All Commentary
Tuesday, March 29, 2016

Again, What Is Economic Freedom?

Five Indispensable Priniciples

Quite often when I am interviewed, I get the question: What precisely do you mean by “capitalism”? It’s an excellent question. The great debate among capitalism, fascism, and socialism suffers from a lack of clear language.

For example, the lackluster growth in the United States and Europe has prompted countless pundits to declare a “crisis of capitalism.” Huh? It’s been more than a century since governments let these economies grow on their own without bludgeoning them with regulations, taxing and looting the public, littering financial systems with paper money, cartelizing producers, shoveling welfare, prohibiting and hobbling a huge range of production and consumption, prohibiting labor exchanges, and funding gigantic public works.

The legal and economic arrangements that transformed the U.S. and Europe in the 19th century are long gone, replaced early in the 20th century by large and growing governments that recognize no limits to their power. This is the terrible reality that no remaining candidate for president even dares question.

To be sure, some advocates of market liberty believe that the term “capitalism” should be jettisoned permanently because it causes confusion. People might think that you favor using the state to back big business capital against labor or using public policy in a way that supports prominent producers over consumers.

Some people like to distinguish between capitalism and crony capitalism. For example, many American retailers these days are hoping for an increase in tariffs and import quotas in a way that will protect their products against foreign competition. That is, they want to use government power to guarantee their profits. It seems to me that this is better described as pure cronyism. Leave the capitalism part out of it.

If a term elucidates an idea with accuracy, great. If it causes confusion, change it. Language is constantly evolving. No particular arrangement of letters embeds an immutable meaning. And what is at stake in this debate about market freedom (or capitalism or laissez faire or the free market) is of profound importance.  

It’s the substance, not the words, we should care about.

Here are five core elements to this idea of market freedom, or whatever you want to call it. It is my short summary of the classical liberal vision of the free society and its functioning, which isn’t just about economics, but the whole of life itself. Call it capitalism if you want to.

I. Volition. Markets are about human choice at every level of society. These choices extend to every sector and every individual. You can choose your work. No one can force you into labor. At the same time, you can’t impose yourself on any employer. No one can force you to buy anything, but neither can you force someone to sell to you. Choice means agreement between all those parties to the exchange.

This right of choice recognizes the infinite diversity within the human family (whereas state policy has to assume people are interchangeable units). Some people feel a calling to lead lives of prayer and contemplation in a community of religious believers. Others have a talent for managing high-risk hedge funds. Others favor the arts, or accounting, or any profession or calling that you can imagine. Whatever your calling, you are free to pursue “anything peaceful,” as Leonard Read, the founder of FEE, liked to say.

You are the chooser, but in your relations with others, “agreement” is the watchword. This implies maximum freedom for everyone in society. It also implies a maximum role for what are called “civil liberties.” It means freedom of speech, freedom to consume, freedom to buy and sell, freedom to advertise, freedom to hire someone who once lived on the other side of the national border, and so on. No one set of choices is legally privileged over others.

II. Ownership. In a world of infinite abundance, there would be no need for ownership. But as long as we live in the material world, there will be potential conflicts over scarce resources. These conflicts can be resolved through fighting over things or through the recognition of property rights. If we prefer peace over war, volition over violence, productivity over poverty, all scarce resources — without exception — need private owners.

Everyone can use his or her property in any peaceful way. There are no accumulation mandates or limits on accumulation. Society cannot declare anyone too rich, nor prohibit voluntary asceticism by declaring anyone too poor. At no point can anyone take what is yours without your permission. You can reassign ownership rights to heirs after you die.  

Socialism is not really an option in the material world. There can be no collective ownership of anything materially scarce. One or another faction will assert control in the name of society. Inevitably, the faction will be the most powerful in society — that is, the state. This is why all attempts to create socialism in scarce goods or services devolve into totalitarian systems of top-down planning (planned chaos, Mises called it).

III. Cooperation. Volition and ownership grant the right to anyone to live in a state of pure autarky. On the other hand, that won’t get you very far. You will be poor, and your life will be short. People need people to obtain a better life. We trade to our mutual betterment. We cooperate in work. We develop every form of association with each other: commercial, familial, fraternal, and religious. The lives of all of us are improved by our capacity to cooperate in some form with other people.

In a society based on volition, ownership, and cooperation, networks of human association develop across time and space (and especially across national borders) to create the complexities of the social and economic order. No one is the master of anyone else. If we want to succeed in life, we come to value serving each other in the best ways we can. Businesses serve consumers. Managers serve employees, just as employees serve businesses.

A free society is a society of extended friendship. It is a society of service and benevolence.

IV. Learning. No one is born into this world knowing much of anything. We learn from our parents and teachers, but more importantly, we learn from the infinite bits of information that come to us every instant of the day all throughout our lives. We observe success and failure in others, and we are free to accept or reject these lessons as we see fit. In a free society, we are free to emulate others, accumulate and apply wisdom, read and absorb ideas, and extract information from any source to adapt for our own uses.

All of the information we come across in our lives, provided it is obtained non-coercively, is a free good, not subject to the limits of scarcity, because it is infinitely copyable. You can own it, and I can own it, and everyone can own it without limit and without depletion.

Here we find the “socialist” side of the capitalist system. The recipes for success and failure are everywhere and available for the taking. This is why the very notion of “intellectual property” is inimical to freedom. It always implies coercing people and thereby violating the principles of volition, authentic ownership, and cooperation.

V. Competition. When people think of capitalism, competition is perhaps the first idea that comes to mind. But the idea is widely misunderstood. It doesn’t mean that there must be several suppliers of every good or service, or that there must be a certain number of producers of anything. It means only that there should be no legal (coercive) limits on the ways in which we are permitted to serve each other. And there really are infinite ways in which this can take place.

In sports, competition has a goal: to win. Competition has a goal in the market economy, too: service to the consumer through ever increasing degrees of excellence. This excellence can come from providing better and cheaper products or services, or from providing innovations that meet people’s needs better than existing products or services. It doesn’t mean “killing” the competition; it means striving to do a better job than anyone else.

Every competitive act is a risk, a leap into an unknown future. Whether the judgment was right or wrong is ratified by the system of profit and loss, which are signals that serve as objective measures of whether resources are being used wisely or not. These signals are derived from prices established freely on the market — which is to say that they reflect prior agreements among choosing individuals.

Unlike in sports, there is no endpoint to the competition. It is a process that never ends. There is no final winner; there is an ongoing rotation of excellence among the players. And anyone can join the game, provided they go about it peacefully.

Summary. There we have it: volition, ownership, cooperation, learning, and competition. That’s capitalism as I understand it, as described in the liberal tradition improved by many great thinkers in the course of the the 20th and 21st centuries. It is not a system so much as a social setting for all times and places that favor human flourishing.

It’s not hard to discern my political outlook, then: If it fits with these pillars, I’m for it; if it does not, I’m against it. Now, you tell me: Is the crisis in the U.S. and Europe really a crisis of capitalism? On the contrary, an authentic liberalism (capitalism) is the solution to the greatest crises facing the world today.