According to
some social commentators, economic status (rich, middling, or poor) constitutes
a rigid social caste. Families that are rich will stay rich, families in the
middle will stay in the middle, and poor families will remain poor. It is said
to be a ‘myth’ that one can attain a higher economic status through hard work
or fall to a lower economic status through negligence. What is necessary,
instead, is for the poorer and middle classes to use their political majority status to
confiscate and redistribute the rich’s resources among members of their own class.
This
account, when talking about a free-market society, is false. It rather fits a
status society such as the feudal society of the rural areas in the European Middle
Ages, where people were generally born into their social stations and were
maintained in them through a series of political privileges, for the noble
classes, or political encumbrances, for the peasant and serf classes. In a
strictly free-market society, people can amass wealth through putting virgin
land into production, selling their labour to employers, selling their products
to buyers, or loaning resources (usually money) at interest. Anyone can engage
in any of these activities legally, if he has the means to do so. Individuals
in a free-market society do, it is true, start
with different amounts of resources at their disposal, generally depending
on how much wealth their parents had been able to amass and decided to give to
or use for the benefit of their children. But this is all part of the incentive
structure of the free-market. Without the ability to help their children out
with their amassed wealth, parents would have less incentive to amass wealth
through serving the consumers well, and far less incentive to improve their
properties or accumulate capital, if they could not pass down these things to
their children.
Even in the
‘mixed economies’ (economies where the government intervenes significantly in
the free-market order) that characterize most of the developed world today, it
is not empirically true that rich families stay rich and poor families stay
poor. Free-market economist Gary Galles summarizes a 2007 US Treasury study
called Income Mobility in the U.S from
1996 to 2005 as follows:
“The Treasury
found that those with the very highest incomes in 1996 — the top 1/100 of 1
percent — had their incomes halved by 2005 (missed by using statistical
classes, because such decreases move people out of the top category). That
hardly shows a class of rich growing ever richer at the expense of other
classes.
Other income categories
revealed a similar story. From 1996 to 2005, the incomes of those originally in
the top 1 percent and 5 percent both declined; the incomes of those originally
in the top 20 percent increased 10 percent; but those originally in the bottom
20 percent saw a 91 percent increase in income (missed by using statistical
classes, because such increases move people out of the lowest 20 percent)”
Gary Galles, “The Rich Aren’t
Dispossessing the Rest”, Mises.org, https://mises.org/daily/5799/The-Rich-Arent-Dispossessing-the-Rest
Of course, supporters of government
intervention could always claim that this degree of social mobility is due to
government interventions, while libertarians could claim that with less
government privileges to established corporations and with the more dynamic
economy that more freedom would bring about, social mobility could increase
even more in a real free-market economy.
If we go back to mid to late 19th
century America, probably the freest an economic system has yet been in world
history, we have tons of instances of ‘rags to riches’ stories. Andrew Carnegie
was from a poor Scottish family that needed a loan from a friend to even buy
passage to America, but he rose through the business world to become
fantastically wealthy as the most successful steel magnate in history. John D.
Rockefeller came from modest roots but ended up becoming fantastically wealthy
as the most successful oil magnate in history through a series of bold but
well-managed entrepreneurial ventures. Indeed, throughout early American and
Canadian history, numerous penniless newcomers, through intelligence and hard
work, significantly improved their material conditions and formed the social
basis of two new prosperous countries. This evidence, complemented by
theoretical considerations, strongly suggests that social mobility will be the
norm in a free-market society.
Most supporters of egalitarian
government intervention (except perhaps radical Marxists) do not deny the
evidence above, or blatantly assert that socio-economic classes in free-market
societies are analogous to castes in feudal systems. They do, however, come up
with three other reasons why they claim the social mobility of the free-market
society will not be sufficient to give everyone a ‘fair chance’. These are: the
existence of discrimination, the so-called ‘poverty trap’, and the lack of educational
opportunities for poor people. We will proceed to discuss these now.
