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• En Torno a La Funcion Del Capital, Joaquín Reig
• Reflections On the Keynesian Episode, W. H. Hutt
• Ludwig Von Mises and the Market Process, L. M. Lachmann
• Values, Prices and Statistics, Bettina Bien
• The Tax System and a Free Society, Oswald Brownlee
• How “should” Common-access Facilities Be Financed?, James M. Buchanan
• Pitfalls In Planning: Veterans' Housing After World War Ii, Marshall R. Colberg
• Presents For the Poor, R. L. Cunningham
• Restrictions On International Trade: Why Do They Persist? W. Marshall Curtiss
• “human Action”, E. W. Dykes
• The Genius of Mises' Insights, Lawrence Fertig
• On Behalf of Profits, Percy L. Greaves, Jr.
• Tax Reform: Two Ways to Progress, C. Lowell Harriss
• The Future of Capitalism, Henry Hazlitt
• Prices and Property Rights In the Command Economy, Arthur Kemp
• The Inevitable Bankruptcy of the Socialist State, Howard E. Kershner
• Entrepreneurship and the Market Approach to Development, Israel M. Kirzner
• The New Science of Freedom, George Koether
• Financing, Correcting, and Adjustment: Three Ways to Deal With an Imbalance of Payments, Fritz Machlup
• On Protecting One's Self From One's Friends, Don Paarlberg
• Recollections Re a Kindred Spirit, William A. Paton
• Ludwig Von Mises, William H. Peterson
• The Economic-power Syndrome, Sylvester Petro
• Ownership As a Social Function, Paul L. Poirot
• To Abdicate Or Not, Leonard E. Read
• The Book In the Market Place, Henry Regnery
• Lange, Mises and Praxeology: the Retreat From Marxism, Murray N. Rothbard
• The Production and Exchange of Used Body Parts, Simon Rottenberg
• The Education of Lord Acton, Robert L. Schuettinger
• Chicago Monetary Tradition In the Light of Austrian Theory, Hans F. Sennholz
• Hubris and Environmental Variance, Joseph J. Spengler
• An Application of Economics In Biology, Gordon Tullock
• What Mises Did For Me, John V. Van Sickle
• Economics In a Changing World, G. C. Wiegand
• Can a Liberal Be an Equalitarian? Leland B. Yeager
• The Political Economy of Nostalgia, Ramon Diaz

Presents for the Poor
R. L. Cunningham

1. Introduction

Suppose a rich man wants to help a poor man. The obvious way to help, it would appear, is to give the poor man some money; for what makes a man poorer than another is that he has less money. But is it always best to give money? Perhaps it would sometimes be better to give some good or service—food or health care, for example? Cash or food—when should one be given, and when another?

I intend in this paper to lay the groundwork for answering this question by identifying as clearly as I can the pros and cons of giving money as against giving goods. I shall proceed by pointing to several quite ordinary examples of giving—giving a man a tie or a boy a dog for Christmas—to see what light is shed on our problem of giving help to the poor. The upshot of my analysis will be to lend support to the dictum: a fool can put on his clothes better than a wise man can do it for him.

2. Jones' Tie

Jones receives a tie from his daughter for Christmas. Now if his daughter's taste in ties is like most daughters' taste in ties—not impeccable—one might ask why Jones is so grateful for the tie, and whether it might not have been better for his daughter to give him cash and let him choose his own present. Our ordinary experience gives us the answer. “It's the thought that counts.” Jones was grateful because what he received was not only (a) some tie or other but also (b) an expression of the time, concern and loving care involved in choosing the tie. He can wear it proudly: “My daughter chose this tie for me.” Cash, by contrast, has very little display value.

It might be, to change the example slightly, that Jones believes his daughter's taste in ties is superior to his own. If so, there would be another valued dimension to the gift of the lovingly chosen tie: (c) the fact that it was expertly chosen and better even as a tie than one Jones might have chosen for himself.

There might be still another dimension of the gift. Suppose that the tie is a gift from a friend and that it is an exceptionally elegant tie, one Jones would have been too modest to choose for himself. We might speak of this as (d) the luxurious dimension of the gift.

And finally, every gift may be looked at from another's point of view, (e) that of the giver, who may prefer one gift to another because he believes it more appropriate or better in some sense, or because he personally gets more satisfaction from giving one gift than from giving another.

