The typical state of mankind is tyranny, servitude
and misery as Milton Friedman reminds us in "Capitalism & Freedom". The
Western world is a striking exception due to the advent of "Liberalism"
in the 18th and early 19th centuries, a time when Liberalism meant
limited government, free markets and private property.
Classical liberals, like Thomas Jefferson, James
Madison and Thomas Paine understood that more government means less
freedom. They agreed: "That government is best which governs least."
Classical Liberalism, also called capitalism, the market economy, the
free market and free enterprise, is the only system in history where
wealth is obtained not by conquest, looting or force, but by production
and voluntary exchange.
Many people wrongly associate free enterprise with
business and expect businessmen to be defenders of the free market. They
are out of touch with reality. Professor Ben Rogge, in "Can Capitalism
Survive?", writes that businessmen, by and large, are not defenders of
capitalism, the profit and loss system, and "are no more committed to
the system of economic freedom than anyone else. Not only are they not
the greatest beneficiaries of the system—they are not even the primary
beneficiaries." The capable, talented and strong will survive under any
economic system, and the plain fact is most businessmen prefer that
government guarantee their profits, underwrite losses and limit
competition.
"There's a wisdom in the free market a trillion
times greater than that of any discrete body of men." -- Leonard Read
The basic problem of every complex society is how
to coordinate the economic activities of large numbers of people. When
decisions number in the billions, it takes the collective wisdom of a
market economy, the decisions of all the actors, to bring order out of
chaos. One example is the free market's "invisible hand" distributing
food to 297 million Americans three times a day through the voluntary
cooperation of farmers, distributors, warehousemen, grocers,
restaurateurs and consumers, all acting in their "self-interest." The
impossibility of government doing this, collecting the pertinent data,
sorting it, correlating it, prioritizing it and acting upon it in a
timely, efficient manner has been proven in socialist countries over and
over, whenever and wherever tried.
Another example is the computer industry. In 1943
Thomas Watson, chairman of IBM, said: "I think there is a world market
for maybe five computers." Today, the free market has created and
supplied a demand for more than 190 million computers in this country
while continuously increasing technology, doubling capacity every four
years, and making computers affordable to those with successively lower
incomes. It's not luxury goods for the rich and famous that's the
hallmark of free enterprise, but production for the masses. Capitalism,
as eminent free market economist Ludwig Von Mises described, "... is
that system of social cooperation and division of labor that is based on
the private ownership of the means of production." The material factors
of production are owned by individual citizens, the capitalists and the
landowners.
Capitalists, entrepreneurs and farmers are
instrumental in making free enterprise work and Mises likens them to the
helmsmen that steer a ship. None is free, however, to direct the course,
but each is merely a steersmen. Each must unconditionally obey the
captain's orders. The captain is the consumer. Consumers, through their
buying or abstention from buying, decide what should be produced and in
what quantity and quality. Consumers make poor men rich and rich men
poor.
"The capitalist system of production," wrote Mises
"is an economic democracy in which every penny gives a right to vote.
Consumers are the sovereign people." It is the only system that allows
for a rational allocation of resources based on what consumers want and
are willing to pay for, and not dependent upon the guesswork of
bureaucrats.
The role of profits, stripped of emotional
demagoguery, is to determine what consumers are asking for most urgently
and at the cheapest possible price. The greater the urgency, the greater
the profits. Whenever the resources consumed have greater value than
what's produced, there's a net loss to society. Profits come out of
savings and are incentives to minimize waste. Profits allow a CEO on the
110th floor of the Sears Tower in Chicago to know if the store manager
in San Diego is satisfactorily serving customers of Sears.
The only way to increase the general standard of
living for all mankind is to increase profits; for example, increase the
growth of capital faster than the increase in the population, and
thereby improve the methods of production. All that good government can
do is minimize constraints on the progressive accumulation of capital by
promoting free enterprise and by creating a fair field without favor. In
Tom Paine's words: "The government is best that governs least." How do
you stand on free enterprise?
