The Case for the Free Market
Today it seems evident that we are rearing a generation of Americans who do not understand the productive base of our society and how we came by such prosperity. Evidence of this fact is found in surveys taken among some of our high school and college students, the majority of whom, it is reported, believe private enterprise is a failure, although they don’t have a clear understanding of what private enterprise is. With them, as with many adults, there is a vague notion that it is some unfair system that tends to give special advantage to big corporations and wealthy individuals.
From a study done by the Joint Council of Economic Education in 1973, 50 percent of the high school students interviewed could not distinguish between collectivism and a free enterprise society. Fifty percent did not know that the United States economy was based on free enterprise. From another study done by the Opinion Research Corporation, the median estimate of the U.S. public was that corporate profits are 28 percent of the sales dollar. Actually, profits are four to five percent.
These attitudes may be the result of the propaganda of certain textbook writers who hold the idea, in many instances, that a planned economy is the remedy for all of our economic ills and the weaknesses in our American way of life, to which they readily point, without referring to the beneficent fruits of the system.
Before a welfare state can flourish, a welfare state mentality must take root. Are we not today yielding the harvest of seeds sown from the days of the Great Depression to the present? The ethic of today seems calculated to indoctrinate our citizenry toward a dependency on the state. Our Founding Fathers recognized that certain rights were inalienable, that is, God-given; today, the state is being looked to as the guarantor of human rights—life, liberty, and property. Our forebears practiced the biblical ethic that man should earn his bread by the sweat of his own brow; today’s ethic seems to be that it is right to be supported by the sweat of another’s brow.
I ask, Where are the exponents of the free market today? Who is speaking out for the philosophy and system that has brought about America’s greatness and prosperity? You will not find free market exponents among the majority in the halls of Congress, nor in government bureaucracies, nor in labor, the pulpit, or the classroom. Paradoxically, they are not any more heard among the majority of businessmen. Many businessmen kowtow to the power of governmental regulatory agencies; others have their hand out to the federal trough. The platforms of the two great political parties in our land are contradictory to a free man’s political and economic philosophy. The majority party is unabashedly pro-collectivist; the minority party offers a more gradual interventionism as an alternative. My intent, in this chapter, is to plead the case for the free market in a way that, hopefully, the average citizen may understand.
To illustrate my point, let me relate a parable that contrasts two different philosophies.
Two fathers lived side by side as neighbors. Each had two sons. Each had a good job, a roomy house, and material means to provide the best of life’s luxuries. The essential difference between the two fathers was one of philosophy.
Mr. A’s objective with his sons was to instill principles that would bring about self-respect, personal responsibility, and independence. His method merits our scrutiny.
When his boys were young, he taught them how to work at simple tasks by his side. When they became more mature, he developed a work-incentive program. The pay scale was commensurate with the quality of the work performed. An “average job,” for example, paid fifty cents; “above average,” sixty cents; “exceptional,” seventy-five cents. A “one-dollar job” was the impossible task, a goal that he soon observed the boys were striving after. He impressed on them that the only limitations to their earnings were their own personal initiative and desire. He emphasized the necessity of postponing wants so they could save for the future. The lessons were well learned over a period of time.
There was an undergirding moral element to Mr. A’s philosophy, a principle more “caught” than taught. A simple example will suffice. One day the boys, now young men, were working in his plant. Mr. A observed some sloppy work being done on one of the products. He asked to see the product, and removed the label. One of the boys resisted. “Why are you doing that, Dad?” he asked. Mr. A replied, “I’ll not have my name attached to a shoddy product. When my name goes on, my customers must know I’ve given them my best workmanship. Would you want to own this product?” It was an answer that provided a lesson that would last a lifetime. How could the Golden Rule be emphasized more effectively in business!
Mr. B also had a philosophy, albeit one that was reactionary to the early struggles of youth. “I’ll not have my kids go through what I did.” His philosophy was designed to remove the struggle from life. His method also merits our consideration.
Regularly his sons were provided with generous allowances. Little work was expected in their formative years. In later years the boys were encouraged to work, but now they were too comfortable in their security. After all, they had all their material wants satisfied. At this juncture Mr. B made a profound discovery: wants always exceed needs and are never satisfied unless disciplined. To counteract the lack of self-discipline, Mr. B embarked on a routine of imposed restraints. To his chagrin, he found his sons embittered toward him, ungrateful, and frequently disobedient to rules imposed on them.
