Don't neglect the difference between someone living to an old age, and thus being able to dispose of their wealth as they see fit (find ways to transfer it to their family while still alive), and an unexpected death (family loses everything they ever worked for while being faced with unexpected tragedy).

I don't understand Incentives 2. How does putting more money into circulation rather than savings make society poorer? I don't agree with some others, but I understand them and this isn't the place for disagreeing.

@Onyz Think about what happens to real resources. Let's say you have a million dollars. If you invest it, you effectively allow someone to use a million dollars' worth of stuff (human work, raw materials, etc.) in order to produce more stuff (goods, services) that are worth even more to others. They do not benefit personally - none of the real resources are spent on their personal enjoyment. If, however, they spend the money on consumption, they waste society's scarce resources for their personal enjoyment. As an example, imagine that they decide to build a yacht for themselves.

@Onyz That would require them to use up real resources - human labour, raw materials etc. - that could have been used elsewhere instead. And then, suppose they ride the yacht in a fun way and sink it. Society is now poorer, because real resources were consumed instead of being used productively. Let me know if you have any questions on this.

@rinspy - but in the example of buying a yacht they provide money to (most likely) an LLC that does not have the same inheritance tax which will likely reinvest, allowing for a better economy as a whole

@Reed Yes, except in this scenario additional resources have been wasted/consumed by the rich person. Saying that the rich person spending all their wealth on consumption would be beneficial to the economy seems to be a form of the broken window fallacy - repeatedly breaking windows and repairing them, while it stimulates economic activity, all else being equal, makes the society poorer. As far as everyone apart from the rich person are concerned, them spending money on personal consumption is no different to them breaking windows and ordering them to be repaired.

@rinspy Nobody's breaking windows, though - they're spending money in ways that they feel benefit them, so value is going up.

@DavidRice Value to them personally. As far as everyone else is concerned - excluding them and taken as a whole (as, e.g., the window repairman clearly benefits) - the situation is no different to breaking windows. Scarce resources that could have benefited others have been consumed.

@rinspy of course it's different - the problem with broken windows is that the person with the broken window would otherwise have spent that money on something else. Spending money is good, breaking things and then having to spend the money to make things whole again isn't.

@DavidRice What is the difference between A spending money on personal consumption, and A spending money on breaking things and making them whole again, apart from the enjoyment A gets from those activities?

Half of this answer is fantastic, and the other half is completely wrong. Re incentives #2: consuming wealth vs. investing it only matters to the individual: from the standpoint of society it puts the exact same amount of money in circulation. Unless the individual buries it in the backyard, the loop is closed.

@rinspy I understand the example of your Yacht and how it demonstrates waste, but the same is equally true for possible investment expenditure. The precise equivalent would be someone investing in a company that builds yachts. It's the same, in the end, isn't it? The only thing that's different is if you buy a Yacht from someone directly, money doesn't get siphoned off from the investment 'middle men'. Doesn't that make it MORE efficient?

@JaredSmith Money in circulation != wealth. Consider a billionaire that can either consume the wealth - for an extreme example, let's say he pays a billion dollars to brilliant scientists and engineers to dig up and then cover holes on his ranch for his entertainment. Or he can invest it productively - e.g. start a profitable company that produces great products that improve the productivity or enjoyment of life of millions worldwide. Which option is better from the standpoint of society - the former (extreme case of consumption) or the latter (a successful case of investing the wealth)?

(1) This is misleading and wrong. It's not people in the government making the decision (clearly most politicians are wealthy and oppose such policies), it would be the democratic majority supporting such a policy, the majority of whom be mostly unaffected by the result because most people don't have enough savings to leave any sizeable inheritance. (2) Then why not tax people for not having children? I also highly doubt there is much correlation between having children and being successful, I'm open to see any data if someone can offer any. This point is pure speculation as it stands.

(3) I would argue the opposite, this would encourage people to invest their money for posterity rather than leave it in a bank account to give to their children (who will likely "waste" it anyway, see Rich Kids of Instram). People would be encouraged to use their wealth to invest in something that will last for generations to come. (4) Because having wealth means having influence and power, meaning inheritance is anti-meritorious. You don't need wealth to be a good parent, the two are entirely unrelated.

(5) Taxation does not reduce wealth. Having high taxes can (with good governance) lead to increased equity. This is a strawman, no one is saying no one should be wealthy. The point of such a policy is to redistribute wealth which is hoarded by the extremely rich so that those who have less will be more wealthy, to even the scale.

