Free Market Economics: A Basic Reader

Private Property and Exchange

James Madison

This term, in its particular application, means “that dominion which one man claims and exercises over the external things of the world, in exclusion of every other individual.”

In its larger and juster meaning, it embraces everything to which a man may attach a value and have a right, and which leaves to every one else the like advantage.

In the former sense, a man’s land, or merchandise, or money, is called his property.

In the latter sense, a man has a property in his opinions and the free communication of them.

He has a property of peculiar value in his religious opinions, and in the profession and practice dictated by them.

He has a property very dear to him in the safety and liberty of his person.

He has an equal property in the free use of his faculties, and free choice of the objects on which to employ them.

In a word, as a man is said to have a right to his property, he may be equally said to have a property in his rights.

Where an excess of power prevails, property of no sort is duly respected. No man is safe in his opinions, his person, his faculties, or his possessions.

Where there is an excess of liberty, the effect is the same, though from an opposite cause.

Government is instituted to protect property of every sort; as well that which lies in the various rights of individuals, as that which the term particularly expresses. This being the end of govern-ment, that alone is a just government which impartially secures to every man whatever is his own.

According to this standard of merit, the praise of affording a just security to property should be sparingly bestowed on a government which, however scrupulously guarding the possessions of individuals, does not protect them in the enjoyment and communication of their opinions, in which they have an equal, and, in the estimation of some, a more valuable property.

More sparingly should this praise be allowed to a government where a man’s religious rights are violated by penalties, or fettered by tests, or taxed by a hierarchy.

Conscience is the most sacred of all property; other property depending in part on positive law, the exercise of that being a natural and unalienable right. To guard a man’s house as his castle, to pay public and enforce private debts with the most exact faith, can give no title to invade a man’s conscience, which is more sacred than his castle, or to withhold from it that debt of protection for which the public faith is pledged by the very nature and original conditions of the social pact.

That is not a just government, nor is property secure under it, where the property which a man has in his personal safety and personal liberty is violated by arbitrary seizures of one class of citizens for the service of the rest. A magistrate issuing his warrants to a press-gang would be in his proper functions in Turkey or Indostan, under appellations proverbial of the most complete despotism.

That is not a just government, nor is property secure under it, where arbitrary restrictions, exemptions, and monopolies deny to part of its citizens that free use of their faculties and free choice of their occupations which not only constitute their property in the general sense of the word, but are the means of acquiring property strictly so called.

What must be the spirit of legislation where a manufacturer of linen cloth is forbidden to bury his own child in a linen shroud, in order to favour his neighbour who manufactures woolen cloth; where the manufacturer and weaver of woolen cloth are again forbidden the economical use of buttons of that material, in favor of the manufacturer of buttons of other materials!

A just security to property is not afforded by that government, under which unequal taxes oppress one species of property and reward another species; where arbitrary taxes invade the domestic sanctuaries of the rich, and excessive taxes grind the faces of the poor; where the keenness and competitions of want are deemed an insufficient spur to labor, and taxes are again applied by an unfeeling policy, as another spur, in violation of that sacred property which Heaven, in decreeing man to earn his bread by the sweat of his brow, kindly reserved to him in the small repose that could be spared from the supply of his necessities.

If there be a government, then, which prides itself in maintaining the inviolability of property; which provides that none shall be taken directly, even for public use, without indemnification to the owner, and yet directly violates the property which individuals have in their opinions, their religion, their passions, and their faculties—nay, more, which indirectly violates their property in their actual possessions, in the labor that acquires their daily subsistence, and in the hallowed remnant of time which ought to relieve their fatigues and soothe their cares—the inference will have been anticipated that such a government is not a pattern for the United States.

If the United States mean to obtain or deserve the full praise due to wise and just governments, they will equally respect the rights of property and the property in rights; they will rival the government that most sacredly guards the former, and by repelling its example in violating the latter, will make themselves a pattern to that and all other governments.

Abraham Lincoln

Pioneer life was hard for a man with two children but no woman to care for them, nor to help with the chores at home. Thus Thomas Lincoln remarried about a year after the death (1818) of his first wife, Nancy Hanks, Abrahams mother. The new “mother” was a widow, Sarah Bush Johnston, with three youngsters of her own. According to historians, Abraham Lincolns stepbrother, John D. Johnston, five years Lincolns junior, turned out to be shiftless and lazy. The following letter was written to his young stepbrother when Lincoln was 39 years old and a U. S. Congressman from Illinois.

Washington, December 24, 1848 Dear Johnston: Your request for eighty dollars I do not think it best to comply with now. At the various times when I have helped you a little, you have said to me, “We can get along very well now,” but in a very short time I find you in the same difficulty again. Now this can only happen by some defect in your conduct. What that defect is, I think I know. You are not lazy, and still you are an idler. I doubt whether since I saw you, you have done a good whole day’s work, in any one day. You do not very much dislike to work; and still you do not work much, merely because it does not seem to you that you could get much for it. This habit of needlessly wasting time, is the whole difficulty; and it is vastly important to you, and still more so to your children, that you should break this habit. It is more important to them, because they have longer to live, and can keep out of an idle habit before they are in it, easier than they can get out after they are in.

You are now in need of some money; and what I propose is, that you shall go to work, “tooth and nails,” for somebody who will give you money for it. Let father and your boys take charge of things at home—prepare for a crop, and make the crop; and you go to work for the best money wages, or in discharge of any debt you owe, that you can get. And to secure you a fair reward for your labor, I now promise you that for every dollar you will, between this and the first of next May, get for your own labor, either in money, or on your own indebtedness, I will then give you one other dollar. By this, if you hire yourself at ten dollars a month, from me you will get ten more, making twenty dollars a month for your work. In this, I do not mean you shall go off to St. Louis, or the lead mines, or the gold mines in California, but I [mean for you to go at it for the best wages you] can get close to home in Coles County. Now if you will do this, you will be soon out of debt, and what is better, you will have a habit that will keep you from getting in debt again. But if I should now clear you out, next year you would be just as deep in as ever. You say you would almost give your place in Heaven for $70 or $80. Then you value your place in Heaven very cheaply, for I am sure you can with the offer I make you get the seventy or eighty dollars for four or five months work. You say if I furnish you the money you will deed me the land, and, if you don’t pay the money back, you will deliver possession. Nonsense! If you can’t now live with the land, how will you then live without it? You have always been [kind] to me, and I do not now mean to be unkind to you. On the contrary, if you will but follow my advice, you will find it worth more than eight times eighty dollars to you.

