Introduction from the Mises Institute
Some great books are the product of a lifetime of research, reflection, and labored discipline. But other classics are written in a white heat during the moment of discovery, with prose that shines forth like the sun pouring into the window of a time when a new understanding brings the world into focus for the first time.
The Market for Liberty is that second type of classic, and what a treasure it is. Written at the end of the 1960s by two authors — Morris and Linda Tannehill — just following a period of intense study of the writings of both Ayn Rand and Murray Rothbard, it has the pace, energy, and rigor you would expect from an evening’s discussion with either of these two giants.
More than that, these authors put pen to paper at precisely the right time in their intellectual development, that period of rhapsodic freshness when a great truth had been revealed, and they had to share it with the world. Clearly, the authors fell in love with liberty and the free market, and wrote an engaging, book-length sonnet to these ideas.
This book is very radical in the true sense of that term: it gets to the root of the problem of government and provides a rethinking of the whole organization of society. They start at the beginning with the idea of the individual and his rights, work their way through exchange and the market, expose government as the great enemy of mankind, and then — and here is the great surprise — they offer a dramatic expansion of market logic into areas of security and defense provision.
Here we have excerpted three of the earlier chapters — 1, 3, and 5 — where the Tannehills build the foundation of their argument for the completely laissez-faire society and against the claims made by most of their fellow Objectivists, including Ayn Rand, that the minimalist “night watchman” state is necessary for peace and freedom.
Foreword by Karl Hess
The most interesting political questions throughout history have been whether or not humans will be ruled or free, whether they will be responsible for their actions as individuals or left irresponsible as members of society, and whether they can live in peace by volitional agreements alone.
The fundamental question of politics has always been whether there should be politics.
Morris and Linda Tannehill, in this book, which has become something of a classic even while being (until now) out of print, answer that politics is not necessary, that the ancient and ongoing contrivance of the marketplace can be substituted for it with ennobling results.
Advocates of state power will of course recoil from the idea and point out that it is all idle dreaming, that the state has always existed and must always exist lest brutal humans descend into, horrors, ANARCHY. They are correct, of course. Without the state there would be anarchy for that is, despite all of the perfervid ravings of the Marxist Left and statist Right, all that anarchy means — the absence of the state, the opportunity for liberty.
As for the direction that a world headed for liberty would be taking (descending or ascending) the Tannehills and many others have reviewed the record of the nation state and have discovered a curiously powerful fact. The nation state has never been associated with peace on earth. Its most powerful recommendation and record is, as a matter of fact, as a wager of war. The history of nation states is written around the dates of wars, not peace, around arms and not arts. The organization of warfare without the coercive power of the nation state is simply unimaginable at the scale with which we have become familiar.
Having shown no capacity whatsoever to bring peace to earth, then what is the claim of the state on our allegiance? In closely reasoned arguments, the Tannehills maintain that there should be no claim at all; that the state is not needed at any point in our lives and that other, volitional, arrangements can be substituted for every single state function. They see these arrangements operating in the framework of a truly free market and they carefully explain them.
The benefits, they argue, are as numerous as the problems that now plague us. Pollution is more easily opposed when it is seen sensibly as an aggression against property rather than as a political cause or licensure. Monopoly is less likely in a laissez faire world than in a regulated one. Crime is less likely in communities responsible for their own protection than in those which are simply precinct outposts of the state’s police forces. And so on and on throughout the entire, dreary record of state activity and through the exciting possibilities of libertarian activity.
Much of what the Tannehills have to say has become familiar to libertarians since the book was first published in 1970. It is their proposition that it will become familiar to more and more people as the myths of the state topple under the weight of reality. It is also their proposition that the changed order that will ensue from libertarian ideas will be enduring and beneficent, unlike the changes that have occurred in the past as the result of violence.
Supporting their contention is an analysis of the state which even if it seemed fanciful to some in 1970 must seem almost modest today. The free economies of the world, the so-called underground economies, are growing at an astonishing rate. In Italy it is the underground economy that keeps the country afloat. In America it is the least inflation-prone and probably the fastest growing part of the economy, having elicited from President Reagan the wistful comment that if the underground paid its taxes (tribute) to the state then he could balance the budget. In the countries of the Soviet police-state the underground economy is at one and the same time a powerful force in keeping people alive and also a powerful force in keeping alive their hopes for freedom.
Meantime, the economy of the least free state, the Soviet, continues to sputter along at a rate so depressed that the subjects of the state tyranny cannot even feed themselves adequately. And the economy of the most free state, America, drags itself deeper and deeper into state-related debt and depression. Only, in America at least, a renewed sense of entrepreneurial possibility keeps anything moving ahead. Seeing such activity should remind us all that the entrepreneurial shine in a state society could become star-bright brilliance in a fully free society.
The importance of re-issuing the Tannehills’ book at this time, it seems to me, is in the probability that it will inspire and enlarge the horizons of young entrepreneurs who may enormously enjoy what they are doing but may not fully appreciate the larger implications of a free market world. Some will appreciate, from reading the Tannehills, that not only can they make money but that they can help make a new world as they do it.
Chapter 1: If We Don’t Know Where We’re Going…
If we don’t know where we’re going, chances are we won’t get there!
Our world is increasingly stirred with dissatisfaction. Myriads of people on every continent are whispering or shouting or writing or rioting their discontent with the structures of their societies. And they have a lot to be dissatisfied with — poverty which increases in step with increasingly expensive anti-poverty programs, endlessly heavier burdens of taxation and regulation piled on by unmindful bureaucrats, the long death-agonies of meaningless mini-wars, the terrible, ironfisted knock of secret police….
Youth are especially dissatisfied. Many long to turn the world upside down, in hopes that a better, freer, more humane society will emerge. But improvements in man’s condition never come as a result of blind hope, pious prayers, or random chance; they are the product of knowledge and thought. Those who are dissatisfied must discover what sort of being man is and, from this, what kind of society is required for him to function most efficiently and happily. If they are unwilling to accept this intellectual responsibility, they will only succeed in exchanging our present troubles for new, and probably worse, ones.
An increasing number of people are beginning to suspect that governmental actions are the cause of many of our social ills. Productive citizens, on whom the prosperity of nations depends, resent being told (in ever more minute detail) how to run their business and their lives. Youth resent being drafted into involuntary servitude as hired killers. The poor are finding, to their bitter disappointment, that government can bleed the economy into anemia but that all its grandiose promises and expensive programs can do nothing but freeze them in their misery. And everyone is hurt by the accelerating spiral of taxes and inflation.
Nearly everyone is against some governmental actions, and an increasing number want to cut the size of government anywhere from slightly to drastically. There are even a few who have come to believe that it is not just certain governmental activities, nor even the size of the government, but the very existence of government which is causing the problems. These individuals are convinced that if we want to be permanently free of government-caused ills we must get rid of government itself. Within this broad anti-statist faction, there are plenty of “activists” who march or protest or just dream and scheme about means of bringing part or all of the governmental system crashing down.
Although these anti-authoritarian individuals have taken a firm and well-justified stand against the injustice of government, few of them have an explicitly clear idea of what they are for. They want to tear down the old society and build a better one, but most of them hold only hazy and contradictory ideas of what this better society would be like and what its structure should be.
But if we have no clear idea of what our goals are, we can hardly expect to achieve them. If we bring our present authoritarian system crashing down around our ears without formulating and disseminating valid ideas about how society will operate satisfactorily without governmental rule, all that will result is confusion, ending in chaos. Then people, bewildered and frightened and still convinced that the traditional governmental system was right and necessary in spite of its glaring flaws, will demand a strong leader, and a Hitler will rise to answer their plea. So we’ll be far worse off than we were before, because we will have to contend with both the destruction resulting from the chaos and a dictator with great popular support.
