Capitalism: Adam Smith, America, and Wealth Redistribution

[Bruce Gourley]

Thanks to recent decades of capitalistic redistribution of wealth to the rich in the United States at the expense of the poor, the top one percent of Americans (in terms of wealth) own between 35% and 50% of the nation's wealth (the specific percentage is hard to pin down, because different analysis measure wealth in differing manners), which (regardless of the exact number) is more than the combined wealth of the bottom 95% of Americans (the 95% figure was true in ; the gap today is even greater).

Defenders of the rich try to turn the 95% stat on its head by pointing out that the top 1% richest Americans pay more taxes than the bottom 90-95% of Americans (). What defenders of the rich fail to talk about is that the top 1% own more than 95% of America's wealth, and hence they are merely paying their fair share of taxes (or at least in the ballpark, because the richest 1% of Americans ).

Another way of breaking down the enormous wealth gap in America is this: while the top 1% own as much as 50% of America's wealth, the bottom 40% of Americans in terms of wealth, .

So, what is the relevance of 1% of Americans basically owning America?

The United States wealth gap is now equivalent to that of Third World, undeveloped countries ().

How did capitalism turn America into the economic equivalent of a Third World nation, in terms of wealth distribution?

Adam Smith, the 18th century father of modern economics (free markets and capitalism), believer in profits, and opponent of socialism, warned us that if not closely regulated by government, free markets would ultimately ruin nations.

Of the inherent problem of a great wealth gap between rich and poor he said: "Servants, labourers, and workmen of different kinds, make up the far greater part of every political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed and lodged."

Smith wrote that "the oppression of the poor must establish the monopoly of the rich", that profit is "always highest in the countries which are going fastest to ruin". He held up the then-global superpower Netherlands, a nation ruled by large business interests, as an exploitative and unsustainable economic model.

Of business owners he said, "Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labour ... Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent in regard to the pernicious effects of their own gains. They complain only of those of other people."

He also said: "The proposal of any new law or regulation of commerce which comes from merchants and manufacturers should always be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined with the most suspicious attention."

For Smith, the idea that the private sector offered greater fiscal responsibility was outrageous: "The government of an exclusive company of merchants is, perhaps, the worst of all governments for any country whatever."

(Yet even Smith may have been astonished that capitalistic wealth redistribution has relegated 21st century American to Third World status in terms of wealth distribution.)

In short, the father of capitalism was also one of its most ardent critics. Adam Smith understood that the love of money expressed in inequitable wealth redistribution, unregulated free markets, and the pursuit of exorbitant profits, would ruin nations. The inability (or unwillingness) of many of today's capitalists to criticize free markets (and the intensity with which many resist government regulation of free markets) is a betrayal of Smith, evidences a lack of historical understanding of free markets, and - according to Smith - is yet more evidence of the inherent dangers in wealth accumulated in the hands of a few. That many Christians today place their faith in the wealth redistribution system of unregulated (or nearly unregulated) free markets is even more disturbing.

(Smith's Wealth of Nations is . The volume is searchable; feel free to look up the quotes above.)

[Dave Roberts]

This one is going to take a bit of pondering. Adam Smith seems to be often cited by the laisse-faire ecomonists as teaching something entirely different from what you have quoted. Most interesting....

[Bruce Gourley]

[Tim Dahl]

pft...

The rich don't own America.

China does.

Tim

[KeithE]

Great posts Bruce. I was aware of the growing inequality in our nation (no where near a fair deal in terms of effort expended) and have pointed this out for several years herein. I appreciate the DATA you show.

But I was unaware of Adam Smith's promotion of government intervention when unbridled capitalism starts to "ruin nations" (an example is Tim Dahl's point about China owning us). Thanks.

Waiting on the likes of Jonathan and ET to chime in. They just may be stunned.

[William Thornton]

William is in a bit of a funk today but still game to take on the army of straw men marshalled by Our Fearless Forum Leader...

The Adam Smith brigade of straw men...looks formidable, but wait, the guy was an 18th century moral philosopher who at least could be said to favor limited government. If he visited the US of the 21st century and viewed the vast, comparably wealthy middle and lower classes he would be astonished. Heck, let's dig up that icon of leftist intellectuals, JFK, and let him speak on taxation if we are going to hear from dead folks. BTW, I daresay that NO ONE here (aside from Jonathan) has read all of "...Wealth of Nations." But, hey, soundbites are fine.

The "laissez faire" brigade of straw men...a phantom brigade, it seems. NO ONE on this forum is a laissez faire advocate. While we're at it, which relgious/socialist/leftists here will be the first to condemn Bill Clinton for NAFTA?

