The Mises Institute monthly, free with membership
September 2002; Volume 20, Number 9
Capitalism: The Greatest Charity
by William H. Peterson
When a politician talks of "reform," grab your wallet. As in "welfare reform," for example. For as any hardened inside-the-Beltway observer of dark Washington ways can tell you, "welfare reform" is typically a spin for tightening the screws on the taxpayer and easing welfare access.
To be sure, a welfare-to-work program launched in 1996 led to the national welfare caseload being cut in half as of 2000, thanks in part to an economic boom in those years. Now the Bush White House would fund the Temporary Assistance for Needy Families (TANF) program for fiscal year 2003 at $16.5 billion, using $300 million of those funds to promote marriage. Noble end, wrong means.
But such funds mainly address only the cash relief side of welfare while a host of other welfare programs go on, as in providing the poor today with "affordable housing." The bloated Welfare State remains, especially in its larger terms of giant programs such as Social Security and Medicare.
Noteworthy, then, is last March 8, when the US Labor Department reported that the February unemployment rate had edged down, and when the White House and Congress publicly agreed on a $51-billion Keynesian-based "stimulus" plan with a 13-week extension of unemployment benefits. But note that this extension pressures unemployment to edge up, reminding us that Uncle Sam rarely lets his right hand know what his left hand is doing.
Too, note how the once free-trade-talking-and-campaigning Bush team caved in on the issue of steel "dumping," arguing that steel is needed for national security, supposedly a very big consideration since 9/11. And so the White House wound up boosting tariffs on most steel products by 30 percent. The boost harms steel consumers such as buyers of cars and fridges and even the Defense Department, which will have to pay more for tanks and destroyers. But, hey, that's but collateral damage, as the White House baldly seeks such steel states as Pennsylvania, West Virginia, and Ohio in the GOP column in the 2002 and 2004 elections.
Similarly, Mr. Bush brazenly told an audience of cattle ranchers that beef is a national security issue, as he and Congress plan to boost the annual "baseline" direct (apart from indirect) farm subsidies of $20 billion by another $25 billion over five years. So the farm states are also fair political game, even if the family food budget across the nation in turn gets to suffer collateral damage.
And speaking of the states, bear in mind that a lot of welfare programs come in the back door through federal grants-in-aid to state and localities at the rate of $300 billion a year. They usually require matching funds to participate in legal mischief by the federal and recipient governments.
What a way to run a railroad.
That scant backdrop on raw politics brings me to a remarkable 1956 essay, "The Greatest Economic Charity," by F.A. Harper, a contributor to the book, On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises. In it, Harper, who joined the Foundation for Economic Education in 1946 and founded his own think tank—the Institute for Humane Studies—in l963, quoted Moses Maimonides, 1135–1204, a Talmudic thinker of Spain, as follows: The noblest charity is to preclude a man from accepting charity, and the best alms are to show and enable a man to dispense with alms.
True economic charity, held Harper, has three iron requisites, each of which should be viewed in the light of so-called "welfare reform":
1. The charity needs a transfer of ownership from one individual to another of something having economic value. The donor must have clear title to the gift; it cannot be stolen goods or public goods. Private ownership, not public ownership, is needed at both sides of a charitable transfer or gift.
2. The transfer has to be voluntary with both parties. If it is forced from the giver or givers, it amounts to theft. If it is forced on the receiver or receivers, it is not charity but state interventionism, or what Frédéric Bastiat called "legal plunder," a blatant case of vote-buying and third-party payments using other people's money. (America's "free" public schools and Medicare qualify as cases in point.)
3. True charity requires anonymity. Harper conceded that this goal is tough to reach—as you gather from the various family names gracing the buildings on practically every private campus—but he still worried that devices other than anonymity "usually fail to prevent the creation of a personal obligation."
To Harper, such an obligation was a key no-no. He clung to Maim-onides's understanding of the noblest charity: That whatever cuts self-reliance and individual independence is ignoble and counterproductive. If the act is goaded by vainglory, by an ego trip, it is simply not charity, argued Harper. He cited the Biblical call that one who gives alms should not sound his trumpet before him "as do the hypocrites."
