FREEDOM AND CAPITALISM

By Lawrence Wilson, MD

© April 2008, The Center For Development

THE IMPORTANCE OF FREEDOM

This is a short philosophical article about the virtues of freedom. The most important quality needed for development of the human being, or for that matter any being, is the ability to think and make decisions on one’s own. This is why freedom works in the world. It and it alone allows people to progress, to think, to make decisions, to fail and then to learn from their mistakes.

In theory, governments should help their people develop themselves, and this is why freedom in any sphere is ultimately helpful, while slavery, welfare, or servitude in any form is ultimately harmful to a society.

One of the great secrets of America, at least in the past, has been the lack of welfare and the development of the citizen’s own self-reliance. An important part of this has been the allowing of citizens to own land, to operate businesses and to fail if conditions or decisions are incorrect. This system of economics is called free market capitalism. Our nation was founded with these principles, and the people have prospered enormously when the principles were adhered to.

FREE MARKET CAPITALISM

Capitalism is the economic system of most nations of the world. Its qualities consists of three major tenets:

1. People are free to own property, even if that is a push cart or a vegetable stand in a marketplace.

2. People are allowed to earn money by making a “profit”. Profit is the difference between what you buy something for and what you sell it for. So if a person has a vegetable stand and they buy carrots for 1.00 a bundle and sell them for 2.00 a bundle, the profit is one dollar per bundle. With this profit, the person pays all the expenses of traveling to the market, paying for the vegetable stand and hopefully has some leftover with which to buy other goods and services. This is the essence of buying and selling.

3. People are allowed to keep what they earn. They may pay taxes, but they are generally allowed to keep most of their money.

Other Qualities. Each person is also liable for any problems that arise from their business, and all compete with each other for business. In other words, in free market capitalism the government would not fund or subsidize or treat anyone differently than anyone else.

People are also allowed to fail. This means that if one’s stand is not visited and one cannot make any profit, one is allowed to go out of business. In free market capitalism, the government does not “bail out” anyone, there is no welfare system and people must find their own way, their own employment and their own food and lodging.

In other words, the role of the government in the economic sphere is simply to be a “referee”, catching thieves, murderers, robbers and making laws that protect the right of each person to do his business as he sees fit, as long as each person does not violate the economic and political rights of anyone else. This is very important today to understand that the government can function mainly as a referee and a law enforcer, NOT as a provider of goods, services, welfare, subsidies, favors and other things that are subject to political whim and power groups.

This economic system, though it is more than an economic system, was first elaborated in detail by men such as Adam Smith, in a famous book, The Wealth Of Nations. Dr. Smith studied the most successful nations and realized that all shared these basic principles of commerce. He put the whole thing together and coined a lot of the terms we take for granted today in economics.

One of the most famous was the “hidden hand of the market”. It is actually quite brilliant. It is the idea that if there is any good or service that is needed in society, people will pay more for it and this will attract people he called entrepreneurs into this business, no matter what it is. It could be garbage collection or dishwashing, for example. But if it is needed, the price will go up and more people will begin to offer the service, until the price comes down and then others will not do this, but will choose another line of work where the demand is greater.

This concept works in practice, but most people have trouble trusting it. Government, in particular, often like to meddle in the marketplace, as it is called, by favoring certain industries or certain companies. This always causes problems, but governments persist in this because special interests, as they are called, often influence the congress of all nations to favor or oppose, at times even outlawing, certain industries.

As one outrageous example of this, hemp used to be one of the major crops in America. Each sailboat used about 80 tons of hemp for rope and sails. It is still a prized crop in many nations. However, in the 1920s, the government suddenly outlawed the growing of hemp, because one variety of cannabis can be smoked. They even made up names for it like marijuana. This has caused much suffering among American farmers and others, who now must import this valuable crop that is used for animal feed, oils for paints and other items.

FREEDOM AND FREE MARKET CAPITALISM

We stated earlier that the ability to act as one wishes, to make decisions and learn from one’s mistakes are positive spiritual qualities needed to develop all human beings. This is the connection between freedom and capitalism.

The Harshness of Free Market Capitalism. Many people criticize free market capitalism for exactly these qualities. It seems so harsh, so inhuman, some would say, to allow a business to fail. It puts thousands or more out of work, for example. The resources must be sold off at auction prices and sometimes the creditors of the business are the seeming victims as well. They may not get paid for their services and they might fail as well.

The public seems to lose out, too, if an important type of business like a bank fails. Depositors may lose their money, for example. This is the so-called harshness and inhumanity of free market capitalism. By the way, we do not have this system in place at this time. Things would be far better if we did, by the way. But that is another article.

The moral dimension of human beings is the most important one, as stated earlier. Capitalism, for all its harshness, in fact helps people develop themselves. Thus it is a helpful system, much moreso that the welfare state concept, for example, and far more than slavery, feudalism and other systems that have been used in the near and distant past in many civilizations.

The more that each person’s activities are pre-determined or controlled by laws, rules, regulations, prohibitions or mandates, the less each person is able to exercise moral judgment and the less he or she is responsible for behavior. As a result, freedom is an absolute requirement for moral behavior and development.

Many well-meaning people view the inequities in our society and immediately want to pass laws to correct them. Sometimes there is merit in this. However, so many laws that are passed stifle the individual more, reduce freedom and therefore reduce the opportunity for moral development. For this reason, many of the laws have counterproductive effects. This must always be taken into account when one advocates some kind of law or regulation.

CORPORATIONS

We have a separate article about corporations on this website, as they are interesting societies of people. However, here I will make a radical statement that many may disagree with. In pure terms, a corporation is not permitted in free market capitalism.