1. Discrimination:
According to
feminist and anti-racist activists, certain groups such as women and ethnic
minorities face ‘structural discrimination’ and thus do not have the same
economic chances as males of the majority ethnic group. It is alleged that
employers irrationally discriminate against these groups when hiring, even when
their qualifications and prospects for being a success in the position are
equal or better than that of any male member of the majority ethnic group also
applying. As a result, the potential social mobility of women and minorities is
allegedly unacceptably reduced, and government must take action by granting
subsidies or calling for affirmative action programs for the groups in
question.
Whether the
psychology of most white male employers and its results described above is or
is not accurate, a true free-market system would almost certainly result in
less of such discrimination. This is because, in a free labour market, such
irrational discrimination against women and minorities would open up
significant arbitrage opportunities for the non-racist/sexist employer. Any
significant discrimination against women or minority groups would result in a
situation where premium wages were being paid for male or majority group
employees. Any non-racist/non-sexist employer could take advantage of this,
hire women or minority group members at a discount, and thus have lower labour
costs of production than the racist/sexist employer, putting the former at a
competitive advantage. As more employers copied this strategy, the wages of the
disadvantaged groups would be driven up by competition for their services,
tending towards an elimination of any ‘wage gap’ that might exist.
In addition,
at the same time, it is likely that any racist/sexist psychology that might
exist in society would diminish as women and minority members are increasingly
viewed in similar occupations and economic positions as males and majority
ethnic group members. For these reasons, a free-market would tend towards the
elimination of irrational discrimination, and is thus another argument for
establishing a free-market society. It is thus, consequently, not a valid
reason to doubt the social mobility inherent in a free-market society.
2. The ‘Poverty Trap’
According to
the ‘Poverty Trap’ theory, the poorest members of society are stuck in an
environment where their poverty is perpetuated indefinitely. This is allegedly
because poorer families will tend to have more problems (single parents, drug abuse,
parent in jail, etc…) and because the living environment of poorer areas of
cities is not conducive to success, with its gangs and lack of a supportive
environment for children. These factors will, according to the theory, combine
to make it extremely difficult for a child in these circumstances to lift
themselves out of poverty, unless the government steps in and attempts to
remedy these conditions, using taxpayer money.
Firstly,
this theory, I think, is far too critical of poorer families and poorer areas.
Not all poor parents are incapable of providing proper parenting to their
children. Far from it, probably many poor parents are just as good if not
better at raising their kids than their richer counterparts. Also, not all poor
areas are bad environments for children to grow up in. Many are, but it really
depends on the culture of the people in question, not on their poverty level.
Secondly,
probably the best blow to be struck against the ‘poverty trap’ theory is applied through citing
a historical example, where one of the greatest historical ‘poverty traps’ of
all time was overcome: this being the ‘Dark Ages’. In the 9th and 10th
centuries in medieval Western Europe, the vast majority of the population was
stuck in one of the worst ‘poverty traps’ you could imagine. The medieval serf
was legally bound to his land. He lived near subsistence levels and most of
whatever surplus he could produce was turned over to his rapacious feudal lord.
He grew up in an intellectual environment characterized by superstition and fatalism.
He was constantly threatened by physical invasion of his land, assault, and
violent death. Diseases ran rampant and killed vast swathes of the population
when they hit.
If we took
the ‘poverty trap’ theory seriously, we should be forced to declare that the
Dark Ages should have been the end of human material progress, with the vast
majority of the population stuck in one of the worst ‘poverty traps’
imaginable, prevented by their poverty from advancing. But this is not what
happened. In fact, in the 11th and the 12th
centuries, a remarkable thing happened: some of the bolder serfs escaped from
their feudal, rural bondage and congregated with others like them. They joined
together to build walls to protect themselves from rapacious noblemen, and
worked primarily as merchants and craftsmen to make a living by producing and
exchanging goods with one another, with rural noblemen and some peasants, and
with other cities of the world. These towns became the dynamic forces in the
medieval economy, and ushered in what is known as the High Middle Ages, where
culture and material prosperity advanced beyond the penury and ignorance of the
Dark Ages. Many city dwellers, descendants of those bold runaway serfs, became
quite prosperous in this process, showing that no matter how bad, every
‘poverty trap’ can be broken if one has the courage and wits to do so.
