Dear Dictator,
So, you want
to be a wealthy dictator, eh? You've got a bit of a personal problem,
then. Most dictators become such because they love having power over
people. The trouble is that when you control people, you eliminate
their ability to create wealth. The more control you retain, the
poorer your people will be. You cannot have both wealth and power.
You must choose between them.
You're still reading, eh? Okay, then obviously you've chosen wealth over power. I have more bad news for you. You must also allow your people to become wealthy as well. You do this for three reasons. First, if you let them become wealthy, they will have an incentive to work hard, be creative, and take risks. Second, if they are wealthy, they will be happy under your thumb, and won't try to revolt. Third, when they become wealthy, you will be able to take a portion of their wealth.
Incentives matter. People have to have an incentive to work hard. You could beat them, but that's expensive and unproductive. It creates not an incentive to work hard, but an incentive to avoid the beatings, which is not at all the same thing. You get the same effect when you put criminals in jail for committing crimes. Their goal then becomes not not committing the crimes, but instead avoiding getting caught.
When people get to keep most of the results of their efforts, they'll work hard. Being a dictator, that means that they'll be working hard to make you wealthy. The wealth flows directly from the hard work, and the hard work from the reward. So, your own wealth is contingent upon them keeping as much of their wealth as you can manage. The more wealth they have, the more wealth they'll be able to invest in creating more wealth. This process has no end, and there are no limits to the wealth you can accumulate in this manner.
Wealth does not itself bring happiness, but misery surely brings unhappiness. I don't refer to poverty. Poor people can be happy if they accept their poverty. The people who do not accept their povery, but instead struggle against it, are miserable. When you are over-controlling people, keeping them from improving their station in life, you are creating misery. Unless you are a cruel dictator, you don't want to create misery. Miserable people are desperate people. They will do risky things, like attempt to overthrow your rule. The prime risk of any dictator is being overthrown. You can reduce that risk by spending lots of money on an armed force, but that's an expensive way to earn money. So, to protect your position, you must eliminate as much misery as possible.
If you take a fixed amount of wealth from everyone, you will get more from the wealthy people. Therefore, to be as prosperous as you can, you should encourage people to become wealthy by taking only a fixed percentage of their wealth. If, instead, you punish the wealthy by taking more and more of their money as they get more, you will decrease their interest in being wealthy.
So, to sum up, allow your people to have private property rights, do what they're best at and trade without restriction for everything else. Tax consumption, not income, because you want to encourage them to create more capital. Use your power only to protect their (and your!) property. This will maximize your wealth, and minimize the risk of any nasty attacks by miserable people. As you raise your family in splendor, be sure to educate your children as to the source of their comfort. Teach them how to run a prosperous country, and you will be able to pass your dictatorship on to them.
Remember that political control and economic control are completely different things. If you want to see how wealth is truly rewarded, look at the reign of Alan Greenspan over the U.S. Federal Reserve. He has merely banished the scourge of inflation. For this, he has been rewarded with lifetime employment, power and prestige. No one in their right mind would think of overthrowing him. You, too, can live that kind of a life: wealthy, powerful, and free of the risk of losing your position.
If you think I'm talking about or to dictators, you'd be wrong.
posted at: 13:20 | path: /economics | permanent link to this entry