Depending on the context of the debate, the term "poverty" can mean very different things. In my discussion, I will use two levels of "poverty:"
n Absolute poverty. An absolute poor person lacks food, shelter, and basic medical care to an extent which harms his or her health, eventually dying of poverty.
n Relative poverty. A relative poor person lacks material goods which are regarded in his or her geographical-economic area as normal. For instance, if in a certain society ninety-five percent of the households have water closets and five percent don't, these five percent will be regarded as relative poor.
Strictly speaking, the level "absolute poverty" also contains relative features, because the quality of food, shelter, and medical care now regarded as essential is much higher than, say, 200 years ago.
Poverty, then, has its basic cause in insufficient production of material consumer goods. The insufficient production may affect a whole society or an individual. To blame poverty on insufficient production, however, is a trivial statement, because the important questions must be: Why is there insufficient production? And: What can be done about it?
The key to any relevant analysis of poverty is, in my opinion, to begin by making a distinction between two different types of causes of insufficient production. The first type of causes I want to call "mental resources poverty." Normally, however, it is stated that lack of material resources is the reason for poverty, lack of raw material, lack of rain, or lack of whatever. But the truth is that the only real deficit existing concerns the mental ability to use the environment to produce something useful. Imagine that you put a group of high trained computer experts in a desert. They probably will starve, while there are other people, not knowing what a computer looks like, who lived in the desert for generations and developed a technology of survival. It is possible to survive in the desert, but only if you have a certain knowledge. Therefore I prefer saying that poverty is not a lack of material resources but a lack of mental resources, of knowledge. Of course, this can also be true of individuals, for example mentally disabled. They lack the mental ability to produce enough to survive without the help of others. Looking at a whole society, it is unlikely that it suddenly lapses into a state of lacking knowledge. The very existence of the society proves that the people forming the society have developed the knowledge needed for survival. But sudden changes in the environment, changes in the climate or other natural catastrophes like earthquakes, can render the traditional knowledge to be useless. &endash; The condition which minimises poverty as a result of insufficient mental resources is clear, namely a social environment which stimulates the expansion of knowledge.
The second type of causes for poverty is directly related to the fact that the condition of increasing knowledge does not exist. This type I want to call one aspect of "political poverty," namely "political production poverty." The organization of the social body either hinders the expansion of knowledge or destroys the existing knowledge. But before going deeper into the theory of knowledge, we must take a look at a third category of poverty, which has nothing to do with insufficient production: voluntary poverty and poverty intentionally created by the state.
We have to realize that there is something like a demand for poverty. If you look at a calvinist Swiss community which thinks of poverty as a sign of not living in the grace of God and compare it to an islamic community which regards giving gifts to poor people as the only way to save the souls of the rich, you'll find that there is practically no poverty in the calvinist community and much poverty in the islamic community.
Both communities clearly can exist within the formal libertarian framework. The point is: The state has a great demand for poverty. There are at least two reasons: The first reason is that caring for the poor is now regarded as a good justification of state actions. The second reason is that the welfare bureaucracy is interested in keeping and expanding the rationale of its own existence. Of course, the state use coercion to fulfill its demand for poverty and therefore state created poverty morally cannot be compared to the "free market poverty" other communities might produce. The analysis of the demand for poverty leads to the sub-categories "free market poverty," "state market poverty," and "coercive poverty." State market and coercive poverty are forms of political poverty, but not grounded in insufficient production. So we have to distinguish within the category of political poverty between politically created insufficient production and intentionally created poverty; the first termed as "political production poverty" and the second as "political demand poverty."
Poverty can be a term used by politicans to strip certain unruly people of their personal rights. People are imprisoned and uprooted because they are classified as poor, that is, the bureaucracy coercively creates people to care for. This is the meaning of the term "coercive poverty." The state coerces both the cared for people as well as the other people to pay for the unwanted care.
The libertarian, of course, must concede to every person the right to live as beggar, hoodlum, tramp, or whatever, and to choose to live in a condition as poor as s/he wants. No one has the right to impose wealth on others. Thus it is possible to speak of "voluntary poverty." There are two forms of voluntary poverty: "market poverty" consisting of "free market poverty" and "state market poverty," and "ascetic poverty" consisting of "free ascetic poverty" and "state ascetic poverty." A person who prefers to live as a beggar because he earns more with begging than with productive work answers to a market demand for poverty, he is a market voluntary poor. If the money is given to the beggar voluntarily, he is a free market poor man; if it is given to him by the state, he is a state market poor man. The state market poor is subjectively a voluntary non-coerced poor, but objectively he is a political poor. He is paid for by the state to be poor; but clearly the state coerces other people to pay. On the other hand, a person who works little or lives only from begging because he prefers leisure time to material goods is voluntarily poor but does not answer to a market demand for poverty, he is an ascetic poor. Of course there can be "free ascetic poor," taking only money given to them voluntarily, and "state ascetic poor," taking also money given to them by the state, that is money stolen from other people. We must be careful not to include voluntarily free poor people (free market and free ascetic poor) in our cruisade against poverty. The group difficult to handle are, of course, the state market and state ascetic poor. They won't like libertarians at first glance.
