In A Free Economy

NOVEMBER 01, 1959 by T. N. CARVER

Dr. Carver, now 94, was for 32 years Profes­sor of Political Economy at Harvard.

A noted educator explains how the "rewards" for working, waiting, and risking are allocated, through choices made by consumers…

If you are one of those who still believe that labor produces all value, you can try the equivalent of a laboratory test. You can try being a self-employed farmer or machinist to see if you can pro­duce anything of value without doing some waiting or running some risk.

If you don’t want to do any waiting, you can, of course, borrow enough money to pay your ex­penses while waiting for your crops to mature and be harvested and sold. In that case you can shift the burden of waiting onto the lender. But the waiting has to be done by somebody.

Or you can insure your crops against loss by fire, flood, hurri­cane, hail, or grasshoppers, thus shifting the burden of risk onto the insurance company. But the risk has to be borne by somebody. Shifting it does not eliminate the burden.

Besides, the moneylender and the insurance company would ex­pect to be paid, and it would be a question whether you were really a self-employed farmer.

An easier way to avoid having to wait or to run risks would be to work for an employer. In that case you certainly would not be a self-employed farmer. But your employer would do the waiting by paying your wages every week and thus carry the burden of waiting. But the burden would have to be borne by somebody; shifting it on­to the employer would not elimi­nate it.

The employer would also carry the burden of risk by paying your wages in full even though he in­curred losses short of bankruptcy. This loss also has to be borne by somebody. Shifting it onto the em­ployer would not eliminate it.

The formula, "Without labor nothing of value is produced," can be repeated as truly with respect to waiting and risking. Without waiting nothing of value is pro­duced, or without the running of risk nothing of value is produced. The only question is: Who does the waiting or risking?

If you want to be critical, you can prolong the argument by con­tending that waiting and risking are not true costs and should not be paid for. That depends on what you mean by cost.

Overcoming Disinclination

In the last analysis cost is disin­clination—disinclination to do something that has to be done or that someone wants to have done. Money cost is the amount that has to be paid to overcome someone’s disinclination.

Up to a certain point, even labor may be, and frequently is, per­formed for the pleasure of the doer. Beyond that point it ceases to be pleasure and, in a free econ­omy, has to be paid for because of disinclination. In a slave economy it is different.

The same may be said of wait­ing and risking. Men are gener­ally not disinclined to wait for their wages until the end of the day—usually not until the end of the week. They may be slightly disinclined to wait until the end of the month; but to wait until the end of the year, or longer, would be too much to endure.

The same rule applies to the running of risk. Boys like to skate over thin ice, but not too thin; or climb tall trees, but not too tall. Gamblers seem to get a thrill out of gambling. A small loss may be regarded as money well spent for a good time; but there is a limit to the loss that can be accepted without regret.

It is said of Mr. Edison that, on one occasion, his treasurer told him that his money was all gone and he was broke. All he said was, "Well, we had a helluva good time spending it, didn’t we?" and went on with his research. But we are not all Edisons, nor are we able to take losses, beyond a certain point, "with a frolic welcome."

Losing a whole year’s crop is too much of a calamity for a self-employed farmer to stand. Hence his desire for crop insurance.

Workers Expect To Be Paid

Why should men expect to be paid for doing things to which they are disinclined? That is not a reasonable question. The real question is: Can you get enough things produced to satisfy your needs and desires without it? In a free economy you can’t. And we might as well accept that fact and stop the argument unless we are willing to change to a slave econ­omy.

While it is true that men will do a little work for the pleasure of doing it, also a little waiting and risking, you can’t get enough of those things done by free men. In this respect all three things rest on the same economic foundation, that of necessity.

All are equally entitled to the rewards that a free market nor­mally allows them. The reward of working is wages, of waiting is in­terest, of risking is profit.

From the Los Angeles Times, August 29, 1959.


November 1959

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November 2014

It's been 40 years since F. A. Hayek received his Nobel Prize. His insights, particularly on the distribution of knowledge and the impossibility of economic planning, remain hugely important today. In this issue, we look back on the influence of his work. Max Borders and Craig Biddle debate whether liberty must be defended from one absolute foundation, further reflections on Scottish secession, and how technology is already changing our world for the better--including how robots, despite the unease they cause, will only accelerate this process.
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