3. Willy's Dog

Willy's father decided to give Willy a dog for Christmas. He knew that Willy had expressed a preference for a chemistry set. But his father believed that he knew better what would “be good for” Willy in the long run, and so bought the dog.

Let us look at the economics of the gift. The dog cost twenty-five dollars. Willy had always been vaguely interested in having a dog, but had he bought a dog out of savings, would have bought a ten dollar dog. Of course a twenty-five dollar dog is better than a ten dollar dog and Willy would have been willing to pay something more for it, but not as much as it actually cost. Willy valued the twenty-five dollar dog as worth only fifteen dollars to him. Since for Willy the dog he got as a present was not “worth” twenty-five dollars, but only fifteen, ten of the dollars spent were “wasted” or somehow “lost” so far as Willy himself was concerned. For Willy's father, on the other hand, the ten dollars are not necessarily wasted, for if he is right Willy will sooner or later come to see the dog as worth the full twenty-five.

Note that since Willy values the dog at only fifteen dollars, he will give it less care and attention than that due a twenty-five dollar dog. Willy's father must take this into account, and will need to persuade or coerce Willy to give the care and attention due a twenty-five dollar dog if he is not to lose part of his investment.

Why had not Willy's father simply given him twenty-five dollars in cash? Willy would then, let us suppose, have bought a ten dollar dog and a fifteen dollar chemistry set. Is this not preferable to a twenty-five dollar dog valued by Willy at fifteen? Well, if the father chooses the more expensive dog, he must be supposing that in the long run that dog will somehow “be better for” Willy than the other alternative, and willing to risk ten dollars to prove it.

4. Public Housing

Our final example will be one taken to be paradigmatic of programs to help the poor by giving goods or services rather than giving the equivalent in cash—public housing. The analysis is only slightly more complicated than that of Willy's dog.

Suppose Smith, a poor man, lives in a hundred dollar a month apartment. The rich, perhaps via government, wish to help him, and make the judgment that the best way to help is to provide a better apartment. They build him an apartment that would rent for two hundred a month, but charge him only one hundred. Smith is now better off because he has a better apartment at no extra cost to him. How much better an apartment? Smith values the better apartment at its market price, as worth only one hundred and fifty to him; that is, he would have been willing to pay one hundred and fifty for that two-hundred dollar apartment had someone offered it to him at that price (just as Willy would have been willing to pay fifteen dollars for the twenty-five dollar dog). So Smith considers himself better off than before to the tune of fifty dollars worth of housing. But what Smith sees as a gift of fifty dollars of housing cost an extra hundred to build, so from his point of view, fifty has been “wasted” or “lost”.

Had Smith been given a hundred dollars cash, he might have spent part of it on improved housing, but, on the assumption the donor makes, less than he would if he knew what was good for him. An anecdote illustrates the point. Poor Man: “Please, Doctor, give me this hundred dollar operation for ten dollars—that's all I have!” Doctor: “Alright, here's ninety dollars. Now you can pay my price—do you still want the operation?”

Is it sensible for the donor to spend one hundred dollars to provide housing Smith values at only fifty dollars? Only if, like Willy's father, the giver is sure that the fifty dollars is not really “wasted” and that Smith will really benefit a hundred dollars worth. And the donor, like Willy's father, must take into account the fact that Smith, in the absence of “persuasion” or coercion, will not give it the care appropriate for a two hundred dollar apartment, but that appropriate for an apartment costing fifty dollars less.

Why is it precisely that Smith would not give the apartment the care appropriate to a two hundred dollar apartment? After all, if someone were given a thousand dollar mink coat, but valued it personally at only one hundred dollars, it would hardly be reasonable of him to treat it like a cheap cloth coat. This is so. But it does not follow that it is necessarily “reasonable” of Smith to give high-grade care to an apartment he doesn't regard as worth it to him. The reason for the difference is that Smith does not have full property rights in his apartment—he lacks the power to alienate—for he has no power to sell, mortgage, or sublease the apartment and so capture its market price. But the owner of the mink coat can dispose of it by sale, gift, etc., and so would be unwilling to lose part of its value to others, value he can capture, by care appropriate to a cheaper coat. Smith cannot, to be sure, be given the power to alienate “his” apartment, for he would then turn it into cash and use the cash according to his own judgment. (When land is “redistributed” to poor peasants in “under-developed” countries, the power to alienate the land is not granted; for if it were, some peasants would sell “their” land to another for whom its value as a productive resource was higher than it was for the peasant; the peasant would leave the land, where, it appears, he ought to remain for his own good.)

