Most people who have lived on this planet have been desperately poor, and most societies even today are by no means affluent. Never before in history has a society entertained the hope that poverty might be eliminated; such a notion in any other society but mid-twentieth century America would be put in the same category as perpetual motion. Only in a nation where unparalleled prosperity was the rule could people regard poverty as the exception. No other society has ever been wealthy enough to even think of launching what we call a War on Poverty. I shall ask you to keep this thought in mind as I submit the program to critical analysis.
All men of good will can meet on the common ground of shared goals. The common aim of liberals and conservatives alike is to enhance the economic well-being of all men. We all want to see other men better off; better fed, better housed, better clothed, better educated, healthier and with better medical care, more recreation and more leisure. There is little disagreement as to goals such as these; the continuing debate between liberals and conservatives is not over ends; it is over means. We differ as to the means we must employ if we are to attain the ends we say we want to reach.
The Great Society has a ready answer to all such problems: Pass a law. The typical liberal of our time has unlimited faith in legislation designed to redistribute wealth and income: Taxes for all, subsidies for some. Is there a slum? Replace it with a government housing project. Is there a “depressed area”? Build a “defense plant” there. Is X industry in trouble? Give it a subsidy. Does the economy need a shot in the arm? Hand out a veterans’ bonus. And so on and so on; the list is endless. Each of the items, however, has something in common with all the others; each one proposes to correct an economic problem by political action. In short, the liberal invokes governmental action to achieve economic goals.
Emphasis on Production
Now, the natural way to go about achieving the economic ends of higher all round living standards — one would suppose — is by employing economic means and becoming more productive. It is only in a productive, prosperous economy that share-the-wealth programs make any sense at all; and it is only by expanding the methods which explain our present prosperity that the less prosperous can hope to improve their circumstances. Otherwise, the situation might shift into reverse; if we employ the wrong methods for getting rid of poverty, we might find that we have eliminated prosperity instead!
Government is not an economic institution; governmental action as such does not produce food, clothing, or shelter. The provisioning of men’s material needs involves economic action, with government standing by to protect the producer and keep the trade routes open. Government has no economic goods of its own, so any wealth it bestows on this or that person must first be taken from the people who produced it. If government gives Peter a dollar, it must first deprive Paul of a portion of his earnings. The nature of political action is such that government cannot possibly be used as a lever to raise the general level of economic, physical, and intellectual well-being. If governmental action does increase the income of one segment of the population, it is only by disadvantaging other sectors of society in a kind of seesaw action. If, therefore, our concern is to upgrade the general welfare — the overall well-being of all citizens —we must rely on economic rather than political means; that is, we must rely on men and women in a market economy, working competitively, with government acting as umpire seeing to it that the rules of the game are not being violated.
Let us try to get this matter of poverty into perspective. Most of us have had some encounter with poverty. Our memories go back to the stock market crash of October, 1929, and to the Great Depression of the nineteen thirties. Most of us experienced poverty in our own families or, at any rate, in our neighborhoods. In the nineteen thirties there were millions of men without jobs, through no fault of their own. As a consequence of widespread unemployment, many American families had to scrimp in order to get along. They pulled in their belts and ate less well than they would have liked; some wore cast-off clothing; houses went unbuilt or unrepaired. People did without, and America went through the wringer. But during this same period — the nineteen thirties — more than five million people died of starvation in the Ukraine; nothing like this happened in America. America has never had a famine, not even during the Great Depression of the nineteen thirties. The mass starvation in the Ukraine was of a different order of magnitude from the hardship endured by the people of America during the Great Depression.
