More Harm Than Good

We began to doubt the merit of charity work many years ago. A friend of ours had volunteered to go to Nicaragua during the Sandinista years. He felt guilty about the way the U.S. government had reacted to the communist takeover of the country. He wanted to help out by building houses.

So he went to Nicaragua at his own expense. There, he enlisted in a brigade of foreign volunteer workers. They toted blocks and laid bricks, without pay, helping to build shelter for the Nicaraguan population.

“You wouldn’t think a country like that would have a shortage of labor,” we suggested. “What’s the going rate for a day laborer down there?”

“Oh, it’s about $2 a day.”

“Then, when you work a week down there, it’s the equivalent of a contribution of $10.”

“Yes, I guess it is.”

“What do you earn in the United States?”

“About $10 an hour.”

“Would they be better off if you worked in the United States for a week and sent them the $400 you earned?”

“Well, I guess so. . . .”

“Forty times better off.”

“Yes, but they’d probably use the money to buy weapons—after all, the United States is supplying rebels who are trying to kill them.”

Yes, dear reader, life was not set up in a way that accommodates the fantasies of world improvers. Instead, it is almost impossible for them to do any good—except by coincidence.

Don’t believe us? Think someone who gives money to the Red Cross or Save the Whales or to fix the cleft palates of poor people must be doing good?

Not so. How does anything have value? Things don’t have value in and of themselves. They are given value by willing buyers and sellers. If no one wants a Hula-Hoop, it has no value. None. It has value only when someone has a want or a need for it. Otherwise, it is worth zilch.

While there is obviously a demand for a Save the Whales group, signaling a value to the group itself, there is not necessarily any whale saving going on. Or even if there were, you wouldn’t have any way of knowing what it was worth. Whale saving is not subject to market pricing.

Imagine a do-gooder who thinks he can make the world a better place by giving people Hula-Hoops for free. What has he done? He has taken valuable resources and turned them into something for which people may have neither a use nor a desire. He has made the world poorer.

He has done bad.

You can know when something has value only when people want it. So why not give them something they want, like bread? Then, surely you will be doing good, right?

Wrong.

If you give away bread, what happens to the person who used to earn his living growing rice? Doesn’t the competition of free bread doom him to failure? Is that a good thing?

And where would you get the bread? You have to buy it, right? And as people switch from expensive rice and other cereals to free bread, you have to buy more and more of it. So you drive up the price of wheat and bring other farmers to switch from whatever they are doing to providing you with wheat so you can provide free bread.

Does the world have more food as a result of your generous offer? Not necessarily; producers have merely shifted from producing what people wanted—and were willing to pay for—to what you wanted. And since it is free to consumers, they take it up with both enthusiasm and contempt. Unless controls are put on, they are soon feeding it to their pigs so that they can enjoy some free bacon on their free bread. Feeding bread to pigs almost certainly makes the world a poorer place. Pigs can thrive on cheaper food. So you apply various systems of control to make sure your free bread program is not abused. You hire agents and controllers. You give out ration cards. You insist that recipients register and prove that they really need the bread.

This, of course, costs money, too. You are now replacing the market system, which needs none of these things, with a system of centralized, bureaucratic management. Instead of honest buyers and sellers, now your paid functionaries decide who gets bread and who doesn’t. These management systems divert further resources from actually providing food to paperwork and administration.

Soon, you will have lawyers and auditors on the case, too. And then you will eventually discover that every loaf of bread you distribute free costs you 10 times the previous cost of a loaf of bread. This means that you have destroyed resources equal to nine times the value of the loaf of bread itself in your effort to make the world a better place.

In fact, you have done bad.

The problem is simple enough. You can know if something has value only if it is allowed to trade in the free market, where willing buyers and sellers discover its value every day. Any attempt to give away something for free, or even subsidize it (to say nothing of controlling it in other ways) distorts the price. Now you don’t know whether you are paying too much or too little. You don’t know whether you are doing good or bad.

You think, for example, that the world is generating too much carbon dioxide. You subsidize a windmill. It generates electricity, but at twice the cost per kilowatt. Have you done good? What does it mean when you say “twice the cost”? Doesn’t it mean that you actually use twice the resources? And doesn’t that imply that you also use up twice as much energy? Someone had to make the steel to build your windmill. Someone had to put the parts on a truck to bring it to you. Someone had to drive out to install it and to service it. If the inputs cost twice as much as normal, you use twice as much energy to create it.

Prices, freely determined, are what tell you when something is worth doing and when it is not. They tell you how much both resources and energy cost.

Without freely set prices, you are wandering around in the dark. That is why so many charity efforts are hapless and vain. In fact, it wouldn’t surprise us to discover that all the world improvement projects from the beginning of time to the present were a net drag on man’s happiness.

It’s a hard thing to believe. The world’s smartest, richest, and most respected people are firmly behind charities. Bill Gates. Warren Buffett. Andrew Carnegie. The Rockefellers. How dare we contradict them?

Clearly, the burden of proof is on us. We gave you some of our reasoning already. Here is more:

Bill Gates and Warren Buffett are certainly geniuses. At least at making money. Wouldn’t it be asking a little much to expect them to be geniuses at getting rid of it, too? They know what it takes to make money—good ideas, properly managed, properly funded. It’s not easy. But if you do it right and get lucky, you add to the world’s wealth. More people get more of what they want. That’s what adding to the world’s wealth means.

If you are good at adding to the world’s wealth, you will accumulate a huge pile of capital as a result. This capital represents resources that could be put to use to add even more to the world’s wealth.

So what are you doing when you give them away? Resources pass from the hands of people who add to the world’s wealth to the hands of people who . . . who what? Nobody really knows. Presumably, they are people who mean well. Presumably, they do a good job at what they do.

But if they were adding to the world’s wealth, they wouldn’t need a handout. So, by definition, they are not adding to the world’s wealth. Are they adding to the world’s well-being? Who knows? Their output is not priced and not subject to the rules of a market economy. They are operating like the government, whose output may or may not be useful or beneficial, but almost certainly lowers the world’s wealth, rather than increases it.