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Acton Commentary

Getting serious about poverty means understanding wealth

    Christians are generally aware that they have an obligation to assist the poor. It is preached from pulpits, written in books, taught in schools. The issue becomes more contentious, however, when discussion turns to the best method for doing so. Too often, advocates for the poor ignore the foundation for poverty relief: the production of goods. If Christians are serious about improving the lives of the poor, we must be serious about understanding the sources of wealth creation.

    The Engine of Wealth Creation: The Pursuit of Goods

    When an economist says “good,” he is not necessarily speaking of “tangible goods” such as a washing machine or a car. For Austrian economists and others influenced by the Aristotelian-Thomistic tradition, a good is that which we believe is “good”: anything that will satisfy a need that a person has. This good is seen in a subjective sense: There are objective goods in the universe, but to desire this or that objectively good good, I must subjectivize it; that is, I must actually see it as a good for me at this particular time.

    The needs that people experience can be almost anything: education, love, food, culture, or the above-mentioned washing machine. There are two types of goods for our purposes: free goods, that is, things that are part of our natural environment and that we can have whenever we want, such as air; and economic goods, that is, goods of which there are not enough to satisfy our desires. Because our desires have no real limit, while economic goods are finite, the latter must be economized. This means that they cannot be handed out indiscriminately, because the supply would vanish quickly.

    Most of the time, the goods we need are down-to-earth things such as food, clothing, and shelter. We need cars to get to work and the store and church, we need medical care and dental care, books to read, paper to write on.

     Too often, advocates for the poor ignore the foundation for poverty relief: the production of goods

    In fact, since man is co-creator with God, as Pope John Paul II said (Laborem Exercens, nos. 12-13), he creates his own society which will serve his ends, most of which are only intermediate ends, which should, in turn, serve his ultimate end. Hence, society, and the economy are spontaneous orders driven by the things human beings need. The novel Robinson Crusoe is a good example. Crusoe finds himself on an island, alone, with virtually nothing for his survival. He immediately begins to provide for his first necessity, food, and then other needs such as shelter. When Friday shows up, he makes arrangements with him to develop things that make life somewhat easier. The more complex this society becomes, the more things are available to enhance human flourishing. In the novel, Crusoe finds a bible among the ship’s material, and becomes a Christian and then converts Friday. So the social and economic relationships tend to higher things, such as one’s eternal salvation.

    It is natural for human beings to want to bring themselves and their families to a state of affairs that is better than the present one. It does not matter if one speaks of finances, education, health, religion, or living conditions; people generally try to move to a better situation in all these areas and many more. If a person was completely content with his current state of affairs, that person would not do anything to change it.

    The effort to better one’s state of affairs requires belief in cause and effect. One must be able to predict that there are actions that will bring about a better state of affairs. In addition, there must be the possibility of performing those actions. In many underdeveloped countries, options are constrained for various reasons, diminishing the likelihood that people will (or can) take actions to better their condition. In the West, and places like Hong Kong, Taiwan, Singapore, and Japan, such actions are usually available. In these places, there may be other reasons that people do not strive to better their condition, including apathy and the existence of perverse incentives (a weakening of the cause and effect relationship that normally motivates action).

     When considering strategies for increasing wealth, then, this natural human drive to better one’s condition is the engine that must be fueled. Approaches and policies that diminish this drive or redirect it in fruitless ways will end up being counterproductive. Without this natural drive to better our condition, the world would never have risen out of barbarism. If we destroy it, the world may turn back in that direction.

    Conditions for Wealth Creation: Capital and Property

    If a person merely gathers food to survive, there is no way that his standard of living will increase. All his goods are used for current consumption. But if he possesses some goods that will be used to produce consumer goods for future consumption, he possesses capital. For example, if the food gatherer invents a type of plow, he will plant some of the grain he would have consumed to begin to grow his own grain, rather than stripping the land bare and moving on. The plow is a capital good. But how did he acquire this good? He had to spend time actually thinking about his invention and how it could be made and used. To do this, he had to refrain from consuming some of his current supply of grain and save it so as to feed himself during the invention-making period, where his time would be spent making and testing the plow. We call this savings. All increasing of production requires savings.

    Saving implies a kind of morality. The willingness to consume less than one earns requires self-restraint. While in the prosperous West we are bombarded with constant pleas to purchase this or that, this in no way compels us to do so. Many complain about advertising “forcing” us to buy things we do not need. But all purchases are free-will actions of rational creatures. The problem is not the ads, but a materialistic mindset that, as Pope John Paul II wrote (Centesimus Annus, no. 36), has a person defining himself by what he has, not what he is.

    Saving implies a kind of morality

    What are the motivations to save? First is a return on one’s money. Businesses will borrow money from savers for a price, interest. The interest is the incentive for the saver to sacrifice current goods for future goods. The second incentive to save is so that a person will have a fund for emergencies. Another is so that the person will have money to live on in retirement.

    Regardless of the intention of the saver, savings goes to expand industry, or education, or other productive endeavors. In other words, without savings, there would be no new things: no more labor saving devices; no better and safer cars; no central heating or running water and the sink, tub and toilet fixtures to control it; no central air conditioning or electric elevators; no advancements in medical diagnostics and treatments or new medicines.

    Another indispensable factor is the protection of private property. The seventh commandment exists for a very good natural reason. If the goods of any of us were fair game to others, we would find that it is hardly worth it to work. If, as soon as I came home from work with my pay or from a store with my purchases, someone could take my money or my things, I would quickly develop a cynical attitude. I would likely decide that the more effective way to maintain or better my condition would be to steal others’ things, and try to defend my stolen items as best as I could from other roving thieves.

    But there is another side of this problem that is important for economic development. Not only is a person not allowed to give away a thing he has stolen; he cannot even sell it. I cannot sell what I do not own. I am not allowed to give you money entrusted to me by another. Even if I use a truck to transport air conditioners for the company for which I work, I can only use the truck for the purpose that owner assigned to me. I am not allowed to take it off-roading or enter it in a NASCAR event. The point here is the importance of the sacredness of private property for the working of the market. Without the assurance that my property, including my money, is secure, theft will abound, and economic development will grind to a halt.

    So economic development, and therefore wealth creation, requires savings, which comes from people who make more than they consume, and where their right to keep what they make and dispose of it is protected by law and/or custom. Also, there needs to be a hope that they will be rewarded with a decent return when they invest the excess that they made over what they consumed. Without these factors, stagnation and widespread poverty will result.

    There are many obstacles to wealth creation that lay beyond the scope of this discussion, among them political strife; the confiscation of wealth by tyrants; forced industrialization of agrarian societies; overregulation by government; and high taxation. Solving these problems is no easy task. But the monumental job of curing poverty cannot conclude successfully if does not begin with an accurate understanding of how to create wealth.

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    William R. Luckey is professor of economics emeritus at Christendom College in Front Royal, Virginia. This commentary is excerpted and adapted from volume 24 in the Acton Institute’s Christian Social Thought Series, Wealth Creation: The Solution to Poverty, now available on Amazon.