Twenty-five years ago I stepped off a troopship in Bombay. We were surrounded by beggars. A swarm of little boys were diving into Bombay Harbor for pennies; loincloth-clad stevedores—scrawny little men — began to unload the ship. Several of us hired a taxi which drove us around this exotic and teeming city. Returning to the ship late that evening, we drove through miles of city streets and saw hundreds of thousands of Bombay citizens sleeping side by side on the sidewalks. These people were not simply ill-fed and ill-clothed; they literally had no housing! This was poverty of an intensity so great that, by comparison, the poor in American cities or the impoverished in the rural areas of the South, even during the depths of the Great Depression, would seem affluent by comparison. There is affluence in India as well as an enormous amount of poverty, but the poor in America live at a level which would put them among the affluent in India — or Africa, or China, or in many parts of Europe.
Pinning Down the Definition: Poverty Is Relative
I draw these comparisons only to suggest that we are badly in need of a definition of our major term, poverty. We live in a generation which prides itself on its expertise in semantics. The semanticist has taught us to look for the referent. A piece of steel, the semanticists point out, is not a piece of steel merely. We must specify steel of a certain carbon content, with certain dimensions, at a certain temperature, and at a given time. A piece of steel now will be a blob of rust a century from now, so the time element is important. The Office of Economic Opportunity acknowledges the problem in a sense, by offering us an arbitrary definition of poverty. A couple without dependents, we are told, with an income of three thousand dollars a year, is living at the poverty line. But in 1936 one of the early New Dealers, an economist named Mordecai Ezekiel, wrote a book entitled Twenty-Five Hundred Dollars a Year. An annual income of two thousand five hundred was held up then as an economic target for America. The book was regarded as utopian, as a wild prophecy of the level of prosperity to which Americans might aspire. And now an annual income 20 per cent above this is called the poverty line!
Now, prosperity is not measured by numbers of dollars alone; prosperity depends upon the prices of the things these dollars are used to buy. And, as everyone knows, the government has inflated our dollars to the point where each one is now worth about 39 per cent of what it was worth thirty years ago. The dollar today buys — on the average — what 39¢ would buy in the period just before World War II. Three thousand dollars does not buy much in 1968. A couple which earns only three thousand dollars a year are declared by the national government to be existing on the ragged edge of poverty. But what is the very first thing this government does to them? It steps over and exacts more than three hundred dollars from them in taxes. This action violates what Tolstoy declared to be our first duty toward the poor. We should, he said, get off their backs!
I do not believe that all things are relative, but I do believe that some things are relative; and what we call poverty is one of them. A thirteenth century English serf living in Northumberland was desperately poor — not relative to other serfs living in Northumberland or Wessex, but relative to his Norman overlord. And that Norman baron lacked the amenities we deem necessary, and which are today enjoyed by all but a fraction of American citizens.
A Wave of Immigration
America has, until recent years, been looked up to by the world’s people as the land of opportunity. Immigrants by the millions came to these shores in the period 18201930, in order to be free of the restraints they suffered from in other parts of the world. They sought a land where they might worship freely; a land where the barriers of class and caste were largely nonexistent; a land where a man might rise by his own efforts. What were these people doing here during these decades? They were farming, manufacturing, pushing west, building railroads across the continent, supplementing their diet by fishing and hunting, finding a new way of life, and so on. These people were producing food, clothing, shelter, and the amenities at an accelerating rate, and by so doing they were fighting poverty. They were overcoming poverty by their productivity — and poverty can be reduced in no other way — only by production. The general level of economic well-being in America rose decade by decade. Many people went from rags to riches; but even those whose ascent was not so dramatic did share in the general prosperity. I am critical of much that went on in nineteenth century America, but let’s at least give the period its due. These people fought and largely won what might be called the great war on poverty. A whole society came to enjoy a level of affluence hitherto “beyond the dreams of avarice.”