The force which shapes men’s lives and builds societies is not the destructive power of protests and revolutions but the productive power of rational ideas. Before anything can be produced — from a stone axe to a social system — someone must first have an idea of what to aim for and how to go about achieving it. Ideas must precede all production and all action. For this reason, ideas are the most powerful (though often the most underestimated) force in man’s world.
This is a book about an idea — the discovery of what kind of society man needs in order to function most efficiently and happily … and how to achieve that society. It is a book about freedom — what it really is and implies, why man needs it, what it can do for him, and how to build and maintain a truly free society.
We are not envisioning any Utopia, in which no man ever tries to victimize another. As long as men are human, they will be free to choose to act in an irrational and immoral manner against their fellows, and there will probably always be some who act as brutes, inflicting their will upon others by force. What we are proposing is a system for dealing with such men which is far superior to our present governmental one — a system which makes the violation of human liberty far more difficult and less rewarding for all who want to live as brutes, and downright impossible for those who want to be politicians.
Nor are we proposing a “perfect” society (whatever that is). Men are fallible, so mistakes will always be made, and there will never be a society of total equity. Under the present governmental system, however, blunders and aggressive intrusions into the lives of peaceful individuals tend to feed on themselves and to grow automatically so that what starts as a small injustice (a tax, a regulation a bureau, etc.) inevitably becomes a colossus in time. In a truly free society, blunders and aggressions would tend to be self-correcting, because men who are free to choose will not deal with individuals and firms which are stupid, offensive, or dangerous to those they do business with.
The society we propose is based on one fundamental principle: No man or group of men — including any group of men calling themselves “the government” — is morally entitled to initiate (that is, to start) the use of physical force, the threat of force, or any substitute for force (such as fraud) against any other man or group of men. This means that no man, no gang, and no government may morally use force in even the smallest degree against even the most unimportant individual so long as that individual has not himself initiated force. 1 Some individuals will choose to initiate force; how to deal with them justly occupies a major part of this book. But, although such aggressions will probably never by fully eliminated, rational men can construct a society which will discourage them rather than institutionalizing them as an integral part of its social structure.
Of course, our knowledge of what a truly free society would be like is far from complete. When men are free to think and produce, they innovate and improve everything around them at a startling rate, which means that only the bare outlines of the structure and functioning of a free society can be seen prior to its actual establishment and operation. But more than enough can be reasoned out to prove that a truly free society — one in which the initiation of force would be dealt with justly instead of institutionalized in the form of a government — is feasible. By working from what is already known, it is possible to show in general how a free society would operate and to answer fully and satisfactorily the common questions about and objections to such a society.
For years men with plans to improve society have debated the merits and demerits of various kinds and amounts of government, and they have argued long and heatedly over how much freedom was desirable or necessary to provide for the needs of man’s life. But very few of them have tried to clearly identify the nature of government, the nature of freedom, or even the nature of man. Consequently, their social schemes have not been in accordance with the facts of reality and their “solutions” to human ills have been little more than erudite fantasies. Neither the futile and time-worn panaceas of the Establishment, nor the “God and country” fervor of the Right, nor the angry peace marches of the Left can build a better society if men do not have a clear, reality-based, non-contradictory idea of what a better society is. If we don’t know where we’re going, we won’t get there.
It is the aim of this book to show where we are (or should be) going.
Chapter 3: The Self-Regulating Market
Government bureaucrats and their allies among the currently influential opinion-molders have made a practice of spreading misinformation about the nature of a free market. They have accused the market of instability and economic injustice and have misrepresented it as the origin of myriads of evils from poverty to “the affluent society.” Their motives are obvious. If people can be made to believe that the laissez-faire system of a free, unregulated market is inherently faulty, then the bureaucrats and their cohorts in classrooms and editorial offices will be called in to remedy the situation. In this way, power and influence will flow to the bureaucrats … and bureaucrats thrive on power.
The free-market system, which the bureaucrats and politicians blame so energetically for almost everything, is nothing more than individuals trading with each other in a market free from political interference. Because of the tremendous benefits of trade under a division of labor, there will always be markets. A market is a network of voluntary economic exchanges; it includes all willing exchanges which do not involve the use of coercion against anyone. (If A hires B to murder C, this is not a market phenomenon, as it involves the use of initiated force against C. Because force destroys values and disrupts trade, the market can only exist in an environment of peace and freedom; to the extent that force exists, the market is destroyed. Initiated force, being destructive of the market, cannot be a part of the market.)
Trade is an indispensible means of increasing human well-being. If there were no trade, each person would have to get along with no more than what he could produce by himself from the raw materials he could discover and process. Obviously, without trade most of the world’s population would starve to death, and the rest would be reduced to a living standard of incredible poverty. Trade makes a human existence possible.
When two people make a trade, each one expects to gain from it (if this were not so, the trade wouldn’t be made). And, if each trader has correctly estimated how much he values the things being traded, each does gain. This is possible because each person has a different frame of reference and, therefore, a different scale of values. For example, when you spend 30 cents for a can of beans, you do so because the can of beans is more valuable to you than the 30 cents (if it weren’t, you wouldn’t make the purchase). But, to the grocer, who has 60 cases of canned beans, the 30 cents is more valuable than one can of beans. So, both you and the grocer, acting from your different frames of reference, gain from your trade. In any trade in which the traders have correctly estimated their values and in which they are free to trade on the basis of these values without any outside interference, both buyer and seller must gain.
Of course, if some outside influence — such as a gangster or a politician — prohibits the traders from doing business or forces them to trade in a manner which is unacceptable to one or both, either the buyer or the seller (or both) will lose. This happens whenever laws control prices, quality of goods, time and place of purchase (liquor laws), shipment of goods over borders (interstate commerce, tariffs, international trade restrictions), or any other aspect of trade. Only a voluntary trade can be a completely satisfactory trade.
Money is used because it makes trading easier and increases the number and type of trades possible. If you wanted to get rid of a motorcycle and to get in exchange a six months supply of groceries, three pairs of pants, several records, and a night on the town with your girlfriend, you’d find it pretty hard to make the trade without the use of money as a medium of exchange. By using money, you can sell that motorcycle to anyone who will buy it and use the cash to buy whatever you want. Because the use of money makes it no longer necessary for the buyer to have an assortment of the exact goods the seller wants, many more and better trades can be made, thus increasing the satisfaction of everyone.
Money also acts as the means of calculating the relative worth of various goods and services. Without money, it would be impossible to know how many phonographs a car was worth, or how many loaves of bread should be exchanged for the service of having a tooth pulled. Without a standard medium of exchange to calculate with, the market couldn’t exist.
To the extent that voluntary trade relationships are not interfered with (prohibited, regulated, taxed, subsidized, etc.), the market is free. Since governments have always made a practice of interfering with markets, and indeed depend on such interferences in the form of taxes, licenses, etc., for their very existence, there has never been a sizable and well-developed market which was totally free.
The United States of America, though theoretically a free country, suffers from an almost unbelievable amount of market regulation. 2 Though often called a capitalistic country, the USA actually has a mixed economy — a mixture of some “freedom,” a little socialism, and a lot of fascism. Socialism is a system in which the government owns and controls the means of production (supposedly for “the good of the people,” but, in actual practice, for the good of the politicians). Fascism is a system in which the government leaves nominal ownership of the means of production in the hands of private individuals but exercises control by means of regulatory legislation and reaps most of the profit by means of heavy taxation. In effect, fascism is simply a more subtle form of government ownership than is socialism. Under fascism, producers are allowed to keep a nominal title to their possessions and to bear all the risks involved in entrepreneurship, while the government has most of the actual control and gets a great deal of the profits (and takes none of the risks). The USA is moving increasingly away from a free-market economy and toward fascist totalitarianism.
