How to Destroy Wealth
Coercive Redistribution Decreases Satisfaction
DECEMBER 01, 1995 by RICHARD W. STEVENS
Mr. Stevens is a lawyer and teaches Legal Research & Writing at George Washington University National Law Center.
Anyone can demonstrate the fundamental flaw in the welfare state by engaging in a simple experiment which illustrates that the coercive “redistribution” of wealth destroys wealth. Legislators who take funds from taxpayers coercively to create “wealth” by building a dam in Colorado or a library in Pittsburgh, for instance, actually destroy wealth. This simple experiment with my two sons shows how.
Andrew, age eight, enjoys books about magic and riddles. Jason, age six, loves construction toys like dump trucks and cranes. One Saturday afternoon, I took from Andrew his books of riddles and magic and gave them to Jason. I took from Jason his construction toys and gave them to Andrew.
Rebellion erupted. Both boys complained that my naked exercise of power was not fair. I explained that I had not damaged their toys in any way; the total money price of the things they had received was the same as what they had given up; they should both be just as happy as before the swap.
The boys screamed and yelled. In the first place I had forcibly interrupted their play. They might soon get over this, they said, if I would only return their original toys. They even admitted that if I gave them something extra, “something really neat,” they might be willing to forgive the interruption. However, I had forcibly taken away their favorite toys and this was unjust on its face. How would I feel, they asked, if someone came and took my chess computer away from me? I told them they hadn’t really lost anything— it was as if I had taken a five dollar bill from each of them and given them each another five dollar bill. The money value of the toys each had received was the same. They had both gotten something of equal money value. But they weren’t mollified.
The boys had a difficult time explaining another reason for their resentment, but it was no less real. By taking away the toys they valued most, and giving them toys they valued less, I had stolen something of value from them—their fun, their satisfaction. Although the toys had not lost money value, the real value of their toys had decreased through the redistribution. The market price of Andrew’s books and that of Jason’s construction toys were about the same. But in Andrew’s hands the books were more valuable than the trucks and cranes. And to Jason the trucks and cranes were more valuable than the books on magic and riddles. By the redistribution both had lost value. The fact that they cost about the same in dollars was immaterial. Their values in the eyes of Andrew and Jason were neither objective nor measurable; they were subjective “psychical and personal,” as Ludwig von Mises wrote.
When I left the boys alone and told them they could trade back again, they promptly did so, grumbling as they did about why Daddy had bothered them in the first place.
This simple experiment demonstrates several economic truths. First, economic values are subjective. The fact that the books and trucks cost the same was immaterial.
Second, no outsider, no parent or government official can forcibly redistribute goods from one person to another without decreasing the satisfaction of at least one of the parties. Andrew and Jason had already arranged their toys to satisfy their personal wants and interests. By forcibly interfering, I had reduced the satisfaction of both boys, as they told me in no uncertain terms.
Third, exchanges of goods of equal monetary value are not equal exchanges. The objective “market value,” i.e., the price of a good is not the same as the subjective value in the minds of the particular persons involved. Individuals trade goods voluntarily with one another only if each expects to receive in return something that will be more valuable to him or her than what he or she is giving up.
Fourth, there is no way to compare the unhappiness of two different people. From their yells I could tell that neither Andrew nor Jason liked the new order of things. Yet there was no way to judge whether one child was harmed more or less than the other. We cannot measure the harm that forced transfers cause to people, but we know the harm exists.
This little experiment with Andrew and Jason shows that transferring wealth forcibly from some individuals to others interferes with the voluntary arrangements people make among themselves, destroys personal subjective values, and actually reduces the amount of wealth in society. Thus social programs that aim to improve the lives of some persons by taking funds forcibly from others are bound to destroy wealth in society—although there is no way to measure how much.