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How Progressive Capitalism Conquers Mass Poverty

Economics / Economic Theory Dec 03, 2009 - 02:42 PM GMT

By: Henry_Hazlitt

Economics

Best Financial Markets Analysis ArticleThroughout history, until about the middle of the 18th century, mass poverty was nearly everywhere the normal condition of man. Then capital accumulation and a series of major inventions ushered in the Industrial Revolution. In spite of occasional setbacks, economic progress became accelerative. Today, in the United States, in Canada, in nearly all of Europe, in Australia, New Zealand, and Japan, mass poverty has been practically eliminated. It has either been conquered or is in process of being conquered by a progressive capitalism. Mass poverty is still found in most of Latin America, most of Asia, and most of Africa.


Yet even the United States, the most affluent of all countries, continues to be plagued by "pockets" of poverty and by individual poverty.

Temporary pockets of poverty, or of distress, are an almost necessary result of a free competitive enterprise system. In such a system some firms and industries are growing or being born, others are shrinking or dying; and many entrepreneurs and workers in the dying industries are unwilling or unable to change their residence or their occupation. Pockets of poverty may be the result of a failure to meet domestic or foreign competition, of a shrinkage or disappearance of demand for some product, of mines or wells that have been exhausted, of land that has become a dust bowl, and of droughts, floods, earthquakes, and other natural disasters. There is no way of preventing most of these contingencies, and no all encompassing cure for them. Each is likely to call for its own special measures of alleviation or adjustment. Whatever general measures may be advisable can best be considered as part of the broader problem of individual poverty.

This problem is nearly always referred to by socialists as "the paradox of poverty in the midst of plenty." The implication of the phrase is not only that such poverty is inexcusable, but that its existence must be the fault of those who have the "plenty." We are most likely to see the problem clearly, however, if we stop blaming "society" in advance and seek an unemotional analysis.

Diverse and International

When we start seriously to itemize the causes of individual poverty, absolute or relative, they seem too diverse and numerous even to classify. Yet in most discussion we do find the causes of individual poverty tacitly divided into two distinct groups — those that are the fault of the individual pauper and those that are not. Historically, many so-called "conservatives" have tended to blame poverty entirely on the poor: they are shiftless, or drunks or bums: "Let them go to work." Most so-called "liberals," on the other hand, have tended to blame poverty on everybody but the poor: they are at best the "unfortunate," the "underprivileged," if not actually the "exploited," the "victims" of the "maldistribution of wealth," or of "heartless laissez faire."

The truth, of course, is not that simple, either way. We may, occasionally, come upon an individual who seems to be poor through no fault whatever of his own (or rich through no merit of his own). And we may occasionally find one who seems to be poor entirely through his own fault (or rich entirely through his own merit). But most often we find an inextricable mixture of causes for any given person's relative poverty or wealth. And any quantitative estimate of fault versus misfortune seems purely arbitrary. Are we entitled to say, for example, that any given individual's poverty is only 1 percent his own fault, or 99 percent his own fault — or fix any definite percentage whatever? Can we make any reasonably accurate quantitative estimate of the percentage even of those who are poor mainly through their own fault, as compared with those whose poverty is mainly the result of circumstances beyond their control? Do we, in fact, have any objective standards for making the separation?

"Temporary pockets of poverty, or of distress, are an almost necessary result of a free competitive enterprise system."

A good idea of some of the older ways of approaching the problem can be obtained from the article on "Poverty" in The Encyclopedia of Social Reform, published in 1897.[1] This refers to a table compiled by a Professor A. G. Warner in his book, American Charities. This table brought together the results of investigations in 1890 to 1892 by the charity organization societies of Baltimore, Buffalo, and New York City, the associated charities of Boston and Cincinnati; the studies of Charles Booth in Stepney and St. Pancras parishes in London, and the statements of Böhmert for 76 German cities published in 1886. Each of these studies tried to determine the "chief cause" of poverty for each of the paupers or poor families it listed. Twenty such "chief causes" were listed altogether.

Professor Warner converted the number of cases listed under each cause in each study into percentages, wherever this had not already been done; then took an unweighted average of the results obtained in the fifteen studies for each of these "Causes of Poverty as Determined by Case Counting," and came up with the following percentages. First came six "Causes Indicating Misconduct": Drink 11.0 percent, Immorality 4.7, Laziness 6.2, Inefficiency and Shiftlessness 7.4, Crime and Dishonesty 1.2, and Roving Disposition 2.2 — making a total of causes due to misconduct of 32.7 percent.