Allow me to explain. If capitalism involves taking full responsibility for one’s business, then the idea of limiting liability is a violation of this principle. Indeed, all corporations in the world are chartered by a government. In other words, they are artificial in this sense. Otherwise, they could not exist in their present form. Each of the shareholders, directors and even employees would retain full liability for their actions, as occurs with an unincoporporated business.

So oddly enough, the main “culprits” in capitalism, the big corporations, are not really a part of the complete theory of free market capitalism. Corporations are really a hybrid type of entity, part private and free market and part government oversight and regulated. This is important to think about it one does not like capitalism and at the same time does not like corporations. They are not of the same type of institutions. One is about freedom and the second is a government-sponsored entity that exists only at the pleasure and with the rules imposed on it by its home government.

However, this does not mean that hybrid entities like corporations are all bad, either. They do allow us to produce goods without having each person who is involved, which can be thousands, to be liable. This has its disadvantages, too, and it would be interesting to explore in another article the idea of spreading the liability to all the shareholders and even employees. It would mean, for example, that many fewer people would be willing to invest in, say, nuclear power, or pesticide manufacture, because the risks would be far higher of lawsuits. This is rather interesting to contemplate what our society would be like if this were the case.

In fact, it would probably be better, and perhaps some day our congress and other legislative bodies might consider changing the corporation laws in such a way as to spread full liability for all the company’s products to all the shareholders. Basically, if there were lawsuits, the stock price would be reduced accordingly, worsening the investment potential in the company.

This actually happens today, and is happening to drug companies and tobacco companies, for example, who are targets of lawsuits. However, the directors and even employees escape without a trace in most cases. They would have to be held far more liable, which again would reduce the attractiveness of sitting on the board of a very profitable, but targeted company. This is, indeed, a possible way to avoid dangerous products in the marketplace.

Socialism. The socialist economic conception is the ultimate opposite system to capitalism. It was how the Soviet Union and some other communist nations still operate. It does not work well at all.

The government owns all the means of production, including factories, land and everything else. They assign people to factories, to farms and even give people apartments, cars and all other material goods.

This is also called a “command economy”. It develops the mind, perhaps, but not the spirit. Russia, today, and much of Eatern Europe is still struggling to emerge from 40 or more years of living under this economic system.

Sadly, many in America, especially in academic universities and other academic settings such as left-leaning think tanks still think that a command economy is the way to go. People are often misled by campaign rhetoric that just letting the government run the health care system, for example, is the best way to go.

It is not, and the way we know this is that Europe and Canada have extremely high taxes to pay for their health care systems. In spite of this, the systems do not perform as well as a free markete system in any measure.

I say this because I see it every day. America’s health care system is largely socialized already. Parts of it like Medicare and Medicaid and the Vegerans Hospitals are examples of this. The rest is much too heavily regulated. As a result, costs are very high and the systems are bankrupting the United States, as they have bankrupted European nations a long time ago.

Bear in mind that most of Europe has had socialized medical care for almost 100 years. If it weree such a wonderful system, the cost should be lower, but the price of gasoline in Great Britain, for example, is about $10-12.00 dollars per gallon. That is to pay for their health care system, among other things.

Since economic activity is a large part of human existence, it is a prerequisite for morally significant conduct. The following is a quote from a book review in The Freeman; Ideas on Liberty, March 2004, page 44:

“If what you do is coercively imposed on you – as per the zillions of government regulatory and tax measures of the welfare state – there is no moral significance to your actions. Only to the extent that such coercive force is escapable and human beings are able to act on their own volition is their conduct morally significant…

More precisely, only when we act freely are we able to exercise moral judgment. By extension, only in a capitalist economic system can there be a moral dimension to economic life. This also means, significantly, that there is no such thing as generosity, compassion or charity without liberty.”

In other words, forced charity through taxes in order to pay for “good projects” and “the poor” is not charity. It is coercion, even if that coercion is for a “good” purpose. It is appropriate to coerce children, for example, in order to teach them generosity, discipline and more. However, it is a different thing to coerce another adult in the name of the “greater good”. This is tyranny.

In children or adults, coercion can breed anger and resentment. However, in children it is a necessary problem. In adults, the resentment breeds moral problems because people rebel in adult ways that can harm oneself and others. This, in turn, can slow moral development.

Real charity and compassion require the liberty to act as one sees fit, even if it takes longer for the correct action to occur. This, of course, is one of the main problems of a “free” society. This term is relative, of course.

So when we complain about individuals or even corporations, we must recall the moral reasons for their existence. They are allowing individuals and groups of individuals to express themselves. This is a good, in and of itself. To the extent that they act irresponsibly, they can be controlled through the courts and power to sue them for damages, negligence, fraud and other common criminal statues.

However, eliminating them or regulating them out of existence is not helpful for humanity, which needs to develop morally as well as physically and mentally. Of course, corporations are not just a moral solution to economic problems of human existence. They have also shown themselves to be practical and efficient ways to produce many goods and services.

I would say they work economically in large part because they do foster greater moral development. The effectiveness of corporate culture is vital to recall, no matter whether you personally like working in or working with corporations. The truth is, many millions of people enjoy working for a corporation or they would not exist as well as they do today. It has not been my style, but I cannot judge how others choose their employment.

These structures are largely responsible for our industrial and other kinds of development. This, too, is an important fact to recall. If they are regulated out of existence, as some desire, the consequences would be disastrous from this point of view. Please keep these points in mind when working in or with corporate structures.

Keep in mind that all things change. As humans progress, it is likely that their liking for current corporate models will change. As that occurs, if corporations are to attract the best and the birhgtest people, which they need, they will change, too.

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