Mises Review

From Subsistence to Exchange and Other Essays, by Peter Bauer

The Mises Review

The Poverty of Envy

Mises Review 6, No. 4 (Winter 2000)

Peter Bauer 
Princeton University Press, 2000; xi + 153 pgs.

Peter Bauer possesses a rare ability: he can see the obvious. Several philosophers discussed in this issue-Rawls, Dworkin, and Cohen -rail on and on about equality. Capitalism must be condemned, they tell us, because of inequality. However productive the system, it fails the test of ethics.

Bauer makes two points about equality which have eluded the thinkers just mentioned. Taking a Nietzschean turn, Bauer asks: what is the basis of the demand for equality? Is egalitarianism ethically required? No, he responds, it is not: the ideology of equality rests on envy. According to egalitarian dogma, the rich possess at least a good part of their wealth unjustly, having gained it by exploiting the poor. Will not the poor, if convinced of this, seethe with rancorous hatred of those who have taken what should be theirs?

Our author writes: “Insistence on politically-organized redistribution within and between countries also fuels envy and resentment. . . . Envy and resentment are soul-destroying sentiments liable to corrode people afflicted by them” (p. 104). Bauer does not shrink from challenging Pope Paul VI, who sympathized to a degree with egalitarianism, on the ground of theology. “What the Pope asserts, in common with so many other modern clergymen, serves to encourage one of the seven deadly sins” (p. 104).

To this there is an obvious rejoinder. Does not Bauer’s argument presuppose that capitalist ways of distributing wealth are just? If they are not, then is not the resentment of the poor fully in order?

Our author has of course anticipated this point; he devotes the bulk of the book to showing how inequalities between nations arise. But I wish for now to put this issue aside. Let us suppose that Rawls’s or Dworkin’s theory is correct: income and wealth should be distributed much more equally than at present. Would it follow that Bauer’s point about envy can be dismissed?

I do not think so. Would it not be better for the poor to concentrate on productive means of raising themselves? Even if a philosophical theory correctly shows they are entitled to more than they have, it does not seem obvious that their time is best spent in agitation for redistribution.

It is not hard to guess what an egalitarian would answer. Is not the line of thought I have suggested mere capitalist apologetics, designed to ensconce the rich in their ill-gotten gains? Readers must judge for themselves.

When Bauer warns of the malign effects of envy, he speaks from a rich background of historical experience. Envy of productive minority groups has been widespread and has often led to brutal outrages that slake popular passion at the expense of morality and economic progress. Bauer notes an example: “In Malaysia, for instance, Chinese economic performance has for many years been far superior to that of Malays in spite of long-standing discrimination against them. In recent years, indeed, attempts to combat by political means the results of their superior economic performance have become the cornerstone of official economic policy” (p. 101).

Envious discrimination against the productive is not the only bad consequence of egalitarianism our author discerns. Pursuit of equality leads necessarily to the growth of the state. Not equality, but tyranny of the government over the rest of us, arises from following the siren song of egalitarian justice.

Bauer places great stress on the contemporary importance of this point. “In an open society, attempts to eliminate, or even substantially to reduce, income differences extend coercive power, that is, inequality of power between rulers and ruled. This also implies politicization of economic life. . . . Extensive politicization of life enhances the prizes of political power and thus the stakes in the fight for them. This in turn exacerbates political tension, at least until opposition is forcibly suppressed or effectively demoralized. Politicization of life, often pursued in the name of equality, has in many countries brought about a situation in which the question of who controls the government has become a matter of overriding importance, even a matter of life and death to millions” (p. 144).

Emphasis on historical example is not the most common way of doing economics today; an economics article that does not consist largely of equations or econometric time-series has little chance of attracting attention in elite circles. Bauer is thus at great pains to defend his method, and his criticism of the dominant approach is of great value to Austrian school supporters.

Bauer applies his method of historical case study to respond to a query posed earlier. Why are some countries much richer than others? Have the gains of the rich come from exploiting the poor? Rather than resort to complicated theorizing, Bauer adduces a simple fact. “The poorest and most backward countries have until recently had no external economic contacts and have often never been Western colonies. It is therefore obvious that their backwardness cannot be explained by colonial domination or international social stratifications” (p. 54).

Another obvious point-obvious that is, once Bauer has brought it to our attention-supports his attack on the exploitation theory of poverty. The countries most often accused of exploitation, such as Britain and the United States, themselves started as poor nations. Since they were the first developed economies, their earlier poverty cannot have resulted from economic exploitations by more advanced economies.

What then does explain the poverty of nations? The most popular answer appeals to the “vicious circle of poverty.” (This view often goes together with the exploitation theory, but it need not do so.)

On this account, suppose that a nation, whether through exploitation or otherwise, is now poor. Once in this state of affairs, it is claimed, it will be unable to extricate itself. “There is a distinct model behind the hypothesis of the vicious circle: the growth of income depends on investment; investment depends on saving; saving depends on income. The model pivots on the notion that the low level of income itself prevents the investment required to raise it, hence a zero or negligible rate of economic growth” (p. 45).

As one would by now expect, Bauer’s refutation consists of citing an obvious fact. “The volume of investible funds is not a critical independent determinant of economic advance. If it were, millions of people could not have advanced from poverty to prosperity within a few years . . . capital formation was a minor factor in the progress of the West since the eighteenth century, a period particularly congenial to productive investment” (p. 45).

The theory just mentioned falls into a materialist fallacy: it equates material resources with economic assets. In doing so, it ignores the ability and enterprise of the people alleged to be inevitably sunk in poverty. “Poor people can generate or secure sufficient funds to start on the road to progress. . . . They can save modest amounts even from small incomes to make possible direct investment in agriculture, small-scale trading . . . and for many other purposes” (p. 451). The importance of the internal market runs as a constant theme in the book, and Bauer assaults with vigor those who dismiss middlemen as unproductive.

On only one point of the carefully structured argument of this book would I venture a criticism, and it is one that arises from the author’s virtues. He deems it obvious that the more productive and talented deserve to profit from the increases in consumer welfare their activities generate. Thus, once he can show that wealth arises from superior talent rather than from exploitation, he thinks he has refuted the egalitarian case. He does not imagine, owing to an excess of common sense, that some egalitarian theorists could acknowledge and then dismiss his point. They claim that superior talent does not merit reward. Bauer would no doubt dismiss this view as obviously absurd; unfortunately, this absurdity dominates contemporary political theory.


Gordon, David. “The Poverty of Envy.” Review of  From Subsistence to Exchange and Other Essays, by Peter Bauer. The Mises Review 6, No. 4 (Winter 2000).

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