All Commentary
Friday, October 28, 2016

Free Markets Refine Good Manners

Why does every person have this implied right to “Yes” or “No” without attempted physical intimidation or use of force to make him act against his will?

The hallmark of a truly free market is that all associations and relationships are based on voluntary agreement and mutual consent. Another way of saying this is that, in the free market society, people are morally and legally viewed as sovereign individuals possessing rights to their life, liberty, and honestly acquired property, who may not be coerced into any transaction that they do not consider to be to their personal betterment and advantage.

The rules of the free market are really very simple: you don’t kill, you don’t steal, and you don’t cheat through fraud or misrepresentation. You can only improve your own position by improving the circumstances of others. Your talents, abilities, and efforts must all be focused on one thing: what will others take in trade from you for the revenues you want to earn as the source of your own income and profits?

Consent, Not Coercion, Is a Hallmark of the Market

When have you ever walked into a shoe store, looked around, maybe tried on a pair of shoes, and when you decided to leave without buying anything, a gruff and intimidating character with a club or a gun said, “The boss says you ain’t leaving without buying something”? I doubt it any of us have had any such experience.

Only liberal, free market capitalism broke free of the age-old collectivist conception of the relationship between the individual and others in society.Why? Because the philosophical and moral premise underlying transactions in the marketplace is that each participant has the right to say, “Yes” or “No” to an offer and an exchange.

Why does every person have this implied right to “Yes” or “No” without attempted physical intimidation or use of force to make him act against his will? This is due to the fact that the foundational principle of a free society is that every one of us has an inviolable individual right to their life, liberty, and honestly acquired property.

Virtually every other philosophical and political system throughout human history has been based on some version of the opposite. That is, that you do not own yourself; your life and property are at the disposal of the primitive tribe, the medieval king, or the social, national, or racial group or “democratic” community to which you have been designated as belonging.

That is the premise of all forms of political and economic collectivism. You work for the group, you obey the group, and you live and die for the group. The political authority claiming to speak and act for the group presumes to have the right to compel your acquiescence and obedience to the asserted needs and desires of that collective group.

Only liberal, free market capitalism as it developed in parts of the Western world, and especially in the United States, broke free of this age-old collectivist conception of the relationship between the individual and others in society.

A new morality emerged under which human relationships became based on mutual consent and voluntary agreement. Men could attempt to persuade each other to associate and trade, but they could not be compelled and plundered so one person could get what he wanted from another without their consent.

Capitalism Fosters Honesty and Good Manners

As a consequence of this principle of liberty, in the marketplace of the free society, individuals learn and practice the etiquette and manners of respect, politeness, honesty, and tolerance. This naturally follows from the fact that if violence is ethically and legally abolished – or at least minimized – in all human relationships, then the only way any of us can get others to do things we want them to do for us is through reason, argument, and persuasion.

The reason why the shoe salesman is motivated to act with courtesy and deference toward us when we are in his store is precisely because he cannot force us to buy a pair of the shoes he wants to sell. We can walk down the street and buy those shoes from another seller interested in winning our business, or we can just go home without buying anything that day.

The clichés of “service with a smile,” or “the customer is always right,” in fact are inescapable manifestations of the voluntarist principle at the basis of all market transactions. No businessman is likely to keep his market share or even stay in business in the long run if he earns a reputation for rudeness, deception, and dishonesty in his dealings with either other businesses or his customers.

Capitalist conduct contributes to a more cultured and humane civilization.The famous Scottish economist of the eighteenth century, Adam Smith, long ago explained that the motivation for respectful, polite, honest, and deferential behavior on the part of any businessman is in his own self-interest. If he does not act so, he may not long remain in business, as every private enterpriser knows who had learned to appreciate the importance of gaining and maintaining his brand name and personal reputation in the eyes of all those with whom he has dealings.

In a free market, the employer must, at the end of the day, also treat those who work for him in an honest, well-mannered way. If not, over time, he runs the risk of losing the better employees who eventually decide to look for alternative employment where workplace conditions are friendlier and more respectful, as well as, perhaps, better paying.

