Redistribution of capital is likewise a bad idea. Taking the carpenter's hammer away from him to give to another will not only be detrimental to the carpenter, but also to all his clients. Take the machines away from the factory owner, and things would quickly grind to a halt. The workers can operate the machines for a while without the owner directing the business. But without any long term incentive to invest, there will be a general shift from production to consumption.
Under a socialist model where the means of production are owned by the workers, every worker knows that he will only be paid as long as he works. He is therefore motivated towards immediate consumption at the expense of long term investing. Investing in production that will only take place after he is gone makes no sense for the worker.
However, in a system where capital is owned by the original investor there is plenty of reasons to invest. A modern factory is more worth than a worn down factory. It can be sold for more money. It will also last longer, making it possible for children and grand children to benefit from investments made today. Capital can in this way transcend the individual investor and become an organism of immense longevity.
The family fortune I inherited from my father can be traced back to the early 1500s. It is at least 500 years old. Of course, had no investments been made along the way, there would have been nothing left of this fortune by now. However, every single generation was able to protect it sufficiently to pass something on to the next generation.
My fortune is a multi-generational organism of which I am but one owner. If I fail to pass the fortune on, I break a chain that is more than 500 years long. I will be the evolutionary dead end of my lucky part. This is why I've decided to spend some time investigating the mechanics of investing, and to put my findings down in a book. I wrote "Gold Oriented Investing" with the intent of giving my children a recipe to follow in which excessive risk taking is avoided while at the same time ensuring that wealth is sufficiently accumulated to last another generation.
I never got any book or advice from anyone because my parents and their parents have relied on hard work and conservative investing in order to preserve the wealth that they inherited. They had no further advice to give, and there was therefore no book for me to read.
But the strategy that my parents and grand parents have followed has not yielded the same good results as prior generations. There has been a clear overall decline in wealth over the generations. My great-great grandfather lived in a palace. My great grandfather lived in a mansion. My grandfather lived in an elegant townhouse. My father owned a large house. My brothers and I live in relatively modest houses. These generations have not been able to accumulate sufficient capital to pass on a significant surplus to their children. They have been able to maintain and even grow the wealth modestly, but not enough to spread it out on all their children.
It should be noted that a family fortune needs only to grow by 5% per year to be passed onto three children as big as the original. Yet my parents were not able to do this, despite working hard in well paying jobs.
The reason for this has to do with the confiscatory nature of modern taxation and central banking. The system is rigged. There is an expressed intent by most central bankers these days to extract 2% of a nation's wealth annually through inflation. There is a 2% inflation goal. Wealth tax and property tax consume a further 1%. Income tax cap the ability of people to accumulate wealth. All taken together, 5% annual growth in savings is close to impossible unless taxation and inflation is avoided.
A sad consequence of the sort of confiscatory taxation and inflation regime that we currently live under is that it encourages excessive risk taking and over-consumption. We make high risk bets in the off chance that it may pay off big. Windfalls are consumed quickly in order to beat the inflationary monster. Once victim to this kind of mentality, we soon see our wealth dwindle even faster.
The only way out of this mess is to focus our attention towards the mechanics of the system and act rationally and dispassionately according to what we find. Inflation can for example be avoided by owning gold rather than cash. Taxes can be avoided by selling everything that carries a tax. There is also the option of tax evasion.
Keep in mind that taxation is always on savings. We need to set aside money to pay taxes. Setting aside money is to save money. When the taxman comes to collect his fair share, he is essentially taking our savings. The time spent accumulating these savings is time spent working for the taxman. The services we receive from the state is what we get for our time in the taxman's service.
People in Norway spend about 60 to 70% of their working hours saving for the tax man. In return, they get basic education, a small pension, old people care, health care, part ownership in roads and bridges, part ownership in warplanes and bombing campaigns, part ownership in welfare projects of various kinds. The return on these investments is not exactly great.
I have personally decided to leave Norway. However, leaving Norway is not as easy as one would think. I was fined a hefty exit tax. On selling my house, I had to give the entire inflation adjusted gain to the taxman.
While it was well within my capacity to pay the tax, it was clearly confiscatory. I would have to work 3 whole years as a programmer in Portugal in order to pay this tax from my total income. However, since I would have to pay taxes on this income, I would have to work 5 years full time to pay the tax.
Another way of seeing the exit tax would be to measure it up against my consumption. I live a frugal lifestyle. The money demanded by the tax man would last me 5 years. My choice was therefore this: I could choose to pay the tax which would mean 5 years living as a slave for the taxman, with no income for me. Or I could refuse to pay and live five years as a free man off the money saved.
I chose the latter. I sold everything. I passed my inherited wealth onto my children. The remaining money was put into gold and cash. With everything out of reach from the tax man, I stopped responding to his constant nagging. He threatens me with jail. He is nasty and uncomfortable, a true parasite to be sure. However, given the prospect of 5 years as a slave, a few months in jail is hardly a threat.
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