This, and
many other historical examples of breaking ‘poverty traps’, along with the
general discussion of social mobility presented above, suggests that while the
‘poverty trap’ is not an invalid concept, it is a trap that definitely can be
escaped, especially in a dynamic free-market economy characterized by greater opportunities and general material prosperity.
3. Lack of Educational Opportunities
When the denier of free-market social
mobility is presented with these historical examples of breaking ‘poverty
traps’ and other ‘rags to riches’ stories, a common strategy is to say
something like: ‘Well, that was in the past, in simpler times. Now, in the
modern world with complicated modern technology, education is the key to
economic success, and clearly the rich have more educational opportunities than
the poor. Thus, the government must establish equality of opportunity by
providing free education to the poor, or all social mobility will be stopped in
its tracks.’
In response,
firstly, I will admit that there is no such thing as “equality of opportunity”
in a free market system. As I mentioned above, some individuals will have
advantages over others due to the fact that their parents were able to amass
more resources by serving the consumers
more efficiently, but this is all part of the incentive system of the
free market. That being said though, the importance and class rigidifying
aspects of education in a free market have, I think, been overstated.
Firstly, many successful people did
not attain their success because they had a certain degree or certification,
but succeeded because they had the brains to be able to serve the consumers in a more
efficient way than their competitors. This will be especially true in a free
market, where professional associations and unions will not be permitted to use
force to restrict entry into a profession and where it will be easier, due to
less taxes, licences, and regulations, for small upstart companies/individuals
to compete with bigger established companies/individuals.
Secondly, education is an investment
where a sufficient return is expected, just like for starting a business, and
for this investment, like for starting a business, loaned funds will be
forthcoming if the creditor believes that the investment is a good one. Thus,
if having a good education is really as important for making it in the free
market as leftists generally claim it is, then financial institutions, and
perhaps even the educational institutions themselves, should be happy to give
out loans to students, in the expectation that their future incomes, with the
education, will be high enough to enable paying back the loan with interest.
Thirdly, in a free market the price of
education will go down from what it is currently. At the post-secondary level,
without the government giving guaranteed student loans, the universities will
be forced to attract students based on quality and price, and they will compete
with each other in this regard, instead of inflating tuition fees because they
know that the government will almost always enable students to pay them. At the
primary/secondary level, in the absence of public schools, not only will the
tax money used to pay for them be returned to the citizens, but in their
absence there will grow a wider variety of private schools at different price
levels, instead of just expensive ones for rich kids whose parents don’t want
them to go to public school. Private tutors too could even provide different
levels of education for a wide range of prices in a free market for education.
Fourthly, if the government is
subsidizing education or even operating schools, it must of necessity decide
what is taught and what is not, thus creating conflicts between parents and not
supporting the teaching of certain views in schools, something that the
flexibility of the free market would quickly solve.
All that being said, I do
recognize that basic literacy and numeracy is a vital necessity in our society, but if
someone cannot even afford to give their children this kind of basic education, they are probably a
good candidate for the minimal social safety net of the kind I have expressed
support for elsewhere, which will provide basic primary education for children.
As with welfare generally, there is no need to strangle the education market
for the relatively minor problem (in a prosperous free market society), of
children whose parents can’t afford to give them the most basic level of
education.
Thus, while
of course not achieving the impossible ideal of ‘equality of opportunity’, the
free-market system, with its dynamism and emphasis on merit in serving the
consumers, will not resemble a rigid caste society, where the rich stay rich
and the poor stay poor. We have seen that discrimination, poverty traps, and
lack of educational opportunities will not present serious problems for social mobility in a
prosperous free-market society.
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