Need I draw conclusions from this parable? Is it not apparent which philosophy develops a productive, contributive member of society and which philosophy sponsors dependency? Is it not also apparent which philosophy will best prepare one for emotional or economic crises?
I do not apologize for the simplicity of the illustration. One may argue that the characters are exaggerated, but even a child can understand the effects of Mr. B’s caretaker philosophy. Is not his philosophy analogous in many ways to the government official who argues, “In this country welfare is no longer charity, it is a right. More and more Americans feel that their government owes them something”? (U.S. News and World Report, April 21, 1975, p. 49.)
But it is not Mr. B’s philosophy that commands our attention here; it is Mr. A’s. Why is it that the elements in his philosophy are so unfamiliar to so many that they believe their government owes them something? Our task is to make Mr. A’s philosophy both familiar and credible. When it is understood and believed, it will be defended with the same vigor and determination that made our Founding Fathers pledge their lives, their fortunes, and their sacred honor.
Many view the idea of the free-enterprise or free-market system as only an alternative economic system to other systems. This is a serious oversight and causes many to miss the most crucial elements in the free-market system.
First: The free-market system rests on a moral base. Before one can appreciate why this premise is true, two questions must be answered: What is man?, and From what source does man derive his rights?
Our governmental system, like the systems of ancient Israel and biblical Christianity, recognizes man as a special creation of God. He is not, as some theorists reason, a product of chance or merely an educated animal. His paternal origin is from God. Thus, man inherently possesses God-implanted attributes and potential: reason, free agency, judgment, compassion, initiative, and a personal striving for perfection.
Thus we see that the principle of supremacy of the individual over government is rooted in religious precept. This is why the founders of our nation were so influenced by the writings of John Locke, who declared that man was naturally in a state of perfect freedom, that he had a right to preservation and property, and that the source of all this was God. (See John Locke’s treatise, Of Civil Government.)
The Founding Fathers recognized that no people can maintain freedom unless their political institutions are founded on faith in God and belief in the existence of moral law. They realized that to survive, this new nation needed a reliance on the protection of God. In the Declaration of Independence we find their appeal to “the Supreme Judge of the world” and to “the Laws of Nature and of Nature’s God.” The document concludes with their affirmation of “a firm reliance on the Protection of Divine Providence.”
The implications of this moral basis to our political-economic system is that God is the dispenser of man’s rights, not government. The inalienable right of free choice is implanted in the human breast. Man is born to choose for himself. This is why man cannot be driven indefinitely or led by despotic leaders to intellectual, physical, or economic bondage. Once a person awakens to the truth of his divine identity, he demands his rights: the right to property, the right to make his own decisions, the right to plan his own welfare, and the right to improve himself materially, intellectually, and spiritually.
Second: The free market is based on the right to property. The right to property is again based on scriptural precept. It recognizes that the earth belongs to the Lord, that He created it for man’s blessing and benefit. Thus, man’s desire to own property, his own home and goods, his own business, is desirable and good. Utopian and communitarian schemes that eliminate property rights are not only unworkable, they also deny to man his inherent desire to improve his station. They are therefore contrary to the pursuit of happiness.
No property rights! Man’s incentive would be diminished to satisfying only his barest necessities such as food and clothing. How this truth is evident in the communist countries today!
No property rights! No incentive to enter individual enterprise, to risk one’s own capital, because the fruits of one’s labor could not be enjoyed.
No property rights! No contractual relationships to buy and sell since title to possession of goods could not be granted.
No property rights! No recognition of divine law that prohibits man from stealing and coveting others’ possessions. One cannot steal that which belongs to everyone, nor can he covet that which is not another’s!
No property rights! No possibility of the sanctity of one’s own home and the joy that comes from creation, production, and ownership.
A free-market philosophy recognizes property rights as sacred. Because the individual is entitled to ownership of goods and property that he has earned, he is sovereign, so far as human law is concerned, over his own goods. He may retain possession of his goods. He may pass his wealth on to family or to charitable causes.