Affectionately your brother,

A. Lincoln

Paul L. Poirot

It is not the right of property which is protected, but the right to property. Property, per se, has no rights; but the individual—the man—has three great rights, equally sacred from arbitrary interference: the right to his life, the right to his liberty, the right to his property. . . . The three rights are so bound together as to be essentially one right. To give a man his life but deny him his liberty, is to take from him all that makes his life worth living. To give him his liberty but take from him the property which is the fruit and badge of his liberty, is to still leave him a slave.

U.S. Supreme Court Justice

GEORGE SUTHERLAND

Tricky phrases with favorable meanings and emotional appeal are being used today to imply a distinction between property rights and human rights.

By implication, there are two sets of rights—one belonging to human beings and the other to property. Since human beings are more important, it is natural for the unwary to react in favor of human rights.

Actually, there is no such distinction between property rights and human rights. The term property has no significance except as it applies to something owned by someone. Property itself has neither rights nor value, save only as human interests are involved. There are no rights but human rights, and what are spoken of as property rights are only the human rights of individuals to property.

Expressed more accurately, the issue is not one of property rights versus human rights, but of the human rights of one person in the community versus the human rights of another.

Those who talk about two sets of rights apparently want to discriminate between property income and labor income—with the implication that the rights to rental and investment income are inferior, as a class, to the rights to income from wages and salaries. Actually, this is an unwarranted assumption. It must be evident that all persons have rights which are entitled to respect. Safeguarding such rights is essential to the wellbeing of all. This is the only just principle. Thus, the problem is not to establish priorities on human rights in the community, but rather to determine what the respective rights are in the particular cases under dispute. This is the real problem in human relations, and it is one that calls for the exercise of wisdom, restraint, and true administration of justice under law.

What Are “Property Rights”?

What are the property rights thus disparaged by being set apart from human rights? They are among the most ancient and basic of human rights, and among the most essential to freedom and progress. They are the privileges of private ownership, which give meaning to the right to the product of one’s labor—privileges which men have always regarded instinctively as belonging to them almost as intimately and inseparably as their own bodies.

The ownership of property is the right for which, above all others, the common man has struggled in his slow ascent from serfdom. It is the right for which he struggles today in countries emerging from feudalism. The sense of this right is so deep-rooted in human nature, so essential as a stimulant of productive effort, that even totalitarian regimes have been unable to abolish it entirely.

It is a mistake to belittle the importance of property rights. Respect for these rights is basic to organized society, and the instinct of individuals to acquire property is at the root of all economic progress. Unless people can feel secure in their ability to retain the fruits of their labor, there is little incentive to save and to expand the fund of capital—the tools and equipment for production and for better living. The industrial development of this country, which has given us the highest standard of living in the world and has made possible a miracle of production in war and peace, is dependent upon the observance of property rights. Who is going to work and save if these rights are not recognized and protected?

The right to own property means the right to use it, to save it, to invest it for gain, and to transmit it to others. It means freedom from unreasonable search and seizure and from deprivation without due process of law or without just compensation. It might also be fairly taken to imply a limitation upon taxation because “the power to tax involves the power to destroy.” For a like reason, it should imply assurance against governmental dilution of the money whereby the government takes property which otherwise could be claimed by wage and salary checks and other credit instruments. Further, it should insure against other measures so burdensome or restrictive as to prevent the employment of savings in legitimate productive enterprise with a reasonable prospect of gain. Violation of any of these rights can nullify, in whole or in part, the right to property.

The Bill of Rights in the United States Constitution recognizes no distinction between property rights and other human rights. The ban against unreasonable search and seizure covers “persons, houses, papers, and effects,” without discrimination. No person may, without due process of law, be deprived of “life, liberty, or property”; all are equally inviolable. The right of trial by jury is assured in criminal and civil cases alike. Excessive bail, excessive fines, and cruel and unusual punishments are grouped in a single prohibition. The founding fathers realized what some present-day politicians seem to have forgotten: A man without property rights—without the right to the product of his own labor—is not a free man. He can exist only through the generosity or forbearance of others.

These constitutional rights all have two characteristics in common. First, they apply equally to all persons. Second, they are, without exception, guarantees of freedom or immunity from governmental interference. They are not assertions of claims against others, individually or collectively. They merely say, in effect, that there are certain human liberties, including some pertaining to property, which are essential to free men and upon which the state shall not infringe. . . .

What Are “Human Rights”?

Now what about the so-called human rights that are represented as superior to property rights? What about the “right” to a job, the “right” to a standard of living, the “right” to a minimum wage or a maximum workweek, the “right” to a “fair” price, the “right” to bargain collectively, the “right” to security against the adversities and hazards of life, such as old age and disability?

The framers of the Constitution would have been astonished to hear these things spoken of as rights. They are not immunities from governmental compulsion; on the contrary, they are demands for new forms of governmental compulsion. They are not claims to the product of one’s own labor; they are, in some if not in most cases, claims to the products of other people’s labor.

These “human rights” are indeed different from property rights, for they rest on a denial of the basic concept of property rights. They are not freedoms or immunities assured to all persons alike. They are special privileges conferred upon some persons at the expense of others. The real distinction is not between property rights and human rights, but between equality of protection from governmental compulsion on the one hand and demands for the exercise of such compulsion for the benefit of favored groups on the other.

