Why Restricting “Luxury” Ends Up Hurting the Poor

September 30, 2011

The following was written by Leah Stiles, a student of government and history at Regent University. She has completed a Koch leadership program and an internship with the Foundation for Economic Education.

Advocates of wealth redistribution often summon images of grand manors atop rocky hills where the idle rich dwell in despicable contrast to the lowly peasants toiling in the mud of the valley below. The common solution that said advocates posit is a direct and deliberate redistribution of wealth.

Their appeal to justice suggests that it is immoral for some to revel in luxury while others wallow in poverty. However, with a proper understanding of economic progress, one understands that the toys and amusements of today’s idle rich will soon become the essential components and improvements of the masses.

Defining Luxury

Initially, before one can assess the societal benefits of luxury, one must understand what the term truly means. In his work, Liberalism, Ludwig Von Mises (1985) defines luxury as a relative concept that is essentially historical. It is fundamentally “a way of living that stands in sharp contrast to that of the great mass of one’s contemporaries” (p. 55). Luxury is then the former divide between the automobile of the executive and the mule-cart of the farmer. Several generations later, however, it is quite uncommon for even the humblest in society to lack a car.

Similarly, as Mises (1985) explains, the fork was once the “godless luxury” of a Byzantine noble. When the fork-user contracted a deadly disease, her contemporaries viewed it as the just punishment of a righteous God (p. 55). With the passage of time, long after the disappearance of Byzantines and gilded fork-forerunners, one finds it nearly impossible to find any civilized human eating with his hands rather than with a utensil. Thus, was the fork a godless luxury or merely a common necessity ahead of its time?

The first fork users and drivers of automobiles were likely unaware of the great impact that they would have on society. They were, rather, enjoying the products of their abundant resources. Nonetheless, their splurges were able to trickle down and bring a higher standard of living to countless individuals. Here we observe a classic example of the market directing resources in a manner that is beneficial to society. To plan such a progressive improvement on the standard of living would be nearly impossible.

Inequality Creates Spontaneous Benefits

Friedrich A. Hayek (1960), in fact, emphatically holds that “progress cannot be planned” (p. 41). This is largely due to Hayek’s overall philosophy that man is constantly confounded by a knowledge problem that limits the range and effectiveness of anything that he designs. The only solution to the knowledge problem is an allowance for the work of spontaneous order. The question of luxury is no exception.

When inequality is permitted to exist in its natural form, as the result of directing income according to market-value rather than government convention, the results will eventually benefit everyone – even if not obviously or immediately. This is due to the fact that luxury items are first held by the few but are then seen by many who observe and envy (Hayek, 1960, p. 45). Thus, others begin to demand the good held only by a few.

With this heightened demand, more producers learn to create the luxury item and it slowly becomes available to more and more people of less and less income. Eventually, after manufacturers have found simpler and less expensive ways to quickly create the coveted good, supply and demand meet to determine a price that is much more accessible to the masses. Such an impersonal market force has allowed for unprecedented improvements in the last few centuries. A continually unfettered market will, in turn, produce untold advantages for the current and coming standards of living for a great majority.

The Man of Independent Means

There is, however, another societal role that can only be played by the idle rich. Hayek (1960) describes the “man of independent means” as one capable of preserving the fine arts, education and research, history, and novel ideas in the fields of politics, morals, and religion (p. 125). His wealth renders him a credible platform from which he can properly influence the majority view. Also, by financially supporting religious causes, philosophies, and programs, the man of independent means is able to directly subsidize the fruition of his convictions.

Furthermore, the man of independent means can directly use his resources for other forms of philanthropy. For instance, history demonstrates that majorities are inadequate in the pursuit of preserving the arts because most people lack the resources and incentives to invest heavily in anything that benefits society and preserves beauty for an audience broader than themselves (Hayek, 1960, p. 126). The idle rich, however, have the resources, and often the tastes, necessary to invest in museums, universities, historical sites, libraries, hospitals, and other such philanthropic endeavors that serve society. One merely has to consider the various public buildings bearing the name “Carnegie” for proof of the benefits of such philanthropy.

Conclusion

All of this in mind, one can properly respond to the critic of the manor on the hill. That manor once lacked plumbing, electricity, electric heat, telephone wires, television, internet, and a vast array of other luxuries not heard of two centuries ago. Now, however, the critic of luxury likely revels in these conveniences without casting stones or passing judgment. That same individual has likely strolled through a museum or received medical care that truly originated from the generosity of a selfish man and his “immoral” proportion of wealth.

Then, in truth, we benefit today from the extravagances of yesterday. If government can resist the shallow temptation to redistribute wealth for the immediate catharsis of easy justice, the extravagances of today will turn into the necessities of tomorrow. Such improvements will not yield perfection on earth, but they will certainly serve to make life more convenient for those in the valley.

References

Hayek, Friedrich A. (1960). The Constitution of Liberty. The University of Chicago Press: Chicago.

Mises, Ludwig Von. (1985). Liberalism. The Foundation for Economic Education, Inc: Irvington, New York.

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