How would the non-rich spend the redistributed money?
Last updated: 2026-08-31
Categories: Home -> Political Science
This article is part of the Intermediate course on Libertarianism and the Austrian School of Economics -> Social Democracy
NOTE: It is necessary to have read the chapter on -> State Interventions before reading this article.
Before beginning, it is recommended to read these 3 articles first:
After what we have been discussing about equality in the 2 previous articles:
the following question is asked: How would the non-rich spend the redistributed money?
The question hits the mark with one of the most devastating counterarguments to Piketty’s thesis: Time Preference.
His model assumes an unreal psychological homogeneity, treating all individuals as if they had the same propensity to save, to manage risk, and to postpone consumption.
When redistribution is analyzed from Praxeology (human action), the logical failure of delivering large sums of capital indiscriminately becomes evident for several reasons:
Ignorance of the subjectivity of time preference:
The accumulation of capital is not a purely mathematical inherited phenomenon; it is the sustained result of a low time preference (restricting present consumption in order to obtain greater future value).
Piketty ignores that those who have not accumulated capital often operate with a high time preference.
If they receive a sudden injection of money, the natural and logical tendency, dictated by their subjective valuations, will be to devote it to immediate consumption rather than to long-term investment.
Consumption of capital versus formation of capital:
In Piketty’s view, the capital delivered to the young through a “universal inheritance” would magically become new productive firms.
However, without the entrepreneurial discipline that forges entrepreneurs, that expropriated wealth would be used overwhelmingly to buy consumer goods.
This means that the capital that was previously financing higher-order goods (machinery, research, infrastructure) is liquidated and structurally destroyed in order to satisfy the short term.
The return of capital to the producers:
There is a deep economic irony in this redistributive scheme.
When the recipients of this expropriated wealth spend the money on goods and services, that capital will inevitably flow back into the hands of the efficient entrepreneurs and firms (the individuals of low time preference) who produce what people wish to consume.
Wealth inequality would be restored quickly, but society as a whole would be poorer because of the prior destruction of capital goods.
Perverse incentives and de-civilization:
Authors of the Austrian tradition, such as Hans-Hermann Hoppe, point out that when the State guarantees income or capital without prior effort, it artificially raises the time preference of the whole society.
The culture of saving and of planning for the future is discouraged, since the individual understands that the system punishes the producer and rewards the capture of political rents.
Piketty’s fundamental error is to treat capital as a static block of modeling clay that can be cut and shared out without altering human conduct, ignoring that wealth must be constantly recreated through individual action and ingenuity.
The evidence does not confirm the miracle of the check
The data on sudden enrichment are more ambiguous than the myth that “70% of lottery winners go bankrupt” (a figure that is not even supported by the institution to which it is attributed). Serious lottery studies (Sweden) show that many winners do not ruin themselves in five years and that life satisfaction can rise. But that does not save Piketty.
What several papers do show is partial and systematic dissipation:
- Each inherited dollar increases later net worth by considerably less than a dollar (in a study with HRS data, some 0.61 dollars; and, adjusting for size, heirs were more prone to spend the entire windfall).
- In classic lotteries, a small fraction of the prize was saved (on the order of 16 cents per dollar in a well-known paper).
That is exactly what a high time preference predicts: the unexpected income is consumed.
There is no need to caricature “all the poor buying stupidities.” It is enough that a relevant fraction treat the endowment as a gain and not as capital. After a generation, wealth inequality reappears —this time between those who conserved the stock and those who liquidated it—.
This article is part of the Intermediate course on Libertarianism and the Austrian School of Economics -> Social Democracy
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Last updated: 2026-08-31
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