The Greatest Incentive on Earth? Family

Milton Friedman - Redistribution of Wealth
Milton Friedman - Redistribution of Wealth

Milton Friedman clears up misconceptions about wealth redistribution, in general, and inheritance tax, in particular. Source: Milto...


I've shared quite a few things from Milton Friedman in recent months, but I have to share another one, this time on the subject of redistribution of wealth.

In a Q&A period, one young socialist asked Friedman why redistribution of wealth is not the solution to helping people who are born into less fortunate financial situations than others. He responded.

The only way in which you can redistribute effectively the wealth is by destroying the incentives to have wealth, and the question is what is the way, what is a system, which will offer those people who are so unlucky as to be born without good positions; what is the system which will offer them the greatest opportunity?

The young man replied to Dr. Friedman by suggesting that a 100 percent inheritance tax is the best way to redistribute wealth without destroying incentives. The brilliant economist quickly tore that idea to shreds.

I'm afraid I don't know the family you come from, I don't know, but as you grow up you will discover that this is really a family society and not an individual society. we tend to talk about an individualist society, but it really isn't; it's a family society, and the greatest incentives of all the incentives that have really driven people on have largely been the incentives of family creation, of establishing their families.

A good parent will leave his or her descendants an inheritance (Proverbs 13:22). So what would the obvious effect of the inheritance tax be?

The [effect of] the 100 percent inheritance tax is to encourage people to dissipate their wealth and high living. The harm in that, where do you get the factories? Where do you get the machines? Where do you get the capital investment? Where do you get the incentive to improve technology, if what you're doing is to establish a society in which the incentive is for people who, if they have by accident accumulated some wealth, to waste it in frivolous entertainment?

That's a really great way of putting it, but for me I'd put it a different way. And this is one of the ways which Friedman would describe as "irrational" in economic terms.

I want to build wealth so that I can change my family tree (those of you who follow Dave Ramsey know what I mean by that). I want to provide my descendants something that will change their entire lives for the better. I want to enable my children to live debt free lives, to own their cars and houses themselves, and be able to accumulate wealth throughout their working lives so they can live and give like no one else.

If you're here, you probably have some sort of interest in lifting people out of poverty and into financial success. All of us want to see as many people as possible escape poverty and build wealth for themselves and their families, benefiting society as a whole in the process.

Wealth creation is a process that builds up everyone. It is not a zero-sun game where someone wins and the other person loses. Everybody wins. Yet no one wins when wealth is taken and incentive is lost.