And those evil rich! The miscreants! How dare they accumulate wealth when only paying almost all the taxes. 'Let them earn it, let them create the jobs that generate the wealth, let them take the risks, let them acquire the skills necessary to accumulate wealth' the socialists say, 'and we will take it away and give it to the non-achievers, the lazy, illegal immigrants, and the rest.' One mod/lib commentator stated that the health care monstrosity itself will be a $200 billion annual wealth transfer to the poor. Happy yet? 'From each according to his ability, to each according to his need' eh?

I recommend our fearless leader travel to Nepal and compare that with Alabama (a comparison made in one of his links, a breathless and staggering absurdity) and see if Nepalese would rather trade places with Alabamians. Or to Mexico, which is compared in the link to Georgia. So, dang, why did all those Mexicans relocate to Georgia to take landscaping jobs and buy used vehicles and drive 1500 miles back home to sell them? Why does every Latino-oriented ma and pa store prominently advertise wire money transfers? And what's with all these people arriving at my church looking for a handout while owning vehicles, cell phones, and having expensive personal habits. I can smell a smoker from afar and cigarettes, pack a day habit, I understand to cost about $1500 a year, a sum greater than ANNUAL per capita income in Nepal. I won't get to the flat screen TVs (no joke) some of these people have in their homes. And what makes all these people line up at Wal-Mart each month on the day they have hundreds of dollars of my taxes loaded onto their debit cards? Sure, we're looking like a Third World country...

...but hey, I do understand demagoguery. Let 'er rip!

[Jonathan]

[William Thornton]

I take Jonathan's word that he has actually read Adam Smith's lengthy tome and commend him for it.

My earlier statement to the contrary has been edited.

[Jonathan]

[Bruce Gourley]

OK, it sounds like we all agree with Adam Smith that free markets must have government regulation and oversight in order to prevent capitalism from destroying a given nation. In addition, William offers (and Jonathan concurs) a pretty good apology for wealth redistribution to the rich and America's equivalent status to Third World nations in terms of the wealth gap (essence of apology: America's poor are better off than other nation's poor).

In many cases, William is certainly right (we don't have starving masses in America, for example). On the other hand, hunger is now so predominant than now receive food stamps at some point during their childhood, tens of thousands die annually because they cannot afford health insurance/medical care, and most bankruptcies in America are a result of the inability of Americans to afford health insurance and/or medical care (the later, even if they have health insurance).

Why? Because wealth redistribution has placed almost all of America's wealth in the hands of a tiny percentage of the population, leaving the remaining 90% plus to daily struggle with issues including hunger, lack of money for health insurance / medical care, and constantly facing the prospect of bankruptcy or even death if their insurance company refuses to honor its promise of coverage. At this point, the politician's solution is to toss a few pennies to the poorest of the poor, relative to big business-friendly policies that allow yet more of the great bulk of the nation's wealth to be redistributed to the richest of the rich.

Even Alan Greenspan recognizes that the magnitude of America's redistribution of wealth to the richest few is a very serious problem. , "The income gap between the rich and the rest of the US population has become so wide, and is growing so fast, that it might eventually threaten the stability of democratic capitalism itself."

Greenspan's warnings echo Adam Smith's words about the excesses of non-regulated or too lightly-regulated free markets.

Jonathan asks: what is the solution to this so-called "problem?" Smith's answer is simple, as I've already noted: government should do what it takes to make certain that free markets do not allow the bulk of wealth to be redistributed to the few, leaving the masses struggling for daily existence.

[Jonathan]

[ET]

Not to mention who gets the Godlike power of deciding how much each of us has the right to earn.

[Bruce Gourley]

[Jonathan]

[Bruce Gourley]

[KeithE]

Is it time for me to re-introduce that 100:1 concept within any company intending on receiveing government work? No more than a 100:1 range from top paid, to bottom paid personnel in any one entity (must be certified by paper or electronically at just like OSHA, ADA, Enviro compliance, EEO, etc.)

So if the CEO demands to pay minimum wage ($7.25/hr = $15,080/Year) o keep costs down, s(he) will have to limit her/his pay to $1.5M/year. If s(he) wants more s(he) will have to drag the bottom up. S(he) now has a motivation to raise the bottom instead of expoliting people. Actually I'd like to see 20:1 (but I'll settle for 100:1 to include bonuses).

That would be one approach to fulfill Adam Smith's vision.

[ET]

[Jonathan]

Well done, ET. I'm looking to get my copy of Smith back from someone who borrowed it (if Bruce wanted to read it for himself, the entire text is printed on a number of websites). In the meantime, I'm planning on reading P.J. O'Rourke's book on "Nations". My guess is that he'll have a good take on how folks like Bruce try to use Smith.

[KeithE]

[David Flick]

[Bruce Gourley]

[Jonathan]

[KeithE]

[KeithE]

[Jonathan]