The Folly of Income Equality

When the walls come tumblin' down
When the walls come crumblin' crumblin'
When the walls come tumblin' tumblin' down
--John Mellencamp

Keen insight, as always, from Mises on wealth and income inequality. The phenomenon of unequal distribution of wealth and income is as old as civilization itself, although formal study is often considered to have commenced with Pareto's work in the 1800s.

Mises sagely observes that inequality is an essential feature of a market economy. In a market economy, consumers, not producers, are supreme. Inequality empowers consumers to motivate those engaged in production to comply with their demands. Producers maintain possession of productive assets as long as they successfully satisfy consumers. If they are unsuccessful, then profits fall and producers cede control of productive assets to those more capable.

If there was no inequality of income permitted in society, then producers would not be driven to improve productivity and innovate to better satisfy buyer needs. Inequality of income drives higher standard of living for all, including those at the bottom of the social pyramid. This relationship is something that socialists fail or refuse to understand.

Were it possible to to evenly distribute income (a debateable thing, as we've never seen it on a large scale in the history of the world), then society is destined for squalor. There is no incentive for producers to innovate. Moreover, investment capital necessary for improving productivity would not exist it is typically accumulated by those with high incomes. Indeed, those who control production, which in a socialistic system are the central planners, reign supreme. Consumers are forced to take what the planners mandate. Productivity declines; standard of living falls.

Mises notes that contemporary socialists often claim that they don't to do away with inequality altogether. Instead, they espouse a 'lesser degree' of inequality. Of course, determining that lesser degree is an exercise in subjectivity that leads down the slippery slope. Mises correctly notes that once a society undertakes a policy of equalization, it is unlikely that there will be a future point where that policy can be checked. Quoting the master:

"Under the sway of the doctrines taught by contemporary pseudoeconomists, all but a few reasonable men believe that they are injured by the mere fact that their own income is smaller than that of other people and that it is not a bad policy to confiscate the difference." [emphasis mine]

So progressives clamor for ever more 'social justice' from their government agents of force...as the walls crumble around them.