Such polite, courteous, honest, and deferential behavior may start out as the self-interested conscious and intentional attempt to merely succeed in the market pursuit of profits, when voluntary and free market dealings and transactions become the common and everyday way in which people associate.

But, over time, such rules of “good behavior” become habituated, a part of the routine of regular day-in and day-out interactions, until, finally, they are transformed into the customs and traditions expected in any and all human encounters, whether in the marketplace or not.

Thus, the practice of self-interested good manners and respectful tolerance fostered first in commercial buying and selling became embedded and reinforced as the general societal rules and ways of civilized and “polite society.” And, thus, capitalist conduct makes its contribution to a more cultured and humane civilization.

Capitalism Creates a Spirit of Humility, Not Political Arrogance

I would suggest that free market capitalism also inculcates a spirit and attitude of humility. In the open and competitive marketplace, anyone who has an idea or a dream is free, in principle, to try to bring it into reality. No private person or political power has the right or authority to prevent him from entering the field of enterprise and trade to discover if his idea or dream can profitability be brought to fruition.

The capitalist “rule of the game” is that anyone is at liberty to enter the arena of enterprise if he has the will, determination, and drive to attempt to make that new product, that better product, that less expensive product. This implicitly takes for granted as an underlying assumption that no one, not any of us, has the knowledge, wisdom, and ability to know beforehand whose ideas and efforts can turn out to be a success rather than a failure.

The Austrian economist and Nobel Prize winner F. A. Hayek once referred to competition as a “discovery procedure.” If we knew ahead of time who in a marathon, for example, would come in first, second, third, and so forth, as well as the actual relative times of the runners, what would be the purpose of running the foot race?

Even when we have the track record of previous marathons, and think we know something about the relative strengths and weaknesses of the competitors looking ahead to a future race, the fact is we do not know how the race will actually play out until the runners finish the course.

The humility of the marketplace, no matter how strongly confident the individual businessmen may be in their own ideas and abilities, is that no one – neither a private individual nor even the most well-informed government bureaucrat – has sufficient knowledge and forethought to successfully “pick winners” and “avoid losers” for the good of society as a whole.

This can only be found out through the competitive rivalry of the market entrepreneurs who are each trying to make the product or supply the service that will gain the business of customers, as found out by which products or services the buying public actually decide are the ones that best fulfill their existing or discovered needs, desires and wants.

Government Intervention and Unethical Business Practices

There is another dimension to the belief on the part of many in society that businessmen are not to be trusted, and therefore not fully deserving of the citizenry’s confidence.

A long time ago, back in the late 1960s, a Wisconsin businessman named William Law, who owned the Cudahy tannery company, published an opinion piece in the Wall Street Journal. He said that some of his American competitors in the tannery industry were lobbying the government to impose an import tariff on foreign leather goods that were successfully capturing more of the U.S. market.

The difference between the lower price the consumer would pay under free trade, and the higher price they would pay under a tariff, is the stolen sum out of the consumer’s pocket.Mr. Law admitted that such an import duty would raise the costs of his foreign rivals and make it more likely that he could maintain his market share and his profit margins. But he went on to say that he opposed the call for such anti­competitive restrictions on market entry of the foreign leather suppliers. He declared that he would rather face going out of business than stay in business by using government to rig the market to his advantage at the unjust expense of both American consumers and his foreign rivals.

Many years after Mr. Law wrote this op-ed, I had the opportunity to meet and talk with him, so I think I understand the premise underlying his argument. You see he considered that such an import tariff would be an act of theft at the expense of the American consuming public, which would make him an accomplice receiving ill-gotten gains.

He would be using the force of government to impose a penalty fee on the foreign competitor wanting to bring his leather goods into the United States, for no other crime than that foreign rival’s ability to make a desirable product at a lower cost than his American competitors. The foreign rival would be punished for wanting to share the benefits from his cost efficiencies with the American public by offering his product to them at a lower price.

At the same time, the American consumer is denied the opportunity of buying the foreign version of the product at a price mutually agreeable to him and the seller. As a result, that American consumer might have less to choose from, and would pay a higher price for leather goods than if the tariff was not there. The difference between the lower price the consumer would pay under free trade and the higher price he pays under the protectionist wall of the tariff is the stolen sum out of the consumer’s pocket, Mr. Law said, and into the domestic tannery manufacturer’s revenues.