It is commonly believed and taught, particularly by those who favor the present “Establishment,” that the market must have external controls and restraints placed upon it by government to protect helpless individuals from exploitation. It is also held that governmental “fine tuning” is needed to prevent market instability, such as booms and busts. A vast amount of governmental action is based on the theory that the market would speedily go awry without regulation, causing financial suffering and economic havoc.
When politicians and so-called economists speak of “regulating the market,” what they are actually proposing is legislation regulating people — preventing them from making trades which they otherwise would have made, or forcing them to make trades they would not have made. The market is a network of trade relationships, and a relationship can only be regulated by regulating the persons involved in it.
An example of government regulation of the market is “price control.” A price is the amount of money (or other value) which sellers agree to take and buyers agree to give for a good or a service. A price isn’t a conscious entity and couldn’t care less what level it is set at or what controls it is subjected to. But the buyers and sellers care. It is they who must be controlled if the price is to be held at an artificial level. Price control, like all other political controls and regulations imposed on the market by legislative force, is … people control!
Of course, such people-regulation can only be imposed by the initiation of the threat and use of physical force. If people were willing to trade in the manner prescribed by the government planners, they would already have been doing so and the market-regulating “services” of the planners would be unnecessary. Only by forcing unwilling buyers and sellers to act differently from what they would have if left free can government regulate or “fine tune” the economy.
This initiation of force against peaceful buyers and sellers inevitably causes them to act against their best interests, or at least what they believe to be their best interests. When they act against their interests, they inevitably suffer a loss of value. It is a commonly held myth that government bureaucrats know far better than the rest of us “how things ought to be run,” so that it is actually good for the public as a whole if some people are forced to act against their selfish interests. But this myth of “the wise government planner” ignores two important facts. First, you are in a far better position to know how to manage your affairs, including your business and professional life, than is some far-off, politically selected bureaucrat. And this truth is just as applicable to every other person operating honestly and peacefully in the market, especially those whose market transactions are extremely complex and important. You may make mistakes in your market dealings, but the bureaucrat’s isolation from direct and immediate information about your situation and his lack of a strong personal interest in your affairs absolutely guarantee that he will make a lot more and bigger mistakes, even if he’s honestly trying to help. Besides, when a bureaucrat makes a mistake in regulating your affairs, he doesn’t receive any feedback, in the form of economic losses, to alert him to his error. You receive all the feedback, but you aren’t in a position of control, so you can’t correct the error.
The second important fact ignored by the myth of “the wise government planner” is that the individuals who are being forced by government regulation to act against their interests are a part of the very public which is supposed to benefit from these governmental controls. Therefore, a loss of value by those who are controlled is also a loss of value for “the public.” And, because a market consists of a network of highly interconnected relationships, a loss to any person dealing in the market tends to diffuse to those doing business with him, and from them to their business contacts, etc.
For example, suppose the government were to pass a law requiring all washing machines in laundromats to have a washing cycle at least 45 minutes long, to protect customers from insufficiently washed clothes. The laundromat owners, being unable to serve as many customers per washing machine as before, would take in less money. This would prevent them from buying more and newer washers and driers, which would hurt the manufacturers of these products, who would then be unable to buy as much steel and porcelain, etc., etc. At the other end of the line, the customers of laundromats would also be hurt as a shortage of available washing machine time developed, due to the original 45-minute regulation plus the laundromat owners’ inability to buy new machines and replace wornout ones. (At this point, some government bureaucrat is sure to call for federal action to deal with the crisis in the laundromat industry caused by “the excesses of an unregulated market!)
In this way, people who were naturally already doing business in the most profitable way, for both seller and buyer (remember, we’re talking about a free, competitive market), are forced by government regulation of the market to act differently, which causes them losses. Advocates of government regulation usually accept the idea of imposing some losses on those who are regulated, but they fail to take into account the fact that those losses will inevitably diffuse throughout the economy like ripples spreading in widening circles over a pond. They also fail to recognize that a society with government regulation is dangerous to every individual person, because anyone may be the next victim, directly or indirectly, of government controls.
But even though government regulation of the market necessitates the initiation of force and causes widespread losses, many people still feel it is necessary to force some sort of order on the seeming chaos of the market. This belief stems from a complete misunderstanding of the way in which the market functions. The market is not a jumble of distorted and unrelated events. Instead, it is a highly complex but orderly and efficient mechanism which provides a means for each person to realize the maximum possible value and satisfaction commensurate with his abilities and resources. A brief examination of the workings of the market will illustrate this point. (A complete proof of it would require several hundred pages of economic analysis. 3 )
The price of any good on the market (including such things as a doctor’s fees and the rates of interest on borrowed money) is determined by the supply of the good available relative to the demand for it. 4 Within the limits of available resources, the supply is controlled by the demand, since producers will produce more of a good in order to increase their profits when customers demand more and are thus willing to spend more for it. So it is consumer demand which really calls the tune in a free market.
Consumer demand is the aggregate result of the economic value-judgments of all the individual consumers. Thus, it is the values of individuals expressed through their demand for various products, which cause the market to be what it is at any given time.
The price of any good on the market will tend to be set at the point where the supply of that good (at that price) is equal to the demand for it (at that price). If the price is set below this equilibrium point, eager buyers will bid it up; if it is set above, the sellers will bid it down until it reaches equilibrium. At the equilibrium price, all those who wish to buy or sell at that price will be able to do so without creating surpluses or shortages. If, however, the price is artificially lowered by a government price-control, more buyers will be attracted while sellers will be unwilling to sell, creating a shortage with its attendant problems of rationing, queues, and black markets. On the other hand, if government sets the price higher than the equilibrium price, there will be a surplus of the good, bringing financial ruin to those who are unable to sell their excess stock. A specialized example of this occurs in the labor market whenever government (or government-privileged unions) forces a minimum wage higher than the equilibrium wage, leading to a surplus of labor and so causing unemployment problems and an increase in poverty (and this is only one way in which government causes unemployment and poverty).
Thus, the market has a built-in self-regulating mechanism which continually adjusts the price of products (and, similarly, their quantity and quality) to the supply of available resources and to the amount of consumer demand. It works like a complex signal system, visible to all and reliable if not interfered with. The signals are given by consumer value choices. They are transmitted to the sellers (businessmen and entrepreneurs) by means of profit and loss. A profit tells the businessman that consumers are pleased with his product and that he should continue or even increase the level of production. A loss shows him that not enough consumers are willing to buy his product at the price he is asking, so he should either lower his price or redirect his money and effort into some other line of production.
This signal system keeps the market constantly moving toward equilibrium even as new data enter and upset the previous balance. For example, suppose that Eastern Electric begins manufacturing a newly invented TV tube which shows the picture in three dimensions. As consumers hear of the new 3D TV (via news reports and advertising), demand for it skyrockets. The number of 3D TVs Eastern Electric can produce is limited, so the large demand and small supply result in an extremely high price and high profit margins for Eastern Electric. But this same high profit, which may seem at first to be an instance of market imbalance and unfairness, is the signal which moves the market toward equilibrium. Eastern Electric’s high profits stimulate other firms to do research on 3D TV so that they may enter the field with new and better models and share in the profits. Soon, half a dozen firms are selling competing 3D TVs and the increased supply satisfies the demand. This brings the price down until high profits disappear and earnings in the 3D TV industry are about the same, percentagewise, as in every other industry. At this point, new firms stop entering the field, as there is nothing more to attract them. The whole market levels off and, barring another new input of data, remains stable. Thus, when the market is unhampered, any new input of data immediately sends out profit or loss signals which set in motion factors which maintain market equilibrium. The market is a self-regulating mechanism. (It should be noted that the high initial profit realized from a new product is also a just process in which the innovator is rewarded for his investment of time, money, and mental labor.)