You can see where Harper was heading: to total welfare privatization, and more. He saw Ludwig von Mises as a charitable person more so than being an economist of world renown, for he gave mankind "his inspiring mind and spirit." Harper referred to the Mises spirit of freedom and free enterprise in contrast to the spirit of "dependency, insecurity, and slavery" as fostered, for example, by the policies of Jean-Jacques Rousseau in the French Revolution or of Karl Marx in the Russian and Chinese revolutions.
Said Harper of Mises's gift of his "inspiring mind and spirit" to mankind: "In my opinion, there can be no greater charity than this, for it endures beyond any material form of benevolence."
Harper was most concerned that state "charity" nowadays spells enslavement in one degree or another, that alms-giving or welfarism is "pernicious" (his word), that it embodies residual obligations which, in one way or another, become suspended in uncertainty forever. Worship of the state tends to follow, entrenching or deifying the welfare state at the ballot box by citizens unmindful of the zero-sum fact that government has nothing to give other than what it first takes away.
Welfarism's loss of self-reliance, of individual rights, is critical as well as immoral. Harper quoted St. Thomas Aquinas: "There is no security for us so long as we depend on the will of another man." He quoted Greek philosopher Plutarch: "The real destroyer of the liberties of any people is he who spreads among them bounties, donations, and largesses." So Harper maintained that self-reliance thus gets short shrift in welfare schemes from Rome's "bread and circuses" to Washington's "affordable housing" and "Social Security."
At this point, Harper made an amazing leap in logic and persuasion as to just what makes up our "greatest economic charity." He conceded that some won't buy into his use here of the term "charity," insisting on its earlier usage as an individual approach of brotherly love and compassion if ignoring its more modern usage as including alms-giving and, worse, welfarism or oxymoronic "public charity."
Nonetheless, Harper argued that those three critical criteria for true charity, including voluntarism, an-onymity, and a transfer of privately- owned things having economic worth, are best met in that Misesian system of freedom and free enterprise.
So Harper pointed out that a large part of the high level of prosperity enjoyed broadly in America arises from the widespread use of capitalism and, in particular, capital: i.e., in the growth and use of tools both in terms of plant, equipment, and high-tech, and of human skills and talents such as those in computer programming and truck driving or in medicine, engineering, and the arts.
The upshot of all this capital creation is America's outstanding output per worker compared to the rest of the world—output or productivity making possible America's high living standards, the highest of any major industrial nation in the world, thanks to enormous capital accumulation resulting in the highest wages and salaries, overall, in the industrial world.
What a joke on Marx. He christened capitalism with its telling name and unintended well-being for its sovereign consumers, while his system of communism empowered coercive government to rob consumers of goods, denying them both political and economic choice, while generously providing them with plenty of gulags for dissidents.
Now, asked Harper, who created this outpouring of highly productive capital tools? He answered his own question by simply alluding to legions of "invisible hand" savers and investors—those inadvertent charity providers with their delightful unplanned consequences of a freer and more prosperous society.
Even more remarkable in the Harper analysis is that, based on US government national income data, the return to capital owners is but about 15 percent in terms of dividends, interest, rents, and royalties together with their equivalents in owner-operated businesses, while the return to capital users is around 85 percent, including wages and salaries to employees and their equivalent to those self-employed.
Well, assuming the accuracy of those figures, how come the saver-investor gets less than one-sixth of what his saving and investing made possible? In response, Harper simply noted that the division is peacefully solved by the market, by private ownership and free exchange, by the "selfish owners," as those who save and invest are so often tarred, and who "are really the greatest charity-givers of all."
Harper admitted that a man who saves and invests is hardly without a personal incentive to do so, but he maintained that such a man is still mightily giving, serving his fellow man in building up the national stockpile of tools and thereby raising living standards for all.
What compounds the tragedy of the modern welfare state then is the widespread mirage of a free lunch, of a common failure to see how the growing burden of rising taxes drags down the outlook for savings and profitable investment. This drag, if unrelieved, would in time snuff out the drive to save and invest—killing off this vastly unknown and unappreciated bounty and charity arising from capital creation, from more and better tools. As F.A. Harper—in addressing, when you think about it, both the West and the Third World—concluded his profound essay:
"The greatest economic charity is that which enables persons to become independent of alms and therefore most self-reliant and secure under freedom. Only when that happens—when persons advance from the brink of starvation—is time released for devotion to things of the mind and spirit, which comprise the supremely great charity." .FM
William H. Peterson was Mises's colleague at New York University, and serves as an adjunct scholar at the Mises Institute (email@example.com).