Welfare, charity, and free stuff need to be untangled in the modern vocabulary. The words have important differences in how resources end up as property for an individual. These differences are based on who the resources originate with, how they get from one person to another, and the state of need of the recipient. The following definitions are a combination of dictionary reference and common understandings of the words.
1. Welfare, in the political sense, is the distribution from a general fund, taken by force from some people and managed by government powers, to persons who meet certain political qualifications. I say “political” qualifications because it is a system run according the political preferences of a given time period. How that might overlap with real need is up for discussion.
2. Charity is the voluntary giving of resources by private individuals, from their own means, to people with an identifiable need. The need may be relative or absolute, but it is something they cannot immediately provide for themselves. Charity can be distributed through individuals or cooperative private organizations.
3. Free stuff is anything that is generally available to anyone who makes even a minor effort to obtain it. It might be divided into two basic categories of 1) free stuff that is naturally part of the environment, not in anyway produced by human effort, and 2) free stuff that is produced, transported, or purchased by human effort in order to bestow it on other people.
Each of these ways of giving affect an economy differently, but they also affect individuals in ways that are sometimes independent of how they affect an economy. Individual responses to receipt of giving is dependent on personal character, habit, and opportunity.
While there are definitely observable and common economic results from each of these ways of giving, the particular degree of the results is influenced by factors such as culture and climate. This is not to be misconstrued with causal genetics, but is sometimes correlated with it due to the dominant ethnic background of a people in one location. How a certain culture came to be in a certain area is beyond this discussion, but suffice to say that culture is different than character or access to information.
If the mention of climate as a factor surprises you, consider how much climate affects what people need and how hard they have to work for survival. It is easier to be indolent in more comfortable climates, where food grows without much human effort and less shelter or clothing is needed.
Welfare has the worst effect on an economy. The full implementation of this is a commune where no one is allowed to own anything they have worked to produce or maintain. In reality, there always ends up being someone who holds power to redistribute resources, so living under a system of welfare distribution is not only demotivating, but it ends up being corrupt. This is the reason government/welfare restrooms are almost always gross and why government/welfare school cafeteria food is the butt of so many jokes. This is why scandals about misallocation of government funds really don’t surprise anyone.
In most places, welfare is not taken to full throttle, since it does destroy opportunities for mutually beneficial cooperation that make an economy prosper. Instead, there are attempts at creating governmentally controlled qualifications to receive welfare. These qualifications are very susceptible to political manipulation and very unsusceptible to rational evaluation of true personal responsibility. Any attempt to question the purely monetary redistribution is shouted down as judgmental, greedy, and hard-hearted. There is never a good answer given for why it is greedy to keep the results of one’s own labor, but altruistic to forcefully take away what someone else has worked for.
It is hard to separate out the effect of welfare on an economy when there is so much other governmental interference in personal choices of economic exchange. All of the regulations, licensing, fees, inspections, and patents constantly drain the vitality out of economic efforts, under the guise of protecting us from ourselves and others. We are told, in so many words, that we are somehow more ignorant than those in government office. One might say that such governmental control is a way the people in government positions give welfare to themselves.
Charity seems to have the most variable effect on an economy. If it is given less personally, with less informed giving on the part of the person actually donating the funds, there are some of the same tendencies to corruption on the part of the agency holding the purse strings as there are with government welfare. Due to both this and the bureaucratic inefficiencies of larger, non-business organizations, the beneficial economic impact is likely to be depleted.
Add to this that such agencies survive by trying to take care of need, so if the need truly gets met, they are out of business. They have less economic incentive to honestly evaluate how the charity is affecting the recipients.
These doubtful effects of group charity are magnified if the charity is giving to large portions of a population in a certain area. The economic incentive for the recipients of the charity is to be poor so that charity will be given to them. This same result is seen when people try to create charities for specific hardships, such as human trafficking. They end up paying people to engage in those behaviors in order to qualify for potential money. It is in the qualification for the charity that it differs from truly free stuff.
If looking or being poor is a major economic incentive in an area, it will be very hard for even the diligent to get a business going. Not only will no one want to work, but there will not be a normal cash flow in the local economy, since generally group charity does not involve handing out cash. I have witnessed that when there are no pressing environmental factors to stimulate work when there is a lull in charity, that people are more content to patiently wait for the next installment.
Charity given in a more personal way has a greater chance of being used well and cut off at an appropriate time. Simple, one-on-one charity will probably do little do affect an economy, but it will always be hard to know for sure because people who personally give to others are not tracked like organizations or governments are. However, it can be reasonably suggested that a direct giver is more careful with where and when he gives; and the recipient is more likely to be careful with the money when he knows his use of resources is being evaluated.
Free stuff that suits our needs well can free us up to work on other things we want or need. To be truly free, it should not take significant effort on our part compared to its value for us to obtain it. Otherwise, it is consuming our time and/or energy, which have values of their own.
Air and sunlight are the best examples I have heard of as natural free stuff. They are abundant and easily obtained by everyone. Water is sort of free, but more limited, so ends up being tied to other resources and methods of distribution that require economic exchanges.
Things that are given freely from the efforts or means of one person to another, are potentially good for the economic state of the recipient, but not necessarily that of the giver, so judging the effect on an economy depends on the economic boundaries designated. The arbitrary boundaries of governments can be used to say that if Japan gives the United States free pillows, no one in the United States will have to expend any of their resources buying pillows. Being picky about my pillow, I do have to wonder if Japan will give me the correct pillow or if I will just be one of the few who suffers from lack of desired pillow manufacturing. However, on the whole, most people will have more money to spend on other things.
It does seem possible that the distribution of the free stuff may tie up resources that might be more effectively used for other things, but one could suppose that if that were the case, the free stuff would be refused as not truly free or economical. It may be possible that Japan would distribute their own free pillows, but it seems very likely that they would have to use some of the resources of the United States to do so. As long as there are no forces requiring distribution of the free stuff, it should all get worked out.
There would inevitably have to be a point at which if everything is free, there is no economy. One could wonder if there is also a point as which there is so much free stuff that an economy is sluggish from lack of need. Whether or not that is desirable may depend on the reliability of free stuff, especially from other people. But it also might depend on the unreliability of natural phenomena. A robust economy, wherein people are used to doing business and engaging in creative economic problem solving will necessarily be better at recuperating from the unexpected.
The moral question of one person (or group of people) giving free stuff to another person (or group of people) is similar to that of charity. We all know that to constantly and completely take care of someone is to treat them as a child. It is good for people to learn to take care of themselves. It seems arrogant to decide to give people things just because it makes the giver feel better or it is a convenient way to get rid of perceived excess or because we have decided we know what they should have. It is like someone else dressing you all the time. Plus, giving free stuff tends to be arbitrary, not led by the price and market principles of true business. It seems to make more moral and economic sense in the long term to do business with people, which will lead to prosperity and competitive, affordable prices. Go ahead and cautiously give charity in a crisis or for someone who is incapable of self-care, but mostly buy their stuff if you want it.
Particular thanks to Gene Epstein for this article about free trade, which I learned a lot from.