Using Government to Plunder Some at Others’ Expense

Take the logic of this example and apply it to government subsidies covering part of a manufacturer’s costs of production at taxpayers’ expense; or paying farmers not to grow crops or guaranteeing them a minimum farm price support that is paid for through tax dollars and higher prices for consumers of agricultural goods; or to domestic business regulations that limit entry into various professions and occupations, which, again, limits consumer choice, prevents potential rivals from earning a living in those corners of the market, and make the product or service more expensive for the buying public by using government intervention to limit the supply.

In the financial and banking sector it has taken the form of “too big to fail,” which meant that those who made bad investment and lending decisions were not required to fully bear the responsibility and the cost of their poor or misguided decisions. Instead, taxpayer money was made available to wash away part of their bad decision-making sins.

We take for granted an individual’s right to his private property and the income he has honestly earned.In everyday life, we presume that the ethical thing to do if we see that someone has dropped their wallet is to return it to them. We take it for granted that if we see that someone has left their car unlocked with the key in the ignition, we should not take advantage of this to drive away and steal the car.

If someone does take the dropped wallet or speeds off in the car we label them a thief, a bandit, a crook. That’s because we take for granted an individual’s right to his private property and the income he has honestly earned.

Business ethics, I would argue, calls upon every entrepreneur and businessman to follow similar rules of the game in the free marketplace: you don’t kill, you don’t steal and you don’t defraud. This includes neither accepting nor lobbying to receive favors, privileges, or other special interest benefits through the powers of government to tax and regulate, all at taxpayers’ and consumers’ expense.

Many people sense that some businesses and businessmen are not playing by the rules when they obtain such favors, privileges, and benefits through political power. The deeper problem is that the reasonable suspicion and disapproval of government special favors for various businesses easily spills over, over time, into a willingness to assume the worst about all business and businessmen in general.

This opens the door to those more ideologically driven by an anti­capitalist agenda to win the argument that it is business and businessmen as a group who cannot be trusted and who need to be watched, regulated, and controlled – if not just taken over – by government in the name of “fairness” and “social justice.”

Capitalism’s Moral and Virtuous Watchwords

The watchwords of capitalist free market morality, therefore, are and should be: liberty, honesty, and humility. The freedom of each individual to live and choose for himself; the ethics of fair dealing – that is, human relationships on the basis of force and fraud are banned in all their forms; and the modesty to admit and accept that none of us is wise enough to arrogantly claim the right to plan and coercively direct others in society.

Free market capitalism is the ethical high road to human dignity and mutual prosperity.Not only would it be morally wrong to presume to tell others how best to live by reducing them to the status of commanded followers of our own ideas and desires, it would limit what all mankind can accomplish to what the government central planner or regulator can imagine and know within the limits of his own mind’s possibilities for understanding all that there is to know.

How much better, both for the individual and all the rest of us, to leave everyone at liberty to think, imagine, and act as they consider most profitably best for themselves, so all in society can, also, benefit from what a human mind can creatively conceive that others may not.

We live at a time in which real-world capitalism is hampered and stymied in almost every direction by the heavy hand of government regulation, control, restriction, prohibition, and taxation. It is politically managed and manipulated capitalism, and very far, therefore, from the truly free market capitalism that I have outlined in terms of its moral premises and social virtues.

It is certainly not the twisted conception of “capitalism” that is presented in the media and the movies. Real free market capitalism, by recognizing and respecting the right of the individual to his own life and liberty and honestly acquired property, is that economic system that offers humanity the most moral system of human association imaginable by and for man.

Free market capitalism is the ethical high road to human dignity and mutual prosperity – if only we are willing to fully establish and consistently practice it.

(The text is based on a talk given at the College of the Bahamas in Nassau, sponsored by the Nassau Institute, on October 20, 2016)

  • Richard M. Ebeling is BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina. He was president of the Foundation for Economic Education (FEE) from 2003 to 2008.