Voice For Liberty

Tag: Economic freedom

Economic freedom means property rights are protected under an impartial rule of law, people are free to trade with others, both within and outside the country, there is a sound national currency, so that peoples’ money keeps its value, and government stays small, relative to the size of the economy.

  • Walter Williams on government in a free society

    Walter E.
    Williams

    Last September in Wichita economist Walter E. Williams spoke on the legitimate role of government in a free society, touching on the role of government as defined in the Constitution, the benefits of capitalism and private property, and the recent attacks on individual freedom and limited government.

    Williams’ evening lecture was held in the Mary Jane Teall Theater at Century II, and all but a handful of its 652 seats were occupied. It was presented by the Bill of Rights Institute and underwritten by the Fred and Mary Koch Foundation.

    Williams said that one of the justifications for the growth of government — far beyond the visions of the founders of America — is to promote fairness and justice. While these are worthy goals, Williams said we must ask what is the meaning of fairness and justice, referring to the legitimate role of government in a free society.

    In the Constitution, Williams said the founders specified the role of the federal government in Article 1 Section 8. This section holds a list that enumerates what Congress is authorized to do. If something is not on the list, Williams said Congress is not authorized to do it.

    The Article 8 powers that Williams mentioned are to lay and collect taxes, duties, imposts, and excises; to pay the debts and provide for the common defense and general welfare of the United States; to borrow money on the credit of the United States; to coin money; to establish post-offices and post-roads; and to raise and support armies. It is regarding these powers, plus a few others, that Congress has taxing and spending authority. “Nowhere in the United States Constitution to we find authority for Congress to tax and spend for up to two-thirds to three-quarters of what Congress taxes and spends for today.”

    Farm subsidies, handouts to banks, and food stamps are examples Williams gave of programs that are not authorized by the Constitution. “I think that we can safely say that we’ve made a significant departure from the constitutional principles of individual freedom and limited government that made us a rich nation in the first place.”

    The institutions of private property and free enterprise are the embodiment of these principles, Williams said. But there have been many successful attacks on private property and free enterprise. Thomas Jefferson, Williams said, anticipated this when he wrote “The natural progress of things is for government to gain ground, and for liberty to yield.”

    Taxation and spending are the ways government has gained ground. Taxes represent government claims on private property.

    But an even better measure of what government has done is to look at spending. From 1787 to 1920, federal spending was only three percent of gross domestic product, except during wartime. Today, that figure is approaching 30 percent, Williams said: “The significance is that as time goes by, you and I own less and less of our most valuable property, namely ourselves and the fruits of our labor.”

    In the realm of economics, Williams said that the founders thought that free markets and capitalism was the most effective social organization for promoting freedom, with capitalism defined as a system where people are free to pursue their own objectives as long as they do not violate the property rights of others. An often-trivialized benefit of capitalism and voluntary exchange is that it minimizes the capacity of one person to coerce another, he told the audience. This applies to the government, too.

    But for the last half-century, Williams said that free enterprise has been under unrelenting attack by the American people. Whether they realize it or not, people have demonstrated a “deep and abiding contempt” for private property rights and individual liberty.

    Williams said that ironically, capitalism is threatened not because of its failure, but because of its success. Capitalism has eliminated things that plagued mankind since the beginning of time — he mentioned disease, gross hunger, and poverty — and been so successful that “all other human wants appear to us to be at once inexcusable and unbearable.”

    So now, in the name of ideals other than freedom and liberty, we pursue things like equality of income, race and sex balance, affordable housing, and medical care. “As a result of widespread control by our government in order to achieve these higher objectives, we are increasingly being subordinated to the point where personal liberty in our country is treated like dirt.”

    This ultimately leads to tyranny and totalitarianism, he said. To those who might object to this strong and blunt conclusion, Williams asked this question: “Which way are we headed, tiny steps at a time: towards more liberty, or towards more government control of our lives?” He said that the answer, unambiguously, is the latter.

    It is the tiny steps that concern Williams, as they ultimately lead to their destination. Quoting Hume, he said “It is seldom that liberty of any kind is lost all at once.” Instead, Williams said it is always lost bit by bit. If anyone wanted to take away all our liberties all at once, we would rebel. But not so when liberties are taken bit by bit, which is what is currently happening.

