Economics has often been called the science of wealth, with the alleviation of poverty as one of the justifications for both the pursuit of wealth and the study of that pursuit (economic theory). In the language of politicians, if we want to feed more people we need to make the economic pie bigger, and this process of making the economic pie bigger is known as the accumulation of wealth. Yet the connection between wealth and poverty is not as obvious as this type of analysis suggests, for it is often not an inverse relationship. Generating wealth can, and often does, generate and not alleviate poverty. This insight has been noted by many economists (as well as by the Old and New Testaments), yet it has been ignored by the mainstream of the profession and more importantly by society as a whole. The purpose of this paper is to first look at this critical history of wealth creating poverty and second to provide the outlines of a Veblenian explanation of this process.
Wealth and Poverty in the History of Economics
Our discussion of the relationship between wealth and poverty starts with the first serious student of economics, Plato. Plato, quoting Socrates, told us why both wealth and poverty are bad for society: "Wealth and poverty, ... the one brings luxury, idleness, and revolution, and the other illiberality and the evil of bad workmanship in addition to revolution" (Republic IV 422a). Socrates suggested that a guard be placed at the gates of the city to keep wealth and poverty out. Yet wealth and poverty are not seen as two evils but as different sides to the same evil, for the wealth of the rich man is the cause of the poverty of the poor. For Plato this happens because the high consumption of the rich creates shortages for the poor.
Adam Smith saw wealth in terms of the material prosperity of the society as a whole. The primary cause of poverty in Adam Smith's economics is an insufficient production of real wealth, which he defined as "the annual produce of the land and labour of the society" (Smith 1976a, 12). The obvious solution to this problem is to increase the wealth of the community, and it is toward this end that he wrote An Inquiry into the Nature and Causes of the Wealth of Nations. By defining wealth in terms of the production of goods and services, Smith was contrasting his notion of wealth with that of the Mercantilists, who defined wealth in terms of gold and silver. For the Mercantilists the purpose of wealth was to enrich the merchant class and the state, with little concern for the position of the poor. Smith switched the discussion to a form of wealth that cannot be accumulated in only a few hands and he was clear that this real wealth must be widely shared. "No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged" (96). Like Plato, however, Smith noted the damaging effect the love of wealth has on the public's morals.
This disposition to admire, and almost worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments. That wealth and greatness are often regarded with the respect and admiration which are due only to wisdom and virtue; and that the contempt, of which vice and folly are the only proper objects, is often most unjustly bestowed upon poverty and weakness, has been the complaint of moralists in all ages. (Smith 1976b, 61-62)
The Development of the Scarcity View of Wealth …