The redistribution of wealth
Last updated: 2026-08-18
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 in order to understand it correctly.
Problems of the redistribution of wealth
The coercive redistribution of wealth is not an accounting transfer from one pocket to another. It changes incentives, destroys or diverts capital, politicizes Private property, and usually delivers less to the poor than it promises. The problems are grouped at several levels.
1. Incentives: one taxes more what one wants more and subsidizes what one wants less
Whoever saves, invests, and is right pays; whoever consumes or fails receives. That is not a moral detail: it alters conduct.
On the side of the one who produces and saves.
Taxes on those who earn most, wealth taxes, and inheritance taxes reduce the net return of saving that money for future investments.
Ludwig von Mises insisted that the rich usually save a larger fraction of their income; taxing that fraction does not “take away luxury,” it reduces the capital fund on which real wages depend.
The harm to those who are not rich appears later, in lower productivity and less well-paid employment and more poverty.
On the side of the one who receives.
Permanent money transfers (welfare programs) lower the cost of not working, of not training, and of not bearing risk. It is not necessary that “everyone become lazy”: a low percentage of labor supply and of high Time Preference is enough.
Part of poverty becomes an institutional trap, not only a lack of resources.
2. Capital is not “shared out” as a cake is shared
A large part of the wealth that one wants to equalize is not “cash or a bank account.”
It is factories, software, brands, specific equipment, land in use, going concerns.
One cannot divide a blast furnace among ten million people and preserve its value.
Redistributing wealth in the Pikettian sense either destroys capital (forced sale, taxes that force the disposal of assets) or converts it into political titles over the same capital (the State or the beneficiaries become nominal owners without knowing how to operate it).
The typical result is not “more productive owners,” but “consumption of capital.” This generates more poverty in the future by lowering the country’s production.
Equality can rise while output and real wages fall. That is exactly what the Austrian Theory of Capital predicts when capital is treated as homogeneous and passive.
3. The problem of knowledge and of time preference
The market does not only allocate goods: it reveals, through prices and losses, who maintains the capital.
A wealth tax does not transfer the knowledge, the time horizon, or the discipline that made it possible to accumulate it.
If the recipient has a high time preference, the stock is consumed and inequality reappears.
If the State sets “permitted uses,” it ceases to be property and becomes a conditioned subsidy. In both cases one denies that the heterogeneity of persons —not only inheritance— explains part of the distribution.
4. Political clientelism
Explained in another page in more detail later.
5. Irrecoverable loss
Each peso transferred to a poor person does not cost a peso. It costs the peso plus the distortion: fewer hours worked, less investment, more tax lawyers, more bureaucracy.
For the poor person to receive 1, the rest of the economy may lose considerably more than 1.
For every peso that is transferred to a poor person, much less than that figure reaches him, and we have not even spoken of corruption and theft.
6. Public choice: the money does not arrive clean to “the poor”
Buchanan and Tullock do not assume wicked politicians; they assume politicians and voters like everyone else. Consequence:
Concentrated benefits, diffuse costs.
Whoever receives a privilege (subsidy, tariff, special pension, contract) organizes; the taxpayer does not.
Real redistribution is diverted toward organized groups —the middle class, pensioners, unions, regions, friendly firms— not toward the one who has least.
Tullock observed that a large part of the welfare state is horizontal transfer, not vertical.
Rent-seeking, Privileged Entrepreneurs or Business Corsairs
Explained in another page in more detail later.
7. Political and moral effects
Friedrich Hayek (1899-1992) rejected “social justice” not from indifference to the poor, but because there is no objective criterion of just sharing of a product that no one designed.
Imposing a pattern of results turns the State into a permanent arbiter of merits and faults. That:
- politicizes every income difference;
- fosters envy as an argument of policy (Piketty even says that certain high rates do not raise revenue: they serve to prevent incomes he considers excessive);
- erodes equality before the law: two persons equal before the civil code cease to be so before the tax authority according to the stock they possess;
- generates zero-sum conflict: the other is not a cooperator in the market, he is a fiscal well.
A society that defines others’ success as a collective problem invests energy in preventing accumulation instead of imitating it.
8. Artificial inequality and mobility
Paradoxically, much contemporary inequality that is used to justify more redistribution is already a product of intervention: Inflation and the Cantillon effect (whoever is close to the new credit enriches himself first), regulation that protects incumbents, bailouts, hypertrophied intellectual property, education and land rationed by the State. More redistribution on that diagnosis does not correct the cause; it adds another layer of political privilege.
At the same time, a broad system of transfers can freeze positions: whoever enters the aid apparatus faces thresholds (poverty trap) and whoever could rise faces extremely high effective rates when crossing thresholds.
9. And theft by corruption?
Here is where Piketty commits what in logic and economics is known as the “Nirvana Fallacy” (comparing a real and imperfect market with an idealized and perfect State).
A hyperdemocratic, transparent, and benevolent State is assumed.
The critics point out that he suffers from a serious myopia regarding the nature of political power:
Absence of methodological individualism in the State:
While it is assumed that entrepreneurs and heirs act out of self-interest to accumulate wealth.
It is magically assumed that politicians, bureaucrats, and tax collectors will act as disinterested “angels” who seek the common good.
It ignores Public Choice Theory:
It does not seriously contemplate that the creation of a global expropriation fund of trillions of dollars would be the definitive incentive for corruption, clientelism, and institutionalized theft.
Historically, when States have concentrated such a magnitude of resources, political elites have become the new oppressor class, extracting rents for themselves and their allies.
10. What this does not imply
It does not imply that misery does not exist, nor that all voluntary aid or a minimum safety net is “socialism.” It implies that:
- absolute poverty is reduced above all by capital formation, secure property, and competition, not by equalizing stocks;
- charity and mutual insurance do not generate the same problems as the permanent confiscatory tax;
- equalizing wealth by decree treats a result (the distribution) as if it were the cause of welfare.
The central problem of the redistribution of wealth, in the Austrian tradition, is not that “the rich get angry.” It is that the process that creates the wealth one wants to share out is attacked, that capital is pretended to be a homogeneous fund administrable by the treasury, and that the power to reallocate it is delivered to a political process that does not maximize the condition of the poorest, but that of those who press best. The frequent result is not a more just society: it is a poorer, more politicized society and, often, as unequal as before, only with different owners.
This article is part of the Intermediate course on Libertarianism and the Austrian School of Economics -> Social Democracy
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