In the previous lesson, we have described the goal of Austrian Economics. To achieve this objective we first showed you how other Political Theories work and why they fail. We have also showed you why Austrian Economics is superior to all of them. Now, we are going to substantiate its corollary: any Political Theory that attempts to force an economic distribution into a different shape or position will fail.

The question that we will attempt to answer is this one: is there any other way to create wealth and at the same reduce the disparity between Poor, Middle and Rich classes? In other words, is it possible to create a rich, single-class society?

The theoretical answer to this absolute question is no. This is what communists attempted to create and failed miserably.

 

Absolutely Equal

In order to see why not, let’s try to create a rich, single-class society. Since we are dealing in theories, we can do better. However, there is a catch. You must look at the fine print.

In order to create a truly single-class society, we would need to relinquish all power over ourselves to an objective entity, which will have no human emotions nor needs. This entity will therefore not be susceptible to power grab impulses or physical needs. A sufficiently advanced computer would do the trick.  

Then, we will have to have enforcers, since people won’t happily abide by an overlord’s wishes. Let’s say that we also create a super-race of robots for this job. This race is fully controlled by the overlord.

Fair enough, we have our objective overlord that will decide who gets what on a, let’s call it, equality-basis, and a super-police force to enforce said decisions.

Paradise! Utopia! We are all rich to the exact same level with mathematical precision.

But hold on. Before you rush to build a super electronic brain and its race of enforcers, let’s consider a few points.

Let’s try this. When a person is born, it is given a certain sum of money. This money should last for the entire life of this person. Whatever this person does not spend, it is returned to the overlord. All the people are forbidden from trading with each other. There is no way to increase this amount of money. It is fixed.

There! We are all economically equal. It is impossible for somebody to be richer or poorer than somebody else.

Or is it? Let’s say that Javier is a healthy person and spends very little on doctors and medications. Therefore, he has a lot of money to spend. He can afford luxury cars and a gigantic house. Now let’s take a look at Janice. She is sickly. She was born with a crippling genetic disease. She spends a great deal of her money on doctors and medications. She can only afford an apartment and public transportation. From this perspective, Javier is rich and Janice is poor. Javier has luxury items while Janice can barely afford the basics.

Therefore, this way of achieving economic equality is flawed. It simply does not work. The reason is simple, we all have different needs.

OK. So let’s now re-wind and re-define economic equality. Let’s say that we define it the way communists used to define it: equality means people receiving wealth (or money if you like) on a need-to-have basis.

There! Equality. Everybody gets what one needs and since there are no other classes, we are all the same.

But then, the first question that we need to answer is what is a “need”. Without a proper definition, our supercomputer won’t be able to make an objective decision. We want our distribution of wealth to be “fair”.  

Normally, we would not think twice about this issue. We think that what we “need” is absolutely clear. Food is something you need, clothes you need, housing you need. However, not everything is what it seems, these concepts are not entirely true or objective.

Let’s take food. Scientifically speaking, we know exactly what a human being needs to survive. So, theoretically speaking, we could provide the entire human race with scientifically formulated pellets (think cat or dog food) and water. Voila! Everybody’s food “needs” has been fulfilled. No? You would be unhappy with this “solution”? Why? Because your perception of food is different. Your perception of food is meats and vegetables, eggs and drinks, fiber and dessert. However, none of these foods that you want you actually “need”, at least not in an objective, scientific manner. You see, these foods are what you “want”. The problem is that we all “want” different things and therefore our “needs” are all different.

Let’s take clothing. Technically speaking, we need clothing to protect us from the environment. This is what we “need”. So, we could design a single model of underwear for women and man, a single design of shirts, overalls, shoes, hoodies and jackets. We can do so in a single material and color, scientifically selected to minimize environmental wear and tear. Voila! The world-wide clothing problem has been solved! Everybody’s needs have been met. No? Again, we have the suspicion that your concept of “need” when it comes to clothing is quite different. And again, your concept of “need” is in reality your concept of “want”… and we all have a different one.

