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Freedom Can Cause Inequality—But Here’s Why That is Okay

desigualdad, El American

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That we are not born equal is a self-evident truth. Some studies even show that beautiful people are likely to have better lifetime earnings than those who are less graceful. Some children are born into wealthier families, others into families where they will pay more attention to their education, others are born smarter and others prettier. Inequality is a natural matter and, although it torments some, it is something that cannot be changed.

There is no way to make everyone equally intelligent and physically attractive. There is also no way to make everyone equal in wealth, except if the equality you want is in misery. If we hand out $10,000 to a group of people, in a few days some will have doubled or tripled that money, and others will have lost it. So even if we had the power to share equally the wealth of a country, that would not last long.

In the past, all over the world, there was an extreme degree of inequality that came neither from nature nor from freedom. Some lords owned the land and all the rest were their servants and had to live according to the powerful. They produced and worked at whatever the ruling minority ordered them to do. Today, in capitalism, there is no hierarchy of castes, people are free to do what they want and thanks to the market, power is in the hands of consumers, who make someone rich in a matter of days and bankrupt companies in very short periods of time.

Price is one of the most important concepts in economics. It is the consumers who, through prices, tell the great creative minds and the rich of the world what to spend their time and capital on. People will be willing to pay more for what they want most, and that will send a message to entrepreneurs and creators, who, in search of the highest profit, will occupy themselves with what society is asking for.

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So, there is inequality of skills and inequality of wealth, which is not bad if it is a product of nature and freedom, and if that inequality is framed in a capitalist system in which it is the masses who tell even the richest and smartest what to work on. Now nobody does anything forced, as it was the case in the pre-capitalist society, today prices are there and entrepreneurs follow the signals of the masses about where to invest.

It is important that people understand not only that it is unethical to take away people’s hard-earned money, but that it is necessary for a society that entrepreneurs do not see the profits they have earned threatened.

Why does a worker with the same knowledge and skills earn so much more in the USA than in Colombia? The key is in the accumulation of capital.

A worker in a factory in the United States produces more, in less time and of better quality, not because he is better or smarter, but because the company has capital goods that, for example, a Colombian company does not have. These capital goods are obtained after saving. Savings, capital accumulation, are fundamental for the development of a society.

If savings are punished and savers are taxed, capitalization is slowed down and with it the growth of salaries and the welfare of society. What has allowed societies to become richer is not a greater degree of effort on the part of manual workers, but the accumulation of capital by savers and then the use of that capital — by entrepreneurs — in good investments.

Obsessing over inequality and taking money away from those who have the most, hurts everyone. To destroy companies and decapitalize a country is to make it poor. The main interest of a country should be to end poverty and that is achieved with capitalism and freedom, and that freedom brings inequality because each person is different and makes different decisions.

Now that we understand the benefits of inequality, of savings, of disparate intelligence in a capitalist context, we must make a fundamental clarification: inequality resulting from freedom is beneficial for society, but only if it is the result of freedom.

If a businessman has made a lot of money because his production is exactly what society demands and the masses have rewarded him by buying his products, all is well and that man deserves his wealth, which is the result of his contribution to millions of people by offering good products. But, if the wealth comes from limiting the buying freedoms of the masses to force them to maintain their non-competitive enterprise, his activity is detrimental to society and there is no reason to defend his great fortunes as the product of a phenomenal contribution to society.

So, freedom brings inequality and that is not negative, but there are also inequalities that are the product of the abuse of a few over the majority. Businesses must compete freely without being protected by politicians and without forcing people to consume goods or services. We must defend the freedom to save, to invest, but also to buy.

Vanessa Vallejo. Co-editor-in-chief of El American. Economist. Podcaster. Political and economic analysis of America. Colombian exile in the United States // Vanessa Vallejo. Co-editora en jefe de El American. Economista. Podcaster. Análisis político y económico de América. Colombiana exiliada en EE. UU.