    It is people’s desire for government to do good — helping the disadvantaged, elderly, failing businesses, college students — that leads to the attack on private property and economic freedom. But Williams explained that government has no resources of its own, meaning that for government to give one person money it must first — “through intimidation, threats, and coercion” — confiscate it from someone else.

    Williams told the audience that if a private person used coercion to take money from someone and give it to another person, that act would universally be considered theft and a crime. It doesn’t matter how needy or deserving the recipient, it would still be theft. But Williams asked if there is any conceptual difference between that act and when agents of the government do the same. Williams says no, except that in the second act, where Congress takes the money, the theft is legal.

    But mere legality doesn’t not make something moral. Slavery was legal in America for many years, but not moral. The purges of Stalin and Mao were legal under the laws of those countries. So legality does not equate to morality, Williams explained, and he said he cannot find a moral case for taking what belongs to one person and giving it to another to whom it does not belong.

    Charity is “praiseworthy and laudable” when it is voluntary, but it is worthy of condemnation when government reaches into others’ pockets for charity. Those who accept the forced takings are guilty, too, he explained.

    “The essence of our relationship with government is coercion,” Williams told the audience. This, he said, represents our major problem as a nation today: We’ve come to accept the idea of government taking from one to give to another. But the blame, Williams said, does not belong with politicians — “at least not very much.” Instead, he said that the blame lies with us, the people who elect them to office in order to get things for us. A candidate who said he would do only the things that the Constitution authorizes would not have much of a chance at being elected.

    The further problem is that if Kansans don’t elect officials who will bring federal dollars to Kansas, it doesn’t mean that Kansans will pay lower federal taxes. The money, taken from Kansans, will go to other states, leading to this conundrum: “That is, once legalized theft begins, it pays for everybody to participate.”

    We face a moral dilemma, then. Williams listed several great empires that declined for doing precisely what we’re doing: “Bread and circuses,” or big government spending.

    But there is a note — only one — of optimism, Williams believes. The first two years of the Obama administration, along with the Democratic Senate and House of Representatives, has been so brazen in their activities in “running roughshod over our liberties” that people are starting to argue and debate the Constitution. State attorneys general are bringing suits against the federal government over Obama’s health care plan. State legislatures are passing tenth amendment resolutions. The tea party and other grassroots movements give him optimism, too.

    We must also ask ourselves if we are willing to give up the benefits we get from government, he said. But most people want cuts in spending on other people, not ourselves, as “ours is critical and vital to the national interest.” With all of us feeling this way, Williams said the country is in danger.

    Young people have the greatest stake in the struggle for limited government and economic freedom, as the older generations have benefited from a relatively free country and the economic mobility that accompanied it. He said he’s afraid we’re losing that: “I’m hoping that future generations will not curse us for bequeathing to them a nation far less robust, far less free, than the nation that our parents and our ancestors bequeathed us.”

    In answering a question from the audience, Williams said he would be afraid of a constitutional convention to be held today, as some are advocating. We wouldn’t be sending people like John Adams. Instead, he said we’d be sending people like Barney Frank and others who have “deep contempt” for personal freedom.

    In response to a question on regulation, Williams said that regulations like health care and uncertainty over taxation cause businesses to be afraid to commit money to long term investments. Uncertainty “collapses the time horizon” causing firms to look for investments that pay off in the short term rather than the long term. This contributes to unemployment, he said.

    Williams also talked about the economic history of America. From its beginning to 1930, there were recessions and depressions, but there were not calls for the federal government to intervene and stimulate the economy. It wasn’t until the Hoover administration and the New Deal that the federal government intervened in the economy in order to “fix” the economy. Williams said that what should have been a “sharp two or three-year downtown” was turned in to the Great Depression — which was not over until after World War II — by government intervention. The measures being taken today are similarly postponing the recovery, he said. He added that most serious economic downturns are caused by government. It’s also futile for the government to spend the country out of a recession, which he likened to taking water from the deep end of a pool to the shallow end in order to raise the level of the shallow end. Government taking money from one person, giving it to another, and expecting the economy to rise is similarly futile.

    A question about mainstream media and their representation of the issues of today brought this response: “You have to make the assumption, I believe implied in your question, that those people are ignorant, and if only they knew better, they would change their behavior. Human ignorance is somewhat optimistic, because ignorance is curable through education. I’m very sure that many of these people want government control. The elite have always wanted government control, and the media was very responsible in getting President Obama elected.”

