“Occupied StatsCan” and the One Percent

One of the first principles of economic theory is that persons differ.

In fact, differences with respect to personal preferences and abilities help give rise to comparative advantage and the division of labour in society. This has led to a continual increase in the standard of living throughout human history. Incidentally, this underscores the main argument in favour of free trade. Namely, the division of labour extends as the size of the market grows.

It should come as no surprise, then, that persons differ with respect to income. Some earn relatively more. Others, less.

This is confirmed by data released from Statistics Canada on Monday. It revealed that the top 1% of Canada’s 25.5 million tax filers earned 10.6% of the nation’s income in 2010. By comparison, their share was 7.0% in the early 1980s and 12.1% in 2006. An annual income of $201,400 was required in 2010 in order to qualify for the top 1%. Otherwise, you were in the bottom 99%.

Terence Corcoran of the Financial Post has rightly pointed out that distilling Canadians into these two arbitrary income groups is reminiscent of the class warfare of occupy activism. “Occupied StatsCan,” if you will. This is misguided.

Much of the outrage about income inequality stems from a misunderstanding of the source of value. Many people incorrectly believe that value is intrinsic (or objective), and attribute it to various inputs, including human labour or the costs of production. As a result, they wax indignant that, for example, nurses earn less than professional hockey players. In reality, there is only imputed (or subjective) value. This fact eluded economists until the 1870s. Gary North describes the implications of this discovery:

This led to a conclusion. Value is imputed from the customer back through the chain of production. The customer does not pay a price that is based on the input costs of the product. He pays a price based on the alternative uses of his money. He decides what the product is worth, and he decides whether it is worth paying for. He imputes value to whatever the product is, and he imputes value to what the rival products are. He then decides which product to buy.

Labour is a factor of production. Therefore, in an unhampered market economy, our wages are determined by our ability to satisfy consumer preferences. There is nothing inherently evil about this.

On the other hand, personal income may consist of redistributed government pelf. In which case, the economic calculation of the free market does not apply. In the case of a government subsidy, for example, money is redistributed from taxpayers to a beneficiary favoured by the government. Wealth is allocated with the next election in mind, consumer preferences be damned.

Lew Rockwell, recognizing this fundamental difference, declared that “the State is the 1 percent.”

Unfortunately, “Occupied StatsCan” is comparing the wrong two groups.

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  • About Gregory Cummings

    Gregory Cummings writes about Canadian monetary and economic policy. His writing has been featured at the Ludwig von Mises Institute of Canada and the Ludwig von Mises Institute's Mises Daily publication. Read more.

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