But back to the politically created insufficient production leading to poverty. Let me give you two examples, one from the context of absolute poverty and one from the context of relative poverty.
A. In Ethiopia people have managed to survive for generations. They developed a technology to survive even a drought. In the 1980's the Marxist-Leninist government of Ethiopia confiscated all food stored by the peasants to cheaply feed the increasing number of people living in the capital. The expropriation of the peasants and the free food in the city was clearly an incentive to migrate from the land to the urban area. Then, as the drought came, the catastrophe was inevitable. The society thus lost the knowledge of the peasants through government intervention.
B. If an entrepreneur is misled by inflation to invest money in an objectively wasteful enterprise, the workers of the enterprise will lose their jobs, and be at least for a short-time unemployed. The knowledge of the entrepreneur to produce efficiently is disturbed by a social mechanism which provides her or him with false information, thus depriving society of the knowledge.
Both examples show that knowledge in the economic sense is inherently social. Whether or not knowledge can be build up and whether or not knowledge becomes useful to produce something, depends on the social order. On the other hand, every bit of knowledge remains the property of an individual. If the conditions are such that the individual is not willing, or able, to reveal the knowledge, nothing happens. In one of the greatest economic essays ever written, "The Use of Knowledge in Society," Hayek showes that the best social use of knowledge can be made in a social order in which every individual determines her/himself under which conditions s/he is willing to give &endash; or, so to speak, to sell &endash; her/his knowledge. If the price of the knowledge is too low, there is no incentive to "produce" (gather/spend) knowledge; if it is too high, nobody can afford to buy it. And if you are protected against the consequences of using your knowledge, responsibility will be lost. Consequently the market is the best way to "socialize" knowledge.
The free exchange of mental resources forms what the Austrian economists, Hayek being among them, call "capital structure." An isolated machine or an isolated bit of knowledge is not capital. Capital is something to produce useful, that is, needed and wanted goods. Only if the machine or the knowledge is integrated in a structure which is formed to produce consumer goods according to the wishes of all participants does it makes sense to speak of real capital.
Again, except for emergency situations, every human society has enough capital to sustain itself. And, except for severe illness, every human being living in a society can produce enough to sustain herself or himself. In regard to those few who cannot, luckily human nature has provided people with compassion; and capitalism has invented the principle of insurance. Thus, there need be no fear of absolute poverty within the framework of a free society.
But there is no need to fear relative poverty, either. In the free society there will, of course, not be a totally equal distribution of values; but an even distribution. Because the free society makes the best use of all knowledge avaiable, it provides even the weak mind with work and income. Everyone who at least offers something will be employable. This is due to a very simple mechanism, to be explained conveniently with the following model:
Mr A offers work, arbitarily valued with 10 points, whereas the average work-value is, say, 20 points. But A lacks ideas how to offer the work in such a way that others realize its value. Now, it is profitable for anyone with more ideas, say Mr B, to find an useful work for A. Because the existing position of A is not viable, he will be prepared to pay B for the service. On the other hand, B is prepared to tell A of his idea because otherwise his knowledge remains unused and unpaid for. Furthermore, if Mr C has an idea how to raise A's productivity, he will be able to get A to work for him. Say, B takes 1 point from A; raising his productivity to 18 points makes A wiling to pay C 1 point or even 2 or 3 points, which leaves A five to seven points more than working for B. Thus the difference between the average 20 points and A's capability has been reduced from 11 points to three or five points. The stronger minds, B and C, have helped the weaker A to raise his standard of living. Of course, this is what Adam Smith predicted long ago: Let each individual follow her or his own interest and s/he will contribute to the interest of all others.
Contrast this picture with interventionism. Eventually B and C get rich, B employs 30 workers of the A-type earning 30 points, 10 points above the average, and C has 40 workers of the improved A-type earning 120 points, 100 points above the average. To restrict the income of B or C will inevitably harm A. Suppose a law demands everyone earning more than 50 points to give the income above this limit to others, then C probably prefers leisure to work, employing only 16 workers, which reduces his income so that he doesn't have to pay anything. Now, he is a little bit worse off than before, because he would have prefered more money to the leisure time, but he is not poor. He earns the maximum and has plenty of free time. But those 24 unemployed workers will be poor. In the statist logic this leads to a vicious circle: The unemployed ought to be paid for by the employed with the result of producing less and of creating more poverty.
