How Wealth is Created (Hint: It Isn’t Through Taxes)

May 16, 2016—Jacob Hornberger, president of the Future of Freedom Foundation, gives a lesson in economics to the presidential candidates promising more wealth for Americans.

Well, the big feud between Clinton and Trump is already arising over how much to tax the rich. Clinton wants to do it more, Trump wants to do it a bit less, but it’s all designed to fund the ever-burgeoning expenses of the welfare-warfare state, which they support and which they want to increase even more.

What they don’t understand, in fact, what liberals and conservatives don’t understand, is how wealth is created in a society. They think that wealth is just a given and it’s a matter of, hey, how much should we tax from the rich and the middle class and the poor, but as libertarians understand, the way you bring wealth into a society is you leave people free to keep everything they earn.

That was why there was no income tax in America for some 125 years and no welfare-warfare state. And so when people are free to keep everything they earn, they save a large portion of it. That savings goes into banks, which then becomes available to lend a businessman for tools, equipment, things that make workers more productive and then that increased productivity brings into existence a higher standard of living, higher wage rates, not just inflationary wage rates.

And then the other side of this is free trade. When people are free to trade with others, they inevitably raise their standard of living. That’s because in every trade they give up something they value less and they get something they value more. As libertarians understand, this is the key to a free, prosperous, harmonious, and moral society.