The “Right” to a Job

To point out these characteristics of the so-called human rights is not to deny the reality nor belittle the importance of the social problems they represent. Some of these problems are real and important. They are also complex, and in this further respect they are different from the rights guaranteed by the Constitution.

There is no great difficulty nor danger in declaring that certain individual rights shall not be tampered with by the government—and in adhering to that principle. It is quite another matter to say that the government shall seize the property or curtail the freedom of some of its citizens for the benefit, or the supposed benefit, of others. To adopt this view is to cast both the government and the citizen in radically new roles, with far-reaching effects on economic behavior, political practices, and individual character.

Consider, for example, the so-called right to a job. This is a fine-sounding phrase that evokes an emotional response. It creates a mental image of an unemployed worker and his family suffering hardship through no fault of their own. No one would deny the reality nor the seriousness of that, especially when the unemployed worker is multiplied by millions. To find the best remedy, however, is a difficult matter, and it is not made easier by the use of such misleading catchwords as the “right” to a job. One man’s “right” to a job implies an obligation on the part of someone else to give him a job. Who has any such obligation?

An economy of private enterprise functions by means of voluntary contracts entered into for the sake of mutual advantage. Jobs arise from such contracts. The obligation to fulfill his contract is the only right any person can have to a job. Both sides of the contract have to be fulfilled. The employer’s job—his side of the contract—is to anticipate what the consumers will want in the market place. His capacity to offer jobs to employees depends upon how well he understands the market pattern of consumer preferences. He has no right of control over the market. There is a limit to his capacity to provide jobs. And in the final analysis, an employee’s so-called right to a job is determined by what consumers think the product or service is worth to them.

As with the “right” to a job, so with the other so-called human rights. These are not rights in the constitutional sense of respect for privacy; they are, instead, social programs which the government has undertaken or has been asked to promote. These programs, unlike true rights, are selective, coercive, complex, and experimental. Hence, they need to be carefully considered each on its own merits with due regard to the serious threats they may involve to the real and basic human rights that have enabled free men to build a society with the highest level of material well-being ever achieved anywhere.

Triple Threats to Private Property

On the economic side, the gravest threat is that productive enterprise will be so burdened and impeded by high taxes, prohibitions, red tape, and controls that industry will stagnate. Without the products of industry, social programs of any kind become empty promises. New political powers and functions increase the cost of government and drain manpower from farms and factories into administrative bureaus. The great bulk of the money for benefit payments to favored groups must be taken from those who produce by putting forth their own efforts or by investing their savings. Min-imum-wage rates wipe out the entire lower range of job opportunities in the business world. Only the government, with the power to tax, can pay more for labor than it is worth. Maximum-hour laws further limit the opportunity to be productive. Artificially pegged prices and wage rates interfere with the normal market process of gearing production to the maximum satisfaction of consumer wants.

On the political side, the increase of power multiplies the opportunities for the abuse of power and the harm that can be done by such abuse. High tax rates expose taxpayers and collectors to strong temptations. The disbursement of billions of dollars in public funds opens new avenues for favoritism and corruption. This system of political distribution of the wealth of a nation encourages government by pressure groups, with the favors flowing toward the groups with the most votes. Demands for more liberal benefits on the one hand and for tax relief on the other converge upon the public treasury. Deficit financing and currency depreciation tend to become national habits which feed upon the savings of individuals and wipe out the means of production and progress.

On the human side, the individual citizen discovers that it is increasingly difficult to get ahead by enterprise and thrift—increasingly profitable to join in the scramble for governmental favors and handouts. The sense of relationship between services rendered and payment received grows weaker. Personal initiative and self-reliance give way to an attitude of: let the government do it. Free citizens tend to degenerate into wards of the state.

These are not imaginary effects, but real ones. They are visible here and now. They are the consequences of placing social programs, mislabeled “human rights,” above the real human rights, disparagingly called “property rights,” which underlie the productive strength of free men.

Ruth Shallcross Maynard

“Who should conserve our resources?” If a poll were taken, a large majority probably would answer: “Our federal and state governments.” And if one were to ask why this view is so widely held, he would find among other “reasons” the following:

(1) that the free market is chaotic, gives profits to the few, and is unmindful of the great “waste” of our diminishing limited resources;

(2) that “people’s rights” are above “private or special interests” and only the government can properly serve the public interest;

(3) that government has access to more funds;

(4) that government has the power and facilities to obtain all the necessary data and to do the research needed for the best “scientific” decisions on resource conservation;

(5) that the price system does not operate in the interests of conservation because of the “unrestrained pursuit of self-interest”;

(6) that the concentration of power in some corporations further threatens our dwindling resources and must be regulated by government.

These “reasons,” of course, do not indicate how a government agency would go about attempting a solution to the conservation problem—this is always just assumed—but consider them briefly:

(1a) The free market is anything but chaotic. Competing natural market forces reflect in prices the wishes of both buyers and sellers—millions of individuals, separately accountable and responsible for their own actions in their own field of economic activity. All persons seek their own advantage when allowed a choice, but in the free market a producer cannot profit unless he pleases consumers better than his competitor does. Since he must think of efficiency and lowered costs in order to survive, it is false to assume that he alone profits from the use of natural resources from which are made the products wanted by consumers. All gain who use the resulting products.

(2a) Can there be “people’s rights” superior to the rights of individuals? All individuals have special and private interests and rights. Therefore, the “people” cannot have rights except individually; and the right to life carries with it the right to maintain it by private and special means.

(3a) The government has no funds that have not been taken from the people by force, whereas many a large private undertaking has come forth from voluntarily contributed funds. In fact, the entire industrial development in this country has been a continuous example of this voluntary way of creating the facilities for production by giving the consumer what he wants at the price he is willing to pay in competition.