Individual self-interest is the basis for the whole market system, which is why it works so well. The consumer acts in his self-interest when he buys things at the lowest prices and with the best quality he can find. The producer acts in his self-interest in trying to make the highest profit possible. Both consumer and producer attempt to profit from their market transactions; if either side didn’t expect to gain, no trade would take place. This double utilization of the profit motive results in maximum consumer satisfaction and rewards entrepreneurial efficiency.
Government affects the economy in three major ways:
- by taxation and spending,
- by regulation, and
- by control of money and banking.
Taxation is economic hemophilia. It drains the economy of capital which might otherwise be used to increase both consumer satisfaction and the level of production and thus raise the standard of living. Taxing away this money either prevents the standard of living from rising to the heights it normally would or actually causes it to drop. Since productive people are the only ones who make money, they are the only ones from whom government can get money. Taxation must necessarily penalize productivity.
Some people feel that taxation really isn’t so bad, because the money taken from the “private sector” is spent by the “public sector,” so it all comes out even. But though government spends tax money, it never spends this legally plundered wealth the same way as it would have been spent by its rightful owners, the taxpaying victims. Money which would have been spent on increased consumer satisfaction or invested in production, creating more jobs and more products for consumers, may be used instead to subsidize welfare recipients, controlling their lives and, thus, discouraging them from freeing themselves in the only way possible — through productive labor. Or it may be used to build a dam which is of so little value to consumers and investors that it would never have been constructed without the force of government intervention. Government spending replaces the spending which people, if free, would do to maximize their happiness. In this way, government spending distorts the market and harms the economy as much or more than taxation.
If taxation bleeds the economy and government spending distorts it, governmental regulation amounts to slow strangulation. If a regulation requires businessmen to do what consumer desires would have caused them to do anyway, it is unnecessary. If it forces businessmen to act against consumer desires (which it almost always does), it harms the businessman, frustrates the consumer, and weakens the economy — and the confused consumer can usually be propagandized into blaming the businessman. By forcing businessmen to act against consumer desires, government regulation increases the cost of the regulated products (which, in our present economy, includes just about everything) and so lowers living standards for everyone and increases poverty.
Government regulation not only hurts the poor indirectly, by raising prices, but directly as well, by denying them opportunities to move up and out of their poverty. Suppose a black man who couldn’t get a decent job decided to support his family by making sandwiches and selling them to the men on local construction projects. First, he would have to apply, in proper legal language and procedure, for licenses and permissions from all the branches and departments of government which required them. He would probably need licenses from city and state, permitting him to make sales. Then he would have to be regularly inspected and certified under pure food and drug laws. If he managed to comply with all this without going broke or giving up in despair, he would still be faced with the problem of keeping extensive records to enable the city, state, and Federal tax collectors to take part of his earnings and to be sure he paid his “fair share.” This would require an extensive knowledge of bookkeeping, which he probably wouldn’t have. Suppose he decided to hire his brother-in-law, who knew a little bookkeeping, to keep his records. Then he would have to comply with all the laws which harass other employers, including income tax and social security deductions from his employee’s earnings, sales tax, minimum wage laws, and working condition standards. With such powerful barriers to success, no wonder the poor get poorer!
Not only does government regulation prevent enterprising individuals from going into business for themselves, it also helps freeze many employees into an 8-to-5 grind unnecessarily. There are a large and increasing number of jobs in our automated world which require, not that a specified set of hours be put in at an office, but that a certain amount of work be accomplished, regardless of how long it takes or where it is done. As long as an employee in this kind of job gets his work done, it shouldn’t matter to the company if he does it in one hour a day and works only in his own kitchen between the hours of 2 and 3 a.m. And yet, employers, caught in the fascism of government regulation and red tape, become increasingly inflexible and insist that employees put in an 8-hour day, even if five of those hours are spent sitting at a desk doing nothing but trying to look busy. Without government regulation, businesses would be freer to innovate and would have to compete harder for labor, due to the economic boom created by freedom. This would mean much less rigid working conditions for employees.
Economic freedom is important to large businesses, but it’s just as important to the ordinary man in the street, to the poor man, to the college student. In the long run, busybody regulations, usually aimed at helping special interest groups, harm everyone.
Add to this the disaster of governmental monetary control, with its inevitable inflation, depressions, balance of payments problems, gold drains, unsound currencies, and eventual monetary breakdowns and one begins to realize how much damage governmental meddling does to the marvelously efficient and productive mechanism of the market, and how much higher the standard of living would be if the market were free. In view of the poverty created by government’s interferences with the economy, governmental anti-poverty programs would be laughable if they weren’t so tragic.
Any governmental interference with the market, no matter how well-meaning, distorts the market and misdirects the vital signals, which misdirection further distorts the market and prevents it from moving toward stability. Government bureaucrats’ “fine tuning” of the economy resembles the activities of a bunch of lunatics, armed with crowbars, “adjusting” the workings of an automated electronics plant.
The unregulated market has often been accused of creating unemployment, and the poverty of the masses in England during the Industrial Revolution is cited as an example. But the market’s critics fail to point out that the poor were in an even worse condition before the Industrial Revolution when the infant mortality rate was almost 75% and periodic famines swept the land, killing off the “excess population.” 5
As a free market matures into full industrialization the productivity of workers increases (due to increasing investment in capital goods — that is, the tools of production) so that workers’ incomes rise. This is because the only source of prosperity is value-production. Production depends on tools — the more and better tools with which the worker is equipped, the greater his productive capacity. Industries continually improve the tools (machines) their workers use in an effort to increase production and profits. The workers’ wages then rise as industries bid against each other for labor. In a free market, wages would rise because management’s increased investment in tools increased the productivity of workers. Powerful unions and costly strikes would be unnecessary, since wages would always rise to market level (which is the highest level the employer could afford to pay).
Along with the rise in wages in a market free of government strangulation, unemployment drops until there is employment for everyone who wants to work. Labor is and always has been relatively less abundant than both people’s demands for goods and the natural resources necessary to fill these demands. This will hold true unless and until we reach a point of overpopulation where the supply of labor exceeds the supply of raw materials, at which point there will be mass starvation. This means that (barring massive overpopulation) there will always be enough jobs in a well-developed free market. 6
Unemployment in a fully developed industrial society is a sign of an unhealthy economy, weakened by government parasitism. The major cause of unemployment is government’s interferences with the economy, minimum wage rates being a particular example. All of government’s activities siphon money out of the market, leaving less to hire workers and pay them good wages. Having injured labor by injuring the market, government poses as the friend of labor and “helps” by imposing minimum wage requirements (either directly by legislation or indirectly by giving strongly preferential treatment to labor unions.) Since business has only so much capital which can be allocated to wages, when wage rates are artificially set above market level, the balance must be kept by laying off the least productive workers. This creates a class of jobless poor who are supported by government welfare. It also decreases the amount of goods that can be produced, which increases their price and so lowers the standard of living for everyone.
Instead of government being recognized as the culprit, automation has frequently gotten the blame. But automation can’t cut down on the total number of available jobs, simply because there is no limit to people’s economic wants. No matter how many wants are filled by machines, there will still be an unlimited number of new wants left unfilled. Automation doesn’t reduce the number of jobs; it merely rearranges the pattern of demand for labor, as, for example, from the industry which is being automated to the industry which is manufacturing the automated machinery. If automation were as dreadful as its foes assert, we would be wise to scrap all steamshovels in favor of hand shovels … or, better yet, teaspoons, to be assured of “full employment!”