Let’s take housing. We could create concrete inhabitable blocks that are scientifically designed to provide the minimum space humans need, maintain the correct temperature and humidity year round, provide sufficient light, and be element-proof. They will also be constructed of the most efficient shape for building purposes and a single color to minimize environmental wear and tear or erosion. In summary, gray concrete square blocks for everyone! Voila! All our housing needs solved! No? You would be unhappy living in concrete blocks? Why? All your needs have been solved! We don’t see a problem. Again, your “need” is really your “want”.

The problem is that it is not possible to define in an objective manner, what our “needs” are because they are subjective and personal. At the most basic philosophical level, there really is no difference between “need” and “want”.

But now let’s get a step further. Let’s say that we have this magical computer which through a series of super-duper-non-plus-ultra advanced processing algorithms can determine, exactly, what our individual needs are.  Fair enough.

So, let’s say that it was determined everybody’s housing needs. Joe “needs” a two bedroom apartment, while Mary “needs” a three bedroom house with a backyard. For as long as Joe does not see Mary’s house, he will presumably be happy. But what happens when Joe sees Mary’s house? How do you think he will feel? Envious? Cheated? Upset? What do you think that Joe’s “wants” will now look like? Like Mary’s house? You bet!

OK, so now for everybody to receive their true “needs”, we need to suppress everybody else’s wishes. OK. Let’s say that we have developed this wonderful drug that allows us to do so. Voila! Envy is a thing of the past. Everybody is fully contempt with what they got. 

Great! This is progress!... or is it?

We now have to solve yet another problem. It so happens that in order to build Mary’s house, we need twice the amount of labor and materials than to build Joe’s apartment.

When our overlord tabulates all the “needs”, we realize that those “needs” are vastly superior than our resources. We simply don’t have enough labor or material to create all those “needs”. OK. So we prioritize. Some people have more critical “needs” than others. These people will get their goods and services first. Mary, having a family, will get her house build first. Joe will have to wait for his apartment. Fair enough, but what is Joe supposed to do in the meantime? Furthermore, we got into this process in the first time to make sure we all receive our “needs” and so we would all be equal. However, Joe is now in a patently inferior condition than Mary. Joe’s needs are not met, at least temporarily. So, this system not everybody get their true, objective “needs” satisfied. Our system of equality just broke down.

But let’s go a step further. Let’s say that we make an extra effort, somehow, and deliver Joe’s apartment and Mary’s house at the same time. Voila! Problem solved…. Or is it?

Well… no, not exactly. What did we have to do to achieve this “miracle”? We had to postpone the creation of other goods and services. Remember? There is only so many resources we have and so much labor available for us to use. Maybe a bridge didn’t get build, or a hospital or 3000 cars or a million candies. Who knows! The point is that when resources are scarce and the needs outweigh those resources, somebody, somewhere won’t get them. It is that simple!

So, we satisfied Mary’s and Joe’s housing “needs” but we were unable to satisfy other peoples’ needs for roads, transportation, health care or simply desserts.

As you can see, given a fixed amount of resources and labor it is simply impossible to satisfy everyone, even assuming that we know what their true “needs” may be. We are not and cannot ever be equal to anybody else in any practical, economic sense, no matter how hard we try. It is a physical impossibility.

Therefore, it is impossible to build a system where everybody is equally rich; a single class society it is simply not possible for as long as our physical means are limited.

 

 

Rational

The underlying reason for this impossibility is simple. We are all physical beings. As such, we require and want physical goods and services. The problem is that all those physical goods and services are limited, they are scarce.

If they would be unlimited, the problem would simply not exist because we will all be able to get anything we could possibly want, instantaneously and for free. This is, we will all be equally rich.

Actually, this has been the topic of several Science Fiction writers. They envisioned societies where there is sufficient energy and know-how, to create anything one could possibly desire, instantaneously. We also have a different utopian view. Humans have evolved past their physical limitation and have become “pure energy” or “pure thought” beings. In this case, no physical means would be necessary nor desirable. Voila! Instant, rich, single-class societies.