(5a) The role that prices play in the free economy is so little understood that many people believe government must set prices lest they reflect only the “selfish interests” of the producers. The price system not only tells producers and consumers when scarcity of a product exists (prices rise) or when it has become more plentiful (prices drop); it also supplies the incentive to act in the interests of conservation by seeking a substitute for the high-priced scarce material. Competitive prices allocate scarce resources to those who will pay more (not those who have more, as is alleged) for the right to try to serve consumers efficiently and profitably.

When Government Controls

The foregoing arguments, however, do not touch upon the basic problem involved in the conservation of resources. Let us assume that Congress passes a conservation law setting up “The Federal Bureau of Conservation.” Tax money must then be appropriated for this Bureau. The director, a political appointee, must find a building and hire a staff large enough to justify his salary. To investigate and collect data on what is being done is a time- and tax-consuming job.

Turning the conservation problems over to an agency with police power does not mean solution, however. It only means that the director has been given the authority to find a solution and to force it on those individuals who are in the market for natural resources. This does not assure the public that the director has any special grant of wisdom concerning the problems involved, or that he will even know what they are. This appointment would lead him to assume that individual enterprisers were not doing their jobs well. He would undoubtedly define his task as one of finding what individual enterprisers are doing wrong and stopping it. Such interference could only prevent private individuals from utilizing their creativity and energy in seeking a solution to both immediate and long-run conservation problems. Having stopped this flow of creative endeavor, he would need to find a “positive” solution—such as stockpiling by force certain quantities of those materials deemed most scarce.

Difficult Decisions

But for whom would the director be stockpiling? Would he sacrifice the present generation to future ones? And, if so, which ones? The next generation, the one after that, those living a hundred years from now, or whom? And how could he possibly know what those generations would want or need? Moreover, he would have the problem of what quantities to stockpile and what grades (best or worst) to save. Would some items have alternative uses? Would he plan for possible added or new uses in the future? These questions never seem to be asked by the authors of books and articles on conservation, whose specialty is to condemn private enterprise.

Stockpiling only aggravates the very scarcity given as the reason for stockpiling. The more scarce a stockpiled item, the higher the price, and the more complaints to be heard from the users. Whereupon, the director probably would seek power to fix prices lower than market levels. This, of course, could only lead to increased demand and pressure on prices, leading to black markets or government rationing, or both. Allocation by rationing would present the problem of whom to favor and whom to slight. His authority to discriminate would subject the director to strong political pressures. If not by political favoritism, the director could select by personal preference, or first come, first favored. Any system is discriminatory. The system of government planning implies arbitrary discrimination by one man with police power who decides who shall get what. Without personal favoritism, the free market “discriminates” against those who would waste scarce materials—it lets their businesses fail—and “discriminates” for those who would most efficiently use the resource to serve consumers—their profit depends on their capacity to conserve the scarce resource.

The government system is based on arbitrary decisions of man over man, with strong probability of political influence; the free market system is influenced by nonpolitical and nonpersonal forces. There is no other alternative. The first system leads to static conditions which cannot meet the changing needs and desires of consumers, the “people” most involved and presumably those whom a conservation agency ought to protect. The business way encourages search for substitutes when price rises indicate growing scarcity. This not only aids conservation but also affords the consuming public more reasonably priced alternatives in times of scarcity. When prices are fixed below market levels by the government director, this discourages conservation and gives a false signal as to the degree of scarcity all the way from the natural resource level to the final consumer.

Private Enterprisers Conserve What Is Worth Saving

Until someone discovers that a resource has a specific use, it has no value for which it should be conserved. Alexander the Great had no use for the reservoir of oil beneath his domain. The underdeveloped countries do not lack resources. But they have not yet found the key (personal saving and competitive private enterprise) by which to utilize the resources to meet the people’s needs. Private enterprisers are constantly trying to find new materials and new uses for known resources, always looking ahead to see which ones will be available and how efficiently they can be utilized. Pick up any trade journal and note the articles on how to cut costs, utilize waste materials, be more efficient. Because the government told them to? No. The hope of profits acts as a powerful compulsion to be efficient, to improve, to conserve. The following examples show how private enterprisers eliminate waste and utilize natural resources to meet the needs of the consuming public.

Until natural gas was known to be useful as a fuel, petroleum producers burned it to get rid of it. Until ways were found of storing and transporting gas with safety, it had only local use. Competition forced the search for further uses and wider markets, and profits rewarded those who best served consumers. As ways were found to handle gas beyond local markets, consumers elsewhere gained a wider choice of fuel, and other fuels were thereby conserved.

Reliance on Hindsight

Accusations of waste in private industry are always based on hindsight. Any statistics of inadequate use of natural resources are history. When a new method or new use is discovered, it is easy to point out past waste and misuse. The assumption is that industrialists are wasteful if they haven’t seen in advance all possible uses for all materials.

The meat-packing industry over the last century has used all but the squeal of the pig. But this did not come all at once. Nor did or could it have come from government decrees. It came slowly through individual efforts to cut costs and increase profits in competition with others.

In the lumber and pulp-paper industries, uses have been found for virtually all of a tree, including the bark, branches, and sawdust which were formerly “wasted.” The “waste” lignin, after removal of the carbohydrates, has been the concern of many a pulp company as well as scientists at The Institute of Paper Chemistry, who have yet to find a use that will meet adequately the competitive market test of consumer choice.

With the increasing scarcity of pure water, the pulp and paper industry has used less and less of it per ton of product. When wood became scarce in Wisconsin, the “Trees-for-Tomorrow” program was instigated, encouraging farmers to grow trees as an added cash crop. As salt cake from Saskatchewan grew scarce, the Southern kraft-pulp mills learned how to reclaim it and cut the amount needed per ton of pulp by two-thirds or more. Could such a conservation measure have been forced by government decree? It is most doubtful.

In the agricultural field are many illustrations of continuous improvement: of tools (the history of the plow alone would make an impressive volume); of methods of utilizing land, fertilizers, insecticides, and seeds; of knowledge of genetics, hydroponics, and radioactive materials. All of these have played a vital part in getting better farm products to the people with fewer man-hours and at less cost. These all conserve time.

