Why We’re Born Poor And Why Some Become Rich — Laissez FaireLaissez Faire

One of the points I stress when I talk about entitlements is that poverty is a production problem. What brings a person out of poverty is more wealth. If you want to see poverty end—and who doesn’t?—then your main concern is to discover how poor individuals can produce more wealth for themselves.

But many people today treat poverty as a political problem to be solved by transferring wealth from people who have produced it to people who haven’t.

Michael Katz is one of the leading authorities on the history of poverty and government anti-poverty efforts in America. The other day I started reading his book The Underserving Poor and quickly ran into this line: “But poverty, after all, is about distribution; it results because some people receive a great deal less than others.”

Poverty is all about distribution? Were cavemen poor because animal skins and arrowheads were not evenly distributed?

The truth is, we are born into poverty. Poverty is man’s natural state. He has to use his mind to discover the capacities of the raw materials he finds in nature and then exert productive effort to transform those raw materials into wealth. He has to learn that certain berries can be eaten safely, and then he has to pick them.

To be fair to Katz, he might concede that the cure for poverty used to be productive work. A few lines later he writes:

Poverty is no longer natural; it is a social product. As nations emerge from tyranny to subsistence, gain control over the production of wealth, develop the ability to feed their citizens and generate surpluses, poverty becomes not the product of scarcity, but of political economy.

Okay, he in effect says, maybe at one time poverty was a production problem. But now we have enough wealth for everyone, and yet some people have received a lot more than others, leaving many poor.

The problem is that Katz ignores or evades the fact the wealth is not an anonymous social product: it’s created by individuals.

This is a point Yaron and I discussed in a past Forbes column. Although today’s advanced division of labor economies are incredibly complex, underneath all the complexities, your standard of living is made possible by individuals engaging in the same two basic actions that sustained the cave man: thinking and producing.

Today, however, you don’t wander through the woods picking berries. If you’re in the food production industry, you play a small part in the process, say, by driving the truck that takes the berries to market. Unlike a caveman or a self-sufficient farmer, you don’t consume what you produce. In return for your productive contribution you receive money, which you then exchange for what you yourself consume: the clothing, medical care, computers, soft drinks, and TV shows produced by others. The division of labor doesn’t change the individual nature of wealth production—it merely makes it harder to see.

The reason some become rich, then, is not because they receive more than others but because they produce more than others. Our economy is not a collective pie, where a bigger slice for you means a smaller slice for me. Each of us makes himself richer by bringing new wealth into existence.

It’s actually even cooler than that. In the process of enriching yourself under capitalism, you enrich others. Steve Jobs made billions, but he did so by creating revolutionary products like the iPhone: he made his fortune by making the rest of us better off, not worse.

Where does that leave us? The problem we have today is that America is not a capitalist country, but a heavily controlled and regulated one (and don’t even get me started on the rest of the world). As a result, many Americans who would prosper in a free country are struggling to make ends meet. That is unfortunate, but the problem remains one of production. Only the barrier to production is not our lack of knowledge and wealth, as it was for our cavemen ancestors. The barrier is government intervention.