On capital, international development and raising the poor out of poverty

Via The Economic Role of Saving and Capital Goods – Mises Institute (emphasis mine):

What distinguishes contemporary life in the countries of Western civilization from conditions as they prevailed in earlier ages – and still exist for the greater number of those living today – is not the changes in the supply of labor and the skill of the workers and not the familiarity with the exploits of pure science and their utilization by the applied sciences, by technology. It is the amount of capital accumulated. The issue has been intentionally obscured by the verbiage employed by the international and national government agencies dealing with what is called foreign aid for the underdeveloped countries. What these poor countries need in order to adopt the Western methods of mass production for the satisfaction of the wants of the masses is not information about a “know how.” There is no secrecy about technological methods. They are taught at the technological schools and they are accurately described in textbooks, manuals, and periodical magazines. There are many experienced specialists available for the execution of every project that one may find practicable for these backward countries. What prevents a country like India from adopting the American methods of industry is the paucity of its supply of capital goods. As the Indian government’s confiscatory policies are deterring foreign capitalists from investing in India and as its prosocialist bigotry sabotages domestic accumulation of capital, their country depends on the alms that Western nations are giving to it.

The Government does not wish to balance the budget on the backs of the poorest. Fine. But let’s not kid ourselves: sustainable prosperity in the developing world will only come through capital accumulation: that is, through local, pro-capitalist policies.

It’s a notion we might pay attention to ourselves.

If the state taxes away ‘surplus’ cash, those people taxed are no longer free to save and invest that money. Apart from the disincentives to earning created by high taxes, those measures are prejudicial to saving and investing in the very capital goods which would raise real incomes for everyone.

Much the same can be said of inheritance tax. When capital goods are sold to pay taxes, the money which might have been invested in new capital merely changes hands and passes to the state. When that money funds the state’s present consumption or debt interest, new capital goods are not formed.

As for capital gains taxes, it’s becoming obvious that many increases in asset prices are due to currency debasement – inflation – so, far from taxing profits, capital gains taxes may actually erode capital by passing the poisonous benefits of inflation from investors to the state.

That is, inheritance taxes, capital gains taxes and complex “progressive” income taxes make the poor poorer than they would have been by diminishing the formation of new capital goods.

Those who are serious about raising the standard of living of the majority should not advocate higher tax rates for those with something to spare. If we really cared about the poor and those on modest incomes, we would slash taxes and radically simplify the tax code.

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