Mr. Bechara Is an attorney in the law offices of Goldman, Antonetti & Davila in San Juan, Puerto Rico.
In a free society, scarce and valuable resources are drawn to serve the mandate of consumers. Producers are guided by market prices as consumers cast their economic ballots for the goods and services which they prefer. Entrepreneurs are guided by the profit and loss system, and their ability to please consumers is reflected in the amount of profits earned.
The role of government in a free society is a limited one, as most areas of economic activity are left to the market. Of no concern to the government of a free society are the complex economic activities that take place between consenting parties–voluntary actions involving no use of force, violence or coercion. Individuals are free to act peacefully as they choose. Therefore, government’s proper role is to assure a sound framework in which a free market economy may operate. The defense against internal and external enemies is a necessary function of government, and private property in such a society would be protected as the bedrock of the market economy.
In such an environment individuals might freely cooperate in all sorts of peaceful organizations and activities—a truly pluralistic society. No one particular group could claim control of the state, and each group would be free to produce, create and enjoy the benefits of its labor. But when freedom gives way to state-enforced collectivism, pluralistic activities are discouraged. The ideology of collectivism looks upon the individual as a mere organ of the state. As in the human body, where the brain directs every function, the ideologues of collectivism view society as an assembly of individuals directed by the state. If all power is centered around the state, which holds the monopoly of force, the benefits obtained from the division of labor in a pluralistic society disappear.
In the economic realm of the collective society, producers are faced with countless regulations and minimum requirements that the state deems essential. These regulations carry with them the costs of compliance which tend to raise prices. And higher prices tend to adversely affect not only consumer demand for some products but also the availability of capital for use in further production.
Income tax laws which penalize producers and inhibit capital formation are enacted, locking people into the holdings they presently possess. A rigidity is thereby imposed on the economy, because such laws discourage the sale of assets to obtain profits which would be taxable.
As the trend toward collectivism advances, revenues collected by the state in the form of taxes are used not only to finance the police and court functions, but also for distribution to special groups of beneficiaries. Thus, in the name of equality, does government policy shift from the protection to the redistribution of property. And the greater the number of beneficiaries, the greater their political power. And as any one group succeeds in this act of political plunder, this in turn leads other groups to lobby for their own special privileges.
In a free society, numerous organizations would be voluntarily striving and competing for the attainment of various goals. But in today’s mixed society, such groups are not content to rely on persuasion, but rather depend on the use of coercion, through government funds, for the achievement of these objectives. As these groups grow in number, it soon becomes evident that the government cannot please every group; some will be left unsatisfied. Politicians discover that taxation has its limits, that high and rising taxes are unpopular. So they resort to the hidden tax of converting budgetary deficits into inflation of the money supply.
The special interest groups compete with each other for the scarce funds that government is able to provide. In that sense, a society of conflict emerges, as each special interest group views the other as an adversary in this looting procedure. Politicians use budgetary deficits in their attempt to stem the conflict and to grant most of the benefits demanded by the lobbies.
Budget deficits are financed by two methods. One method is for the state to obtain loans and remove funds from the capital market, raising interest rates and reducing the business opportunities that otherwise would have existed. The second way to finance budgetary deficits is to issue more and more paper money. The seeds of inflation are sown, to bear fruit after the voters have cast their ballots. Nor does any one group see inflation as an immediate threat to its special interest; society as a whole will bear the consequences. As inflation and recession are brought about, the special interest groups are confident that they will be able to obtain their "little bit more" from the government.
Pressure groups support the politician who is willing to enact into law the specific programs that they champion. Welfare recipients, farmers paid not to grow crops, industries protected from foreign competition and other such groups all rely upon the regimentation of economic activity and the general shrinkage of freedom as effective means to their goals. These coalitions are also aided by the government bureaucracies which have been structured to implement these programs. The legions of government employees who administer the countless forms of intervention in the economy have a vested interest in justifying the law they enforce. Hence, both beneficiaries and the administrative agencies share a common belief that this looting process is essentially fair.
As collectivism continues its cancerous growth, the institutions which have traditionally served the free society begin to change. For example, in the market economy people buy and sell according to their subjective values. The buyer prizes what he is about to buy more than the money he will relinquish for that purpose. Conversely, the seller places a higher value on the money he is about to receive than on the merchandise he is about to give up. Thus, from the point of view of each participant, the sale is beneficial to him. However, in the collectivistic society, government services bring forth a change in the nature of contractual relationships.
Government agencies created to enforce interventionist schemes carry with them the power of compulsion and coercion that is implicit in the state. Both the beneficiaries and the victims of these schemes are affected by the power of these agencies. Many private entities are compelled to act contrary to their desires in order to serve the "public interest" as the governmental agencies define it. By entering into agreements with each other, the parties cannot properly be said to be entering into a mutually beneficial contract in the traditional sense. Rather, a hybrid contract is created—one entered into under the fear of possible governmental reprisals if the action is not taken. The beneficiary of the law in question views the matter differently. After all, the governmental entity has safeguarded his "right," while the other party has had to reluctantly enter into the agreement or face prosecution by the state.
Import duties illustrate these hybrid contracts. When tariffs are levied on foreign goods, thereby protecting the domestic producer from the consequences of competition, the consumers’ choice is altered. Either they must pay a higher price for the foreign product than they would normally have to pay, or they buy the domestically produced object. The general notion that contracts are mutually beneficial to the contracting parties loses validity in this instance as consumers are not able to express their desires freely. The demand for foreign products will decrease as the import duties hike prices. This, in turn, benefits domestic producers. By distorting production and the choice available to the consumers, the government redistributes income to the detriment of the consumers.
Special interest groups have a practical advantage in the political realm, which should alert us to the dangers of collectivism. Voters face politicians from a vastly different perspective than they face producers. In the economic field, consumers are economic voters. Each dollar spent represents an economic vote which indicates to the producer how to utilize scarce resources. The producer who best satisfies the consumers’ desires obtains more money votes—more income. Consumers do not pay attention to the identity of the producer. They are totally insensitive as to whether or not the producer is a good or bad person, or as to his race, color or nationality. The consumers’ only concern is that the products which they buy satisfy their needs, and they will patronize such producers accordingly. In addition, consumers cast their economic ballots in a product-by-product fashion. Even if 51 per cent of the market favors one type of product, the market still will provide what is sought by the remaining 49 per cent.
In contrast to the economic vote of the consumer stands the political vote of the citizen. Political campaigns are cluttered with numerous issues and personalities. The voters cannot vote separately on each possible issue, but rather they vote for people who represent compromises and stand for many goals. Hence, as the state enlarges its area of activity to encompass different segments of the economy, it becomes harder for a voter to sustain or to defeat any one particular program.
A by-product of government intervention and collectivist control is a growing public interest in discerning the causes of the malfunctioning economy. As people begin to feel the oppressive nature of intervention and the suffocating consequences of taxation and inflation, a countervailing force will be building in freedom’s favor. Our prospects for survival depend upon our understanding of the economic and moral case for freedom.