Alas, we are still far, far from that point. We wanted to bring your attention to this Utopian view, to emphasize the problems we are faced with, if we attempt to re-create a rich, single-class society with physical beings. It is simply not possible.

 

Tinkering

But, but, but, there must be a way. It is not fair that some people have everything and some other people have nothing. Maybe if we abandon the concept of absolute equality and use an approximate concept of “needs” we could make it work. Well… no.

You are now talking about communism. Communism was a real-time, real-life attempt to do just that. They accepted inherent theoretical limitations and they tried to determine “needs” on a “practical” level. And failed miserably.

There are three main reasons why they failed:

• They could not determine even at a “practical” level what those “needs” were (see the lesson Communists Can’t Count).

• Even when they created lists of “needs” (however flawed they may have been), they were unable to fulfill those ones, simply due to a lack of human incentives. In a communist system, most people had absolutely no personal and tangible incentive to improve manufacturing processes. Therefore, they did not improve. No improvement meant no production. No production meant insufficient goods and services to satisfy “needs”. Incentives were simply not in the list of “needs”, at least not for the vast majority of the population (the tiny elite class was, of course, exempted from this rule).

• The last reason was the existence of flawed overlords. The minimum requirement for a single-class system is that all members of the class actually belong to the class. In communism, this did not happen. An elite class existed which we could call the super-class. They had much higher standards of living than everybody else.  As such, they consumed and diverted a disproportionate amount of productive resources towards their personal “wants”. Whatever they removed from the system was then unavailable to satisfy other people’s “needs”

And so, the answer again, is no. It is simply not possible to create a more-or-less rich, single-class society at a more-or-less practical level.

 

 

 

We need to do something about it

Of course we do! We are humans and as humans all our progress has been based on the concept of modifying our environment to suit our needs. No human ever increased its standard of living simply by sitting tight and doing nothing.

However, we must be very careful as to what “we do” in order to “fix” this problem. From a strictly humanistic perspective, we fully acknowledge that having poor people is not only undesirable but unacceptable. There is a basic bond between all people simply because we all belong to the same species. This is not something religious, moral or ethical; it is genetic. Although our genetic drive is to spread out our genes into as many people as we can (and therefore get rid of the other gene-spreading people), we actually need of other people to spread them. It is this biological duality of love-hate that creates this bond. At the most basic genetic level we understand that we need to be successful in propagating our genes, but not too successful. If we would to do so, there would be nobody left alive to carry our genes forward!

And so we “feel” for other people. It is only natural. We must do something about it. But what?

We have seen in the previous lessons that all political theories that attempted to “do something” failed miserably and are still failing. Not only that, they have made things enormously worse.

We have also seen how Austrian Economics solves the problem by simply not attempting to “do something”, by working with the distribution curve instead of against it.

In this way, we still have poor people, but they are so much more better off that it does not really matter. Their basic “wants” and “needs” (if you like) are satisfied naturally by the improved economy. But is this the best we can ever hope for?

In other words, is Austrian Economics (i.e. an absolute free market) an optimized system and anything we may attempt to change will only decrease its efficiency, lower everybody’s standards of living?

In a single word, YES.

As far as we know and based on all theoretical and practical information about human behavior and market behavior going back to the origins of human written history, a truly free market is already an optimized system in terms of standard of living. If we change the objectives, to other less worthy goals, such as conquest, we may get a different answer. But let’s assume that our goal is to improve everybody’s standard of life.

It is really quite frustrating. The best thing we can actually do is to get out of the way and let this natural process take its course. If we want the highest possible standard of living for everybody, we must bite our tong and do nothing.

Well…actually we must do something. We must ensure that other people do nothing. We must ensure governments do not interfere by getting them gone. We must ensure other people don’t get itchy or reminiscent and attempt to control or “manage” the free market. We must be ever vigilant to ensure the free market reigns free.

Now you know what you must do if you really want to help your fellow human beings. There is no escape, but the choice is still yours. As usual.

Note: please see the Glossary if you are unfamiliar with certain words.