Mr. Bearce is a free-lance writer in Houston, Texas.
Agriculture, manufacture, commerce, and navigation—the four pillars of our prosperity—are the most thriving when left most free to individual enterprise.
—Thomas Jefferson
“Capitalism stinks!”
That is the conclusion reached not long ago by the authors of a textbook on economics. The book further stated that our social problems can be solved only when American capitalism is destroyed.
Hostility toward free enterprise (capitalism) has not decreased over the years. There are many “public opinion molders” today who believe free enterprise has failed. They say inflation is caused by greedy businessmen and industrialists. Corporations are making “excessive” profits. Free enterprise and our economic system are ignoring the elderly, minorities, the handicapped, and poor.
These charges are false, but some people continue editorializing, preaching, ranting, railing, and voting against capitalism. They attack free enterprise as it relates to profits, competition, “Big Business,” and corporations. Somehow, these aspects of capitalism are evil—“a threat to the consumer.”
That open hostility aside, most Americans feel that free enterprise is good, not bad. Most of us understand that our economic way of life has given America prosperity and freedom unparalleled in the world. Capitalism has provided the greatest good to the greatest number of people. For over two hundred years, free enterprise has proven that it is the most efficient and effective way of ensuring progress, material well-being, and personal freedom.
Unfortunately, we give lip service and a mental OK to free enterprise, but we do not really understand what it is all about. This sad fact is easily seen in the way most Americans react to the topic of “economics.” A majority of us seem either confused or downright bored by “economic” matters and problems with our nation’s economy.
On the other hand, most of us are critically aware of making a living—working at our jobs, getting our pay checks, paying bills, saving money, writing out checks, and paying taxes. We know from daily experience that these matters affect us and everyone around us. Yet, the subject of “economics” still seems to be something else—something far away, difficult to understand, unrelated to the daily affairs of life.
Making a Living
The truth is that making a living is not any more commonplace or everyday than economics itself. Economics and problems of our nation’s economy are matters in which we are directly involved each day, regardless of the fact that many Americans think economics is something separated from paying taxes, purchasing a new automobile, or paying higher prices for groceries.
Unless we progress further than just saying that we believe in free enterprise, we are in trouble—deep trouble.
We need to take a thorough look at the free enterprise system and gain a better appreciation for it. We must understand the interesting hows and whys it works so well for us. If we continue shrugging at any mention of “economics,” we will commit economic suicide. Freedom and human dignity will be destroyed. We’ll pay higher taxes and higher prices for food, clothing, and housing. We won’t be able to afford new automobiles, repairs on our homes, and medical care. A lot of us will be out of work.
Let’s face the facts. First, what we know as capitalism, the free choice economy, free enterprise, private enterprise, or the free market really isn’t a system at all. No economist or savvy politician invented it. Free enterprise is not a humanly devised plan for economic activity. Instead, it is the natural, voluntary collaboration of millions of individuals sharing their respective abilities, wisdom, aspirations, energy, skills, and creativity for personal good and the general welfare of everyone.
Free enterprise is industry, agriculture, finance, and commerce. Most important, it involves all of us—teachers, mechanics, nurses, clerks, students, corporation presidents, housewives, and store managers. Capitalism is millions of individuals cooperating freely to provide products and services for one another. We buy, sell, work, and produce, and thus manage our own economic lives as we choose.
Basically, there are three main principles to free enterprise: (1) We are free to think, choose, and act as we best see fit, not harming others in doing so; (2) We are rewarded for our labors in proportion to our individual abilities and to how much effort we are willing to put forth; (3) We have a right to private ownership of property.
Private property is essential to the success of free enterprise. Thomas Jefferson wrote: “The true foundation of republican government is the equal right of every citizen, in his person and property, and in their management.” Unless we have full control of our labor, possessions, and income, we cannot truly say we live in freedom. Our right to private property enables us to use it and our energies for constructive, creative work. We strive, succeed, fail, produce, invent, save, invest, spend, and work to make a better life for ourselves and others. This is economic freedom. This is individual freedom.