    In an interview, I asked what President Obama should say in his jobs speech. Williams recommended the president should reduce regulation and lower taxes, especially capital gains and corporate income taxes. The spending programs of the past will not help. But Obama’s constituency will not favor this approach. The spending on roads and bridges benefits labor unions, for example.

    On those who accept who accept and benefit from government spending, Williams said that “one of the tragedies of our nation” is that the growth of government has turned otherwise decent people into thieves, because they participate in the taking of what belongs to someone else. But because of the pervasiveness of government, sometimes this is unavoidable.

    I asked do we need better politicians — ones who will work to limit government — or do we need different rules such as a balanced budget amendment or spending constraints? Williams said that the bulk of the blame lies with the people, as politicians are simply doing what voters ask them to do. “The struggle is to try to convince our fellow Americans on the moral superiority of liberty and its main ingredient, limited government.” Politicians will then follow, he added.

    I asked if we’ve passed some sort of tipping point, where people look first to government rather than voluntary exchange through markets. He said perhaps so, and mentioned another problem: Close to 50 percent of Americans pay no federal income tax. These people become natural constituents for big-spending politicians. As they pay no taxes — “no stake in the game” — they don’t care if taxes are raised or lowered.

    On the issue of the subsidy being poured into downtown Wichita, Williams said the issue is an example of the “seen and unseen” problem identified by Frederic Bastiat. We easily see the things that government taxation and intervention builds, such as a convention center. But what is not easily seen is what people would have done with the money that was taken from them through taxation. While the money taken from each person may be small, it adds up.

    On government funding for arts, an issue in Kansas at this time, Williams said that it ought to be an insult to artists that their work has to be funded through government forcing people to pay, as opposed to voluntary payments.

    Born in Philadelphia, Pennsylvania, Dr. Walter E. Williams holds a B.A. in economics from California State University, Los Angeles, and M.A. and Ph.D. degrees in economics from UCLA. He has served on the faculty of George Mason University in Fairfax, Virginia, as John M. Olin Distinguished Professor of Economics, since 1980. His website is Walter Williams Home Page.

  • Myth: The more complex a social order is, the less it can rely on markets and the more it needs government direction

    When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The eighth myth — The More Complex a Social Order Is, the Less It Can Rely on Markets and the More It Needs Government Direction — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

    Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism. An eleven minute podcast of Palmer speaking on this topic is at The Morality of Capitalism.

    Myth: The More Complex a Social Order Is, the Less It Can Rely on Markets and the More It Needs Government Direction

    Myth: Reliance on markets worked fine when society was less complicated, but with the tremendous growth of economic and social connections, government is necessary to direct and coordinate the actions of so many people.

    If anything, the opposite is true. A simple social order, such as a band of hunters or gatherers, might be coordinated effectively by a leader with the power to compel obedience. But as social relations become more complex, reliance on voluntary market exchange becomes more — not less — important. A complex social order requires the coordination of more information than any mind or group of minds could master. Markets have evolved mechanisms to transmit information in a relatively low cost manner; prices encapsulate information about supply and demand in the form of units that are comparable among different goods and services, in ways that voluminous reports by government bureaucracies cannot. Moreover, prices translate across languages, social mores, and ethnic and religious divides and allow people to take advantage of the knowledge possessed by unknown persons thousands of miles away, with whom they will never have any other kind of relationship. The more complex an economy and society, the more important reliance on market mechanisms becomes.

  • Myth: Markets don’t work (or are inefficient) when there are negative or positive externalities

    When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The seventh myth — Markets Don’t Work (or Are Inefficient) When There Are Negative or Positive Externalities — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

    Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism.

    Myth: Markets Don’t Work (or Are Inefficient) When There Are Negative or Positive Externalities

    Myth: Markets only work when all of the effects of action are born by those who make the decisions. If people receive benefits without contributing to their production, markets will fail to produce the right amount. Similarly, if people receive “negative benefits,” that is, if they are harmed and those costs are not taken into account in the decision to produce the goods, markets will benefit some at the expense of others, as the benefits of the action go to one set of parties and the costs are borne by another.