The unregulated market has also been accused of the miseries of the “affluent society.” Poverty and unemployment are the products of government intervention, but the free market certainly is responsible for affluence. If critics object to market-provided comforts and conveniences, they are quite free to do heavy labor with crude implements from dawn to dusk, sleep on a dirt floor, and suffer a high mortality rate … so long as they don’t try to impose their way of “life” on more sensible people.
One of the reasons the bureaucrats frequently give for governmental tinkering with the economy is that if the market were left alone it would alternate between inflation and depression, or boom and bust. But just what is it that causes this dreaded “business cycle” — is this instability intrinsic in the market, or is there some external cause?
Suppose that a counterfeiter succeeded in flooding a small town with worthless bills. The inflow of new “money” would cause an artificial prosperity — a boom. Townspeople, with plenty of money on their hands, would invest heavily in new and speculative ventures. But as soon as the boom had run its course, it would become apparent that the economy couldn’t support these new ventures. New businesses would fold, investors lose their money, unemployment skyrocket — a bust would have set in.
In a business cycle, the government plays much the same role as that counterfeiter. A business cycle begins when the currency is inflated because money substitutes (paper “money,” coins made of low-value metal, such as the “sandwich” coins, etc.) are pumped into the economy. These money substitutes are, in reality, substitutes for nothing, since they are not backed by real monetary value (such as gold and silver); they are, therefore, worthless or very nearly so.
It is government which issues currency and government which inflates the supply of money substitutes. 7 The government-inflated currency stimulates an artificial boom which misdirects the market’s signal system. Entrepreneurs, thinking they are more prosperous than they really are, make malinvestments and overinvestments. The boom breaks when the nature and extent of the malinvestment is discovered. The ensuing depression is actually the market’s only means of recovering from the inflation-caused malinvestment. 8 Thus, the business cycle, which has so often been blamed on laissez-faire capitalism, is actually the cold steel of the knife of government intervention in the market’s vitals — free trade. 9
In spite of the fact that the free market is completely self-regulating, and that government intervention is the cause rather than the cure of market imbalance, many still fear a totally unregulated market. They contend that a free market would promote the economic exploitation of helpless individuals by powerful interest groups. It isn’t enough, they feel, for individuals to be free of force and fraud — they must also be defended against the selfish predations of “Big Business,” monopolies, cartels (which are actually tentative monopolies), and the rich in general. These economic bugaboos are all similar and can all be dispelled by examining the most extreme of them — monopoly.
When market freedom is advocated, one thought which springs to many minds is the fear of unchecked monopolies running amuck, trampling the rights of “the little fellow” and ruthlessly driving any would-be competitors to the wall. It is widely held that without strict government control such monopolies would proliferate and virtually enslave the economy.
Theoretically, there are two kinds of monopoly — market monopoly and coercive monopoly. A coercive monopoly maintains itself by the initiation of force or the threat of force to prohibit competition, and sometimes to compel customer loyalty. A market monopoly has no effective competition in its particular field, but it can’t prevent competition by using physical force. A market monopoly can’t gain its ends by initiating force against anyone — its customers, competitors, or employees — because it has no legal power to compel people to deal with it and to protect itself from the consequences of its coercive actions. The initiation of force would frighten away business associates and alarm customers into seeking substitute products, doing without altogether, or, in the case of entrepreneurs, setting up a competing business to attract other dissatisfied customers. So the initiation of force by a market monopoly, far from helping it to attain its ends, would give it a quick push onto the short, downhill road to oblivion.
Because it does not initiate force, a market monopoly can only attain its monopoly status by excellence in satisfying consumer wants and by the economy of its product and/or service (which necessitates efficient business management). Furthermore once it has attained this monopoly position, it can only hold it by continuing to give excellent service at economical prices (and the freer the economy, the more this rule holds true). If the managers of the monopoly become careless and raise their prices above market level, some other entrepreneur will see that he can undersell them and still make tremendous profits and will immediately move to enter their field. Then their potential competition will have become actual competition. 10 Large and well established companies are particularly likely to offer such competition, since they have large sums to invest and prefer to diversify their efforts into new fields in order to have a wide financial base. In a free society, where large companies were not plundered of what bureaucrats like to think of as their “excess profits” via heavy taxation, any monopoly which raised its prices above market level or became careless about the quality of its service would be virtually creating its own competition — competition too strong for it to drive out. As is always the rule in an unhampered market, the illness would create its own cure — the market is self-regulating.
Not only are market monopolies no threat to anyone, the whole concept of monopoly, as commonly held, is in error. A monopoly is supposed to be a business which has “exclusive control of a commodity or service in a given market, or control that makes possible the fixing of prices and the virtual elimination of free competition.” – Webster. A market monopoly cannot prevent competition from entering its field because it cannot use coercion against would-be competitors, and thus it can never have that “exclusive control … that makes possible the fixing of prices.” Nor can such a monopoly be said to be free of competition, even while it has exclusive control of its market — its product must still compete for the consumer’s money with every other good and service. For example, suppose a manufacturer of travel trailers has a complete monopoly over the travel trailer industry. He still must compete for the “recreation dollar” with the motel industry, and, in a broader sense, with the manufacturers of pleasure boats, swimming pools, table tennis sets, etc. Nor does his competition end there. Because the consumer may choose to spend his money for something other than recreation, our travel trailer monopolist must compete indirectly with refrigerator companies, clothing manufacturers, colleges, etc., ad infinitum. There is no industry so basic that a monopolist in that industry could manage “the virtual elimination of free competition.” Even the steel industry must compete in the building materials field with lighter metals, wood, plastic, concrete, brick, and now even newly developed glass products.
In considering the concept of monopoly, it is also useful to remember that it is not the absolute size of the firm which counts, but the size of the firm relative to its market. In the 1800s, the little country grocery store had a far firmer control of its market than does the largest chain of big-city supermarkets today. Advances in ease and economy of transportation continually decrease the relative size of even the most giant firm, thus making even temporary market monopoly status vastly more difficult to attain. So the free market moves toward the elimination, rather than the encouragement, of monopolies. 11
Since a market monopoly can never eliminate true competition or fix prices in defiance of the law of supply and demand, it actually bears no resemblance at all to the common notion of “the ruthless and uncontrolled monopoly” so many people have been taught to fear. If the term “market monopoly” can have any meaning at all, it can only be understood as a company which has gained a position as the only supplier of its particular good or service because customer-wants are well satisfied and its prices are so low that it is not profitable for competitors to move into that particular field. Its monopoly position will most likely not be permanent, because eventually someone else will probably “build a better mousetrap” and go into competition with it. But during the period of its market power, it is never free of competition or of the law of supply and demand in regard to prices.
It is easy to see that a market monopoly, because it cannot initiate force, poses no threat to either individual persons who deal with it or to the economy as a whole; but what about a coercive monopoly?
A coercive monopoly has exclusive control of a given field of endeavor which is closed to and exempt from competition, so that those controlling the field are able to set arbitrary policies and charge arbitrary prices, independent of the market. A coercive monopoly can maintain this exclusive control which prohibits any competition only by the use of initiated force. No firm which operated in a free-market context could afford the initiation of force for fear of driving away its customers and business associates. Thus, the only way that a business firm can sustain itself as a coercive monopoly is through government intervention in the form of special grants of privilege. Only government, which is itself a coercive monopoly, has the power to force individuals to deal with a firm with which they would rather not have anything to do.
The fear of ruthless, uncontrolled monopolies is a valid one, but it applies only to coercive monopolies. Coercive monopolies are an extension of government, not a product of the free market. Without governmental grants of special privilege, there could be no coercive monopolies.
