcuts to help us understand reality. Some mental shortcuts, however, are now terribly outdated.

One of the mental shortcuts used today by many people is “the poor are victims of the rich.” Historically, this mental shortcut worked pretty well to explain reality.

When serfdom and slavery were common (as they were before the advent of modern capitalism), the poor often were indeed victims of the rich. When the total amount of wealth in society did not grow from year to year, more riches for the elite did indeed mean more grinding poverty for the masses.

Reality today, however, is poles apart from the reality of the past. Differences in material prosperity no longer are evidence of exploitation of the have-nots by the haves. In fact, for someone to get rich in a market economy requires that he or she serve the masses rather than exploit them.

Name any super-rich person, past or present, in America. Chances are you'll name someone who started off poor or middle-class and became rich by enriching millions of other people: John D. Rockefeller, Andrew Carnegie, Richard Sears, Henry Ford, Ray Kroc, Steve Jobs and Tiger Woods, to name only a few. Each of these people earned fabulous wealth by supplying millions of willing buyers with goods, services or entertainment.

The more these people improved the lives of others, the richer they became.

Quite seriously, can anyone think of a better system? “Delight some others mildly and earn some wealth; delight multitudes of others intensely and earn plenty of wealth” — that's about as good a system of incentives as we humans can devise.

And yet the mental shortcut “the poor are victims of the rich” causes some people to jeer at, rather than cheer on, successful entrepreneurs. This mental shortcut blinds its users to everything other than the income differences that separate successful entrepreneurs from those whose incomes are ordinary.

The often-unconscious presumption — which is a holdover from long ago — is that if the prosperity of the rich were lower, the prosperity of the not-as-rich would be higher. Yet reality is exactly the opposite. In market economies, the general truth is that those who are more prosperous than normal are those who contributed more than normal to the prosperity of the not-as-rich. So not only does the wealth of the rich not come from the wealth of others, it in fact comes from making others wealthier.

To write such words today is blasphemous in the estimation of intellectual elites. Largely ignorant of economics, these elites measure someone's humanitarianism by how willing that someone is to condemn and to tax the wealthy. It feels good to do so. But such a satisfying feeling is a throwback to ancient times when those who got rich did so by preying on others rather than by producing for others.

Donald J. Boudreaux is a professor of economics and Getchell Chair at George Mason University in Fairfax, Va. His column appears twice monthly.

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