How Wealth Moves Under Political Pressure
There are three types of wealth that should take our attention.
One of these is customer wealth or consumer wealth,
one is entrepreneurial or capital wealth,
and one is political wealth.
I'm particularly concerned with focusing now in this last category of wealth. Most people
haven't given this area a great deal of thought. Political wealth is a special type of classification
in the area of economics, and very few economists have given it the attention that it deserves.
So I'd like to really focus in this area for a few minutes.
Actually, wealth is something that we all require. The classification of wealth fundamentally
relates to the things, the goods and services you and I want as customers or consumers by
means of which we sustain our lives and obtain the satisfactions that we want. But there
is this particular type of wealth called political wealth which arises as a result of the demands
is made by politicians upon the market, and then the market, the entrepreneurial area, produces the type of wealth that politicians demand, and a very interesting phenomena develops in the market as a result.
Now, let me take an example here to show what I mean. Let's suppose that we have automobile
company which we will call the United Updyke Company. And the United Updyke Company makes
a very popular automobile called the Updyke. It's a real upbeat vehicle and lots of people
buy it and it has all of the modern gadgets for on the floor and spoilers and the works.
Okay, now this is the Updike vehicle and people buy it and there is a firm making it, but
now a politician, a major politician, goes to the manufacturer of the Updike vehicle
and says, look, we are very definitely in need of a new type of tank and we'd like you
to take your resources and help to develop a new type of tank and if you can come up
up with it when there's a big fat lucrative government contract here for you and you can
really make yourself a bundle.
So now the manufacturer of the Updike vehicle pulls some of his research and other facilities
out of the production and the improvement of the Updike vehicle and he begins concentrating
on the creation of a new tank because this would be a tremendous feather in his cap if
he can get that contract.
He knows that the government man has gone to a number of other vehicle manufacturers
and that there's nothing for sure that says he's going to get the contract, whoever gets
it has a real chance to make a lot of money.
So he does a lot of research, he develops a new type of vehicle that he thinks will
be a winner, and when he has it ready, why then he approaches the politician from whom
And he got the information in the first place, and he says, I have made a new tank.
And this tank is absolutely fantastic.
It will kill more people and destroy more property in less time than any other tank
in existence.
And the politician says, well, gee, that's wonderful, but I'm no authority in this area.
Let me bring in the generals, and they're the ones that understand killing.
So let's get them out to test your tank.
So the tank is wheeled into the yard and out come the generals, and they say, let's go
to Work with it. And it is put through its paces. And as a result of that demonstration,
the generals become convinced that this tank will live up to the manufacturer's claims
for it. It will kill more people and destroy more property than any other like vehicle
in the world. And the generals say, we've got to have 5,000 of those at once. So now
what does the updyte company do? Well, it doesn't make as many updyte cars anymore.
It makes up diked tanks. And the tanks come rolling off the assembly line, of course.
Now here is an interesting thing. How does the politician pay for the tank? Well, the
politician, you see, is in a little different position than the customer. Now when a customer
wants to buy something, he goes to work to get paid in money so that he can spend the
the money to buy what he wants.
But when the politician wants to buy something, he presumes that he's already working.
He doesn't have to get a job to produce anything.
He is already fully occupied, and he presumes that occupation is a job.
He's fully occupied in dreaming up ways of impeding human activity.
So he hasn't got any spare time, and that's certainly true.
Many politicians work very long hours, that is to say, they are occupied many long hours.
So he hasn't the time to do it.
So when it comes for him to get his hands on some money, he only has one way of doing
it.
He turns around and he uses a device called taxation.
He goes out to the customer area and he taxes customers.
That is not his customers.
These are customers of the businessmen, or consumers we could call.
He taxes consumers to get the money that he wants, and then he goes over and he taxes
the producers to get what he wants. And when he has enough taxes in his hands, then he
can pay for what the producers produce. So now you have a situation in which a kind of
economic imbalance begins to appear. Until you have a political column, the column of
wealth which we could call entrepreneurial, this is where things are produced and goods
and Services Provided, and the column we can call the consumer column, they will tend to
come into balance, because the consumer will demand certain things from the producer, the
producer will have to demand certain things from the consumer, and to exchange these at
all, you have money, and the money is exchanged equitably, each one getting probably less
than he wants, but enough so that he can facilitate his own satisfactions, and that's the way
it works.
I have this third column of wealth, the political column, and this is a non-productive column.
It doesn't produce anything, and curiously, it's not a consumptive column.