Time also is a resource. Conserving time can save lives from starvation, give relief from backbreaking jobs, enable individuals to further achieve their respective purposes. Improved tools have won time for more leisure, for increasing recreational, cultural, educational, and religious activities.

Individual Improvement

Improvement of the well-being of individuals, rather than conservation, is the chief goal in the utilization of resources. Absolute conservation could lead to the absurdity of not utilizing our resources at all, and thus conserving to no purpose— no freedom and no improvement of our lives. J. S. Mill has expressed it thus: “The only unfailing and permanent source of improvement is liberty, since by it there are as many possible independent centers of improvement as there are individuals.” The energy of the police force of a government agency must by its very nature be negative. Enterprisers are positive, constantly trying to solve specific problems. It is impossible to force the release of the creative energy of millions of individuals who, if free, are each highly motivated to release it in trying to improve their status. Thus, force only inhibits the real sources of improvement.

Because individuals have been free to find the best use of land resources, the American farmer today feeds himself and at least 25 others. In our early history food production was the principal occupation, and in some countries today as high as 90 per cent of the population still spends long hours of backbreaking work farming for a bare subsistence.

Who Is Responsible for Waste?

The real waste in resources comes from government policies. It is seen especially in wartime, but more and more in peacetime programs. The government farm program has encouraged waste of land, seeds, fertilizers, labor, and capital by subsidizing the production of surpluses to be stored in bins that dot the countryside. The foreign aid program has wasted various resources, sending them to countries where little if any use has been or could be made of them. Waste occurs in such projects as the TVA that floods permanently many fertile acres which formerly provided millions of dollars worth of food products and which the Army Engineers have estimated would not be flooded by the natural forces of the Tennessee River in 500 years.

Rising taxes also promote waste. The corporate income tax of 52 per cent of earnings, for example, encourages industrialists to engage in questionable and wasteful projects which appear justified only when purchased with a 48-cent dollar. This is not in the interests of conservation.

However, the errors individuals make and their waste of resources are small and inconsequential compared with those made by government agents in controlling a major supply of a scarce resource. Those in civil service positions are rarely dismissed or otherwise held accountable for their errors. A private individual stands to lose personally if he wastes resources in his field of economic activity, and has a built-in motivation for attempting to correct his mistakes as soon as they are reflected in rising costs or decreasing demand. A government agent, however, risks no personal loss when he misuses resources, he cannot recognize mistakes by rising costs when prices are fixed arbitrarily, nor is he motivated to correct his mistakes even when recognized.

Natural resources are best utilized and conserved where they meet specific economic requirements in the most efficient way as determined by competition in the free market. Government control of natural resources reduces the freedom of choice of producers in using these materials and this affects adversely the freedom of choice of consumers who buy the final products made from them. There is no effective method of determining the economic requirements of the people when the free market is not allowed to reflect them, nor can force solve the problem of conservation. It is a false panacea that is centuries old, advocated by those who desire power over others whom they neither trust nor respect. Conservation will take place in the best sense where individuals are allowed to seek solutions to their own personal problems as they arise. Necessity is the mother not only of invention but of conservation as well.

Paul L. Poirot

Respect for the dignity of an individual presumes him to be responsible for the development and use of his faculties, his qualities, his properties. The personal freedom of choice that is liberty depends upon self-control and possession or ownership in the form of private property. And consistent with this concept of human dignity and private property is the right of the individual to make his own mistakes, if he so chooses, and to abide by the consequences—to know the penalties of improper choice and action as well as the fruits of success.

“Property is desirable, is a positive good in the world,” said Abraham Lincoln. “That some should be rich shows that others may become rich and hence is just encouragement to industry and enterprise. Let not him who is houseless pull down the house of another, but let him work diligently to build one for himself, thus by example assuring that his own shall be safe from violence.”

Lincoln understood that poverty is not to be overcome by warlike or compulsory measures, but by peaceful example. Not by pulling down the house of another, not by destroying another’s life or character or estate, but by each man working diligently to build one for himself.

A property owner, of course, might be able to live upon his own resources. But few of us nowadays would be content with such a subsistence level of living. We have grown accustomed to the advantages of specialized production and peaceful exchange of goods and services. Such voluntary exchange also depends on private property. Every trader is a property owner and his own man. Something to offer is his ticket of admission to the market—his purchasing power.

This requirement for trade gives rise to a common complaint about the so-called tyranny of the market economy: that it tends to be exclusive—for property owners only. The fact that a buyer’s purchasing power depends upon what he has to offer is said to be undemocratic and unfair; it doesn’t afford everyone everything he wants. Some even argue that “property is theft,” in the belief that any accumulations of private property must have impoverished other people.

Such beliefs might have been justified under various conditions of the past—might be justified in some parts of the world today. A slave owner, for example, acquires and holds his slaves by force, and thus impoverishes them. Tribal wars for territory or other property leave the losers poorer to the extent of the victors’ spoils. But in a trading society as we know it, property required for production and marketing can only be accumulated and retained by an owner insofar as he uses it as consumers want him to. Otherwise, he’s out of business.

The complaint that not everyone can have everything he wants should be leveled, not against the market and the private ownership of property, but against the nature of things. The real world is characterized by unlimited human wants and limited means, not the other way round. Any realistic social system must consider not only the boundless appetites of consumers but also the conservation and efficient use of scarce resources.

Ours is not a world that affords abundance for consumption without productive effort or other thought for the source of supply. This is why it is important to understand the basic principles and practices of private ownership and control of scarce resources. These are essential features of any peaceful society.

Regulated by Competition

To say that a prosperous market economy depends upon respect for private property is the truth but not the whole truth. Private ownership and control, of itself, does not assure the most efficient use of scarce resources in service to others. That assurance comes as a result of competition. This is not to say that competitors are solely interested in pleasing customers. But catering to the wishes of customers is the surest and easiest way to have and to hold valuable, scarce items. The fact that two or more businessmen bid for possession and use of the same resource is the consumer’s guarantee that it will be used efficiently to serve him. Consumers pay handsomely for efficient service and thus determine who, among various competitors, is to own and control the means of production.