Professor Warner next itemized fourteen "Causes Indicating Misfortune": Imprisonment of Bread Winner 1.5 percent, Orphans and Abandoned 1.4, Neglect by Relatives 1.0, No Male Support 8.0, Lack of Employment 17.4, Insufficient Employment 6.7, Poorly Paid Employment 4.4, Unhealthy or Dangerous Employment 0.4, Ignorance of English 0.6, Accident 3.5, Sickness or Death in Family 23.6, Physical Defect 4.1, Insanity 1.2, and Old Age 9.6 — making a total of causes indicating misfortune of 84.4 percent.

No Objective Standards

Let me say at once that as a statistical exercise this table is close to worthless, full of more confusions and discrepancies than it seems worth analyzing here. Weighted and unweighted averages are hopelessly mixed. And certainly it seems strange, for example, to list all cases of unemployment or poorly paid employment under "misfortune" and none under personal shortcomings.

Even Professor Warner points out how arbitrary most of the figures are: "A man has been shiftless all his life, and is now old; is the cause of poverty shiftlessness or old age?… Perhaps there is hardly a single case in the whole 7,000 where destitution has resulted from a single cause."

But though the table has little value as an effort in quantification, any attempt to name and classify the causes of poverty does call attention to how many and varied such causes there can be, and to the difficulty of separating those that are an individual's own fault from those that are not.

An effort to apply objective standards is now made by the Social Security Administration and other Federal agencies by classifying poor families under "conditions associated with poverty." Thus we get comparative tabulations of incomes of farm and nonfarm families, of white and Negro families, families classified by age of "head," male head or female head, size of family, number of members under 18, educational attainment of head (years in elementary schools, high school, or college), employment status of head, work experience of head (how many weeks worked or idle), "main reason for not working: ill or disabled, keeping house, going to school, unable to find work, other, 65 years and over"; occupation of longest job of head, number of earners in family; and so on.

These classifications, and their relative numbers and comparative incomes, do throw objective light on the problem, but much still depends on how the results are interpreted.

Oriented Toward the Future

A provocative thesis has been put forward by Professor Edward C. Banfield of Harvard in his book, The Unheavenly City.[2] He divides American society into four "class cultures": upper, middle, working, and lower classes. These "subcultures," he warns, are not necessarily determined by present economic status, but by the distinctive psychological orientation of each toward providing for a more or less distant future.

At the most future oriented end of this scale, the upper-class individual expects long life, looks forward to the future of his children, grandchildren, even great-grandchildren, and is concerned also for the future of such abstract entities as the community, nation, or mankind. He is confident that within rather wide limits he can, if he exerts himself to do so, shape the future to accord with his purposes. He therefore has strong incentives to "invest" in the improvement of the future situation — e.g., to sacrifice some present satisfaction in the expectation of enabling someone (himself, his children, mankind, etc.) to enjoy greater satisfactions at some future time. As contrasted with this:

"The lower class individual lives from moment to moment. If he has any awareness of a future, it is of something fixed, fated, beyond his control: things happen to him, he does not make them happen. Impulse governs his behavior, either because he cannot discipline himself to sacrifice a present for a future satisfaction or because he has no sense of the future. He is therefore radically improvident: whatever he cannot consume immediately he considers valueless. His bodily needs (especially for sex) and his taste for 'action' take precedence over everything else — and certainly over any work routine. He works only as he must to stay alive, and drifts from one unskilled job to another, taking no interest in the work."[3]

Professor Banfield does not attempt to offer precise estimates of the number of such lowerclass individuals, though he does tell us at one point that "such ['multi problem'] families constitute a small proportion both of all families in the city (perhaps 5 percent at most) and of those with incomes below the poverty line (perhaps 10 to 20 percent). The problems that they present are out of proportion to their numbers, however; in St. Paul, Minnesota, for example, a survey showed that 6 percent of the city's families absorbed 77 percent of its public assistance, 51 percent of its health services, and 56 percent of its mental health and correction casework services."[4]

Obviously if the "lower class culture" in our cities is as persistent and intractable as Professor Banfield contends (and no one can doubt the fidelity of his portrait of a sizable group), it sets a limit on what government policy makers can accomplish.