Now, of course, the politician, personally, is a human being.
Just like any other human being, he wants the same things.
All of us as human beings, whatever else we may be, we come right back to our basic position
as a consumer.
A politician wants to have a nice car for himself to drive in, drive with, and he wants
a house to live in, and he wants some nice clothes and good meals and all the rest of
the things that you and I want. So he is distinctly human. And then of course the businessman is
also a consumer. See, everybody is a consumer. So we all end up part of the time in that
Central Column, where we have consumer wealth. But now, when the politician is acting not
as a human being, but as a politician, where he's engaged in amassing and employing power,
now at this point, he turns and extracts money from both of the other groups of people. That
is, it's the same person. If it's a producer, he taxes him twice. He taxes him once as a
And if it's just a consumer, well then he taxes a consumer even though the consumer at that moment isn't a producer. So the politician reaches out and extracts by force or the threat of force whatever monies he needs in order to buy the tanks, let us say, which he wants.
So now you have something being taken out and moved over into an area where it will
not serve a productive function and it will not serve a consumer function. As a matter
of fact, once the tanks are produced, the best you can hope for is that they'll never
be used. If they just sit there and rust, that's not as bad as what would happen if
If you employ them, the minute you start employing them, they're designed to destroy property
and people. So the more you use them, the worse it becomes. So what happens then is
you get a column of wealth over in the political area that is absolute waste in that the best
thing that can happen to it is that it isn't used, or the worst thing that can happen is
It is used, and then it is not just wasteful, it is positively destructive.
So this is what happens, your wealth accumulates in the three areas, the entrepreneurial area,
the consumer area, or the political area, and it follows that as your column of wealth
increases in the political area, then there will be less in the way of either entrepreneurial
or Consumer Goods. Now in our economy, which is a very dynamic one, we are very wealthy in this
country, we are not aware of the fact, and it is a fact, that we are operating in an economy of
scarcity. We don't think we are, because we go to the stores and the stores are stockpiled with goods
and we think, boy, we really have it. It's running out of every aperture in the country. It's really
tremendous, see? And then we go and examine the prices on the goods, and we say, gee,
I can't afford to buy that. Oh, I can't afford to buy that either. Gee, I can't afford to buy this
other. So we have the illusion of having plenty because it's there in the store, but it isn't in
our house because we can't afford to put it there. Now, what you really have then is an operation of
of Scarcity, but you don't know that it's scarce. You are simply deceived into thinking
that you operate in an economy of plenty because you have the evidence of it, and yet you don't
get to use it yourself. The reason you can't afford to use it is because of the increased
prices that continue to appear on all of the goods that are offered for sale, and the reason
for the Increased Prices. Certainly one of the basic reasons is that the politician continues
to demand these taxes, and the taxes have to be paid for somewhere, so the more the
taxes are, the higher the prices go. That's what pushes prices up. It's one of the reasons
why prices rise, one of the major reasons. So here's what happens. The consumer would
He would like to own a brand-new updyke. Remember, that's my pet vehicle here. He would like to own a brand-new updyke. He used to be able to buy one of these updykes for about $1,500. But now he goes down to the market to buy his new updyke, and the price is $3,000. He could afford to buy it if it cost $1,500, but now it costs $3,000. And he can't get one. It's simply priced out of his reach. So he doesn't like this, and he begins
to Grumble
Now, back in the earlier days, before our column of political wealth got so big, when
a consumer was dissatisfied, he grumbled, but the fellow he told about it was the entrepreneur.
He went back to the businessman and he said, look, if you can't produce something better
than this or cheaper, I'm not going to buy it. And so the immediate communication occurred
between the consumer and the producer.
But now that isn't what happens so much.
Today when the consumer is disgruntled and unhappy, and primarily because prices are
too high, he turns and calls on the politician.
He goes over to the politician and he says, doggone it, Mr. Politician, I want to buy
a new up dike.
Ten years ago I could have afforded it.
I'm ready to buy one, if it's priced at $1,500, but I can't pay $3,000, and that's what these guys are charging me. Isn't there something you can do?
Well, now when the politician gets enough complaints like this from his constituents, he begins to realize, you know, if my customers get, if my, not customers, but if my constituents get unhappy with me, they might retire me.
Company.
So I better not let that happen.
So now he goes over and calls on the updike company and he gets the manager on the carpet
and he says, how come you're charging so much for your updikes?
And the manager of the updike company says, gee, I'm glad you came.
I want you to check our books.
