Does Inequality Cause Poverty?

Another interesting Mises article posted yesterday seemed to answer the question of this post in quite a decisive fashion. They make some fairly sensible points about poverty to which I would agree, but on some levels a deeper analysis is needed.

What is Inequality?

No trick question, quite we will simply define inequality as a disparity in wealth. But this raises a secondary question: what is wealth? Well, we can say that wealth refers to material goods or commodities. So far, so obvious. So what is the point here? The answer has to do with what wealth actually consists of and the effect that this has on the ability of other people to produce wealth.

Every material good which can be construed as wealth is made up in varying quantities of the two primary factors of production; land and labor. Land here refers not just to land in the traditional sense of the ground we walk on, but is in fact any input to a commodity which comes from nature rather than human endeavor. When we deconstruct wealth in this way, it becomes easier to answer the inequality/poverty question.

Wealth and Labor

As far as the portion of wealth that comes from labor is concerned, the LvMI is more or less on the right track. Quite clearly one person deciding to do some work does not unfairly harm other people or impede their ability to do work. Claiming you have a right to stop someone laboring would be an alarmingly oppressive thing to do.

Some argument could potentially be made that one individual’s laboring can impede other people. From the perspective of say, a mediocre comedian, the introduction of a rival comedian who is far better than him is a big problem. People will be more willing to consume the superior service over the mediocre one, and this will affect the mediocre comedian’s livelihood. But is this unjust, and does it generate poverty?

Whilst the mediocre comedian might gripe and cry injustice over being competed out of the marketplace, the alternative is far worse. For him to maintain his position would require either harming the superior comic by demanding he cease his activities, or by forcing the consumers not to consume. He would be violently interrupting consensual agreements between individuals which would be taking place regardless of whether or not he existed. It is hard to describe this as justice. And does it generate poverty? Well, when the mediocre comedian is outcompeted, the loser in society is himself. On the other hand, the superior comedian gains employment and the consumers gain a service which they prefer. To upset this arrangement would be to take gains away from the superior comic and the consumers for the benefit of someone who probably needs to find a more suitable job. In this regard, we see that attempts to upset marketplace competition in labor are likely to generate far more poverty than they prevent. Does Peter Kay’s wealth cause poverty? Probably not. This is also something to bear in mind when people describe the wages paid to various athletes as “disgusting” and so on.

Wealth and Land

If the labor component of wealth isn’t responsible, then the only way inequality can contribute to poverty is through land. Here the LvMI misses a crucial point.

When a person accumulates wealth, they section off more and more resources from nature for their own individual use. These resources can then not be used by anyone else, meaning that people in the future will have poorer opportunities to obtain wealth from nature. It logically must follow that accumulation of wealth in this regard makes it more difficult for other people to obtain wealth, and thus contributes to poverty. There are two main mechanisms at work here. The first is simple extraction of resources. When blood diamonds are mined in the poorest regions of Africa, they are obviously no longer in the ground for anyone else to extract. Given that the extraction of resources in the world’s poorest countries is often carried out by first world multinationals, without compensation to society, a variety of ethical concerns emerge. It is difficult to see how one can argue that the extraction of oil in Nigeria, profits from which are diverted to foreign shores, doesn’t weaken the long term position of the Nigerians. Certainly I don’t deny that the country’s infrastructure and historical poverty would make it difficult for them to benefit from the oil without outside help, but is this fairer than a scheme by which everyone shared in the value derived from land? Value which the multinationals in no way helped to create?* The practise whereby foreign companies lay exclusive claim to various reserves, typically by currying political favour, certainly impoverishes the ordinary people who those reserves belong to by right.

The second mechanism is one which is more prevalent in the developed world, and which has more to do with land occupancy than exploitation. In the United Kingdom, around 2/3 of the cost of a new house is the land that house is built on. The source of this massive cost becomes clearer if one is aware of the fact that a tiny percentage of the UK’s population, largely consisting of the traditional aristocracy and the monarch, owns in excess of 60% of the country’s land free of charge. This is in a country with some of the smallest average house sizes in Europe. It is no wonder that the British people need to drive themselves into such debt, and pay such extraordinary costs to simply put a roof over their heads, when the nation’s land is horded by the descendants of the its most effective schemers.

But it is not just in the old nations of Europe that this hording takes place. As linked to in a previous post, a variety of American billionaires enjoy spending their fortunes on amassing as much land as possible out of a desire to act as “stewards”. Whilst this is all seemingly very noble, what right do these people have to section off vast tracts of land on a personal whim, in doing so making it harder for everyone else to make their way in the world? By all means, if they wish to spend their money on conservation they are welcome to do so. But it is wrong for it to happen in this manner, and without the general public being compensated for their loss of opportunity.

Ultimately the answer to this post’s question is a conditional “yes”. A claim that other people’s wealth accumulation by labor impoverishes you presupposes a right to that labor. It presupposes that others have an inherent responsibility to provide for you. On these grounds, such a claim will never be defended here. On the other hand, as land is a resource of fixed quantity, accumulation that involves depreciating the total value of land must leave other people in a worse condition. Human beings cannot live without inputs from nature. If people have no equal right to access nature, of what consequence are any other rights that have been declared? 


*There is a counterargument here along the lines of “by extracting resources people take them from a useless to a useful state”. I will probably address this at greater length in a future post. Essentially, extracting resources entails combining labor with land. You might have an entitlement to the labor component, but not the land. Similarly your labor is not the sole source of value. To emphasize this, consider how productive constructing and laboring on an oil rig over a location with no oil would be.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s