Charity, that greatest of godly virtues, would never be possible without property rights, for one cannot give what one does not own.
James Madison recognized that property consisted not only of man’s external goods—his land, merchandise, or money—but, most sacredly, he had title also to his thoughts, opinions, and conscience. A civil government’s obligation, then, is to safeguard this right and to frame laws that secure to every man the free exercise of his conscience and the right and control of his property.
No liberty is possible unless a man is protected in his title to his legal holdings and property and can be indemnified, by the law, for its loss or destruction. Remove this right and man is reduced to serfdom. Former United States Supreme Court Justice George Sutherland said it this way: “To give [man] liberty but take from him the property which is the fruit and badge of his liberty, is to still leave him a slave.” (Address to the New York Bar Association, January 21, 1921.)
Third: The free market is based on the right to enjoy private enterprise for profit. As a country we have suffered under half a century of liberal propaganda demeaning economic success. This was done by referring to men who are willing to risk their capital (profit) in tools and equipment as “coupon clippers,” “economic royalists,” “capitalists,” and “profiteers”—as though there were something inherently evil in profit.
Profit is the reward for honest labor. It is the incentive that causes a man to risk his capital to build a business. If he cannot keep or invest that which he has earned, neither may he own, nor will he risk. Profit creates wealth; wealth creates more work opportunity; and more work opportunity creates greater wealth.
There is another benefit to profit. It provides man with moral choices. With profit, man can choose to be greedy and selfish; he can invest and expand, thereby providing others with jobs; and he can be charitable. Charity is not charity unless it is voluntary. It cannot be voluntary if there is nothing to give.
Only saved profit, not government, creates more jobs. The only way government can create jobs is to take the money from productive citizens in the form of taxes and transfer it to government programs. Without someone’s generating profit that can be taxed, government revenue is not possible.
Fourth: The free market is the right to voluntary exchange of goods and services, free from restraints and controls. Nothing is more to be prized, nor more sacred, than man’s free choice. Free choice is the essence of free enterprise. It recognizes that the common man will make choices in his own self-interest. It allows a manufacturer to produce what he wants, how much, and to set his own price. It allows the buyer to decide if he wants a certain product at the price established. It preserves the right to work when and where we choose.
In his first inaugural address, Thomas Jefferson said that the sum of good government shall leave citizens “free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned.”
Why does our system produce more bread, manufacture more shoes, and assemble more TV sets than Russian socialism? It does so precisely because our government does not guarantee these things. If it did, there would be so many accompanying taxes, controls, regulations, and political manipulations that the productive genius that is America’s based on freedom of choice, would soon be reduced to the floundering level of waste and inefficiency now found behind the Iron Curtain.
When government presumes to demand more and more of the fruits of man’s labors through taxation, and reduces more and more his actual income by printing money and furthering debt, the wage earner is left with less and less with which to buy food and to provide housing, medical care, education, and private welfare. Individuals are then left without a choice and must look to the state as the benevolent supporter of these services. When that happens, liberty is gone.
Fifth: A free market survives with competition. Were it not for more competition among goods or services, there could be no standard by which a buyer could discern shoddy merchandise or inept service from excellence. Were it not for competition, the seller could price his goods and services according to his own fancy. It is competition that determines what is good, better, and best. It is competition that determines the price for products or services. If goods are overpriced in comparison with other comparable goods, the buyer will refuse to buy, thus forcing the seller to drop his price.
There is a glaring paradox in our society. On the one hand, legislation has been enacted allegedly to prevent one business or combination of businesses (a monopoly) from disrupting or eliminating competitors in the market. On the other hand, we have yet to awaken fully to the worst form of monopolistic practice currently impeding the free market. I refer to government monopoly, when government either by ownership or regulation prevents the full freedom of action by sellers. This, of course, regulates and controls prices. No better example exists today than the so-called energy crisis.