You know that we are providing your tanks.
And that has soaked up 60% of our productive capacity.
We are now working three shifts.
We've got a bigger layout than we've ever had before.
We're doing our best to improve those tanks.
Would you like to have us stop making the tanks and go back to making up dikes?
And the politician says, my gosh, no, the tanks come first.
Fine, says the up dike man.
That's just what we're doing.
We're providing the tanks.
Now you take and realize that when we provide the tank, although you pay us for the tank,
We are being taxed and I want you to see the fantastic numbers of thousands of dollar bills
we send to you every year in taxes. It's part of that money, of course, that you use to
buy our tanks when we make them. But everybody else is helping to pay this burden too. Sure,
we're making a profit. Otherwise, we couldn't operate. But we're not making the profits
that a lot of people suppose, because we're simply engaged in being taxed up to our eye
teeth as it is. Well, says the politician, let's take a look at the books, and he does.
And you can virtually anticipate that those books will be kept in compliance with every
government regulation, the government auditors will go over it, and they'll have to hunt
a long time to find a flaw. Once in a while, they'll find a flaw, and then there's a
There's a lot of publicity about it, but most of the time they can't even find a flaw, and the rules are complicated and obtuse and confusing, and they bring in the best experts they've got, and the stuff is flawless.
Here is a firm doing its best, working night and day to produce what the government wants, and the result is the customers are getting a raw deal.
And so the Senator, or the politician, whoever he is, takes a look at this and he checks it out and he says,
I'll be darned, there isn't anything we can do here. Keep up the good work, Mr. Uptight Maker.
And he goes back and he continues to get the complaints from the consumers who are also voters.
And he continues to become increasingly disturbed by it.
Now there is another political action that begins to occur. When men in government begin
to find that their demands upon the productive segment of the market, the entrepreneurial
column, are diverting so many goods and services into their hands that the consumers are in
a state of mutual and repeated unhappiness, and they're virtually perhaps on the brink
of Rebellion, they just don't like it anymore, and they begin to evince this dissatisfaction.
Now the politician comes up with another way of saving what he's got. He creates a whole
new area of production that would come into our diagram here as a fourth column. This
This would be a column of productivity arising between the entrepreneurial column and the
column of consumer goods. It could be called government production. And this is precisely
what has happened. It may come as a surprise to you to know that at the present time in
In this country, there are more than 700 different kinds of goods and services provided by the
government which are also provided in the market. I'm speaking of the federal government.
The federal government is engaged in over 700 different kinds of businesses and enterprises
Businesses and industries, which are also being conducted in the market. On top of that,
your local, your state and local governments are engaged in some 200 other types of businesses
which are also marketplace activities, such as, for example, parking lots, garages, cemeteries,
golf courses, zoos, playgrounds, all of these are marketplace phenomenon, and all of these
various governments are getting into and doing. Now, what does that mean? Well, what it means
is this. The entrepreneur engaged in business activities and competing with other entrepreneurs
who are doing much the same thing, now finds himself competing in another area.
He now has to compete with his own government that could be doing the same thing he's doing
or providing the same type of good or service that he's providing.
But there is a difference.
When he's competing with other entrepreneurs, he can compete with them on a relatively fair
basis because they are faced with the same problems that face him.
They have to finance their own activities. They have to keep an honest and open set of
books. They have to pay the competitive wage, and they have to charge a competitive price.
But when we get into government production, we have an action by the government in which
– and this is a marvelous place to be if you want to be in business – in which the
government can offer a good or service below the competing price, and in consequence operate
Most government businesses do lose money, the Post Office being a very well-known and outstanding example of a business that was once a free market business in this country and is now a government monopoly, and of course it loses billions of dollars a year.
Now, a businessman who is in the market can't do that.
If he had one year like the post office has, he'd be out of business.
But the post office can lose billions of dollars and then go back and tax its competition and
tax its consumers to make up for its losses.
And that's exactly what it does.
So that is what begins to happen.
Once you begin stockpiling political goods, you get the government then in the position
of creating goods. It becomes the nation's major entrepreneur. Today, for instance, it
is no surprise. I'm sure you are aware of this. The American government in its various
manifestations is the largest landlord in the country. It is the largest insurance agency.
is engaged in operating railroads. I mean owning and operating railroads, not just supervising,
owning and operating railroads. It is putting in and manufacturing electricity. It is helping
to run telephone lines. It is subsidizing and helping provide for recreational facilities.