"Is it not better to aim for a society where every family is wealthy, rather than a society with no wealthy families?" You're more likely to achieve a society of universally prosperous people by method of high taxation, high investment in science and engineering research, education, better rehabilitation in prisons, expanding public sector job creation, more infrastructure projects, and public ownership of wall street profits. As long as a few people own nearly all wealth, no one else has any money to invest in stocks or funds.

@Kai: I think you misunderstood point #1. It's about the government deciding to do with the money AFTER they've taken it. Arguably individuals can, on average, make better use of money than the government can. You might consider the role of foundations funded by inheritance from rich people in supporting science, medicine, education, the arts...

@jamesqf Which foundation supporting science do the Koch Brothers and Rupert Murdoch fund? What percent of Jeff Bezos's wealth is going to these causes?

How is wealth "consumed", and how is that bad for society? 5 is an impossibility, and just bad rhetoric.

The point 5 is not clear. Why would a 100% inheritance tax make people poorer? That tax would benefit to others, directly or indirectly. Actually, in our world which is currently rather capitalist, it seems that inequalities are increasing (see Thomas Piketty's work for example): rich get richer, and poor get poorer.

@jamesqf: Why are individuals, on average, making better decisions than governments? That's not clear at all. On the one hand, individuals have a narrower view on the problem of the society, while governments have a more global view. On the other hand, administration has a cost that direct transfers of wealth don't have.

@Onyz: investment vs consumption as the "real" engine of growth is a very old debate. See supply-side vs demand-side economics schools of thought. Since this answer ends up with recommending Friedman, it obviously has a supply-side bias... which probably should have been mentioned in the post, but I guess sometime people are oblivious to their biases. That quibble aside, most points are valid in the sense that some capitalists raise them. (The question didn't ask for a consensus.)

@John: You missed two critical words, "ON AVERAGE". Sure, there are exceptions (and one might ask whether they're actually exceptions or your personal prejudices :-)). Government likewise has its Donald Trumps and Nicolas Maduros, but by observation they are more frequent in government. As to Bezos, at least $1 billion/year, per this: phys.org/news/2018-10-jeff-bezos-invest-bn-blue.html

@Taladris: I don't know why individuals generally make better decisions than governments. I have theories, of course, but reciting them would be boring, labor-intensive, and wouldn't fit in a comment anyway :-) What I know, from observation, is that they do.

@rinspy If they decide to build a yacht, are they not employing yacht builders who now have more money, having been paid to build a yacht?

@immibis focusing on money is misleading. If I am extremely wealthy, and I employ the most productive people in country A away from their productive jobs (and materials and equipment away from their productive uses) to instead build a monument to myself, will the country be richer or poorer for it?

@Taladris To paraphrase Milton Friedman: if you are spending your money on yourself, you care about value-for-money - both the price and the quality. If you are spending your money to buy a present for someone else you don't personally know, you care about the price but a bit less about the quality. If you are spending someone else's money to buy a present for someone you don't know, you'll likely care a bit less about both the price and the quality. The former situation is you spending your money on your family; that latter situation is similar to people in government spending your tax money.

Fizz hits the nail on the head with supply/demand economics, and really this is what this whole question is arguing with gov being the supplier of 'basic security'. jamesqf finishes well with the point about govs making worse decisions... you can't lead an army purely on strategy, people must do the tactics and money is how you assign rank. What I see being danced around here with the yacht and windows is the concept of Assets which are the only thing that actually transcends money itself. This must be addressed on a countrywide scale because we're talking about giving the dead's property to..

...the gov. The broke window concept highlights consumables as loss-making: most things you make for yourself, even a yacht, will lose value over time. Slower is better. Government keeps most non-consumables it buys, so we'd be looking at eminent domains very quick. This is really bad because freeing them comes in the form of privatization and results in a handoff to the 1% we were trying to take wealth from. In the mean time, even if your kids bought a yacht each and blew it all, the yacht mfr would take that money and use it more wisely than your kids did, or whomever they pay and so on.

@rinspy There are a couple of factors you've missed: 1. if the government were to get your money, then the result would be that they would spend the money on services - resulting in the money still being circulated, and money still going into the system. 2. For the majority of people, the bulk of their money is tied in their property. This means that 100% tax would result in the government getting a load of property - which they would then sell off. This would result in a SIGNIFICANT drop in house price. I leave you to imagine how voters would feel about that.

@Onyz It is a common but very deep fallacy that consumption makes society wealthier. The opposite is actually true, and investment makes it richer. Of course the point of wealth is ultimately consumption, but generational wealth can be seen as a form of extreme delayed gratification.

@JohnK There's an awful lot of very reasonable discussion going on here regarding that disagreement, and if you had any sources to provide one way or the other I think that would be valuable, but simply making a statement without any explanation isn't very helpful.