As a nation, we have artificially regulated the price of natural gas for over twenty years. The Federal Power Commission has set prices and burdened the oil industry with regulations. Consequently, the oil industry has not had the incentive to discover natural gas or drill for oil even though the reserves are there. The environmentalists, with the help of activist lawyers, have combined to make it almost impossible to drill for oil economically. What industry wants to risk its capital fighting through hearings and lawsuits that double and treble its investment costs? So exploration does not take place, or reserves are kept off the market to await the day when government will deregulate. The government is then left with the alternative to go abroad to supply our demand for foreign oil reserves. The most effective energy policy our government could devise would be to step out of the regulatory business. This would provide once again the incentives for industry to make investment and exploration.
Freedom from bureaucratic monopoly is essential to allowing our free market to work effectively. I hope we wake up to this lesson before our freedoms are lost altogether.
We have talked thus far about the vital elements to a free market operation. How does it all work together to bring about needed goods and services? Let me illustrate.
How do our cities and towns each day obtain the quantity of food products they demand? Of all agencies engaged in supplying cities with food, almost none knows how much the city consumes or how much is being produced. Despite this ignorance, the cities receive about the right amount of food needed without great surplus or shortage. How is this accomplished without a central directing body telling each producer what it should produce? The answer, of course, is the operation of the free market—free enterprise in action.
Suppose, for example, that a given city did not receive the amount of food products needed to satisfy its demand. Rather than go without, many people would be willing to pay higher prices. Thus, prices would increase and the volume of production would rise. This would end the shortage. More food would be shipped to that city and less to other places. Or suppose there were an oversupply of food products. To avoid spoilage, the seller must lower his price. This, in turn, would be a signal to the producer to cut back on production. Thus, the oversupply would automatically be regulated. Less food would be shipped to that city and more to other places.
Just as price regulates the distribution of food in a given city, so it also determines the total amount produced in the country. Greater profits provide farmers with incentives to produce given products. If the supply increases at a pace faster than the demand for a product, farmers and ranchers are compelled to lower their prices. As it becomes less profitable to produce, potential producers are deterred from engaging in this occupation, and the unprofitable producers divert to something else or abandon farming altogether.
This is how this remarkable system works in all industries when government and planning control and price fixing are left out, yet few of our citizens seem to understand this. Economic literacy among our people has not been one of the bright spots in our 200-year-old history. Yet it is apparent that when ignorance prevails, the people eventually suffer.
The principles behind our American free market philosophy can be reduced to a rather simple formula. Here it is:
- Economic security for all is impossible without widespread abundance.
- Abundance is impossible without industrious and efficient production.
- Such production is impossible without energetic, willing, and eager labor.
- Such labor is not possible without incentive.
- Of all forms of incentive, the freedom to attain a reward for one’s labors is the most sustaining for most people. Sometimes called the profit motive, it is simply the right to plan and to earn and to enjoy the fruits of one’s labor.
- This profit motive diminishes as government controls, regulations, and taxes increase to deny the fruits of success to those who produce.
- Therefore, any attempt through government intervention to redistribute the material rewards of labor can only result in the eventual destruction of the productive base of society, without which real abundance and security for more than the ruling elite are quite impossible.
Yes, what worked for Mr. A in producing self-disciplined, responsible, contributive sons will work for a community; what works for a community will work for a state; and what works for the state will work for this nation—if we as American citizens demand that government officials perform only those duties provided by the Constitution and Bill of Rights.
Examples abound in the world of the failure of alternative systems to the free market. What amazes me is that we cannot see from their example the obvious failure of socialism, what it does to a nation’s economy, and how it morally debilitates a people.
Great Britain is a tragic example of this. Here is a nation that has provided the free world with a tradition of freedom and democratic rights, stemming from the Magna Carta and coming down through other important historical documents and statements by famous Englishmen. Yet England today is losing her freedom. She has become a giant welfare state. Today government spending in Great Britain amounts to 60 percent of her national income.
This is socialism. Medical doctors under socialized medicine are leaving Great Britain in record numbers, as are thousands of others.
British Prime Minister James Callaghan said, “We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you, in all candor, that that option no longer exists, and that insofar as it ever did exist, it only worked by injecting bigger doses of inflation into the economy, followed by higher levels of unemployment as the next step.” (London Times, September 29, 1976, from Labor Party Conference at Blackpool, England, p. 4.)
