It sounds really simple. Some people have a lot of money. Most other people do not. But we live in a Democracy (OK, a representative Republic), so all we need to do is vote to take the money from the rich people and distribute it to the poor people, and we’ll all be happy, right? Except for the rich people of course, but they’re somehow evil anyway, or so I’ve heard. Hillary Clinton doesn’t even want to give them free college even if they pay most of the cost for everyone else to go to college.
The trouble is this has been tried time and again, going back the Bolshevik revolution in the nineteen-teens, and the result is always the same. Scarcity. Corruption. Long lines. A lack of basic necessities. Famine. Death. Every single time.
This has played out most recently in Venezuela, where a Socialist leader, Hugo Chavez was elected. It was thought that the wealthy farmers and the wealthy oil companies were keeping the rest of the people down, so the people rose up and demanded redistribution of resources. They took the farms and gave them to the people, telling them they could now grow their own food. They kicked out the oil companies and the State took control of the oil production. But the people who took over the farms didn’t know how to run a farm, and didn’t feel much like doing the hard work needed to grow food. The State doesn’t know how to produce oil.
Today people are starving, with food hard to get (available only illegally through the black market rather than the government system) and more expensive than many people can afford. Oil exports have dropped dramatically. There are no aspirin. There is no toilet paper. There is no electricity most days of the week.
The only thing that is growing is corruption, because the only way you can get things done is to break the law, which means paying people off to let you cut the line or look the other way. You can’t get things legally because no one will produce things because of price controls, so people buy things illegally, paying officials to ignore the illegal trading. Government officials now have power over whether people can eat or not, which gives them a huge amount of power. And power corrupts.
So why does this never work? Why can’t you just take things from rich people and be wealthier? The reason is that rich people don’t have a big vault full of wealth that you can just take out and pass around. They don’t have food to feed a million people sitting in their refrigerator. They don’t have shelter for the masses in their tool sheds. You could take everything that Bill Gates has and sell it off and you’d be lucky to feed the city of Chicago for a day. To seize their wealth is a little like killing the golden goose to get the golden eggs you think are inside.
Instead, rich people have a bunch of IOU’s for things that are not produced yet. Little numbers in bank accounts. Pieces of paper saying they own shares of XYZ corporation. If you have a million dollars in cash, you don’t have a million dollars worth of food. You still need someone to produce the food who is willing to take your money for it. Likewise, you can’t trade your $1 M for a mansion unless there is someone with a mansion who wants to sell. Money is only a voucher for someone to do something for you, it doesn’t get the goods produced. And if you go and take the money that was earned the last time from the person who is producing those things from you, he won’t be that eager to produce again.
Many rich people also have the ability to get others to produce things efficiently, and the ability to decide what things need to be produced. This is a personal capability that comes from personal ability, raw passion, experience, and really hard work. You could take all of the office buildings and intellectual property that Microsoft owns away from the shareholders and give it to some people living on the streets in San Francisco. While the people running Microsoft currently can use it to generate billions of dollars per year, people who don’t know what they were doing would quickly see it all fall apart. The people running things would quit, the workers who know what they’re doing would leave, and the company would be worthless within a year or less.
So you can’t just go and take things from the wealthy and expect for things to be better. In order for people to have what they need, people need to spend time producing things, either for themselves or to trade to others. In the end it is really no different from the homesteader who needed to grow his food, maintain his home, and mend his clothes. The only difference is that we tend to produce one thing and trade to others for the things we need.
The only way we can all be equal is if we all have nothing.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.
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Follow on Twitter to get news about new articles. @SmallIvy_SI
Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.
