Wealth and Politics

0:00How 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.

0:47So 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.

1:34Now, 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.

2:41So 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.

3:36And 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.

4:27It 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.

5:18So 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

6:17and 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.

7:02Just 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

8:06And 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

9:17thing 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,

10:21I 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

11:23why 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.

12:17He 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.

13:16Company. 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.

14:01We'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.

14:48And 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.

15:37And 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.

16:28Now 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.

17:22The 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.

18:26He 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.

19:39Now, 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.

20:35is 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.

21:42And 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

22:47at 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.

23:42By 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

25:06And 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.

26:25So 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.

27:17So 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.

28:04But 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.