Dr. Peterson, an adjunct scholar at the Heritage Foundation, is Distinguished Lundy Professor Emeritus of Business Philosophy at Campbell University, Buies Creek, North Carolina.
“In the sweat of thy face shalt thou eat bread.”
So an angry Lord Jehovah thundered down on Adam and Eve—that unrighteous couple who had eaten of the forbidden fruit and were forthwith banished from the Garden of Eden and its endless bounty. And so was born, in the Old Testament version, the primal economic law of scarcity—man caught in a lifelong dilemma of unlimited ends in a world of limited means, including life itself.
Here, Virginia, sweat means work, effort, fatigue. It also means production, possible economic growth (the creation of more and more goods and services to allay man’s basic needs of food, clothing, shelter), and, amazingly nowadays, a fresh bounty of luxury wealth, including cellular telephones, microwave ovens, heart bypass operations, mutual funds, a winter flight to the sun in Cancun, Mexico, or to the ski trails of Aspen.
The Catch-22 with wealth creation is government intervention: state intrusion in the market process that is supposed to make things better (a free lunch) but ineluctably makes them worse. Catch-23 is its cost. Production involves choices, often hard choices, about how to use scarce, or economic, resources with alternative uses. Thus God’s commandment to banished Adam and Eve seems to have been: “Look, I’m no longer promising you a rose garden, only the opportunity to grow one.”
Catch-23 recognizes that nature still metes out her blessings sparingly, begrudgingly, whether in the Third World or on Park Avenue. Man fatedly wants more than he is able to get. Man then has to strategically think about wealth creation, to decide how and what to choose among consumer and capital goods. At the same time, he must decide what not to choose, given his limited—repeat, limited—time, energy, talent, and other resources, including, of course, cash and credit.
So life foists decisions daily, hourly, and even faster, on the firm—and government—as well as on the individual. As if you didn’t know firsthand, Virginia. Man’s plight—and opportunity—is that he perforce has to choose and exchange among competing options. He has to give up one thing for another. Choice by choice he seeks to optimize his resources. He has to sort out available options and single out but one in any action.
Early on in life, man gets a powerful message: He can’t eat his cake and have it too. To get he must give, to earn more he must invest more in skills and tools so as to boost his output and consume more. Self-interest under the rule of law spurs him to fashion tools for mind, hand, and, not so incidentally, society.
Cost. Aye, there’s the rub. Man soon finds out that an opportunity taken means an opportunity forgone, that a costless Garden of Eden is not of this world. This law of opportunity cost recognizes that making choices innately involves cost-benefit analysis or, in the words of Ludwig von Mises in Human Action, “taking and renunciation.” Take one benefit and you at once renounce another.
Nothing is for nothing. Something is only for something. Remember that Robinson Crusoe took off precious time from fishing to make a net in order to raise his catch. Trading-off is a rule of life, a facing-up to universal scarcity, to feeling, say, a gnawing sensation in the tummy three (or more) times a day, a gnawing not to be ignored (even if yielding to it can be overdone). Hunger demands action but not just any action. Or as an old Chinese saying has it: A hungry man must wait a long time before a roast duck flies into his mouth.
Milton Friedman has popularized this tradeoff idea as “There Ain’t No Such Thing As A Free Lunch” (TANSTAAFL). Henry Hazlitt had a similar idea and got at state intervention’s blindness to opportunity cost in his classic, Economics in One Lesson (1946): “The art of economics consists in looking not merely at the immediate but at the longer-run effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”
Thus the law of opportunity cost, or no free lunch, is a hard fact of life—as far as it goes. But in life’s unending demand for choosing this quid for that quo lies the makings of, if not a free lunch and if not impeded by state intervention, a freer lunch—and a tastier, healthier, more variegated lunch at that.
Look, Virginia: Every human action, the good and the bad, the noble and the ignoble, substitutes one state of affairs for another—a perceived better state for a perceived inferior state. The acting individual seeks a profit or lesser loss in each and every action. He is driven to seek an ever greater output for an ever lesser input—a freer lunch. And he can’t help improving the lot of others in the process.
Recall how Adam Smith tagged man’s self-interest under the rule of law as “an invisible hand [promoting] an end which was no part of his intention.” As he went on in his The Wealth of Nations (1776): “By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.”
Another eighteenth-century writer, Jonathan Swift, also gave credit for a more bountiful lunch to self-interest under the rule of law, noting its intimately related drive for invention and entrepreneurship. In Gulliver’s Travels (1726) he wrote, “And he gave it for his opinion, that whoever could make two ears of corn or two blades of grass to grow upon the spot of ground where only one grew before, would deserve better of mankind, and so do more essential service to his country, than the whole race of politicians put together.”