Such a confession led the renowned economist, the Nobel Laureate, Dr. Milton Friedman, to comment, “That must surely rank as one of the most remarkable and courageous statements ever made by a leader of a democratic government. Read it again. Savor it. It is a confession of the intellectual bankruptcy of the policy that has guided every British Government in the postwar period—not only Labor governments but also Tory governments; of the policy that has guided almost every other Western government—including the U.S. under both Republican and Democratic administrations; of the policy that is now being recommended to Mr. Carter by his advisers.” (Newsweek, December 6, 1976, p. 87.)
Consider another example: our neighbor to the north, Canada. For twenty years (1944-1964), the province of Saskatchewan lived under a socialist government. Here is what the premier, the Honorable W. Ross Thatcher, said about this experience:
In 1944, the Socialists said they would solve the unemployment problems by building government factories. They promised to use the profits to build highways, schools, hospitals, and to finance better social welfare measures generally. Over the years they set up 22 so-called crown corporations. . . . By the time we had taken over the government, . . . 12 of the crown corporations had gone bankrupt or been disposed of. Others were kept operating by repeated and substantial government grants.
During the whole period the Socialists waged war against private business. The making of profits was condemned as an unforgivable sin. What was the result? Investors simply turned their backs on the Socialists. Dozens of oil companies pulled up stakes and moved out. Gas exploration ground to a complete halt. Prospecting in our vast north became almost non-existent.
During the period Canada was experiencing the greatest economic boom in her history, Saskatchewan received only a handful of new factories. After 18 years of Socialism, there were fewer jobs in manufacturing than existed in 1945—this despite the investment of $500 million in crown corporation. . . .
During the period more than 600 completely new taxes were introduced; 650 other taxes were increased. Per capita taxes in Saskatchewan were soon substantially out of line with our sister provinces—one more reason why industry located elsewhere.
. . . the Socialists promised to make Saskatchewan a Mecca for the working man. Instead, we saw the greatest mass exodus of people out of an area since Moses led the Jews out of Egypt. Since the war, 270,000 of our citizens left Saskatchewan to find employment elsewhere.
If there are any Americans who think that Socialism is the answer, I wish they could come to Saskatchewan to study what has happened to our province. (Quoted in Corydon, Indiana, Republican.)
We say, “It can’t happen here.” The lesson of New York City should tell us that this same thing is happening here—to us—now! As Dr. Friedman has pointed out, New York City is no longer governed by its elected officials. It is governed by a committee of overseers appointed by the State of New York. New York City has partially lost its freedom. When will we learn the lesson that fiscal irresponsibility leads to a loss of self-government? When will we learn that when you lose economic independence, you lose political freedom?
We have accepted a frightening degree of socialism in our country. The question is, how much? The amount of freedom depends upon the amount of federal control and spending. A good measurement is to determine the amount, or percentage, of income of the poeple that is taken over and spent by the state. In Russia, the individual works almost wholly for the state, leaving little for his own welfare. Scandinavia takes about 65 to 70 percent of the income of the people, England some 60 percent. The United States is now approximately 44 percent.
There are indications that America is moving away from the philosophy that made her the most prosperous nation in the world. In effect, we are moving toward the philanthropic philosophy of Mr. B and abandoning the work-incentive philosophy of Mr. A. Mr. B’s philosophy has crept in unawares under the guise of a new name—egalitarianism. It is, of course, the socialist doctrine of equality. It strikes a sympathetic chord with many Americans because its initial goal is equality of rights. Today, however, the goal for the proponents of equality is to restructure our entire economic system using the power of the federal government to enforce their grand design. They now advocate throughout our economy that we “redistribute wealth and income,” a good definition for socialism. Our present middle-of-the-road policy is, as Von Mises suggested, socialism by the installment plan.
Americans have always been committed to taking care of the poor, aged, and unemployed. We’ve done this on the basis of Judeo-Christian beliefs and humanitarian principles. It has been fundamental to our way of life that charity must be voluntary if it is to be charity. Compulsory benevolence is not charity. Today’s egalitarians are using the federal government to redistribute wealth in our society, not as a matter of voluntary charity, but as a matter of right.