Poverty is basically a political problem. I already mentioned two examples of how interference with the capital structure produces poverty. If we want to understand the differences between countries regarding the existence of mass-poverty, we must analyze four factors:
1. Intensity of economic interventions. Although all areas of the world right now are occupied or claimed by states, these states differ in the intensity of oppression. To determine the degree of poverty only economic oppression is decisive. It is possible, for instance, to have a state which does not allow freedom of the press or other civil liberties, but leaves the economy more or less alone.
2. Strenth of the capital structure. This indicator points to the readiness of the people to resist the interventions or to circumvent the regulations. Many countries of the world manage to survive only because of a strong "underground" economy, a functioning black or alternative market.
3. Extension of the capital structure. It is clear that in a situation in which the existing capital structure is able to produce much more consumer goods than needed to just secure subsistence level, it takes more time to destroy the capital structure than in a situation in which only subsistence can be produced. The absolute poverty of the third world countries is due to the fact that they had no chance to build up an extensive capital structure because they lacked a long enough period of capitalism to do so. On the other hand, the capital structure of the industrialized countries is so strong and extensive that it even expands. The only result of the interventions is that the balance of value distribution is destroyed, thus creating massive relative poverty. But in the long run it is possible that our states will destroy the capital structure in such a disastrous way that we too will experience a new wave of hunger in Europe and the US.
4. Demand for poverty. This indicator raises two questions. First: How much free market and free ascetic voluntary poverty is there? This portion must be deducted from the number of poor people, because our analysis is interested only in political poverty. Second: How intense is the demand for poverty by the state? That is, how many coersed and state market respectively state ascetic poor are there? The analysis must determine the political demand poverty, because it can vary from country to country for various reasons, for instance tradition or the need to find scapegoats; and even if in two countries all other indicators are quite similar, there might be a different level of political poverty because of a variation in the state demand for poverty.
Libertarianism in my opinion has the best and only promising program to overcome involuntary mass poverty in any decent sense, namely through an increase in freedom. Of course not every small step towards freedom helps the poor. And I think we should concentrate on those steps which in fact can overcome poverty. Poverty is, next to world peace and ecological health, the most important issue. On the political level, fighting poverty the libertarian way must address four issues:
n Monetary System. One of the most dangerous instruments of intervention is currency manipulation and credit inflation made possible by central banking. This intervention is an exploitation of the people to enrich the power elite, which most people are now unable to realize.
n Taxation and the Welfare State. Taxation and all welfare measures, as has been demonstrated by libertarian economists time and again, are a redistribution of wealth from low income groups to higher income groups or a redistribution within the middle class groups.
n International Military Aid of western semi-capitalist nations to quasi-fascist or socialist third world states enables these bankrupt and exploitative governments to survive. The western nations give this aid to enable themselves to continue the exploitation of the third world through international inflation and other means.
n The western nations proclaim that we ought to help the poor third world and at the same time they restrict free trade by tariffs and other protective measures, restrict capital transfer and restrict (im)migration, all of which would really help the third world when eliminated.
One libertarian strategy can be, naturally, to influence the political process to change some of these things. This can be done by education, by demonstrations and acts of civil disobedience (e.g. tax refusals), by working within existing political parties, organizations, and unions, by forming special pressure groups or perhaps even libertarian parties. In certain situations it is also possible to think of revolution and a liberation army. But there are other ways, probably more appropriate to libertarianism:
n Counter-economy. To begin to insure ourselves and others against poverty or to relieve poor people it is practical to develop a counter-economy. The counter-economy is more efficient than the economy under the regulations of the state and thus helps to diminish poverty. In most mixed or fully statist economies a spontaneous counter-economy develops. The task of libertarians is to expand this development and to politicize those who are involved in the counter-economy.
n Human Assistance. Libertarians should, in my opinion, begin with organizing mutual insurance and human compassion to help the poor, thus showing that state involvement is not needed. The Libertarian Foundation for Human Assistance (in the Netherlands) is a great chance to do this.
Of course, the ways to influence the political process and the more direct way to organize counter-economy and human assistance do not exclude each other but they are complementary
I think we must not be afraid of the question: "What about the poor?" We are prepared to give good answers. Only a libertarian society keeps poverty at a minimum. Only a libertarian society produces so efficiently that there is enough to help any remaining poor. Only a libertarian society enables most of the people most of the time to retain the dignity of working for their own subsistence. All statist societies do worse. This is our message to the poor and to all those who wish to help the poor.