Swift’s point on interventionist do-gooding politicians is well taken. It came at the peak of mercantilism when politicians in Europe actively interfered in markets through guilds, bounties, tariffs, quotas, production limits, colonial restrictions, and other interventions, thus winding up doing bad.
A lesson emerges: Free, or private, choices tend to maximize returns and spur economic growth; coerced, or public, choices tend to minimize returns and impede economic growth. Under private-property rights, the law of opportunity cost becomes a tool advancing wealth creation and social cooperation.
To be sure, conditions change, private miscalculations occur, private mistakes are made. “The Edsel is here to stay,” said Henry Ford II in 1957. Nonetheless, thanks to private enterprise, the history of man is onward and upward in terms of getting more of the good things of life, a freer, if not quite free, lunch. That lunch shrinks in size and quality under state intervention. It can even sink out of sight, as in the cases of ancient and interventionist Egypt, Greece, and Rome.
Free to Choose
Yet civilization struggles on. And in that struggle is the story of freedom and free enterprise, savings and investment, entrepreneurship and invention—of payoffs in wealth from what Milton and Rose Friedman see as man’s optimum political and economic state of being “free to choose.” Man’s progress is seen in the long steady improvement of capital goods, or tools, with each tool representing at once savings (forbearance) and investment (productivity), or cost and opportunity.
That improvement stretches from the Stone Age of a million years ago, when man made edged-flint hand tools, or crude eoliths, to remove bark, hunt wild game, and skin animals. The eolith is a model of opportunity cost—an opening for better output at the cost of time in flint searching and edging, with a freer lunch passed on to succeeding generations.
Some 250,000 years ago the model continued when man perfected fire for cooking and later for smelting and forming metal from ore. Some 15,000 years ago he invented spear-throwing and the bow and arrow; some 8,000 years ago he domesticated cattle for livestock and invented a sickle for harvesting; some 7,500 years ago he developed agriculture and wove linen on wooden looms; some 6,000 years ago he drew signs as a basis of alphabets and heightened communications.
Fast-forward to the Industrial Revolution, starting around 1750 (when human longevity was around 30 years), to see an explosion of highly productive inventions that sharply cut opportunity costs, boosted output per man-hour, accelerated man’s material well-being, and lengthened his life span. Study the impact of inventions such as Watt’s steam engine in 1776, Whitney’s cotton gin in 1791, Fulton’s steamboat in 1807, McCormick’s reaper in 1841, Howe’s sewing machine in 1845, Bessemer’s steel furnace in 1855, Drake’s oil-well strike in 1859, Bell’s telephone in 1876, Edison’s electric light in 1879, Duryea’s automobile (“the horseless carriage”) in 1892, and on into the twentieth century for an even more dazzling display of technological advances from the refrigerator to jet travel, from kidney transplants to interactive TV, from the computer to the World Wide Web.
In all, witness how better tools increase productivity, making for freer lunches. Today human longevity in the West is well up in the 70s, for an average gain of around 45 years in the last 250 years or so. All thanks to a long succession of opportunity-cost cutters, of mostly unsung savers and investors, inventors and entrepreneurs. Thanks, too, to private-property rights—however unstable over the history of still-rapacious government, even here on the eve of the 21st century.
Trade, Virginia, is another aspect of opportunity cost. And because it is mutually productive, mutually profitable, it’s anything but a greedy zero-sum or negative-sum, winner-take-all game, as some critics charge. Rather, trade, including world trade, is a win-win process of social cooperation, a positive-sum game that as a rule enhances the well-being of each player and of society as a whole. It follows that protectionism is a pox and a destroyer of international harmony.
The fly in this ointment of freer lunches is nominally “productive,” but inherently counterproductive, intervention. Neomercantilistic states everywhere, including the United States, interfere with production, impede trade, foster inflation, inflict rent control, impose stiff capital gains taxes, create a rising underclass via the welfare state, and generally foist social trouble and raise opportunity costs. It’s an inadvertent policy of less for more. Much less.
Sure, in sum, the law of opportunity cost as implying no free lunch is entirely correct, but only as far as it goes. For in the history of state-harassed freedom and free enterprise, a far different picture of the law of opportunity cost emerges. It is one of wealth creation: growing remunerative work opportunities, rising private savings and capital investment, creative invention and entrepreneurship, amazing productivity gains, plunging opportunity costs. It is this picture that enables the viewer to say, “Yes, Virginia, there is a free lunch.” But can she keep it?