@onyz this is a form of the broken window fallacy. If everyone spends on consumption instead of investing, society loses money overall even if it circulates.

@Mindwin The broken window fallacy was addressed earlier in the comments in such a way that I'm not sure that it is applicable.

@rinspy By transferring money from the rich billionaire (who has tons of it) to the poorer yacht builders (who don't have as much of it) the yacht builders are likely to get more value per dollar than the billionaire does.

@JohnK I'm not sure I follow you, in an extreme situation if nobody wished to consume anything, the investments placed would all fail, as they could make nothing anyone wanted or would buy as there would be no demand for any products, and thus no productive business to invest in.

@Taladris I can think of several reasons, but they really boil down to the fact that free markets parallel AI algorithms like ant colony and similar ones in aggregate. They try many, many, many more possible solutions. They consider a vastly larger number of inputs (complex resource constraints, complex valuation functions, down to individual preferences and values). New information reaches decision makers more easily. We don't really have a great understanding of why these algorithms are better than deterministic ones, but they do empirically work better when problems are complex enough.

I think the argument could be made that investing creates more value than consumption, but at the same time, you're capturing most of any value that's created (return on your investment.) So what's better for society? More total value, or more evenly split value? Consumption does still create value - the firm your purchasing from will make more things if more people have shown they want that thing (demand-side.) As with many things, you need a balance.

@Waddles Exchanges in a free market are mutually beneficial; both parties obtain something they want. Increasing the production of goods that people want to buy and use makes both the seller and the purchasers better off. Additionally, since the investment itself is an exchange for later returns, the seller would not agree to pay back returns if they did not believe they would benefit from investment. So the investor is not "capturing most of any value that's created." They're only capturing part of the seller's side of it.

@jpmc26: hmm, do you have a source about markets working like AI algorithms and ants colony. Honestly, this sounds like using trendy buzzwords to try to justify a theory, similar to early economists that tried to mimic physics and other hard sciences ("the natural laws of the market"). I don't know ant colonies in AI but real-life ants basically try random solutions: we are far from "individual decision-making" in a human sense.

@Kai "No one is saying no one should be wealthy." Many of us say no one should be wealthy. Wealth and capitalism are diseases.

@corsiKa: And envy is a worse one.

@corsiKa I legitimately don't understand. How does someone else being wealthy hurt me? (Yes, I had a different question here a while ago. Decided I'd rather take a different approach.) Also, related question: does wealth differential across country boundaries cause some kind of harm? Because you, being wealthy enough to have regular internet access and available time to spend on the internet problably means you're much, much wealthier than someone if Africa who doesn't even have a source of clean water.

@jpmc26 I'm forced to participate in a wealth driven society, so I do. Wealthy people fundamentally and deliberately exploit people who work for them by taking their surplus value simply because they happened to have wealth in the first place. Economic disparity hurts everyone across all borders. It is much more than you can contain in a SE comment, but the idea that one has "earned" 1,000 times another is simply unfathomable. Unfortunately, we put our kids in econ classes in school which are little more than capitalist propaganda, so they simply accept that's how things are supposed to be.

@corsiKa I also live in a "wealth driven society," but I don't see how I am harmed by Bill Gates have billions of dollars. It seems the only form of harm you're asserting is that workers don't receive as much as they "deserve" based on their amount of labor, but not having as much as you possibly could is not "harm" in any sense. I (and capitalists) reject this notion that anyone fundamentally deserves any certain amount for their work. Intuitively, it also makes sense to me that if I am unwilling to accept the risk of going bankrupt, then I also have no right to the rewards of investment.

@corsiKa "we put our kids in econ classes in school which are little more than capitalist propaganda" I don't know what schools you go to, but the ones I've been to didn't even require econ classes. Furthermore, Marxists are more common in American academia than professing conservatives, so this doesn't pass the smell test. Lastly, I don't think history agrees with you. As the overall wealth of a society increases, so does the wealth of the wealthy. Despite this fact, the entire society is much better off. E.g., starvation is a thing of the past in the U.S., despite extreme wealth.

@jpmc26: "does wealth differential across country boundaries cause some kind of harm?" Actually, it does. My need of nice furniture in rare woods and my need to greenwash my conscience by driving a car running on biofuel are major causes of deforestation. My quinoa fad is disrupting Peruvian agriculture. Mass tourism leads to environmental issues. Massive immigration of Chinese rich people caused a housing crisis in Vancouver. The hedge fund I rely on for my retirement (to stay wealthy after I stop working) is based on speculation on food and livestock markets.