Americans continued to expand their productive capacity so that by mid-twentieth century we have sent our surpluses around the globe in various foreign aid programs. Despite the fact that America has given more than 122 billion dollars worth of goods to various nations since the end of World War II, Americans still enjoy a personal level of prosperity far above that of most other people. America’s greatness is not, of course, to be measured by monetary income and material well-being; but it is interesting to note how well Americans have done economically with the resources available to them. The United States is only one-sixteenth of the land surface of the world, and Americans are only about one-fifteenth of the world’s population. Nevertheless, Americans own three-quarters of all the automobiles in the world, one-half of all the telephones, one-half of all the radios, three-quarters of all the television sets. Americans consume about two-thirds of all the petroleum products in the world, one-half of all the coffee, two-thirds of all the silk. An American factory worker can buy four suits of clothes with a month’s wages; his counterpart in a totalitarian country can buy half a suit with a month’s wages. An American can buy six pairs of shoes with the results of a week’s work; his totalitarian counterpart can buy one shoe. These figures prove only one thing. They demonstrate with what dramatic success Americans have waged the great war on poverty.
We had become so prosperous by the mid-nineteen fifties that this fact was cause for alarm — in the eyes of some people. For example, the National Council of Churches convened a study conference in Pittsburgh in 1956, on the general theme: “The Christian Conscience and an Economy of Abundance.”
“Can we stand abundance?” asks a brochure which came out of this Pittsburgh meeting. “The human race has had long experience and a fine tradition in surviving adversity. But now we face a task for which we have little experience, the task of surviving prosperity.” Among the conference resources was a booklet by Leland Gordon and Reinhold Niebuhr giving “information and insights on the economic and religious aspects of mounting prosperity in the U.S.A.” In 1958, John Kenneth Galbraith provided the phrase we were looking for to characterize the era when he entitled his book The Affluent Society. The man in the street phrased it somewhat differently: “We never had it so good,” he said.
The prosperity enjoyed by the bulk of Americans during the mid-twentieth century does not mean that American society neglected those who did not share in the general prosperity. In 1963, the then Secretary of Health, Education, and Welfare observed that 42 Federal programs have “a direct application to poverty.” In addition, every local community had its locally based welfare projects and so did every state. According to the Social Security Bulletin for November, 1963, we were spending in excess of forty-four billion dollars a year on welfare and welfare-type programs. Then, in 1964, Congress passed the Economic Opportunity Act and a one billion dollar War on Poverty was announced with great fanfare.
How the Great War Was Won
Now the very fact that we have a so-called War on Poverty is itself eloquent testimony to the general affluence of our society. In a society where almost everyone is poor — and this has been the condition of almost every human society of the past and it continues to be the condition of most people in other parts of the globe today — talk of eliminating poverty is a pipe dream. It is only in America that the idea of ridding ourselves of the last vestiges of poverty would occur to anyone. So successfully have we waged the great war on poverty that we entertain the notion that in a piece of further legislation we can eliminate what might be called residual poverty.
It goes without saying that before we can share our prosperity we must be relatively prosperous. Thus, it is imperative that we explain the question: How did we achieve that level of prosperity which makes it possible for us to entertain the notion of eliminating poverty altogether? The average American is somewhat taller than his ancestor of a century ago, and somewhat heavier; he has had a longer period of schooling. But our prosperity gains are not to be accounted for by the fact that the twentieth century American is bigger, stronger, and smarter than his nineteenth century counterpart. Does he work longer than his forebear of a century ago? No, to the contrary, the work week has been cut almost in half in the past hundred years. The answer lies in better tools and more of them. The average American worker of today has at his disposal far more and better machinery than any other worker in history, and as a result the American worker is the most productive worker of all times. In America machines do more than 90 per cent of the physical work. Tools and machines are called capital, and it is the immense amount of capital invested per worker in America which accounts for the American’s productivity. In the average manufacturing plant there is more than $21,000 invested per worker. In the automobile industry the figure rises to $25,000 invested per worker in machines and tools; in chemicals the investment is $45,000 per worker; and in petroleum the figure skyrockets to $141,000 of invested capital. A society becomes more prosperous — the material well-being of people increases — when people are encouraged to save, when earnings are protected, and when these savings are invested in tools and machines. At the present moment in America about $21,000 worth of tools and machines — on the average — are put at the disposal of each man who works in a factory. As a consequence, the average American worker produces more efficiently than his counterpart in other nations, and more goods are available for everyone. Because he produces more his wages are higher; his wages rise in lock step with his increased productivity. This was how the great war on poverty was won.
