Ray Bradbury said, ""

Charity vs. Welfare

Patricia began her post on poverty in America at the Balance of Power by speaking about charity and ended it by speaking about government transfer payments. The conflation of the two is a source of endless conflict and much social ills. I will here go through some of the differences between voluntary charitable donations and transfer payments funded by taxation.

Charity is a voluntary act of goodwill, someone helping another through a difficult time out of his own pocket, without coercion or harm ever entering into his considerations. A man decides if and how much to give to a charitable organization, and enters it into his plans. Charitable donations depend on the valuations of individual donors: each man values the dollar given to charity as a source of more satisfaction to him than spending that dollar on food or some other thing. So long as charity is determined by the valuations of individuals, it follows the principles of supply and demand. Those causes which are viewed as more important in increasing well-being by the donors, receive more donations. The charitable response to disasters is coordinated by the valuations of each donor, with donations being distributed to those efforts which from the point of view of the donors are the most vital to increasing well-being, and responding to the decreasing demand as the afflicted region recuperates. The accumulated knowledge of countless individuals compels charitable organizations to address social ills which both actually exist, and which are from the point of view of the donors more critical in increasing well-being than others. It channels charitable action into those means which are more efficient than others. Those social ills which do exist and which men would not voluntarily act to diminish, due to either more pressing ills or to an inadequate knowledge of the cause of those ills, could only receive charity by persuasion. A charitable organization must appeal to donors and persuade them of not only the existence of the social ill which it addresses, but also of the efficiency with which the organization will diminish the ill. Those organizations which do not adequately persuade donors that the social ill they address exists, will not recieve voluntary donations. Those organizations which are viewed as incompetent, will not receive voluntary donations. The valuations of the donors, expressed voluntarily, is the self-regulating mechanism whereby people can peacefully cooperate to resolve a social ill. Whether it turns out that a man is helped more by being employed than by receiving charity, nonetheless both he and the employer/donor are benefited by peaceful cooperation. At no time does coercion enter into the valuations of the donors. At no time is a donor forced to choose the alternative less valued to him. It is important to understand that not only is no one harmed in providing charity, but that it is precisely its dependence upon the valuations of individual donors through peaceful expression which allocates donations to those efforts viewed as most necessary in increasing well-being.

Every dollar that government has, must first have been taken from individuals through taxation or inflation. The effects of these actions occur regardless of what the government does with that money, so I will elaborate a bit on it. Taxation is a coerced draw upon the income of an individual, under threat of harm, independent of his valuations or plans. All taxes affect income, which subsequently affects consumption and saving-investment- there is no such thing as a pure "consumption tax." Taxes artificially raise the cost of certain means beyond what they would otherwise be, distorting the relation between the benefit an action provides to an individual and the cost he must incur to achieve that benefit. Taxes remove wealth which would otherwise be used according to the plans of a large number of individuals, and places it at the disposal of the plans of a smaller number of individuals. Regardless of what it is used for, taxation replaces the plans of the many in some area of decision, with the plans of a few. It affects the valuations of individuals by increasing their costs, and by reducing the sphere of their own decisions. In replacing the plans of the many with the plans of the few, taxation reduces the pool of knowledge of the decision-makers, making them less able (and less still as the sphere of their decisions encompasses more of what was once that of a majority, until with absolute consolidation of decision-making in one man or a few, completely unable) to decide rationally which means to undertake to acheive their ends. This reduced pool of knowledge available for decisio- making renders more faulty the plans of the few, and increases the time and effort which must be expended to adjust a course of action to new information. As the pool of knowledge decreases until the plans of one man or a few replaces the plans of everyone else, the difference between the information required by the bureaucrats to plan rationally, and that which they actually possess, increases until it becomes literally impossible to plan. It is important to understand that taxation necessarily involves a threat of coercion not present in voluntary exchanges. This threat of coercion exists precisely because the majority of the population has plans different than the individuals in government for their wealth, and value other uses of their wealth as more valuable than the use which government intends. If otherwise, there would be no need to threaten harm. Taxation forces individuals to choose an alternative which from their point of view is less valued than others available.

Inflation is the production of new money by a government. This new money enters the economy at some definite location and is exchanged for some definite commodity to some definite individuals. The government receives their goods or services at the almost insignificant cost of printing the new money, not at the nominal amount of the bills. As the new money flows from those who first receive it, each group benefits at the expense of the next group. The individuals who receive it benefit by exchanging it at artificially higher levels and in different compositions than would otherwise be due to their decreased cash preference. Those groups further from the origin of the inflation are harmed by the distorted constellation of prices. Inflation is a form of taxation whereby the government benefits at the expense of those to whom it provides the new money, and whereby each group benefits at the expense of those who receive the new money later. It is important to understand that inflation is the increase in the money supply, not the resulting possible increase in average price levels. Inflation does not necessarily have to result in a generally increased average price level, only in a constellation of prices different than what would otherwise have been. It not only harms each successive group, but distorts the economy by artificially decreasing the costs individuals must incur to achieve their means: it spurs the individuals who initially benefit from the inflation to take risks which they would not otherwise have taken, to misconstrue the actual state of affairs and put wealth into avenues which are less productive than they would otherwise have done. Inflation interferes with the ability of individuals to plan ahead, to plan their actions according to the actual state of affairs. Needless to say, the origin of inflation lays in the expression of the plans of a few individuals in government, not with the rest of the population.

Once government has acquired wealth through taxation or inflation, it places it at the disposal of a smaller group of individuals. This smaller group of individuals will dispose of the wealth according to their own plans, which must necessarily lack the information required to replace the combined plans of the rest of the population.

Posted by: Tom "The Pooklekufr" Treloar at June 16, 2005 04:42 EST | Permalink | comments |
economics

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