The chief weapon used by the federal government to achieve this equality is through so-called transfer payments. This is a term that simply means that the federal government collects from one income group and transfers payments to another by the tax system. These payments are made in the form of Social Security benefits, housing subsidies, Medicaid, food stamps, to name a few.
Today, total cost of such programs exceeds $150 billion dollars. That represents about 42 percent of the total of all government federal spending, or about one dollar out of every seven dollars of personal income. (See U.S. News and World Report, August 4, 1975, pp. 32-33.) When will we resolve as Americans that a dollar cannot make the trip to Washington, D.C., and back without a bureaucratic bite being taken out of it?
Medicaid, the government’s regular health program for the poor, cost taxpayers $13 billion in 1975. Medicare, the program for the disabled and elderly, cost $15 billion. Aid to families with dependent children cost over $5 billion, and about $3 billion was spent on food stamps. This is to name only a few of the so-called benefits paid out.
Our present Social Security program has been going in the hole at the rate of $12 billion a year, and yet the party now in power wants to increase the benefits to include a comprehensive national health insurance program. Recognizing that the present program will be insolvent by 1985, President Carter has now recommended that Social Security be funded out of the general tax funds. Charges were made in the last election campaign that the Social Security program was going bankrupt. These charges were denied. Now the truth is out. The President’s recommendation must be regarded as an admission of the failure of the present system and as a calculated policy to take this country into full-scale socialism.
Our major danger is that we are currently—and have been for forty years—transferring responsibility from the individual, local, and state governments to the federal government, precisely the same course that led to the economic collapse in Great Britain and in New York. We cannot long pursue this present trend without its bringing us to national insolvency.
Edmund Burke, the great British political philosopher, warned of the threat of egalitarianism: “A perfect equality will indeed be produced—that is to say, equal wretchedness, equal beggary, and, on the part of the partitioners, a woeful, helpless, and desperate disappointment. Such is the event of all compulsory equalizations. They pull down what is above; they never raise what is below; and they depress high and low together beneath the level of what was originally the lowest.”
All would like to equalize with those who are better off than they themselves. They fail to realize that incomes differ, and will always differ, because people differ in their economic drive and ability. History indicates that governments have been unable to prevent inequality of incomes. Further, equalization efforts stifle initiative and retard progress to the extent that the real incomes of all are lowered.
We must remember that government assistance and control are essentially political provisions, and that experience has demonstrated that, for this reason, they are not sufficiently stable to warrant their utilization as a foundation for sound economic growth under a free enterprise system. The best way—the American way—is still maximum freedom for the individual guaranteed by a wise government that provides for police protection and national defense.
History records that eventually people get the form of government they deserve. Good government, which guarantees the maximum of freedom, liberty, and development to the individual, must be based upon sound principles. We must ever remember that ideas and principles are either sound or unsound in spite of those who hold them. Freedom of achievement has produced and will continue to produce the maximum of benefits in terms of human welfare.
Freedom is an eternal principle. Heaven disapproves of force, coercion, and intimidation. Only a free people can be truly a happy people. Of all sad things in the world, the saddest is to see a people who have once known liberty and freedom and then lost it.
We are a prosperous people today because of a political-economic system founded on spiritual values, not material values alone. It is founded on freedom of choice—free agency—an eternal, God-given principle, and personal virtue.
The Founding Fathers, inspired though they were, did not invent the priceless blessing of individual freedom and respect for the dignity of man. No, that priceless gift to mankind sprang from the God of heaven and not from government. Recognizing this truth, they forged safeguards that would bind men’s lust for power to the Constitution. Each new generation must learn that truth anew.
Yes, America’s foundation is spiritual. Without the moral base to our system, we are no better off than other nations that are now sunk into oblivion. If we are to remain under heaven’s benign protection and care, we must return to those principles which have brought us our peace, liberty, and prosperity. Our problems today are essentially problems of the spirit.
We here in America, as Theodore Roosevelt said over a half century ago, “hold in our hands the hope of the world, the fate of the coming years, and shame and disgrace will be ours if in our eyes the light of high resolve is dimmed, if we trail in the dust the golden hopes of man.”
With God’s help and inspiration, perhaps we may rekindle a flame of liberty that will last as long as time endures.
(Source: Ezra Taft Benson, This Nation Shall Endure, published 1977)