    Tom G. Palmer: The mere existence of an externality is no argument for having the state take over some activity or displace private choices. Fashionable clothes and good grooming generate plenty of positive externalities, as others admire those who are well clothed or groomed, but that’s no reason to turn choice of or provision of clothing and grooming over to the state. Gardening, architecture, and many other activities generate positive externalities on others, but people undertake to beautify their gardens and their buildings just the same. In all those cases, the benefits to the producers alone — including the approbation of those on whom the positive externalities are showered — are sufficient to induce them to produce the goods. In other cases, such as the provision of television and radio broadcasts, the public good is “tied” to the provision of other goods, such as advertising for firms; the variety of mechanisms to produce public goods is as great as the ingenuity of the entrepreneurs who produce them.

    More commonly, however, it’s the existence of negative externalities that leads people to question the efficacy or justice of market mechanisms. Pollution is the most commonly cited example. If a producer can produce products profitably because he imposes the costs of production on others who have not consented to be a part of the production process, say, by throwing huge amounts of smoke into the air or chemicals into a river, he will probably do so. Those who breathe the polluted air or drink the toxic water will bear the costs of producing the product, while the producer will get the benefits from the sale of the product. The problem in such cases, however, is not that markets have failed, but that they are absent. Markets rest on property and cannot function when property rights are not defined or enforced. Cases of pollution are precisely cases, not of market failure, but of government failure to define and defend the property rights of others, such as those who breathe polluted air or drink polluted water. When people downwind or downstream have the right to defend their rights, they can assert their rights and stop the polluters from polluting. The producer can install at his own expense equipment or technology to eliminate the pollution (or reduce it to tolerable and non-harmful levels), or offer to pay the people downwind or downstream for the rights to use their resources (perhaps offering them a better place to live), or he must stop producing the product, because he is harming the rights of others who will not accept his offers, showing that the total costs exceed the benefits. It’s property rights that make such calculations possible and that induce people to take into account the effects of their actions on others. And it’s markets, that is, the opportunity to engage in free exchange of rights, that allow all of the various parties to calculate the costs of actions.

    Negative externalities such as air and water pollution are not a sign of market failure, but of government’s failure to define and defend the property rights on which markets rest.

  • Myth: Markets cannot possibly produce public (collective) goods

    When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The sixth myth — Markets Cannot Possibly Produce Public (Collective) Goods — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

    Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism.

    Myth: Markets Cannot Possibly Produce Public (Collective) Goods

    Myth: If I eat an apple, you can’t; consumption of an apple is purely rivalrous. If I show a movie and don’t want other people to see it, I have to spend money to build walls to keep out non-payers. Some goods, those for which consumption is non-rival and exclusion is costly, cannot be produced on markets, as everyone has an incentive to wait for others to produce them. If you produce a unit, I can just consume it, so I have no incentive to produce it. The same goes for you. The publicness of such goods requires state provision, as the only means to provide them. Such goods include not only defense and provision of a legal system, but also education, transportation, health care, and many other such goods. Markets can never be relied on to produce such goods, because non-payers would free-ride off of those who pay, and since everyone would want to be a free-rider, nobody would pay. Thus, only government can produce such goods.

    Tom G. Palmer: The public goods justification for the state is one of the most commonly misapplied of economic arguments. Whether goods are rivalrous in consumption or not is often not an inherent feature of the good, but a feature of the size of the consuming group: a swimming pool may be non-rivalrous for two people, but quite rivalrous for two hundred people. And costs of exclusion are applicable to all goods, public or private: if I want to keep you from eating my apples, I may have to take some action to protect them, such as building a fence. Many goods that are non-rivalrous in consumption, such as a professional football game (if you see it, it doesn’t mean that I can’t see it, too), are produced only because entrepreneurs invest in means to exclude non-payers.

    Besides not being an inherent feature of the goods per se, the alleged publicness of many goods is a feature of the political decision to make the goods available on a nonexclusive and even non-priced basis. If the state produces “freeways,” it’s hard to see how private enterprise could produce “freeways,” that is, zero-priced transportation, that could compete. But notice that the “freeway” isn’t really free, since it’s financed through taxes (which have a particularly harsh form of exclusion from enjoyment, known as jail), and also that the lack of pricing is the primary reason for inefficient use patterns, such as traffic jams, which reflect a lack of any mechanism to allocate scarce resources (space in traffic) to their most highly valued uses. Indeed, the trend around the world has been toward pricing of roads, which deeply undercuts the public goods argument for state provision of roads.

    Many goods that are allegedly impossible to provide on markets have been, or are at present, provided through market mechanisms — from lighthouses to education to policing to transportation, which suggests that the common invocation of alleged publicness is unjustified, or at least overstated.