Progress through Freedom
This result has been obtained within the free economy, or the free market, as it is sometimes called. The free society is one which gives the individual citizen elbowroom by limiting government by constitutional, legal, and moral restraints. The idea is to retain a protected private domain within which people may freely choose and freely pursue their personal goals — just so long as their actions injure no one else. In such a society the economy will be free, and as a result of economic freedom it will attain to maximum prosperity. But no matter how prosperous a society becomes, wants and demands will increase faster than material goods can be produced.
Henry David Thoreau remarked that he was rich in the number of things he could do without; but this is not the modern temper. The mood of our time is reflected in Samuel Gompers’ response to the question, “What does labor want?” “More,” was his reply. There is a Parkinson’s Law in operation here: The higher the general level of prosperity, the more keenly do we feel the nagging wants and demands for even more things. The general principle is: Human wants and demands always outrun the means of satisfying them. This is a fact of our human situation as such, and we need to discipline our emotions into line with reality.
These emotions are easily exploited by demagogues who suggest that mankind might move into a utopia of abundance, except that wicked men bar the way and keep us poor. The coordinator of the National Council of Churches’ Anti-Poverty Task Force, for example, makes the assertion that “Poverty would not continue to exist if those in power did not feel it was good for them.” Such a sentiment as this is a gratuitous insult aimed at dissenters; but moreover, it is a silly sentiment. We live in a commercial and manufacturing culture, and mass production is the rule. Mass production cannot continue unless there is mass consumption, and the masses of men cannot consume the output of our factories unless they possess purchasing power. To suggest that those who have goods and services to sell have an interest in keeping their customers too poor to buy is nonsense. In a free economy, everyone has a stake in the economic well-being of every other person.
“The Science of Scarcity”
Economics has been called the science of scarcity, but as the word “scarcity” is used in economics it is a technical term. Let me try to explain. If we are to properly evaluate the war on poverty, we must keep in mind that there is on this planet a built-in shortage of the things men want and need. To qualify as an economic good a thing must exhibit two characteristics. It must, in the first place, be wanted; and, in the second place, it must be scarce. Every one of us wants air, but air is not an economic good because each of us can breathe all the air he desires and there’s still a lot left over for everyone else. Ordinary air is not a scarce good, but conditioned air is another matter. Air that has been cooled or heated has had work performed on it and it is in relatively short supply; there’s not enough of it to go around and, therefore, we have to pay for it; we have to give up something else in order to obtain air that is heated or cooled. The second feature of an economic good is its scarcity. Now, beriberi is a scarce thing in this part of the world, but it is not an economic good because no one wants it.
Economics is indeed the science of scarcity, but it’s important to realize that the scarcity we are talking about in this context is a relative scarcity. In the economic sense, there is scarcity at every level of prosperity. Whenever we drive in city traffic, or look vainly for a place to park, we are hardly in a mood to accept the economic truism that automobiles are scarce. But, of course, they are, relative to our wishes. Who would not want to replace his present car or cars with a Rolls Royce for Sundays and holidays, plus an Aston Martin for running around?
The economic equation can never be solved; to the end of time there will be a scarcity of goods, and unfulfilled wants. There will never be a moment when everyone will have all he wants. “Economics,” in the words of Wilhelm Röpke, “should be an anti-ideological, anti-utopian, disillusioning science.” And indeed it is. The candid economist is a man who comes before his fellows with the bad news that the human race will never have enough. Organize and reorganize society from now till doomsday and we’ll still be trying to cope with scarcity.