All of these things are originally in the private sector, but now they're all also in
The Public Sector. The government is engaged, for example, in manufacturing rum. It is engaged
in manufacturing women's corsets. It's manufacturing rigging for yachts. The list is almost endless.
It has a vast number of things that it's doing in which actions it is competing with private
people who are trying to do the same thing. And the government operations lose money traditionally
Because they try to sell at a non-competitive price because the theory is that this would
be bad, competition is kind of an unhappy thing, very few people like it, you know.
And so they're trying to help the customer who's been complaining because prices are
too high.
So that's what they're doing.
They're cutting down on the prices so the customer can get what he wants at a cheap price
and so the government can provide it and then it loses money in so doing and then it turns
turns around and taxes its competition and the very customer that thinks he saved money
is now belatedly compelled to pay the difference between what he should have paid and what
he did pay for the goods and services that the government provided.
So this is the kind of distortion and dislocation that begins to emerge as government stockpiling
of materiel and government wealth or political wealth begins to manifest.
It follows, of course, that by far and away the most productive type of economy we could
have would be one in which the first two columns of wealth are maximized. That is to say, we
should have a situation in which the entrepreneur is free to produce without any inhibitors
at all all of the goods and services that people could possibly want as people. And
And the people would be in the position where they can work as hard as they want to, individually,
to get what it is that's been produced.
If there are no inhibitors in these areas, well obviously then you would tend to maximize
both consumer satisfaction and entrepreneurial activity.
And these things would tend to balance out.
They would never be exactly even because market activities never do reach equilibrium.
But they would tend toward equilibrium, and there would be a general maximization of human
well-being.
But every time you go into this third area and you begin to provide political goods,
then a distortion occurs in the other two areas because the column of political goods
is in itself a major inhibitor.
By virtue of its existence, it inhibits, and the bigger it becomes, the more of an inhibiting
So, you can keep that in mind when you think of human well-being and the accumulation of wealth.
And here is, of course, the tragic characteristic.
It goes to the entrepreneur, the businessman.
At the beginning, you see, when governments are first started, they're very small, ineffective,
and they're not really much of a worry to anyone but as they begin to grow the entrepreneur at first
cannot tell the difference between a political customer and a market customer he presumes that
they're the same he doesn't really wake up to the damage that the political column can do to the
of the Economy until it becomes his competitor. As long as it's operating merely as a customer,
he doesn't really worry about it. In fact, he sort of rejoices about it. Businessmen are
among the first to stand in line, to compete, to get the government as a customer. But then,
of course, when the government turns around and turns its hat around and can now be recognized
And as a producer as well as a customer, that's the place where the businessman, the entrepreneur
belatedly comes to his senses and says, Jiminy Christmas, there's a big difference between
a government that is only a customer buying what I can produce and a government that is
engaged in competing with me and underpricing me, which it can do because it can make up
its losses through a method that I can't use.
And there you have the State of the Union today. You have a situation that is increasingly
distorted. And who pays the bill? Well, it's the consumer. And everybody in the world is
a consumer, including the politician and the businessman. We're all consumers, and we
all have to pay for this distortion. So that's the kind of thing that happens when we don't
We don't correctly understand the nature of wealth, and we don't see that wealth is something that properly inheres to the well-being of human beings and to their satisfaction rather than to the well-being of politicians in their role in trying to dominate and control and inhibit human behavior.
So that's something to keep in mind.
Now, the next thing I want to take up is the subject of money, because I want it very clearly
understood that money and wealth are different things. Wealth is an end product, something
that we want because we believe that once we have it, it will lead directly into a satisfaction
that we would like to obtain. Money, on the other hand, is a medium of exchange, a transfer
are a device that we will be most satisfied with at the time we get rid of it, because
when we get rid of it then we anticipate that we will get the satisfaction we want. So wealth
satisfies us at the time we get it, and money satisfies us at the time we get rid of it.
So obviously, these things are very, very different. Now, in the long history of working
with Money. We've probably never come up with a perfect money, and we probably never
will. But it is very important at the outset that we realize that money and wealth are
different things, and that wealth is not an end product, with this possible minor exception.
Men engaged in the money business as such, having stockpiles of savings that can be used
for Investment Purposes, in a sense, have a productive tool. And in that classification
exclusively, money does appear to be an entrepreneurial good rather than merely a medium of exchange.
But with that exception, keep in mind that money is a medium of exchange and valuable
most when we spend it. And wealth is not a medium of exchange, it is an end product that
Thanks very much.