Competition for property is the great moderator or regulator of temptations to abuse the privileges of private ownership. Competition, of course, cannot force anyone to buy or sell at a price unacceptable to him. But competitors can make trading difficult for those who expect something for nothing. Competition is truly the life of trade—a powerful, peaceful influence for honest and efficient service by those who hope to own and control the use of property.

Nor is the moderating force of competition confined to the supplier side of the exchange process. Consumers also compete against one another for available supplies. The resultant level of market prices tempers appetites, rations scarce items, requires responsible performance by those who are to receive goods and services in exchange for their own. The market will no more serve consumers who demand something for nothing than it will tolerate the false advertising of fraudulent suppliers.

So, competition is a form of peaceful “policing” of the market. It tends to keep buyers and sellers honest in their trading and efficient in their use of ever-scarce resources.

Voluntary or Compulsory

Let it be clear that our discussion thus far pertains to the so-called “private sector” of the economy—the production, the saving and investment, the trading of goods and services, and the personal consumption practices that result from voluntary choices of buyers and sellers in open competition. And it bears repeating that the “private sector” market is a voluntary association of property owners for the purpose of trading to their mutual advantage. Admittance to the market is gained by having something to offer. True, such offerings constitute the means for the satisfaction of the wants of consumers. But the expressed wants of consumers do not necessarily constitute a market situation. A combination of consumers to satisfy their wants could very well be a den of thieves.

When the power of government is invoked to plunder property, in the name of war on poverty, any receiver of such loot must recognize that he possesses it at his own risk. The “human right” to plunder is a denial of the right to own and control property. It simply proclaims that might makes right; and that’s a rough game for the meek and weak. That is precisely how thieves operate: non-owners deciding how an owner may or may not use his property.

The more we observe and become involved in the government war on poverty, the clearer comes the message: War against poverty is war against property, and war against property is war against the poor.

Monetary Misunderstanding

Much of the confusion about all this may be traced to the love of money, under the illusion that money as such is wealth. True, at a given moment, a quantity of money given to a poor person will enable him to buy goods and services otherwise beyond his reach. But his level of living depends upon the goods and services rather than the money. And redistributing the money supply does nothing as such to increase the total available supply of goods and services. It simply transfers buying power from one person to another. Such transfer, however, has important consequences.

Who buys what affects price and consumption and saving and production patterns throughout the economy. When money is taxed from one person and given to another, to equalize wealth, there is the strong probability that goods and services will be diverted from productive use to immediate consumption. Taxing the fruits of saving and productive effort discourages thrift and work. Subsidizing idleness increases it. This is the reason why compulsory socialism has failed to relieve poverty when and wherever it has been tried. It redistributes the money supply, but with consequences that waste resources and lives and lead relentlessly toward famine.

The formula, “from each according to his ability and to each according to his need,” simply empties the breadbasket faster than it can be filled. Within our lifetimes we have seen this happening in Russia, Red China, India, Cuba, and other nations willing to accept every gift the free world has offered— but not willing to practice freedom. And perhaps the most dramatic of all examples was afforded by the history of the Plymouth Colony in the New World. The first years of communal effort, pooling the harvest and sharing “according to need,” were marked by dissension, dearth, and death. Fortunately, the settlers then tried private ownership of the land and the fruits of each owner’s labor; and hunger and famine have been unknown in the land since that change.

The reason why socialism fails to relieve poverty comes clearer if one looks behind the monetary screen. Then it may be seen that material wealth is comprised of hoes and rakes and wheelbarrows, among other things.

Taking from a worker half the tools he needs to do a decent job (or taking them from that worker’s employer) and dividing the proceeds among the poor in the form of consumer goods lowers the production potential of such a society. It’s a grasshopper’s way of high living for the moment and no thought for the morrow. The industrial revolution, that makes for a high level of production and a high level of living for all industrious and thrifty members of society, is contingent upon respect for private property in the hands of those who have earned and saved it for a purpose. Owners of tools are in a position to hire others to help them use those tools for productive purposes. As previously discussed, competition obliges the owners of resources to use them efficiently and in a responsible manner.

The public-sector war on property includes various governmental programs of a socialistic nature such as outlined by Marx and Engels in The Communist Manifesto. And these may be studied at close range without traveling to Russia or Red China or Cuba. What country today lacks experience with price supports and price ceilings, rent controls, minimum wage and maximum profit laws, rate regulations and other controls over interest, electricity, gas, water, housing, garbage disposal, communications, travel, insurance, banking, and what not? Where in today’s world is a person free to assume his own risks against the vicissitudes of old age, illness, illiteracy, illegitimacy, indigence, and unemployment instead of being taxed for everybody else’s benefit? What country is free of such protectionist measures as tariffs, quotas, embargoes, and similar restraints of trade? All these are forms of plunder, war on property, class warfare in the Marxian sense.

Helping the Aged

Most of us readily recognize plunder when it takes the form of force applied to a person or to his property by an authoritarian dictator or by some unlicensed crook. But what do we make of a proposition like this from President Johnson’s “Message on Older Americans” addressed to Congress last January?

“We should look upon the growing number of older citizens, not as a problem or a burden for our democracy, but as an opportunity to enrich their lives, and, through them, the lives of all of us.”

The President was advocating further expansion of the social security program originally enacted in 1935. After all these years, who could possibly question so worthy a goal as helping ourselves by helping the aged? Yet, compulsory social security is a plundering game, perhaps more harmful in the long run simply because its ultimate impact was so dimly foreseen in the beginning.

