Friday, April 1, 2011

Anything Evil about Capitalism? Part IV

OK, we’ve defined wealth, capital, and capitalism, and determined the innate morality of capitalism—also called free enterprise (Part I, Part II, Part III). But the question came up about the fairness of inherited wealth. So today is a bonus piece to the mini-economics lesson to attempt to answer that question. (I’m pretty sure I’m not extending it to yet another day, so you can breathe a sigh of relief.)

Let’s look at a typical capitalist. An entrepreneur has worked to become successful, using capital over the years to grow the business, and he succeeds in bringing in even more wealth this way. He has raised children along the way, and brought one or two of them into the business. As he approaches his golden years, he looks at what will happen after he stops working. He has saved sufficient to take care of himself. But he loves that business; it was his life’s work. He wants it to continue beyond him. He is likely to look to a grown child to take the helm at the business, because then it continues to be his creation living on. There are steps in this, but for simplicity, let’s just deal with death and inheritance. The entrepreneur dies and passes his business on to his oldest son, who has been involved in the business for some time and feels a similar commitment to it. Assuming he is not taxed beyond what is needed to continue the business, wealth creation goes on as the entrepreneur had hoped.

Is this fair? We need to ask the right questions. Is it fair to deprive the entrepreneur from going to his rest knowing his life’s work can go on creating wealth, jobs, and value for society—as well as financial security for his posterity? If so, why? I can’t think of a reason.

Is it fair that the entrepreneur’s son doesn’t have to start from scratch, but gets to step in to continue an already successful business? Did he do nothing? Actually, he was raised in the family during the years of scraping to save up capital—experiencing both the bad and good of those times. He learned first hand the work it took to build up the business. He started out at lower levels, so his father could train him in all aspects of the business. In essence, the son was the recipient of the father’s social as well as economic capital. If he had failed to study, to learn, to commit to the business, he’d have proved to be a bad investment, and we can only hope the entrepreneur would have had an alternative child to invest in. So, while the heir does appear to have been given a huge advantage, what he was given was trust that the investment of capital in him would pay off in the way the investor (his father) desired. He, in essence, did what it took to become worth risking capital on.

Passing on a family business is the most typical form of capital inheritance. But what if it’s just a matter of a rich parent conferring straight wealth to his heirs? Is that fair? Again, the capital was fairly earned by the deceased. It should be his right to decide how to invest in his legacy. You would think it moral for him to give an endowment to a hospital, right? That would be an investment in civilization, to make the world better with his capital. If he passes it along to an heir who has not earned it, he is investing in his posterity (or in whichever person he bequeaths wealth to). He is, we can assume, since he understands capital, hoping that the capital investment will benefit his legacy, that those he leaves it with will use it for more wealth creation, which benefits not only those individuals but also society as a whole—with jobs, and with a product society values.

Should the playing field be leveled at the expense of the wealthy man’s freedom to choose how to invest his fairly earned capital? Why would having a level playing field be a higher value than the freedom to choose how to use one’s own earnings? Outcomes will certainly be different among people; why shouldn’t starting points be allowed to differ?

Starting points will be different no matter what attempts a tyranny employs to level them. A child of successful, educated, religious, married parents has a huge social capital advantage over a child of an uneducated, non-religious single parent. A third-generation American child has advantages over the child of immigrants, who has advantages over the immigrant—whose very reason for immigrating may have been to give that eventual advantage to the following generations. Would there be any value for society to have a tyrant take all children and raise them equally unloved and institutionalized so they all must struggle up from the equal lack of social capital? Of course not. Then how could there be any value to society for a tyrant to force all children to struggle up from an equal lack of economic capital? The very idea is to insist that building up any kind of capital to develop civilization is an unwanted outcome.

So here’s my advice: those who abhor capitalism for its different outcomes—or its different starting points—ought to learn to stop coveting, and to start loving civilization. And, I might add, they ought to stop using euphemisms like “progressivism” for their morally flawed, progress-preventing alternatives.


  1. Nice finish. Oh, and I changed the name that appears from Perth. I am still the same person.

    One thing that I find funny about the redistribution of wealth that the "progressives" believe in is the outcome we see. The most "progressive" states in America also have the largest income gaps.

    So, in their attempts to level the playing field, "progressives" have crushed the ability to succeed if you can't afford to protect your wealth from their policies. Of course, since only the rich can afford to protect their wealth adequately, the rich get richer and the poor get poorer.

    Contrast this to the more conservative states and you see that capital creation, growth and socioeconomic mobility that all sides claim as theirs occur more readily in conservative states. This is probably because those states are not as hostile to anyone trying to accumulate wealth.

  2. Thank you Perth/Parz for comments that help me make this a better blog. The point today about example states is very good. Glad I'm in one of the example.