Did Fagin’s pickpockets stimulate the economy of London?

John Hood

’Tis the season to reference a different Charles Dickens classic, I know, but I happen to have “Oliver Twist” on the brain. You may recall that Fagin is the rogue who takes in orphans and runaways, trains them to pick pockets and swindle marks, and then distributes the proceeds between himself and street tough Bill Sikes.

In the novel, Fagin is clearly villainous. In the musical version, however, he has some redeeming qualities and is played with more humor than menace. In one of the show’s catchiest songs, he and the other boys explain to Oliver that, “In this life, one thing counts/In the bank, large amounts/I’m afraid these don’t grow on trees/You’ve got to pick-a-pocket or two.”

Fagin trains his thieves to go after wealthy people whose wallets, watches, and other easily pilfered items will bring the most value. And he celebrates the black-market nature of the enterprise: “Why should we break our backs/Stupidly paying tax?/Better get some untaxed income/Better to pick-a-pocket or two.”

Few readers would see Fagin’s exploits as anything but socially destructive. To take money out of someone else’s pocket and put it in your own creates no value. You benefit at the direct expense of your victim, who receives nothing in exchange for the good or service he produced to earn his money.

Moreover, most readers wouldn’t feel much better about Fagin’s scheme if he distributed the lucre in a more egalitarian fashion — by buying better food and clothing for the Artful Dodger and his pals, for example. It would still be stealing. It would still be morally wrong and injurious to society as a whole.

But when talking about how governments can affect the course of economies, far too many resort exactly to the kind of rationalizations that Fagin might concoct. They advance programs that, in effect, take money from the taxpayer’s left pocket and return some of it (after subtracting government’s shipping and handling charges) to the taxpayer’s right pocket. Then they expect gratitude.

Or they advance programs that take money from the pockets of richer people in order to fill the pockets of poorer people, arguing that because poorer people aren’t likely to save anything, the economy will benefit from all the extra consumer spending. But unless the rightful possessors of the money were planning to hide it in their mattresses, this is a silly claim. Money saved in bank accounts or securities becomes capital invested in new tools, machinery, factories, job skills or ideas. It is akin to seeds planted in the ground for future harvest rather than seeds tossed into the ocean or desperately eaten for sustenance.

This analytical error isn’t only present among progressives. Some conservatives defend tax cuts by arguing that they stimulate the economy through putting money in people’s pockets to spend. But if the taxes weren’t cut, that money would be found in other people’s pockets — those of public employees, government vendors, and program beneficiaries — where it would also be spent. The real reason to keep taxes as low as possible is that private households and businesses tend to spend their money more wisely, on highly valued consumer goods and on highly productive capital goods, than the government can spend it on their behalf.

To the extent you limit government to its proper size, you maximize efficiency and give highly productive people a good reason to live, work, shop, invest and create jobs in your neck of the woods, which generally works to your advantage as well as theirs. Voluntary exchange is a positive-sum game. Forced redistribution is a zero-sum game.

So, no, London was not a more economically developed place because of Fagin and his footpads. It was a poorer one. Truly combating poverty means improving education, strengthening families, and encouraging the entrepreneurship that leads to job creation and income growth. It doesn’t mean substituting a seemingly benign public employee for the rascally Fagin and expecting macroeconomic magic.

John Hood is a John Locke Foundation board member and author.