Milton Friedman - Redistribution of Wealth

Milton Friedman clears up misconceptions about wealth redistribution and inheritance tax.

Source: Milton Milton Friedman Speaks lecture series. Video source: LibertyPen YouTube channel.

Transcript:

Milton Friedman: Sure.

Speaker: … but most of what I’ve heard you talking about has been about distribution of

income rather than about the distribution of wealth. Now you wouldn’t argue, at least I hope you

wouldn’t, that the person in … ,

Milton Friedman: Don’t be sure!

Speaker: … let’s say India, is genetically inferior, say, to the person in America; it’s

rather through the purely arbitrary circumstance of birth that he’s in a country with a less developed

economy and/or in a family that doesn’t have as large a share of the capital and that’s

not something that he is to blame for, …

Milton Friedman: Oh, I’m not blaming anybody.

Speaker: … so that even if the free market system equitably works and everyone progresses

an equal amount, that person who started out with a lesser share of the capital is still going to end

up with a lesser share of the capital, …

Milton Friedman: That’s right.

Speaker: … and there’s nothing in the free market system that’s going to enable him to make

up for what was a purely arbitrary deficit in the first place. And given that the kind of people

who become successful capitalists do not become that way by giving away their wealth

voluntarily, isn’t it necessary to forcibly redistribute wealth before you can begin to operate

under a capitalist system?

Milton Friedman: No, it is not. 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 the 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?

Speaker: Well, one possible way of redistributing the wealth, without affecting the incentives

to earn as much income as possible, is simply to have a 100 percent inheritance tax.

Milton Friedman: But you’ve got to …

Speaker: That wouldn’t affect the incentives. It’s only after the person is dead anyway.

Milton Friedman: I beg your pardon, I’m afraid I don’t know the family you come from, 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 on a decent system. What is the effect

of a 100 percent inheritance tax? The effect of a 100 percent inheritance tax is to encourage

people to dissipate their wealth in high living.

Speaker: What's the harm in that?

Milton Friedman: The harm in that is 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 are 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?

You know the thing that is amazing, that people don’t really recognize, is the extent to which the

market system has in fact encouraged people and enabled people to work hard and sacrifice in

what I must confess I often regard as an irrational way for the benefit of their children. One of

the most curious things to me in observation is that almost all people value the utility which their

children will get from consumption higher than they value their own. Here are parents who have

every reason to expect that their children will have a higher income than they ever had, and they

scrimp and save in order to be able to leave something for their children. I think you are sort of

like a bull in the china shop if you talk about a 100 percent inheritance tax having no incentive

effects. It would destroy a continuing society; it would destroy a society...

Translated by: Jadranko Brkic