Alexander Hamilton advised that “the only freedom worth achieving is a freedom which puts each of us at something he can do and sets before him as a personal and individual responsibility the management of his activity, relations, and possession so that in the end ‘he owes not any man.’” That is the essence of free enterprise—individual freedom and personal responsibility. We have the right to make economic choices, and we accept the consequences of our decisions.
Free enterprise recognizes that individuals are capable of providing for themselves. Individuals—not the federal government—are responsible for arranging their own economic activities. We can, should, and will overcome difficulties in life when we are self-responsible. This is the real meaning of independence. We cannot be fully independent if we are not held responsible for managing our personal lives. In turn, we cannot be held responsible for our activ ities if government makes our economic decisions for us.
When free enterprise is allowed to work at its maximum, we achieve a justified sense of worth and dignity. We reap what we sow. Hard work, individual initiative, and personal responsibility are rewarded—not just from the standpoint of material prosperity but also from the standpoint of self-respect and personal fulfillment in life.
What more can we ask? The capitalistic free-enterprise system gives us the opportunity to realize a true sense of self-worth. Working freely in a free society, we also have shown that capitalism and the free market are the best way for producing and distributing wealth—wealth that has provided our high standard of living and the means to fight poverty, disease, illiteracy, and the like.
Important Economic Questions
Those individuals who foolishly think that “capitalism stinks” refuse to accept the truth about free enterprise. No other economic system—socialism, fascism, communism, or the welfare state—can ensure individual freedom and promote the general material welfare as capitalism has done. Free enterprise has succeeded because we have intelligently answered four important economic questions having to do with our daily lives:
(1) What goods should be produced? In what quantities?
(2) What services will be rendered to the public, when, and where?
(3) Who will produce the goods and perform the services?
(4) How will the goods and services be distributed? In other words, who gets what?
Free enterprise says that free individuals—not government agencies, boards, commissions, and so on—should answer the four questions. We decide who will produce and what will be produced. We make our own economic choices—deciding to work at the jobs we want, choosing to buy a stereo instead of a TV, or selecting one physician over another.
All of us are consumers, and free enterprise permits a sensitive market—a free market—to respond to our needs and wants. The “free market” is an accurate description of capitalism. Services and goods are produced freely in response to popular demand. Production and services are determined by what people want and how much they are willing to pay for what they want. This is cooperation and voluntary exchange in the free market. It is true economic freedom. It is individual freedom . . . and good “economics.”
The success of the free market depends upon ethical, energetic competition. Competition opens the way for new ideas and superior productivity. Companies work hard to please the consumer who is always looking for better, less expensive products. If a business wants to succeed, it endeavors to build up a reputation for prompt, friendly, effective service to please the consumer and customer. Competition is generated by millions of consumers who have economic freedom to express their likes and their dislikes.
Competition is not a brutal conflict between companies. It is not economic warfare between corporations who are out to make millions at the expense of the average consumer. Rather, competition is a vigorous, moral expression of freedom. We are free only when we can cooperate voluntarily with other people and when we are permitted to make individual choices. Competition allows us to make those personal decisions and to act upon them. Business, agriculture, commerce, and industry attempt to fill our needs by striving to put out improved products and services. This is healthy, free competition.
Fruits of Competition
Free market competition leads to new products, better products, superior services, increased production, more jobs, higher wages, and ultimately a higher standard of living for everyone. When competition is based upon fair play in the free market, it brings out the best in business as well as in individuals. Working alone or laboring collectively as employees and management in an industry, we strive to advance ourselves by giving full expression to our abilities and energies. This beneficial spirit of competition can exist, though, only when we are permitted to keep the fruits of our labor—the “fruits” being personal income or profits.
“Profits” is another term which causes some people to frown. Like competition, profits are looked upon as being a bit immoral. This mistaken view of profits is growing, even among persons who otherwise say they support free enterprise. We should ask ourselves just what is wrong with competition and profits when neither involves the use of coercion or force.
Is it immoral for an individual to use his abilities and energies in constructive work as long as he does not infringe upon the freedom of other individuals to do the same? Is it wrong for one business to compete with a rival company in an attempt to provide an improved service or better product?
