Posted By Tim on November 5, 2010
Money is a social construct. It is only worth what it is worth because society agrees that this is the case. A piece of ancient Chinese paper money is no longer worth anything as money because the society that attributed a value to it is gone.
In our society we have developed structures and systems that allow people to accumulate vast piles of this money. It is a mistake to forget that this wealth only exists as long as the society, which made its accumulation possible, allows it to exist. The followers of Ayn Rand idolise those who are able to accumulate wealth and abhor any restrictions placed upon them. Once personal wealth crosses a certain threshold though, the usual forces at work in human nature begin to fall away. Once you are so wealthy that you, and all those you care for, are housed, clothed and fed simply from the interest earned by your wealth if it were on fixed deposit, something other than the usual human motivation for effort is in operation.
This is a rumination on the implications of the existence of the super-rich. It does not follow that the super-rich, by their very existence, are either good or bad. The extent of their wealth though is only a reality as long as society allows it. As long as they employ their wealth for good instead of evil then there is no problem. The larger their wealth, the more critical this becomes because, with the accumulation of money comes the a cumulation of power over other people’s lives. There are two ways in which society usually interferes. Taxation and corporate break-ups. Both of these would have the followers of Rand outraged. Of the two, taxation is the more gentle.
Bill Gates and Microsoft are a useful test case. When Microsoft broke the law they were pursued by legal means and redress was determined. As it is not against the law to be successful or a monopoly then it would be manifestly unjust to take control of his company and break it up simply because it was large and has made him personally wealthy. Taxation is another matter. There is no logic to taxing the profits of the company beyond other companies. This would be unfair to the shareholders who have had the good sense to see success and back it. So the problem comes back to personal wealth. Bill Gates is worth about 50 billion dollars. That’s not normal.
Let’s make up some figures to get a feel for the numbers and what I mean by super-rich. Imagine you owned a house worth $10m, cars worth half a million, a boat worth $2m and had $10m on fixed deposit spread over half a dozen of the most dependable banks in the country. Your annual income from your investments would be something like $450,000 after tax. Enough to maintain a marvellous lifestyle and not have to work at all. Now imagine that you were also able to set up 20 of your loved ones and friends in a similar manner. To do all this you would need a fortune of $450m. There are thousands of folks that wealthy in the USA. So what’s the story with the wealth they possess in excess of $450m?
At the risk of repeating myself, it is critical to remember that the wealth accumulated is only real as long as society agrees that it is. It is in society’s interests to agree that it is, as long as the wealth is “working”.
On a related topic; the level of taxation that saps the will to work varies from person to person. Randians would have you believe that almost any level is too high. Pretty much everyone would agree with George Harrison and the Beatles that 95% taxation will bring suck the motivation out of you. This is human nature and a matter of opinion; for myself, once I am not getting the majority, resentment would begin to grow.
It was fascinating to find recently that most citizens of the USA have no idea how the wealth is distributed in their country. When asked to put figures on it they came up with a distribution that was much closer to Sweden’s than to the USA’s. Even the rich were oblivious to the extreme distortion in the distribution of wealth.
In short, tax the super-rich personally but not more than 50% of their annual surplus. No one should be able to inherit more than $450m either. That just extends the distortion for generations of people who never contributed to the creation of the wealth in the first place. Break the estate up into chunks of $450m and designate a list of beneficiaries. I am not exercised about people being rich, that is part of the natural ebb and flow, but insanely rich is another matter.