The point needs to be stressed: Scarcity now and forever, no matter how high we jack the society above the subsistence level. Poverty, in other words, is not an entity like smallpox, say, or polio. By research, and by investing a great deal of money, time, and brains, we have wiped out several diseases which once plagued the human race. There is no analogy here to the situation we confront as regards poverty. No matter how far a society climbs up the ladder of prosperity there will always be a bottom 20 per cent; some folks will always be better off than others. A college president says that they carefully screen the students entering his institution, and during the four years of college the students are exposed to the best teachers around. But despite all their efforts, 50 per cent of the students graduate in the bottom half of their class!
Every society, no matter how prosperous, will still be trying to cope with vestigial poverty — even though the people comprising this residue of poverty are affluent by comparison with the masses of Asia.
Poverty through Intervention
Scarcity, as I have said, is in the nature of things, but there is also artificially induced scarcity. There has been less of institutionally generated and sanctioned scarcity in America than elsewhere, but there has always been a certain percentage of our poverty artificially created by unwise and unwarranted political interventions. If government did not do so much to hurt people, there would be less excuse for its clumsy efforts to help them. Let me briefly cite several examples: The farm program costs about 7 billion dollars a year. This hurts mainly the masses of moderate and low income people who are first taxed to pay for the program, and then are hit again by the higher prices they are forced to pay for food — which is a far larger item in the budget of the poor (in proportion) than it is in the budget of the rich. The money taken from these people is given to farmers who use it to buy equipment and fertilizer to grow more food for which there is no market so that government can store it or give it to people who are hurt by receiving it.
Look at the damage done by the Urban Renewal Program. My source here is the study by Professor Martin Anderson, sponsored by the Joint Center for Urban Studies of M.I.T. and Harvard, published as The Federal Bulldozer. In the decade under examination, Professor Anderson found — among other things — that the Urban Renewal Program has demolished about 120,000 dwelling units with a median rental value of $40 per month. During the same period, some 25 to 30 thousand dwelling units have been built with a median rental value of $180 dollars per month. The poor have been evicted from their crowded and unsatisfactory housing into housing that is even less satisfactory and more crowded. The people who can afford to pay $180 a month are enjoying subsidized housing at public expense. During the period when Urban Renewal has shown a net loss of 90,000 housing units, what has private enterprise been doing? Something like 18,000,000 housing units have been constructed in the private sector of the economy!
Then there are minimum wage laws. Liberal and conservative economists see virtually eye to eye on this point; they agree that minimum wage laws throw men out of work — especially teenagers and especially Negroes. After 1956, when the minimum was raised from 75¢ to $1.00 the nonwhite teenage unemployment rose from 7 per cent to 24 per cent while white teenage unemployment went from 6 per cent to 14 per cent. It is easy to understand why. Wages are a cost of doing business, and if something begins to cost more, we start using less of it—other things being equal. When labor costs more per worker, fewer workers will be used. Some marginal plants will shut down altogether.
Similar reasoning applies to monopoly labor unions. The aim of these unions is to raise wages above the market level; and if they succeed in so doing, a number of workers are thereby disemployed. Former Senator Paul Douglas wrote his book on wage theory in 1934, demonstrating that if wages are artificially raised 1 per cent by union pressure on employers, between 2 and 3 per cent of the work force will lose their jobs. Unemployment is institutionalized.
Then there is the matter of investment. The welfare state’s pattern of taxation drains off money that otherwise would flow into capital investment, with the result that we have fewer tools and machines than otherwise would be the case, and are that much less productive in consequence. Being less productive, we are poorer than we need to be. It boils down to the truism that we can conquer poverty only by production, with the corollary that every restraint on production sabotages the real war on poverty. Nor is there any political alchemy which can transmute diminished production into increased consumption.
The fact of the matter is that the restrictive political practices of today — which bear such labels as Liberalism, Collectivism, and the Great Society — are the consequence of wrong-headed theories of yesteryear and last century. We embraced unsound ideas and engage in uneconomic practices as a consequence. The late Lord Keynes said it well:
Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.
It is ideas which rule the world, for good or ill, and in this struggle none of us is a mere spectator.