The bestselling (and remarkably, self-taught; he's a neurosurgeon by profession) investing theorist, William J. Bernstein, recently wrote a book entitled The Birth of Plenty: How the Prosperity of the Modern World was Created. A common enough theme to write on these days, and at first glance, probably much the same fare as Niall Ferguson's Civilization: The West and the Rest (which I haven't read yet) and Rodney Stark's The Victory of Reason (which I'm sorry to say I have). And from the book's description, it would appear to be another paean to the glories of Enlightenment capitalism, arguing that four factors have led to modern prosperity:
- Property rights, which drive creativity
- Scientific rationalism, which permits the freedom to innovate without fear of retribution;
- Capital markets, which provide funding for people to pursue their visions;
- Transportation/communication, which allows for the effective transfer of ideas and products.
In an intriguing little interview at AdvisorOne, however, Bernstein displays a rare perceptiveness about what these frequently-lauded "property rights" really are, and how they must be maintained:
When people read Birth of Plenty, they assume I’m a libertarian, because of the book’s emphasis on property rights. But at the end of the day, “property rights” is nothing more and nothing less than the respect that folks with less than you do have for your property, and if there’s too much spread between the rich and poor, that erodes that respect and property rights enforcement costs skyrocket.
This little statement neatly encapsulates the two points about property rights that I've tried to hammer home on this blog before: (1) property rights are rooted in social convention—they exist because society believes they ought to exist, and determines to protect them by custom, and law; (2) property rights exist for the purpose of common welfare, not for their own sake or the sake of individuals only. Put these two together, and you find that, if property ceases to serve the social good, it ceases to command the respect of society; morality and custom therefore no longer suffice to protect it, since it no longer serves its moral and customary purpose, and the only thing left to protect it is the brute force of legal enforcement. And it becomes a vicious cycle—as laws and security guards proliferate, people come to think of coercion as the only safeguard of property, so that as long as you can get around the letter of the law, or the enforcement reach of the law, you're welcome to as much as you can get ahold of.
Bernstein understands, in other words, what the Torah understood—that redistribution of property is not the abolition of property rights, but the surest means to protect them, and along with them, social welfare and stability generally. Bernstein goes on, deploring the effects of skyrocketing inequality:
There is no question that economic inequality is killing us; we have the highest rates of obesity, homicide, violent crime, and incarceration in the developed world, things that all covary strongly with inequality.
If there’s one myth that’s more corrosive than any, it’s the notion of “job-killing taxes.” By that logic, Somalia should be the world’s richest nation, and Sweden and Switzerland the poorest; Massachusetts ought to be our poorest state, and Mississippi the richest.
It’s a brutal fact that in highly productive societies, a lot of income needs to be redistributed. The objective evidence on the subject suggests that marginal tax rates have to be very high — in the range of 70%-80% — before the income effect becomes overwhelmed by the incentive effect; I find it hard to believe that Bill Gates, Larry Page, or Mark Zuckerberg are going to work any less hard if their income tax rate jumps to 45%.
He also adds some sage words of advice that run very much against the grain of our society's conventional financial wisdom, and against the self-interest of the investment advising industry.
I’ll forego the 50-cent words and simply say that wealth is not a dollar amount, but rather a ratio measured in years: in other words, how many years’ living expenses you’ve saved. The person with a million dollars who needs to spend only $50,000 annually is twice as rich as the person who needs $100,000.
If you think that your happiness is tied up in the things you own, then you are both sadly misinformed about human neuropsychology and doomed to be unhappy. Bottom line: keep your expenses down, save like hell, don’t stop until you’re pushing up the daisies, and look for “utility” in the things that really matter: connections with other people, competence in a vocation or avocation, and most importantly, acquiring autonomy over your time and effort, i.e., becoming your own boss.
If you can’t reach those three goals by the time you’re in late middle age, you’re toast.
Needless to say, I'll certainly be buying the book.