The social security tax bill has doubled on the average every six years since the first collections in 1937. It amounted to $20 billion in 1966 and threatens, under new proposals, to double again by 1974. A younger worker, facing the prospect of an annual social security tax of $1,000 or more, surely must suspect that this could become “a burden for our democracy.” Every taxpayer knows that taxes are a burden.

But is the taxpayer the only victim of the social security plunder game? What of the harm done the recipients of such handouts? Are their lives truly enriched by relieving them of the responsibility and the opportunity to grow out of their own errors and misfortunes? Can a life be enriched, except as it becomes more useful? Just how does a government promise of old age assistance help anyone to help himself?

We know the harmful consequences of paternalism beyond the call of duty within the family. And we also should understand the danger of paternalistic practices on a societal scale. That danger lies in the moral and economic impoverishment of the victims of such intervention.

Urban Renewal

Not all of the various welfare programs of compulsory intervention and redistribution have been as clearly cost-accounted and measured in their impact as the Federal urban renewal program has been weighed by Professor Anderson. But there is no reason to expect any other result from any of the other seizures or controls of private property intended to overcome poverty. The noblest of intentions may go unrealized. But the unforeseen and inevitable consequences are quite real.

When government sets the price of bread below the market level, there are two victims: the producer of bread who is driven out of business, and the consumer who is left waiting in line for the bread that was not produced. The victims of rent control are as much the tenants who cannot find housing space as the landlords who cannot supply it at that fixed price. Minimum wage laws injure not only the employers who cannot afford to hire at such wages but also the employees incapable of earning them. The same tariff that bars a producer from the market also bars a consumer. Every consumer subsidy is a tax upon producers, a war against property that injures the poor.

The Key to Jobs

The private ownership of resources by persons most capable of using them productively is the key to job opportunities and more abundant living for the poor. The “lower third” and the “upper third” and the “middle class” have a common interest in protecting the private ownership of property. The jobs and livelihoods and lives of all depend upon it. Any person who hopes to sell his services ought to see that his prospects depend upon property owners. Their right to own and use property, coupled with their ability to manage it well, create job opportunities for others. If a person is not satisfied to be an employee of a property owner, he may turn to self-employment. In that case, he will need to save for tools—become a property owner himself—if he is to succeed.

So, in any case, whether a person be relatively wealthy or relatively poor, it is to his own best interest to respect and uphold the private ownership of property. When a government seizes private property, or otherwise clouds an owner’s title in the name of war on poverty, it is the poor of that society who can least afford the costs of such warfare. They will be the first to starve.

Riots in History

Whenever a government exploits taxpayers to the point of serious inflation, which amounts to a heavy tax burden on the poor, riots and insurrection are to be expected.

What is happening in the urban centers of the United States today has happened before, and in strikingly similar fashion, among over-governed and over-taxed people throughout history. Official court historians always have ascribed the inevitable rioting to such handy scapegoats as gouging merchants, greedy landlords, brutal local policemen, slave-owning ancestors, and every other reason except the real one: too much government intervention and too little personal freedom.

This is not to defend the earlier practice of slavery in America and elsewhere or the mistaken and harmful practices of shortsighted marketeers or short-tempered lawmen. Human beings make mistakes; and each such mistake has consequences that ripple through society, often for years. But human progress is not a process of building molehill mistakes of the moment into permanent mountains of misery. Unless we can learn by our errors to do otherwise, we are condemned to keep on repeating them. And our most terrible mistake is to fall upon an earlier evil as the justification for a new one. The horrors of slavery can never be erased by a new reign of arson, looting, murder, and riotous brutality.

The French Revolution: from Inflation to Napoleon

Louis XVI had recklessly spent France to the verge of bankruptcy by 1789, and inflation was to be the “short road to prosperity.” Despite abundant warnings from those who recalled the history and disaster of earlier inflationary practices, the members of the French National Assembly voted ever-larger and more frequent issues of irredeemable paper money. But the inflation, as always, aggravated the very evils it was proposed to cure.

What began as the confiscation of the property of the Church, the leading landlord of France at that time, became the excuse for more and more printing of worthless “assignats.” This growing flood of “purchasing power” caused the skyrocketing of prices, prompting businessmen to expand operations but often in a wrong direction leading toward personal failure and bankruptcy and unemployed workers. And, as usual during inflation, wages failed to keep pace with rising costs of living. Workers’ savings were exhausted, along with any reason that might have held for saving in the first place. Thus the relentless inflation took its toll from among the very poor it had promised so much to help. Meanwhile, the recklessly-spending and money-printing government had shifted the blame for rising prices onto merchants and landlords and other businessmen equally trapped by events; maximum price laws and other disrupting control measures were enacted with death penalties for violators. But the people rioted, regardless, and the guillotine eventually claimed the heads of those whose good intentions had brought on all the trouble.

And the only thing the people of France gained from that particular version of the Great Society was Napoleon!

The ways in which Louis XVI spent taxpayers’ money in 1790 doubtless would seem foolish to heads of state in 1967. But there is no indication that Louis was giving the money to enemy nations, or waging war at the opposite side of the world on behalf of one unfriendly nation against other unfriendly nations, or planning to colonize the moon. It is true that modem rulers have found interesting new ways to bankrupt their country’s treasury. And the resultant inflationary resort to the printing presses may be slightly more sophisticated today. But reckless spending of artificially created purchasing power still spells inflation, and today’s riots by the tax-burdened and dispossessed poor of Detroit are very much the same as the riots of Paris in the 1790’s.

Offering Explanations That Won’t Stand Scrutiny

It is not that some of the looters are the great grandchildren of Negro slaves; doubtless among them also are to be found the great grandchildren of slave owners and of ardent Abolitionists of a century earlier.

It is not that the rioters are poor; the poor of the world have as good a record for peace and honesty and brotherly love and law-abiding citizenship as have those on any other rung of the economic ladder.

Nor is it that those who flout the laws of the land have been denied educational opportunity; many of their provocateurs and leaders in violence are holders of college degrees with campus training for insurrection.