Economic exploitation by monopolies, cartels, and “Big Business” is a non-existent dragon. In a well-developed market which is free of government interference, any advantage gained from such exploitation will send out signals calling in competition which will end the exploitation. In a free market, the individual always has alternatives to choose from, and only physical force can compel him to choose against his will. But the initiation of force is not a market function and cannot be profitably employed by firms operating in an unregulated market.
Force, in fact, is penalized by the free market, as is fraud. Business depends on customers, and customers are driven away by the exploitation of force and fraud. The penalizing of force and fraud is an inherent part of the self-regulating mechanism of the free market.
The market, if not hampered by government regulation, always moves toward a situation of stability and maximum consumer satisfaction — that is, toward equilibrium. Government intervention, far from improving society, can only cause disruptions, distortions, and losses, and move society toward chaos. The market is self-regulating — force is not required to make it function properly. In fact, the imposition of initiated force is the only thing which can prevent the market from functioning to the maximum possible satisfaction of all.
If men aren’t free to trade in any non-coercive way which their interests dictate, they aren’t free at all. Men who aren’t free are, to some degree, slaves. Without freedom of the market, no other “freedom” is meaningful. For this reason, the conflict between freedom and slavery focuses on the free market and its only effective opponent — government.
Chapter 5: A Free and Healthy Economy
Imagine a feudal serf, legally bound to the land he was born on and to the social position he was born into, toiling from dawn to dusk with primitive tools for a bare subsistence which he must share with the lord of his manor, his mental processes enmeshed with fears and superstitions. Imagine trying to tell this serf about the social structure of the Twentieth Century America. You would probably have a hard time convincing him that such a social structure could exist at all, because he would view everything you described from the context of his own knowledge of society. He would inform you, no doubt with a trace of smug superiority, that unless each individual born into the community had a specific and permanently fixed social place, society would speedily deteriorate into chaos.
In a similar way, telling a Twentieth Century man that government is evil and, therefore, unnecessary, and that we would have a far better society if we had no government at all, is likely to elicit polite skepticism … especially if the man is not used to thinking independently. It is always difficult to picture the workings of society different from our own, and particularly a more advanced society. This is because we are so used to our own social structure that we tend to automatically consider each facet of the more advanced society in the context of our own, thus distorting the picture into meaninglessness.
Many undesirable conditions which people take for granted today would be different in a society totally free of government. Most of these differences would spring from a market liberated from the dead hand of government control — both fascist and socialist — and thus able to produce a healthy economy and a vastly higher standard of living for everyone.
In any society, unemployment is the product of government intervention in the market. A society free of government would have no unemployment problem. Labor, being scarcer than resources, would be in demand, and everyone who wanted a job could have one. When faced with a demand for labor produced by new prosperity and soaring sales, industry would be eager to hire minority group members, institute on-the-job training for the uneducated, set up plant nurseries for mothers of small children, hire the handicapped, etc., to tap every source of competent labor. Wages would be high because businesses could keep what bureaucrats call their “excess profits” and invest them in machinery to increase the productivity of their labor (and wages are determined by productivity).
There will always be large differences in the amount of income earned by different people, but in a free-market society there would be no class of jobless, hopeless poor as we have today. Instead of being abandoned to starve in a government-less society, the poor would at last be given all the opportunity and help they needed to raise themselves out of their poverty.
Of course, there will always be people temporarily or permanently unable to support themselves due to extreme mental or physical handicaps, financial bad fortune, or other causes. Such people would be helped by private charities, as there would be no government dole. Gathering enough money to help them would present no problem — we have never suffered from a lack of people willing to go into the business of collecting and dispensing charitable funds, and the people of this semi-free nation, even with over a third of their income looted by taxation, have been wealthy enough to be generous to scores of charities each year. Private charity is vastly more economical and efficient than government welfare, since it is in a much better position to distinguish those deserving of help from phonies who just want a free ride, and to dispense its funds accordingly.
This practical superiority derives from the moral fact that private charity is based on voluntary contributions while government welfare payments come out of monies confiscated at the point of a legal gun from productive taxpayers.
Many people feel that charity would break down, however, when faced with the task of educating children without government schools. They believe that there could never be enough charity to take care of all the children whose parents neglected or were unable to send to school. Such an opinion is the result of failing to consider the context of a free society.
It has already been shown that poverty is a result of government interference in the economy, and that a modern industrial society need have no poverty as we understand it. This means that, while lower income people would certainly have to do without other desirable goods in order to educate their children, they would not be in the position of having no money at all to spare for schooling. Furthermore, when parents knew that there was no government to pick up the tab for them, they would be likely to think twice before taking on the responsibility of having a greater number of children than they could adequately care for and educate. With birth control devices free of hampering prescription laws and their manufacturers free to advertise in the mass media, family size among the poorly educated lower-income groups could be expected to drop sharply. When freed of the economic burden of large families, lower income parents could not only afford a better standard of living, they could also afford a better education for the children they did have so that the next generation could raise itself to a better socio-economic position.
Of course, education itself would be vastly improved if placed on the free market. At present, most students waste a considerable amount of each school day. This is chiefly due to two factors: first, “democratic” insistence on forcing everyone through the same educational mill regardless of ability or previous upbringing, and second, the rigidity of a socialized system which has no competition and can thus tolerate a large measure of stagnation. Free-market educational institutions in competition with each other would take quick advantage of every new advance in educational methods and materials and would undoubtedly do a far better job in a shorter time and for much less money. It is probable that this free-market application of new educational techniques would enable all but the slowest students to finish school anywhere from months to years earlier than they now do, providing a tremendous saving of the young person’s time and his parents’ money, as well as increasing his years of productivity (and everyone’s standard of living).
A laissez-faire system of competing, free-market education would provide a tremendous variety of schools to meet the needs of people with various interests, aptitudes, beliefs, and life-styles. Devout Christians could send their children to religious schools which held prayer before every class without infringing on the right of atheists to have their children educated by the use of reason exclusively. Black Panthers could send their children to all-black schools, white segregationists to all-white schools, and integrationists of all races could patronize integrated schools (forced integration is as bad as forced segregation). There would be schools for exceptionally bright youngsters, for those with special educational problems, and for those with great aptitudes in various fields (music, mathematics, writing, etc.). These various schools would charge different amounts of tuition and operate under varying conditions and educational methods. Some would be strict, some permissive. Some might have a 12-month school year, some a 6-month year. Virtually every kind of education which consumers wanted would be offered, and selection of a school would be strictly on the basis of individual free choice. No longer would every child be forced through the same educational machine, a machine geared for the great “average” majority and, therefore, harmful to minorities of all kinds.
Although the schools in a free economy would be paid for by tuition rather than by the theft of taxation, it is not necessarily the case that parents would have to stand the entire expense of their children’s education, especially in high school and college. Even today, scores of companies in search of well-trained and competent mathematicians, engineers, chemists, etc., offer generous, no-strings-attached scholarships to any talented student in hopes of luring him to work for them when he graduates. In the healthy economy of a totally free-market society, companies would be looking for even more employees (and, also, for independent sub-contractors) in an even greater variety of skilled fields. Not only would such companies put promising students through college, they might very well even pay their high school tuition. And many of them might also offer free high school curriculums to any ambitious student of average competence in return for his contractual guarantee to learn some skill useful to the company and work for them exclusively for a stated period of time.
Many firms are already manifesting a great and speedily growing interest in education, in spite of its rigidly socialized condition. They are particularly interested in research in better teaching methods, including the use of computers and other mechanical aids to improve the speed and quality of instruction. It is difficult to imagine the extent of the beneficial influence such businesses would have on the field of education if it were free of the rigor mortis of government control.
