"An argument we hear even now is that a hundred years ago..."

"An argument we hear even now is that a hundred years ago, when the federal government was far smaller than it is today, people were much poorer and worked in less desirable conditions, while today, with a much larger federal government and far more regulation in place, people are much more prosperous.  This is a classic case of the post hoc, ergo proper hoc fallacy.  This fallacy is committed whenever we carelessly assume that because outcome B occurred after action A, then B was caused by A.  If people are more prosperous today, that must be because government saved them from the ravages of the free market. 

But that is nonsense.  Of course people were less prosperous a hundred years ago, but not for the reason fashionable opinion assumes.  Compared to today, the American economy was starved for capital.  The economy's productive capacity was miniscule by today's standards, and therefore very few goods per capita could be produced.  The vast bulk of the population had to make do with much less than we take for granted today because so little could be produced.  All the laws and regulations in the world cannot overcome constraints imposed by reality itself.  No matter how much we tax the rich to redistribute the wealth, in a capital-starved economy there is an extremely limited amount of wealth to redistribute. 

The only way to increase everyone's standard of living is by increasing the amount of capital per worker.  Additional capital makes workers more productive, which means they can produce more goods than before. When our economy becomes physically capable of producing vastly more goods, their abundance makes them more affordable in terms of dollars (if the Federal Reserve isn't inflating the money supply).  Soaking the rich works for only so long:  the rich eventually wise up and decide to hide their income, move away or stop working so much.  But investing in capital makes everyone better off.  It is the only way we can all become wealthier.  We are wealthier today because our economy is physically capable of producing so much more at far lower costs.  And that's why, just from a practical point of view, it is foolish to levy taxes along any step of this process, because doing so sabotages the only way wealth can be created for everyone."  -Pages 93 & 94 of The Revolution, A Manifesto