Thread: How can the capitalist system remain stable without redistribution of wealth?

It's very well known that it's easier to make money when you already have a lot of it. For someone with a net worth of $50 million, it's easy to have an extremely comfortable life by just sitting back and investing in investment-grade fixed income securities - you collect millions of dollars in interest payments, and can just as easily continue increasing your fortune with no risk and no effort. For someone starting out at the bottom though, it's become very difficult just to advance to middle-class status. Even if you're incredibly smart and have an innovative idea for a business, securing the capital necessary to get it running is nearly impossible, at least without toiling away for years and years, working in comparatively unproductive menial jobs.Despite the social and moral problems with allowing such a neo-aristocratic society to develop, the inherent nature of unfettered capitalism presents us with economic problems as well. In the example above, it is highly uneconomical for the idle beneficiaries of a large inheritence to consume society's resources without taking any risk or exerting any effort. Likewise, it is highly uneconomical to make a bright, innovative person born into poverty toil away at Wal Mart. Would it not be far better economics to tax the idle holder of idle capital, not to give the smart, poor person a handout, but to invest in them (i.e., providing low-cost education), allowing them to advance in economic and social status, and therefore realize their potential to the benefit of all?Structurally, there's also the problem of wealth concentration. As more and more wealth is concentrated into the hands of fewer and fewer people, much of our economic output is devoted to "managing" their wealth - in practice, this means loaning it out to businesses (which is somewhat productive) and consumers (which, in the case of things like credit cards, is often wholly unproductive). Not only is this uneconomical, but eventually, if those at the bottom do not have the playing field leveled in their favor somewhat, we reach a point in which all "production" centers around kicking an ever-increasing share of the society's income up to the idle creditors at the top.Left unchecked, this inevitably leads to a total economic collapse (i.e., what's happening now), as business doesn't have enough customers financially able to buy their products. In other words, as the working classes become more and more heavily indebted, the people at the top hold the claims on so much of workers' income that they can't consume enough to warrant current levels of production, so economic output must fall. So then, how can the capitalist system continue to be productive without government action to ensure that the ratio between work and reward remains at least somewhat equitable?Along the same lines, those who favor letting this concentration continue cite two objections - first, that of wealth creation. Of course new wealth can be created, but what is there in the laissez-faire paradigm to ensure that the gains won't simply be sucked up by those at the top? They necessarily control capital allocation.Second, they often object on moral grounds, saying that it's immoral to "take" from the upper classes to invest in the lower. Now, I think this objection has some merit, but on the other hand, if what's being "taken" are just paper assets and they're left with more than enough to maintain their lifestyle, is anything really being taken at all? For the most part, it's really just an accounting adjustment - there's no material effect to them - to ensure the durability of the system, is it not?Simian,You make a valid point. You are correct that if too much is redistributed - especially, possibly exclusively, if it is merely handed over - the incentive to produce at all disappears. I don't think anyone would dispute that.However, looking on the other side of this, surely there's a point wherein too much wealth concentration causes systematic problems, no? I mean, capitalism functions though finance and accounting, and those have to operate within certain mathematical limits. What I'm saying, in mathematical terms, is that in the system without redistribution, the share of income going to those at the top increases geometrically approaching a limit of infinity. However, for obvious reasons, the material limit is 100% - and in practice, it is far lower still. Once we get to whatever the practical limit is, physical production cannot continue, as the accounting/math of the thing cannot deal with such a high degree of concentration."Your follow up under your question is way too long to read."Imagine how I felt writing it! It's really not my fault that reality can't always be expressed in soundbytes, however."'Redistribution of wealth' is socialism."Actually, socialism is state control of wealth. Redistribution proper necessarily occurs within the strictures of the capitalist system."With free enterprise, everyone has an opportunity."They do in theory, but do they in practice? For instance, in the US, a poor black student with straight A's in high school is much less likely to finish a 4-year college degree than a rich white C-average student. Call me crazy, but I don't think this is the "meritocracy" that capitalism is supposed to embody. What I'm asking is, IN PRACTICE, is some redistribution necessary for the theoretical potential of the capitalist meritocracy to be realized?For the last time, I AM NOT ADVOCATING FOR SOCIALISM, CENTRAL PLANNING, or anything of the sort. I agree that socialism proper does not and cannot work. However, it seems to me that totally unfettered capitalism is every bit as impractical. Indeed, is there even a single example of the "pure" form of any ideological system EVER existing, much less working, in practice? Not to my (quite extensive) knowledge.Mo Fayed,"Tax-and-spend socialism" is a contradiction in terms. Under socialism, the state owns all income-producing property, so there is no need for taxation at all.Mark M,The United States experienced its most rapid economic growth and development when the tax rate on the wealthy was a staggering 91%. Your claim is historically and materially false.

People have been getting rich in the USA, with only the shirt on their back for 200 years now.If you can't make it here, then you cannot make it anywhere.It's all about the attitude, and if you are relying on the government to make you rich, then you need to ba a politician.

You have it backwards. History tells us that government redistribution of wealth leads to collapse.

move to canada or france.this is the united states. people are getting pissed off.can you say r e v o l u t i o n !

Your follow up under your question is way too long to read. Capitalism is free enterprise. "Redistribution of wealth" is socialism. It is the antithesis of free enterprise.With free enterprise, everyone has an opportunity. With socialism, no one has an opportunity to succeed.

What a nice rationalization of stealing.What has happened is that our government of the special interests and for the special interests has created such barriers to entry that it is now extraordinarily difficult to start a new enterprise YOU own with what used to be an entry level amount of money. The regulatory requirements cost more than the actual needed 'business capital' in many cases. Barriers to entry create monopolies and UNJUST wealth creation barriers and need to be abolished. That includes NAFTA CAFTA and the like which are in no manner 'free' trade and create similar but worse barriers to individuals and small business from entry into international trade markets, reserving all benefit to multinational entities.Theft is a quick fix for the thieves, but is no job for honest people or honest government.

It all ready happens. The Death Tax, which take 50% of ones wealth left in inheritance to taxes.

Well, it didn't work in Russia.... did it, now?

Just eradicate money and have government provide shelter, food and some sort of job to keep us occupied.

By keeping secret banks more secret! So that tin pot dictators and corrupt governments of Asia, Africa, USA, Europe and drug dealers as well other types of criminals would be able to swindle their ill gotten wealth to anywhere at anytime they want. This in a way poorer countries will remain poorer and richer countries will be richer contrary to democracy, free speech, justice and humanity.This is called irrational economic rationalism.