Certainly not, and both the wage-earner and wage-payer deserve paycheck and profit, respectively. When the energetic, reliable company makes a profit, it does so without the use of force. Customers willingly choose the firm’s product over the same item offered by other compa nies. Just as the free market rewards the employee with a paycheck in return for hard work and personal effort, so free enterprise gives a just return to the hard-working company. The company’s profit is proof that it has met its responsibility or goal of fulfilling the needs of individuals.
But don’t some big businesses and corporations make excessive profits? No, even though their earnings might amount to billions, these industries do not reap “excessive” or “obscene” profits. A corporation’s high profits can be misleading. Many people believe that profits go into the pockets of rich corporate executives who spend their time touring Europe or enjoying sun and sand in Jamaica.
Such a picture is false. Profits are the key to prosperity, and we should be thankful they reach into billions of dollars. Yet, the amount of profit from each sales dollar is much lower than what most consumers think it is. Actually, profits for the average manufacturer account for less than 5¢ out of each sales dollar earned by the industry. The remainder of the sales dollar (95¢) goes for taxes, operating expenses, depreciation, supplies, and wages for employees.
How Profits Are Used
Just what happens to a company’s total profits of 5¢ out of every sales dollar? Are they squandered by corporate bosses? No, that 5¢ is divided between funds for reinvestment and funds to pay shareholders who have stock in the company. These shareholders are just ordinary, average people from all walks of life—professors, farmers, small businessmen, factory workers, and retired people. They have labored over the years, saved their money, and freely invested in the work of the corporation.
Besides paying dividends to shareholders, profits are used to improve and expand production. Profits are reinvested, providing business with needed capita]. Capital—amounting to billions under capita]-ism—is put to work replacing worn-out equipment, constructing new plants, and otherwise building up a more efficient, productive enterprise. This capital reinvestment creates more jobs, higher wages, better working conditions, and more prosperity—prosperity that benefits all of us.
Where have some people obtained the senseless, absurd notion that profits can be too high—that there should be a limit to reaping the just rewards of hard work and service to others? How can profits be too high when they were made by free people freely making choices and freely paying for a product or service?
Profit-making should be encouraged, not scorned. Profits provide the fuel that keeps our economy going and growing. They are both the means and motivation for material progress. Profits stimulate the release of human energy—an energy more vital to free enterprise than petroleum, natural gas, or nuclear energy.
Creative human energy is unleashed when individuals are allowed to work voluntarily in the free market. We must be free to profit and to order our lives as we please without arbitrary government intervention. The role of government should be that of a referee or policeman. Its duty is to protect economic freedom, enabling individuals and businesses to work freely. Free enterprise operates smoothly when government authority is limited to defending individual freedom, protecting private property, and preventing fraud, violence, force, and theft.
“Every man,” wrote Thomas Jefferson, “wishes to pursue his occupation and to enjoy the fruits of his labors and the produce of his property in peace and safety, and with the least possible expense. When these things are accomplished, all the objects for which government ought to be established are answered.”
Many government officials today are ignoring Jefferson’s insight into the purpose of government. Along with some educational leaders, journalists, and labor leaders, they claim that government should play an ever growing role in the economy. They believe that government is in the best position to plan future industrial, financial, and commercial activity. Supposedly, the business of government is business. They feel that the free economy has failed to meet the needs of the consumer. Thus, government should (1) crack down on business, and (2) help us manage our economic affairs.
Misconceptions
This critical view of business activity and individual responsibility is based upon many falsehoods and misconceptions. It takes the view that “If it is good for business, it is bad for the consumer.” It suggests that workers and consumers should distrust the business community and trust government instead. Presumably, life is a battleground between helpless consumers and ruthless corporations, with government bureaucrats coming to the rescue of the helpless citizenry.
We ought to reject these misconceptions. Businessmen and consumers are tied together in joint economic activity that should work harmoniously, accepting responsibility and accountability for what we do. Businesses are a justified, necessary response to meet human needs.
Homes need to be built . . . we require dental care . . . automobiles must have gasoline. All of these needs can be fulfilled competently by different trades, professions, businesses, and industries. However, their ability to serve the consumer depends upon the free collaboration of five factors: natural resources, the labor force, management, capital (machinery, facilities, and equipment), and free choice for the consumer. Whenever government intrudes into one of these areas, economic trouble lies ahead. The Dallas plumber and the Baltimore physician suffer. All of us suffer. Factory workers . . . musicians . . . bricklayers . . . telephone operators . . . taxi drivers . . .