    A common form of the argument that certain goods are allegedly only producible through state action is that there are “externalities” that are not contracted for through the price mechanism. Thus, widespread education generates public benefits beyond the benefits to the persons who are educated, allegedly justifying state provision and financing through general tax revenues. But despite the benefits to others, which may be great or small, the benefits to the persons educated are so great for them that they induce sufficient investment in education. Public benefits don’t always generate the defection of free-riders. In fact, as a wealth of research is demonstrating today, when states monopolize education they often fail to produce it for the poorest of the poor, who nonetheless perceive the benefits to them of education and invest substantial percentages of their meager incomes to educate their children. Whatever externalities may be generated by their children’s education does not stop them from paying their own money to procure education for their children.

    Finally, it should be remembered that virtually every argument alleging the impossibility of efficient production of public goods through the market applies at least equally strongly– and in many cases much more strongly –to the likelihood that the state will produce public goods. The existence and operation of a just and law-governed state is itself a public good, that is, the consumption of its benefits is non-rivalrous (at least among the citizenry) and it would be costly to exclude non-contributors to its maintenance (such as informed voters) from the enjoyment of its benefits. The incentives for politicians and voters to produce just and efficient government are not very impressive, certainly when placed next to the incentives that entrepreneurs and consumers have to procure public goods through cooperation in the marketplace. That does not mean that the state should never have any role in producing public goods, but it should make citizens less willing to cede to the state additional responsibilities forproviding goods and services. In fact, the more responsibilities are given to the state, the less likely it is to be able to produce those public goods, such as defense of the rights of its citizens from aggression, at which it might enjoy special advantages.

  • Myth: Markets only work when an infinite number of people with perfect information trade undifferentiated commodities

    When thinking about the difference between government action and action taken by free people trading voluntarily in markets, we find that many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The fifth myth — Markets Only Work When an Infinite Number of People With Perfect Information Trade Undifferentiated Commodities — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

    Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism.

    Myth: Markets Only Work When an Infinite Number of People With Perfect Information Trade Undifferentiated Commodities

    Myth: Market efficiency, in which output is maximized and profits are minimized, requires that no one is a price setter, that is, that no buyer or seller, by entering or exiting the market, will affect the price. In a perfectly competitive market, no individual buyer or seller can have any impact on prices. Products are all homogenous and information about products and prices is costless. But real markets are not perfectly competitive, which is why government is required to step in and correct things.

    Tom G. Palmer: Abstract models of economic interaction can be useful, but when normatively loaded terms such as “perfect” are added to theoretical abstractions, a great deal of harm can be done. If a certain condition of the market is define as “perfect” competition, then anything else is “imperfect” and needs to be improved, presumably by some agency outside of the market. In fact, “perfect” competition is simply a mental model, from which we can deduce certain interesting facts, such as the role of profits in directing resources (when they’re higher than average, competitors will shift resources to increase supply, undercut prices, and reduce profits) and the role of uncertainty in determining the demand to hold cash (since if information were costless, everyone would invest all their money and arrange it to be cashed out just at the moment that they needed to make investments, from which we can conclude that the existence of cash is a feature of a lack of information). “Perfect” competition is no guide to how to improve markets; it’s a poorly chosen term for a mental model of market processes that abstracts from real world conditions of competition.

    For the state to be the agency that would move markets to such “perfection,” we would expect that it, too, would be the product of “perfect” democratic policies, in which infinite numbers of voters and candidates have no individual impact on policies, all policies are homogenous, and information about the costs and benefits of policies is costless. That is manifestly never the case.

    The scientific method of choosing among policy options requires that choices be made from among actually available options. Both political choice and market choice are “imperfect” in all the ways specified above, so choice should be made on the basis of a comparison of real — not “perfect”– market processes and political processes. Real markets generate a plethora of ways of providing information and generating mutually beneficial cooperation among market participants. Markets provide the framework for people to discover information, including forms of cooperation.

    Advertising, credit bureaus, reputation, commodity exchanges, stock exchanges, certification boards, and many other institutions arise within markets to serve the goal of facilitating mutually beneficial cooperation. Rather than discarding markets because they aren’t perfect, we should look for more ways to use the market to improve the imperfect state of human welfare.