By Merit, or by Luck

In judging any program of relief, our forefathers usually thought it necessary to distinguish sharply between the "deserving" and the "undeserving" poor. But this, as we have seen, is extremely difficult to do in practice. And it raises troublesome philosophic problems. We commonly think of two main factors as determining any particular individual's state of poverty or wealth — personal merit, and "luck." "Luck" we tacitly define as anything that causes a person's economic (or other) status to be better or worse than his personal merits or efforts would have earned for him.

"The higher we make any guaranteed floor under incomes, the larger the number of people who will see no reason either to work or to save."

Few of us are objective in measuring this in our own case. If we are relatively successful, most of us tend to attribute our success wholly to our own intellectual gifts or hard work; if we have fallen short in our worldly expectations, we attribute the outcome to some stroke of hard luck, perhaps even chronic hard luck. If our enemies (or even some of our friends) have done better than we have, our temptation is to attribute their superior success mainly to good luck.

But even if we could be strictly objective in both cases, is it always possible to distinguish between the results of "merit" and "luck"? Isn't it luck to have been born of rich parents rather than poor ones? Or to have received good nurture in childhood and a good education rather than to have been brought up in deprivation and ignorance? How wide shall we make the concept of luck? Isn't it merely a man's bad luck if he is born with bodily defects — crippled, blind, deaf, or susceptible to some special disease? Isn't it also merely bad luck if he is born with a poor intellectual inheritance — stupid, feebleminded, an imbecile? But then, by the same logic, isn't it merely a matter of good luck if a man is born talented, brilliant, or a genius? And if so, is he to be denied any credit or merit for being brilliant?

We commonly praise people for being energetic or hardworking, and blame them for being lazy or shiftless. But may not these qualities themselves, these differences in degrees of energy, be just as much inborn as differences in physical or mental strength or weakness? In that case, are we justified in praising industriousness or censuring laziness?

However difficult such questions may be to answer philosophically, we do give definite answers to them in practice. We do not criticize people for bodily defects (though some of us are not above deriding them), nor do we (except when we are irritated) blame them for being hopelessly stupid. But we do blame them for laziness or shiftlessness, or penalize them for it, because we have found in practice that people do usually respond to blame and punishment, or praise and reward, by putting forth more effort than otherwise. This is really what we have in mind when we try to distinguish between the "deserving" and the "undeserving" poor.

What Happens to Incentive

The important question always is the effect of outside aid on incentives. We must remember, on the one hand, that extreme weakness or despair is not conducive to incentive. If we feed a man who has actually been starving, we for the time being probably increase rather than decrease his incentives. But as soon as we give an idle able-bodied man more than enough to maintain reasonable health and strength, and especially if we continue to do this over a prolonged period, we risk undermining his incentive to work and support himself. There are unfortunately many people who prefer near destitution to taking a steady job. The higher we make any guaranteed floor under incomes, the larger the number of people who will see no reason either to work or to save. The cost to even a wealthy community could ultimately become ruinous.

An "ideal" assistance program, whether private or governmental, would

  1. supply everyone in dire need, through no fault of his own, enough to maintain him in reasonable health;
  2. would give nothing to anybody not in such need; and
  3. would not diminish or undermine anybody's incentive to work or save or improve his skills and earning power, but would hopefully even increase such incentives.

But these three aims are extremely difficult to reconcile. The nearer we come to achieving any one of them fully, the less likely we are to achieve one of the others. Society has found no perfect solution of this problem in the past, and seems unlikely to find one in the future. The best we can look forward to, I suspect, is some never-quite-satisfactory compromise.

Fortunately, in the United States the problem of relief is now merely a residual problem, likely to be of constantly diminishing importance as, under free enterprise, we constantly increase total production. The real problem of poverty is not a problem of "distribution" but of production. The poor are poor not because something is being withheld from them, but because, for whatever reason, they are not producing enough. The only permanent way to cure their poverty is to increase their earning power.

Notes

[1] Ed. by Wm. D. P. Bliss (New York: Funk & Wagnalls).

[2] Boston: Little Brown, 1970.

[3] Ibid., p. 53.

[4] Ibid., p. 127.

Henry Hazlitt (1894–1993) was a well-known journalist who wrote on economic affairs for the New York Times, the Wall Street Journal, and Newsweek, among many. He is perhaps best known as the author of the classic Economics in One Lesson (1946). See Henry Hazlitt's article archives. This article originally appeared in the Freeman, 1972, Vol. 22, pp. 15–21. Comment on the blog.


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