Of course, education doesn’t necessarily have to take place in a classroom. One of the least expensive and most promising of educational tools is television. At present, most educational TV is undeniably poor in quality and interest level. This is largely due to lack of competition resulting from the stultifying regulations imposed by the Federal Communications Commission, which has virtual dictatorial control over who may enter the field and what kind of programs they may telecast. In a laissez-faire society, anyone who could find an unused channel could go into the business of telecasting, and he could air any type of material he wished. If his programs were offensive to his audience, he would, of course, soon go out of business for lack of viewers. Competition, as always, would impel toward excellence.
With television freed from governmental meddling, many groups would go into the business of educational TV. Educational broadcasters could offer their programs free and still make profits charging for texts and tests (a charge which would be small, with student-viewers numbering in tens of thousands). Or, texts and tests could be furnished free, with support coming from commercials, just as it now does with entertainment TV. Sponsoring companies might advertise not only for customers but for employees with the knowledge and skills taught in their TV courses. This would have the happy effect of providing both a pool of potential employees for the company and readily accessible job opportunities for the student-viewers. Also, with stiff competition for student-viewers, educational broadcasters would develop the most efficient and “fun” ways of learning possible in order to capture and hold their audiences.
In spite of lower cost, more efficient and higher quality education, the role of industry in providing scholarships, and educational TV, it is probable that some children would get very little education, and a few might go through life as illiterates. These would be children who lacked either the capacity or the desire for learning, since children who had both ability and desire would tend to attract help even if their parents did neglect them. Before calling for a government to educate these unschooled and illiterate few, however, one should consider the shockingly high rate of illiterates graduated from government high schools. Sitting in a school room for a period of years is not equivalent to receiving an education. In fact, children who are forced to sit through years of schooling which they find painfully boring are far more likely to rebel against their imprisonment and “society” in general than to develop a love of knowledge. No one can be taught unless he has a genuine desire to learn, and forcing schooling on a child against his will is hardly likely to increase this desire.
Competing educational systems would offer the consumer a free choice in his purchase of education for himself and/or his children. This would end forever squabbles over curriculum (more athletics? more academics? Black Studies programs?), student body (segregated or integrated? — shall we bus to integrate?), control of education (should it be in the hands of parents, teachers, voters, the school board, or the colleges?), and all the other insoluble questions which plague government’s coercive control of education. If each consumer were free to choose among competing schools the type of education he valued most, all these problems would be solved automatically to the satisfaction of everyone. Competition in education would protect students and parents from exploitation by a coercive governmental monopoly.
In a similar manner, competition would protect the consumer in every other field. If any firm tried to exploit its customers or employees, it would be signaling other firms to enter into competition with it in order to reap some of the profits it was enjoying. But this competition would quickly bid prices down, quality up, or wages up, as the case might be, and eliminate the exploitation.
In a free market, consumers always have alternatives. Only force or fraud can compel a man to act against his judgment, but a firm which initiated force or used fraud in a free market would drive away its customers. Coercive monopolies are the product of government and can’t exist without government support. In a laissez-faire society, the economy would be free of exploitation, both by government and by business seeking to establish and maintain market control by force or fraud.
It has been objected that a very large firm could afford to use force and fraud to at least a limited extent, because the breadth of its market would prevent the news of its aggressive actions from reaching enough of its customers and competitors to do it serious damage. This is to overlook the role of the news media in a laissez-faire society.
As a test, take the front page of any metropolitan daily and count the headlines which have nothing at all to do with any government — national, state, or local. Unless there has just been some natural disaster, you will probably find no more than two or three, sometimes none. Newsmen must write about something, since that’s how they make their living. If there were no government, they would have to shift their emphasis to the doings of outstanding individuals, business, and industry. Not only inventions and medical and scientific discoveries would be news, so would any aggression or fraud, especially when committed by large and well-known companies. It’s very hard to hide things from hotly competing newspapermen looking for a “scoop,” not to mention the representatives of radio, television, movies, magazines, and the wire services. In a laissez-faire society, where there was no government to claim the lion’s share of the spotlight, it would be considerably more difficult to keep any departure from integrity hidden.
Of course, stiff competition between businesses is the consumer’s best guarantee of getting a good product at a reasonable price — dishonest competitors are swiftly “voted” out of business by consumers. But, in addition to competition, the market would evolve means of safeguarding the consumer which would be vastly superior to the contradictory, confusing, and harassing weight of governmental regulations with which the bureaucrats claim to protect us today. One such market protection would be consumer rating services which would test and rate various products according to safety, effectiveness, cost, etc. Since the whole existence of these rating services would depend on their being right in their product evaluations, they would be extremely thorough in their tests, scrupulously honest in their reports, and nearly impossible to bribe (which is not always true of government officials!).
Businesses whose products were potentially dangerous to consumers would be especially dependent on a good reputation. Drug manufacturers, for example, would know that if their products caused any illness or death through poor quality, insufficient research and preparation, or inadequate warnings on the labels they would lose customers by the thousands. The good reputation of a manufacturer’s brand name would be its most precious asset, an asset which no firm would knowingly risk. Besides this, drug stores would strive for a reputation of stocking only products which were high quality, safe when properly used, and adequately labeled. In place of the present inflexible, cumbersome, and expensive prescription system, they might employ pharmacists for the sole purpose of advising customers who wanted to know which medicines to take (and not to take) and whether their ailments were serious enough to require the attention of a physician (a practice which would take a great load of minor complaints off the shoulders of overworked doctors and sharply reduce the cost of medical service).
A good reputation would also be important to doctors in the absence of government-required licensing. Of course, any man would be free to hang out a shingle and call himself a doctor, but a man whose “treatments” harmed his patients couldn’t stay in business long. Besides, reputable physicians would probably form medical organizations which would only sanction competent doctors, thereby providing consumers with a guide. Insurance companies, who have a vested interest in keeping their policyholders alive and healthy, would provide another safeguard in the field of drugs and medical care. Insurance companies might well charge lower rates on life and health insurance to policyholders who contracted to use only those medicines and to patronize only those doctors sanctioned by a reputable medical association. This free-market system of consumer protection would end the doctor shortage and drastically reduce the cost of most medical care, since anyone could practice medicine in any area in which he was competent, regardless of the number of years he’d spent in college (or not spent in college, as the case might be). A brain surgeon might require 12 years of formal training, while a doctor who treated colds, flu, and ingrown toenails might need only 2 — or none. The free-market system wouldn’t commit the absurdity of requiring the same basic training for the colds-and-ingrowntoenails man as for the brain surgeon, thereby putting their fees on nearly the same level.
The efficiency of these free-market safeguards contrasts sharply with the way the Food and Drug Administration “protects” us. The FDA doesn’t want anyone to be killed by drugs (that would look bad for the FDA’s record). But they don’t care how many people die of diseases because governmental restrictions prevented the development and sale of curative drugs … those deaths can’t be blamed on the FDA, effectively (yet). Insurance companies, on the other hand, are deeply concerned with keeping their policyholders from dying for any reason at all. They would, therefore, not only discourage the use of harmful medications, but they would also encourage the discovery and development and sale of helpful ones. The free-market way of doing things is always superior to the only method government can use — coercion, as freedom is always superior to slavery.
