Freedom in One Lesson

34.

To Alleviate Misfortune

“No one must profit from the misfortune of others.” I hear and read such assertions virtually every time there is an emergency or disaster or whenever some good is considered essential or “necessary.”

That is why, when I found that quote at the head of Leonard Read’s article “ To Alleviate Misfortune” (Read 1963b), from the November 1963 issue of The Freeman, it drew me in, just as a pull quote is designed to. Read offers a well thought-out analysis of this notion, which has been so often repeated with the presumption that no one with any empathy could harbor a different opinion. “Socialists . . . will, invariably, use bad predicament, disaster, misfortune as an argument for socialization. It is important that we not be taken in by this ‘reasoning.’”

Read gives an interesting version of a slippery-slope argument about defending private-property rights and voluntary associations in markets. “Once we concede that socialism is a valid means to alleviate distress, regardless of how serious the plight, we affirm the validity of socialism in all activities.”

When some allegedly essential good is unusually scarce, as may occur in a crisis or emergency, then making the best use of what is available could be considered even more important than usual. Such a situation makes a strong case for market mechanisms over clumsy and inefficient government allocation or even a complete government takeover.

When we rule out profit or the hope of gain as a proper motive to supply drugs or to alleviate illness or to provide other remedies for misfortune, we must, perforce, dismiss profit as a proper motivation for the attainment of any economic end.

Read makes his case with an example few would have thought of: power tools.

Consider the scope of misfortune. True, illness is a misfortune as would be the nonavailability of drugs. But . . . the absence of any good or service on which we have become dependent qualifies as misfortune. Imagine the disappearance of all power tools. This would be . . . disastrous. . . . Our dependence on power tools is such that most of us would perish were they to disappear. But does the possibility of their disappearance (and the inevitable mass suffering and death that would follow it) warrant the setting up of a state owned and operated power tool industry?

He then asks an interesting question I had never considered before: Isn’t almost every economic effort we put forward an attempt to stave off some sort of misfortune or difficulty in a world of unavoidable scarcity? For example, don’t we routinely work so that we have the resources to avoid homelessness, alleviate hunger, and combat illness?

Viewed in economic terms, man spends his earthly days working himself out of and insuring against this or that type of misfortune. Bad predicament is our lot except as we succeed in extricating ourselves. . . . Economics, as a discipline, concerns itself with the means of overcoming the scarcity of goods and services, and it matters not one whit what good or service is in short supply.

The principles of economics apply in times of crisis just as they do at any other time, and they should inform our consideration of situations where, “ broadly speaking, two systems, now in heated contention, are advanced as the appropriate means to overcome economic misfortune.”

The first, to any casual observer, looks more like chaos than a system. Its credo is freedom in exchange: Let everyone act creatively as he wishes, inattentive to five-year plans or the like; that is, let each person pursue his own gain or profit . . . as long as he allows the same freedom to others. Government, the social agency of compulsion, has no say-so whatsoever in creative actions; it is limited to framing and enforcing the taboos against fraud, violence, predation, and other destructive actions. This philosophy permits no man to ride herd over men. Would-be dictators, mind your own business! The right to the fruits of one’s own labor is of its essence, individual freedom of choice its privilege, open opportunity for everyone its promise, the hope of personal achievement—gain or profit—its motivator. Call this the market economy.

The second is definitely a system: an organized, political hierarchy planning everything for everyone. The hierarchy prescribes what people shall produce, what goods and services they may exchange and with whom and on what terms. . . . It is arbitrary people-control by the few who succeed in gaining political authority. . . . Freedom of choice, private ownership, and profit are among its taboos. Briefly, it is the state ownership and control of the means as well as the results of production. Call this socialism.

The market economy is based on defending property rights and freedom of association, preventing the expropriation of some for the gain of others. But socializing choices is often a mechanism for enacting such expropriation.

No question about it, the results of production can be and are successfully socialized, that is, they can be and are effectively expropriated. Further, they can be and are redistributed according to the whims of the hierarchy and/or political pressures. But socialism, like Robin Hoodism, demands and presupposes a wealth situation which socialism itself is utterly incapable of creating. It can redistribute the golden eggs but it cannot lay them. And it kills the goose!

Read then turns to the Pilgrims for a particularly clear and painful illustration. The common property systems originally in use in both Plymouth and Jamestown produced terrible results. Of Jamestown’s initial 104 colonists, sixty-six died within six months, most from famine. Only sixty of five hundred arrivals two years later survived that long. The consequences of this “starving time” included cannibalism. Plymouth’s first colonists did not fare much better: only about half survived six months, and some, in desperation, sold their clothes and blankets to the natives or became their servants.

Refer to the early Pilgrim experience. . . . All produce was coerced into a common warehouse and distributed according ‘to need.’ But the warehouse was always running out of provender; the Pilgrims were starving and dying. They did, in fact, socialize the results of production but, by so doing, they weakened the means and, thus, had little in the way of results to distribute.

Read then addresses the misconception that profits increase costs, when in reality they arise from decreases in costs to the consumer. This belief prevents people from seeing how markets (i.e., the mechanisms they adopt voluntarily when given the choice) serve them better than centralized allocation.

Those who have few if any insights into the miracle of the market are led into the false notion that the communalization or communization or socialization of an activity reduces costs because no profit is allowed. The fact is to the contrary. . . .

A distinguishing feature of the market economy is the profit and loss system. But, contrary to what casual scrutiny reveals, profits are not added into price; they are, in effect, taken out of cost. The profit and loss system is an impersonal, couldn’t-care-less, signaling system: the hope of profits entices would-be enterprisers into a given activity and losses ruthlessly weed out inefficient, high-cost producers.

With his analysis of the claim that “no one must profit from the misfortune of others” being very different from what we so often hear, it is no surprise that Read comes to a different conclusion as well.

When [threatened by] misfortune, we should not attempt revival by a resort to socialism, for it can perform no more than a malfunction. . . . [Instead], remove the fetters! Free the market . . . let the hope of profit attract all aspiring producers and let the stern, uncompromising, impersonal lash of losses weed out the inefficient, leaving only the most efficient in charge of overcoming our bad predicaments.

. . . Looking solely at the enormous record, the individuals sorted out by the market are more efficient (lowercost) managers of human and natural resources than are political appointees. If we remove the hope of profit as a means to alleviate misfortune—poverty, illness, misery, disaster—we shall increase our misfortunes.