How reasonable is it of the rich giver to bet that Smith is wrong about the value of housing? The answer appears to be that Smith must be taken to be either ignorant of what is good for him, or too weak to choose what he knows is good for him. But even this is not enough. In addition, the donor must suppose that he both does know what is best for Smith and also that he is strong enough, virtuous enough, to choose the right thing for Smith. It is normal to suppose that a child is often ignorant and the parent often knowledgeable of what is to the child's own best interests; and it is normal to suppose love and concern on the part of the parent. It is not so easy to see that a poor man, just because he is poor, is ignorant of his own best interests or too weak to pursue them—after all no one has more incentive to find out and pursue his interests; or that the rich man, just because he is rich, knows what is good for the poor man and is strong enough to seek it. Do poor people have less incentive to come to know and act for their own best interests than the rich do? Are the poor more like the immature children of the rich than they are like adults? I know of no evidence to support a confident answer of “yes”.

Even apart from the fact that Smith's interest in spending his money to promote his welfare is almost surely higher than that of the rich giver, it is surely true that his knowledge of his own particular circumstances and “needs” is likely to be greater than that of the rich man. If Smith is given cash instead of an apartment, his spending of a portion of it on furniture, a portion on clothing, a portion on recreation, a portion on insurance, etc. might not be as wise an allocation as the rich man's would be in his place, but it does not have to be justified—it need only be wiser than the rich man's choice for him in the rich man's place, with the rich man's limited interest and knowledge. In order for me to trust you to choose for me, it is not enough that I know that if you were in my place you would choose more wisely than I; I must know that you, while in your place, will choose more wisely for me than I while in my place. In order to be willing to have another choose for me, I not only have to distrust myself, I have to trust the other to be able and willing to make superior choices for me (as I do, for example, when I trust a wine steward to advise me on a choice of wine from a cellar with which I am unfamiliar—and here it is to his self-interest to give me good advice.)

It would appear, further, that if the rich believe they know better than Smith what is good for him as regards economic goods (where he starts with the advantage of superior circumstantial knowledge and concern with his own welfare), this elitist attitude would a fortiori obtain in other spheres, the political, for example. It would of course be possible to maintain that the poor are too ignorant or weak to buy what is “best”, but wise and virtuous enough to vote for the best man; but defense of such a position would not be easy.

5. Conclusion

I have tried to make clear what is involved in making a reasonable choice between giving cash, and giving goods or services to the poor.

It appears obvious that “giving a present” is not an appropriate model for giving welfare. It may well be that “It's the thought that counts” or the fact of its being a luxury which adds to the value of the gift tie, but neither has any place in welfare giving. The tie may be valued because it was chosen by an expert, a giver with better taste than the recipient; but that the rich are expert choice-makers for the poor, that they both know and choose what is best not only for themselves, but for the poor, is an assumption that deserves scrutiny.

It receives that scrutiny in our analysis of a parent's gift of a dog to his son, and in the analysis of public housing. In the former case, in sum, there is reason to believe that requisite superior knowledge and good will are present in the parent to a degree sufficient to make up for what appears to the recipient as a “loss” or “waste”, and to balance the relatively poor care the recipient gives his gift. But as regards public housing (taken as a paradigm of the goods and services given the poor instead of cash), doubt is cast on the likelihood of the donor's having, as compared to the recipient, superior knowledge and power to achieve welfare goals for the recipient; and the welfare “loss” or “waste” is attributed to the fact that property rights adequate to avoid this loss are not invested in the recipient—and cannot be so invested without being equivalent to cash.

The overall upshot of this analysis is to suggest that unless the rich are to the poor what the father is to his minor son, there are no good grounds for trusting the rich to benefit the poor more effectively by giving goods rather than by giving cash.

Nothing I have said tells us when and to whom help ought to be given by one to another, or how much, or by whom. I have argued only that once the decision to help is made, help ought to be given in a form which relies on the sources of knowledge and good will most surely available, those sources present in the recipient—not a “present” of concrete goods or services, but cash.