When government sets out to protect the consumer, it does so by formulating a series of standards and attempting to enforce them. These standards must be artificial, since the decision as to how high to set them depends on nothing more than a bureaucrat’s whim. But even if the standards fit the situation to begin with, they seldom stay appropriate for long. Conditions on the market change with research, the introduction of new products, and changes in consumer demand; but the bureaucrat’s rules remain rigid and become outdated. For these reasons, governmental “consumer protection” can only result in the prevention of real consumer protection made available in a competitive, free market. It is an observable fact that government regulations reduce consumer safety by setting standards lower than the unhampered market would have set (or by enforcing standards which are inapplicable to the product). Many businessmen accept these low standards because doing so relieves them of further responsibility. Consumers accept them because they feel secure in the belief that a wise government is protecting them from the predations of greedy businessmen (which they learned in government schools). Actually, consumers are served well by the actions of profit-seeking businessmen; they are only taxed, regulated, and harassed by power-seeking politicians.
The area in which the consumer is probably most in need of protection, and in which government most endangers him, is in maintaining the value of his money. Money is the lifeblood of any industrial economy — if the money loses its value, the entire economy must collapse.
Money is the commodity which, because of its high marketability, is used as a medium of exchange. In order to become money, a commodity must have high marketability — that is, people must be eager to accept it for its own value. This means that the money commodity must have a high value as a commodity, in addition to its exchange value, in order to become and remain money.
Over the centuries, two commodities have become prominent as money throughout the civilized world — gold and silver. They have high marketability because of their value for ornamental and industrial uses, and because of their relative rarity. They are homogeneous, divisible into equal units, non-spoilable, and fairly easy to transport. For these reasons they have gained a wider acceptance for exchange than any other commodities.
Money, then, is at present gold and silver. It is not, and cannot be, merely pieces of paper, because paper doesn’t have enough value to be highly marketable. Pieces of paper can be money substitutes if, and only if, there is a stock of gold and/or silver for which they can be freely exchanged at any time.
Governments can’t give any value to pieces of paper, and pieces of paper have no value except as they have a gold/silver backing and any holder of such paper notes may exchange them for gold and/or silver at any time. A government which uses paper for money without holding a freely accessible gold and/or silver reserve is forcing its economy to live on borrowed time. When some crisis causes its monetary fraud to become apparent, the value of its worthless paper money will sink to zero and the economy will collapse into ruin and starvation. This is what happened to Germany in 1923, when it took a basketful of paper Mark notes to buy a loaf of bread (which was one of the main factors in Hitler’s rise to power). It is also what must happen to America if the politicians continue their present course.
In a laissez-faire society, only gold would be accepted as the standard of monetary value — there can be only one standard (and the free market has established gold as the commodity which is the standard of value). There would be no government to issue paper “fiat” notes, call them “money,” and pass laws prohibiting people from using any other media of exchange. Since it is most convenient to use gold when it is minted into coins of a known weight and fineness, private enterprise minting companies would arise. They would mint coins, stamp them with their trademark, and guarantee their value. The companies whose value-guarantees were most reliable and whose minting services were most satisfactory would acquire a majority of the coin business. (Counterfeiting — which is a form of fraud — would be dealt with in the same manner as any other initiated aggressive action. See Chapters 9 and 10.)
Some critics of the free market have contended that private coinage would lead to a confusion of brands and values of coin, all exchanging at different ratios, making trade impossibly cumbersome.
But the market always moves toward the greatest consumer satisfaction. If consumers found the varying coin values cumbersome to deal with, they would soon stop accepting coins of “oddball” value, thus forcing merchants to standardize.
Governments have always made a practice of debasing their legally enforced media of exchange in order to divert extra wealth into the national treasury. In earlier times, the sovereign would call in all coins and clip their edges, keeping the gold thus obtained and returning the smaller coins to the people. In our modern and enlightened era, the same goal is accomplished through inflation, which enables the government to spend more “printing press money” and so debase the value of the currency already in the economy.
Because a government has a legal monopoly over the media of exchange in its country, it can make a practice of gradually reducing monetary value with very little to stop the process until the eventual and inevitable financial catastrophe. No free-market minting company could get away with such a fraud. If it issued devalued coins, people would simply refuse to accept them (Gresham’s Law in reverse — good money drives out bad). Then the dishonest company would go broke … but it wouldn’t take a whole nation of innocent people into ruin with it. The free market would, at last, give consumers protection in an area where they have never had it (because of governments) and desperately need it — the value of their money and, with it, the strength of their economy.
In addition to gold (and possibly silver) coin, money substitutes would be used in a free market because of their convenience, particularly for large transactions. These money substitutes would be in the form of bank notes, certifying that the bearer had on deposit in a certain bank a specific amount of gold. The banks would have to hold a 100% reserve of gold against these notes, because not to do so would be fraud and would cause them to lose their customers to banks with less risky policies. Since the banks would hold a 100% reserve of gold, these money substitutes would not inflate the currency as do unbacked government notes. Nor would there be any danger of runs on banks, leaving the banks insolvent and many of their customers ruined. Such runs are the product of fractional reserve banking, which exists because it is legally condoned and enforced by governments.
With competition to guarantee that only gold was used as a monetary standard of value and that all money substitutes had 100% gold backing, a laissez-faire society would be permanently safe from monetary crises. The free society’s healthy economy would remain strong because its money would be of permanent value and, therefore, unassailable.
- 1The terms “initiated force” and “coercion” are used to include not only the actual Initiation of force but also the threat of such force and any substitute for force. This is because a man can be coerced into acting against his will by threats or deprived of a value by force-substitutes such as fraud or theft by stealth, just as surely as he can by the actual use of physical force. The threat of force is intimidation, which is, itself, a form of force.
- 2See Ten Thousand Commandments , by Harold Fleming; 1951; Prentice-Hall, Inc., N.Y.
- 3For a most excellent treatise on economic principles, see Murray N. Rothbard’s 2-Vol. Man, Economy, and State(D. Van Nostrand Company, Inc.).
- 4The belief that prices are set by the cost of production is erroneous. Actually, in the context of the total market, the prices of the various factors of production are determined by the return which their products are expected to earn. For a complete analysis of this subject, see Dr. Rothbard’s Man, Economy, and State
- 5See the article, “The Effects of the Industrial Revolution on Women and Children,” by Robert Hessen, in Ayn Rand’s Capitalism: The Unknown Ideal (published in paperback by The New American Library, Inc., N.Y.).
- 6While overpopulation is a theoretical possibility, it isn’t the immediate menace it is usually pictured to be. As Robert Heinlein pointed out in his science fiction novel, The Moon is a Harsh Mistress , the earth isn’t overpopulated, it’s just badly mismanaged … by politicians.
- 7Banks may also inflate by holding only fractional reserves against demand deposits — for example, by making loans against checking accounts. If they weren’t protected by special laws, however, banks could not indulge in fractional reserves, because this practice is too risky. In a totally free market, any bank which did not hold 100% reserves would be driven out of business by its more financially wise and sound competitors.
- 8The depression phase of the business cycle may be postponed for a long time by continued inflation, but such a policy only makes the inevitable depression more catastrophic when it does occur.
- 9See the minibook, Economic Depressions: Their Cause and Cure by Murray N. Rothbard (Published by Constitutional Alliance, Inc., Box 836, Lansing, Mich. 48904).
- 10From 1888 to 1940, Alcoa had a total monopoly on the manufacture of aluminum in the USA. It maintained this monopoly by selling such an excellent product at such low prices that no other company could compete with it. During its monopoly period, Alcoa reduced aluminum prices from $8 to 20¢ a pound (!) and pioneered hundreds of new uses for its product. The book, Ten Thousand Commandments , by Harold Fleming, describes the action the government took against this “ruthless monopoly” which had been guilty of maintaining its monopoly status by continual and successful efforts to satisfy its customers.
- 11Rogge, Benjamin A., Long Playing Record Album #9, Is Economic Freedom Possible? The Foundation for Economic Education, N.Y