Our riotous friends are the unhappy victims of the false promises and bulldozer practices of the welfare state.

These are individuals who have been dispossessed, driven from the modest homes they could afford in the name of slum clearance and urban renewal and public housing. They are urban dwellers obliged to pay in higher grocery bills for an annual $6 billion farm relief program. They are subject to draft for “somebody else’s” war that seems far more likely to threaten than to strengthen American security. They are unemployed by reason of special privileges that have been extended to the leadership of organized labor unions. They are asked to pay for the protection granted industry in the form of tariffs, quotas, embargoes, and other price-hiking barriers to world commerce. They have been guaranteed subsistence, but with shackles attached. A slave to handouts and subsidies, for which he himself must pay in the end, is nonetheless a slave. Stripped of his self-responsibility and his self-respect, he may not be expected to understand or respect the lives or the properties of others who have earned their rights. The poor of our nation have been promised the moon—and presented the bill! And they riot against this evil they cannot understand.

Nor is it easy to understand. The aftermath of a Watts or a Newark or a Detroit riot must appear to the careful observer very much like the gaping wounds in “demonstration cities” when the Federal bulldozer of urban renewal has taken its toll of homes and businesses and displaced persons. It may be said for the rioting, looting, and burning that it is considerably faster and less costly than the legalized method of urban demolition. But that does not excuse the violence or the destruction involved in either procedure.

And what it will cost to rebuild the wrecked homes and businesses and lives all depends on whether it is attempted by the compulsory methods of government planning and taxation or by the voluntary cooperation of self-responsible and self-respecting individuals in the open competition of the market. What we can be certain of is that one method is warlike and the other is peaceful. And that should be sufficient reason for anyone to cast his vote for freedom.

Footnotes

1 March 27, 1792. From Letters and Other Writings of James Madison, Vol. IV, pp. 478-480

2 Reproduced from the original manuscript with slight changes only in style and form

3 FEE, 1952, as excerpted from the July 1952 Monthly Letter of the National City Bank and the October 1952 Guaranty Survey of the Guaranty Trust Company

4 From The Freeman, July 1962

5 F. A. Hayek, “The Use of Knowledge in Society,” The American Economic Review, Vol. XXXV, No. 4, September 1945; reprinted in The Freeman, May 1961.

6 Hans Sennholz, “The Phantom Called Monopoly” (Reading No. 53).

7 From The Freeman, October 1967

8 U. S. News & World Report, July 17, 1967, p. 44.

9 Martin Anderson. The Federal Bulldozer: A Critical Analysis of Urban Renewal, 1949-1962 (Cambridge, Massachusetts: The M.I.T. Press, 1964). 272 pp.

10 Andrew Dickson White. Fiat Money Inflation in France (Irvington-on-Hudson, N. Y., Foundation for Economic Education, Inc.).

• 1PROPERTY9.*
• 2LETTER TO HIS STEPBROTHER10.*
• 3PROPERTY RIGHTS AND HUMAN RIGHTS11.*
• 4WHO CONSERVES OUR RESOURCES?12.*
• 5(4a) Offhand it would seem that a government might have access to more data about scarce resources than would a private enterpriser. But government cannot bring forth the detailed information so vital to sound decision. The kind of detailed knowledge needed simply isn’t “given to anyone in its totality,” as Hayek has pointed out.12.1 “Knowledge of the circumstances of which we must make use never exists in concentrated or integrated form,” he states, “but solely as dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.” Yet, producers need such information before they can decide how to act. The chief communicator of this knowledge is free price movements. If the price of a given resource continues upward, this tells producers all they need to know about its increasing scarcity and signals them to conserve it, to use it sparingly and for the most valuable products. Advocates of government planning never seem to grasp how this works, for they are constantly tampering with market forces, distorting the delicate price signals that could otherwise guide them. Thus, government planners must rely on using general data obtained by crude polling methods which are unreliable for action in specific economic areas and are out of date before they can be collected, analyzed, and summarized. Moreover, such studies cannot tell the government controller as much as free price movements tell individuals acting in a particular market as buyers or sellers.
• 6(6a) If concentration of power in corporations is too great to be permitted, what about the ultimate concentration of power in a government institution beyond the regulation of market forces? Government is unaccountable in the sense that it is not obliged to please consumers in order to stay in business. If it does not show a profit, its losses can be covered by tax money. Big corporations can behave in monopolistic fashion only if they enjoy government privileges of some kind. Potential competition, substitution, and elasticity of demand force them to keep prices close to the competitive level.12.2
• 7THE WAR ON PROPERTY13.*
• 8The results, after more than 30 years of Federal “war on poverty” in America, suggest that the campaign has failed. “Instead of temporary aid, relief has become a permanent way of life for millions. Second and third generations of families now live on relief.”13.1 Nor is it that the millions in this new class of poverty-stricken are simply destitute of the material manifestations of private property. Far worse; many have lost their self-respect and the respect of their fellow men; they have lost their human dignity. What can these persons claim as their own?
• 9Another campaign front in the general war on poverty has been that of Federal urban renewal. Professor Martin Anderson has admirably documented the failure of that program.13.2 More homes were destroyed than have been built under the program; and those destroyed were predominantly low-rent homes while those built were predominantly high-rent homes. Many of the small business firms displaced by urban renewal went out of business, while others relocated in higher-rent and higher-cost areas; very few have ever moved back into the urban renewal area. Most renewal programs decrease the tax revenues flowing into the cities’ tax coffers, placing added tax burdens on presumably unaffected properties. And all programs involve the use of the power of eminent domain to take the property of some for redistribution or use by others. So, urban renewal is a form of the war against property; and the major victims have been the families of the very persons—the poor—in whose interests the program supposedly was initiated.
• 10A clearer view of current happenings in Newark, Detroit, and other trouble spots in the United States may be possible if we look back with that scholarly historian, Andrew Dickson White, at the sequence of events during the French Revolution when the United States was a mere babe in arms.13.3