Poverty: Causes and Cure

Of all the problems which the mankind faces, the greatest one is poverty. The history of mankind is full of famines and starvation deaths. Manipulative do-gooders have always proposed false remedies for poverty. Their remedies have only aggravated the very problem it was supposed to solve. The poor relief in ancient Rome and England tell a sad story. There is overwhelming evidence that all governmental interventions have unintended consequences. Yet, a great majority of the population supports such schemes.
If poverty is the fate of the majority of the living men on earth, and that all the remedies proposed to alleviate it leads to chaos, does that mean that it nothing could be done? Obviously not! There is no reason for poverty as we see now to exist if the ideal social system of the free market is instituted. Of all the nonsense written on poverty, the worst is the notion of vicious cycle of poverty. It has no theoretical or empirical basis. If it were true, mankind would have never risen out of the cave. We wouldn’t have achieved all the progress if poverty begets poverty.
A similar bromide which is uttered by most collectivists is that “The rich gets richer and the poor gets poorer”. Nothing can be more absurd than that. The poorest of today lives much comfortable than the richest of the past. It must be true that there is a huge gap between the rich and poor. But, the gap is not widening and the cause of the poverty of some is not the riches of the other. What the word ‘rich’ meant in the feudal era when people lived on the precipice of starvation and most children died out of it before long? The so called rich in those days couldn’t afford food, clothing’s or anything for that matter which the ‘poor’ can afford now. Once the majority had enough to eat of good quality food, the gap between the rich and the poor would never be an important issue no matter how many exotic delicacies are exclusively available to the rich.
The most popular remedy put forward in solution to the problem of poverty is redistribution of wealth. The supporters of redistribution schemes take the wealth which exists as the given. According to them, the only problem is the allocation of the resources. Their mind is too feeble to get the fact that wealth doesn’t simply exist on earth waiting for its allocation. Wealth is goods and almost all goods men use ought to be produced. One can’t redistribute wealth without reducing incentives for people to produce it. One can’t tax the rich without reducing the incentives for the productive to produce and the parasites to look for a job. One thing is for sure. The more you tax the less will be the total wealth produced as a whole. It is also obvious that the wealth which exists presently in the society, if divided won’t cure poverty. It should follow from both these facts that to solve the problem of poverty, more wealth is to be produced. Taxation can only impede the production of wealth. The greatest economic charity is saving and capital accumulation, which increases the capital invested per head and hence, the wages. This precisely is what taxation and government regulations prevent from happening.
If low wages are the cause of misery of some, it is easy to imagine what the effect of unemployment must be. However, there is nothing inherent in the free market which causes unemployment. Human wants are unlimited. There is always work to do no matter how the human society progresses as goods are physical phenomena and desires are mental phenomena. What causes unemployment is minimum wage laws and labor union coercion. When a minimum wage law is set, employees who are not worth that much gets fired. The same happens when labor unions forcefully set wages above the market level. It affects the employees who are the least skilled. It should be obvious that laborers have every right to organize. What I am against is not labor unions per se, but the forceful tactics of labor unions. The real victims of the so-called pro labor legislation is the least skilled among the laborers-mostly blacks and Dalits. What is shocking is that those who profess to be the defenders of the little guy are those who support such laws. Another farce conducted by the governments is make-work projects such as NREGA. Supporters of such programs such as Amartya Sen and Jean Dreze pretend not to know that the money for the program is taken away from the tax payer and if that money remained in their hands they would have created more employment and higher wages. They don’t even respect arithmetic.
Inflation is another redistribution scheme which affects the most poor. Contrary to the popular belief, inflation is an increase in paper money not backed in gold caused by the central bank (RBI in India, Federal Reserve in the US).Most people are unaware of the fact that the Central bank expands the supply of money and bank credit and this is what causes the prices to rise every year. If the central bank is abolished, prices would fall every year as the production of goods increase every year. In fact, prices have fallen continuously from the mid half of the eighteenth century to 1940 in the United States. It was the abolition of the gold standard in 1933 that caused the price rise later. Inflation is worst form of taxation, as it taxes both the poor and rich alike and the ones most affected are orphans and those who depend on pensions and annuities.
What lies behind these redistribution schemes is the belief that equality is some ideal goal, or that envy should be appeased. Why is equality an ideal? Why should people pander to the envy of the incompetents? The answers are not at all evident. The collectivists have no sane answers to give to these questions. The wealth of some is not the cause of the poverty of the rest. The rightfully understood interests of people are not in conflict with the interests of others. If the personal wealth of Bill is confiscated and divided among the poor, it can’t match the good he has done to humanity. The economic significance of the money the rich spend on luxury is negligible. Most of the wealth of the rich is invested in production, which means to serve the ultimate consumer.
We see that the richest men on the earth are running around like Santa Clause’s. What is interesting is that almost all of them are largely anti-capitalistic. They don’t realize that they are harming the poor by sending out the message that wealth distribution cures poverty. There is one way in which the poverty of the third world nations could be solved. It is by an increase in capital invested. If these nations encouraged foreign investment, businessmen would have invested capital and the wages would have gone up, as it would lead to more production. The only cure for poverty is a free, uncontrolled, unregulated market. But, this is not the goal of the anti-capitalists. They pretend sympathy towards the underprivileged, but oppose everything that would remove their misery!

4 comments for “Poverty: Causes and Cure

  1. Dsylexic
    January 13, 2009 at 8:46 pm

    “there is a huge gap between the rich and poor. But, the gap is not widening ” . this is incorrect. now more than in anytime in history fewer people have larger share of wealth. the gap is widening. ofcourse, no one can attribute it to free market capitalism. it never existed unless you want to call the corporatism of wall st types to be capitalism.

  2. Abha
    January 14, 2009 at 10:00 am

    I am not an economist but your article makes a good veiw point. Enjoyed reading it!

  3. November 13, 2009 at 5:42 am

    i want to register my name for ias admission for future

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