    Finally, competition is better understood, not as a state of the market, but as a process of rivalrous behavior. When entrepreneurs are free to enter the market to compete with others and customers are free to choose from among producers, the rivalry among producers for the custom of customers leads to behavior favorable to those customers.

  • Myth: Markets depend on perfect information, requiring government regulation to make information available

    When thinking about the difference between government action and action taken by free people trading freely in markets, we find that many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The fourth myth — Markets Depend on Perfect Information, Requiring Government Regulation to Make Information Available — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

    Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism.

    Myth: Markets Depend on Perfect Information, Requiring Government Regulation to Make Information Available

    Myth: For markets to be efficient, all market participants have to be fully informed of the costs of their actions. If some have more information than others, such asymmetries will lead to inefficient and unjust outcomes. Government has to intervene to provide the information that markets lack and to create outcomes that are both efficient and just.

    Tom G. Palmer: Information, like every other thing we want, is always costly, that is, we have to give something up to get more of it. Information is itself a product that is exchanged on markets; for examples, we buy books that contain information because we value the information in the book more than we value what we give up for it. Markets do not require for their operation perfect information, any more than democracies do. The assumption that information is costly to market participants but costless to political participants is unrealistic in extremely destructive ways. Neither politicians nor voters have perfect information. Significantly, politicians and voters have less incentive to acquire the right amount of information than do market participants, because they aren’t spending their own money. For example, when spending money from the public purse, politicians don’t have the incentive to be as careful or to acquire as much information aspeople do when they are spending their own money.

    A common argument for state intervention rests on the informational asymmetries between consumers and providers of specialized services. Doctors are almost always more knowledgeable about medical matters than are patients, for example; that’s why we go to doctors, rather than just curing ourselves. Because of that, it is alleged that consumers have no way of knowing which doctors are more competent, or whether they are getting the right treatment, or whether they are paying too much. Licensing by the state may then be proposed as the answer; by issuing a license, it is sometimes said, people are assured that the doctor will be qualified, competent, and upright. The evidence from studies of licensure, of medicine and of other professions, however, shows quite the opposite. Whereas markets tend to generate gradations of certification, licensing is binary; you are licensed, or you are not. Moreover, it’s common in licensed professions that the license is revoked if the licensed professional engages in “unprofessional conduct,” which is usually defined as including advertising! But advertising is one of the means that markets have evolved to provide information– about the availability of products and services, about relative qualities, and about prices. Licensure is not the solution to cases of informational asymmetry; it is the cause.

  • Myth: Reliance on markets leads to monopoly

    When thinking about the difference between government action and action taken by free people trading freely in markets, many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The third myth — Reliance on Markets Leads to Monopoly — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

    Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism.

    Myth: Reliance on markets leads to monopoly

    Myth: Without government intervention, reliance on free markets would lead to a few big firms selling everything. Markets naturally create monopolies, as marginal producers are squeezed out by firms that seek nothing but their own profits, whereas governments are motivated to seek the public interest and will act to restrain monopolies.

    Tom G. Palmer: Governments can — and all too often do — give monopolies to favored individuals or groups; that is, they prohibit others from entering the market and competing for the custom of customers. That’s what a monopoly means. The monopoly may be granted to a government agency itself (as in the monopolized postal services in many countries) or it may be granted to a favored firm, family, or person.

    Do free markets promote monopolization? There’s little or no good reason to think so and many reasons to think not. Free markets rest on the freedom of persons to enter the market, to exit the market, and to buy from or sell to whomever they please. If firms in markets with freedom of entry make above average profits, those profits attract rivals to compete those profits away. Some of the literature of economics offers descriptions of hypothetical situations in which certain market conditions could lead to persistent “rents,” that is, income in excess of opportunity cost, defined as what the resources could earn in other uses. But concrete examples are extremely hard to find, other than relatively uninteresting cases such as ownership of unique resources (for example, a painting by Rembrandt). In contrast, the historical record is simply full of examples of governments granting special privileges to their supporters.

    Freedom to enter the market and freedom to choose from whom to buy promote consumer interests by eroding those temporary rents that the first to offer a good or service may enjoy. In contrast, endowing governments with power to determine who may or may not provide goods and services creates the monopolies — the actual, historically observed monopolies — that are harmful to consumers and that restrain the productive forces of mankind on which human betterment rests. If markets routinely led to monopolies, we would not expect to see so many people going to government to grant them monopolies at the expense of their less powerful competitors and customers. They could get their monopolies through the market, instead.