Those who want more governmental control of the economy believe that Americans will be ill-clothed, underfed, and badly housed if the federal government does not assume the role of being our economic boss. What these people are saying is that Americans cannot or will not provide for themselves in a free society. Nor will we voluntarily help those who suffer. Our fellow citizens will go hungry and will be deprived of medical care.
Therefore, we are told that economic stability can be achieved only through the combined force of government laws, social/economic programs, and Federal expenditures. The result is that business enterprise and individual endeavor are being increasingly controlled, inspected, regulated, coerced, and bridled. Instead of allowing individuals to make their own economic decisions in conjunction with business, the government has forced its way into the free market. Political activity has taken the place of free market economics as the way of deciding who gets what.
Through excessive taxation and regulation, government is destroying economic freedom. This economic strangulation endangers all of our freedoms. Alexander Hamilton advised that “power over a man’s subsistence amounts to a power over his will.” Government regulation of our economic activities will lead to total control of our lives, just as it creates inflation, causes unemployment, and otherwise undermines our material well-being.
The federal government’s intervention into the free market has been so gradual that it is often difficult to see just how rapidly we are losing our economic and personal freedom. Actually, we no longer enjoy a free enterprise system. Through redistribution of wealth and through a multitude of laws and restrictions, we are becoming a welfare state—a sickly combination of diminishing capitalism and growing socialism.
The Tyranny of Socialism
Under the “planned economy” of socialism, the government owns and/ or controls the means of production. All areas of the economy are in the hands of the government—commerce, agriculture, industry, health care, housing, and others. Under the welfare state, the government owns and/or controls the results of production. Money is taken from the producers in society and given to the non- or low-producers. So far, we have not suffered the consequences of pursuing a completely socialistic economy. Our continued path into the welfare state, though, is taking us closer to the tyranny of socialism.
As the government adopts more and more welfare-state programs, the incentive to work is dampened. This applies to both the wage earners and non-producers in the citizenry. Businessmen and hard-working taxpayers ask themselves why they should continue exerting themselves when the government will tax away their income for the benefit of others. Industrious individuals see little reason to work hard, save, invest, and expand economic activity.
On the other hand, the welfare state also destroys the incentive of the low-producer to strive harder. A business that is failing because it cannot or will not meet consumer demand simply calls upon the government to subsidize its losses. Instead of exercising more energy, ingenuity, hard work, and responsibility to achieve success, the business relies upon the federal government for help. Likewise, individuals will reject responsibility for their own lives when the government is ready to give them food, housing, and medical care.
This destructive influence of welfare-state economics leads to a sick attitude of “Let the federal government do it.” When we begin thinking this way, freedom is in bad shape. Socialism and tyranny are just down the road. “No,” some people might argue, “Americans will never accept socialism. We still have free enterprise, and we will keep it.”
In response to such assurance, we ought to consider an ageless truth that says a person should not be held responsible for what takes place when his eyes are closed. He should, however, be held accountable for not opening his eyes in the first place.
Anyone who wants to do so can understand how and why free enterprise is being destroyed. Although some people honestly doubt that America is embracing socialism, current events clearly show that we have been heading toward a totally planned economy, this despite the efforts of some people in government to reject such attacks on freedom.
Through free market economics, we have enjoyed the good life of freedom and material well- being. This high standard of living, though, survives only as a result of past productivity. It is time we recognize that we are no longer living and working within a truly free free-enterprise atmosphere.
For too long, Americans have been uninformed and misinformed about free market economics and the nature of government power. We have been led to believe that business has caused our economic troubles and that action by the federal government is the solution. These mistaken beliefs must be corrected. Government is the problem, not the solution.
As soon as we overcome our confusion about basic economics, we will be prepared to fight for free enterprise. We will be able to defend what freedom we have left and restore all that we have lost at the hands of government intervention into our lives. Once again the true blessings of human dignity and individual freedom will be ours to enjoy day by day.