    It’s always worth remembering that government itself seeks to exercise a monopoly; it’s a classic defining characteristic of a government that it exercises a monopoly on the exercise of force in a given geographic area. Why should we expect such a monopoly to be more friendly to competition than the market itself, which is defined by the freedom to compete?

  • Myth: Markets promote greed and selfishness

    When thinking about the difference between government action and action taken by free people trading freely in markets, many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The second myth — Markets Promote Greed and Selfishness — and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

    Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism.

    Myth: Markets promote greed and selfishness

    Myth: People in markets are just trying to find the lowest prices or make the highest profits. As such, they’re motivated only by greed and selfishness, not by concern for others.

    Tom G. Palmer: Markets neither promote nor dampen selfishness or greed. They make it possible for the most altruistic, as well as the most selfish, to advance their purposes in peace. Those who dedicate their lives to helping others use markets to advance their purposes, no less than those whose goal is to increase their store of wealth. Some of the latter even accumulate wealth for the purpose of increasing their ability to help others. George Soros and Bill Gates are examples of the latter; they earn huge amounts of money, at least partly in order to increase their ability to help others through their vast charitable activities.

    A Mother Teresa wants to use the wealth available to her to feed, clothe, and comfort the greatest number of people. Markets allow her to find the lowest prices for blankets, for food, and for medicines to care for those who need her assistance. Markets allow the creation of wealth that can be used to help the unfortunate and facilitate the charitable to maximize their ability to help others. Markets make possible the charity of the charitable.

    A common mistake is to identify the purposes of people with their “self-interest,” which is then in turn confused with “selfishness.” The purposes of people in the market are indeed purposes of selves, but as selves with purposes we are also concerned about the interests and well being of others — our family members, our friends, our neighbors, and even total strangers whom we will never meet. And as noted above, markets help to condition people to consider the needs of others, including total strangers.

    As has often been pointed out, the deepest foundation of human society is not love or even friendship. Love and friendship are the fruits of mutual benefit through cooperation, whether in small or in large groups. Without such mutual benefit, society would simply be impossible. Without the possibility of mutual benefit, Tom’s good would be June’s bad, and vice versa, and they could never be cooperators, never be colleagues, never be friends. Cooperation is tremendously enhanced by markets, which allow cooperation even among those who are not personally known to each other, who don’t share the same religion or language, and who may never meet. The existence of potential gains from trade and the facilitation of trade by well-defined and legally secure property rights make possible charity among strangers, and love and friendship across borders.

  • Myth: Markets are immoral or amoral

    When thinking about the difference between government action and action taken by free people trading freely in markets, many myths abound. Tom G. Palmer has written an important paper that confronts these myths about markets. The first myth and Palmer’s refutation is below. The complete series of myths and responses is at Twenty Myths about Markets.

    Palmer is editor of the recent book The Morality of Capitalism. He will be in Overland Park and Wichita in May speaking on the moral case for capitalism. For more information and to register for these events see The Morality of Capitalism.

    Myth: Markets are immoral or amoral

    Myth: Markets make people think only about the calculation of advantage, pure and simple. There’s no morality in market exchange, no commitment to what makes us distinct as humans: our ability to think not only about what’s advantageous to us, but about what is right and what is wrong, what is moral and what is immoral.

    Tom G. Palmer: A more false claim would be hard to imagine. For there to be exchange there has to be respect for justice. People who exchange differ from people who merely take; exchangers show respect for the rightful claims of other people. The reason that people engage in exchange in the first place is that they want what others have but are constrained by morality and law from simply taking it. An exchange is a change from one allocation of resources to another; that means that any exchange is measured against a baseline, such that if no exchange takes place, the parties keep what they already have. The framework for exchange requires a sound foundation in justice. Without such moral and legal foundations, there can be no exchange.

    Markets are not merely founded on respect for justice, however. They are also founded on the ability of humans to take into account, not only their own desires, but the desires of others, to put themselves in the places of others. A restaurateur who didn’t care what his diners wanted would not be in business long. If the guests are made sick by the food, they won’t come back. If the food fails to please them, they won’t come back. He will be out of business. Markets provide incentives for participants to put themselves in the position of others, to consider what their desires are, and to try to see things as they see them.

    Markets are the alternative to violence. Markets make us social. Markets remind us that other people matter, too.