A case for the free market pt 3

Recently a friend wrote me with questions regarding how to answer a college professor who was deriding capitalism for its alleged mistreatment of people, especially in the workplace and the maximization of greed.  I am going to post my response in a series to show why I believe the market should be trusted over and against the government to make nearly everything in the world, including the work place in environment a better place.

Part 1
Part 2
Part 3

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Q. Where does the fallen nature of man come in? Will wealthy factory owners really consider the wellbeing of their workers without government involvement? How does the free market correct bad working conditions?


Realizing the fallen nature of man tells us that we cannot trust men with much power at all. Evils are smaller in scale that are committed individually than are those that can be committed by a group that has a monopoly on the use of force such as the government.  Can individuals and organizations (formal or informal) commit evils?  Yes, they can, certainly.  The free market does not promise a rose garden.  But I'd rather have that than worry about what individuals will do who have the power to tax, redistribute wealth, a massive military and police force at their disposal, regulate businesses, education, healthcare etc. 

We ought to get rid of this romantic notion that the government schools teach us that government legislators and bureaucrats have our best interest in mind and are beneficent to the citizenry.  That isn't how it works at all.  Government politicians and bureaucrats make decisions the same way every other person does, according to their self-interest.  Not a bad thing at all.  What is bad is when we think they act in with the public interest in mind and give them more power and authority.  Not the case at all.  Of course, we're told that they act with yours and the public interests in mind but that just isn't the case.  In their particular situation they are most interested in keeping their jobs and growing their agencies.  So that means they will do what it takes to stay elected and growing their department/agency. 

All that said, let’s look at your next question: "Will wealthy factory owners really consider the wellbeing of their workers without government involvement?"  You're presupposing that the government actually cares that citizens have nice work environments, or at least that they care more than the factory owners.  I don't think there is any basis for that.  I think a bureaucrat or politician in DC or Lansing really doesn't care about the kind of conditions your dad works in, for instance.  The only reason he may push for measures or regulations to improve the environment are to have the appearance of doing well and thus get reelected.  Are all business owners perfect and do they all look out well for their employees making sure working conditions are phenomenal? No, not at all.  But these two points are important: 1) Sometimes the "wellbeing" of employees (I place in quotes since what that means is debatable and really only individual employees can know what that means for themselves) simply cannot be improved due to external factors no matter how nice the owner is and how long term thinking he is (the more long term thinker will take short term losses to make conditions better knowing it will help in the long term).  19th century America, great example.  There just wasn't a lot of technology back then to implement.  Not as many cleaning chemicals, etc. etc.  So, this applies to your professor’s accusation.  Sometimes the technology just hasn't been invented yet.  The captains of industry (derided by many as "robber barons") we're (and do not) purposely withhold good conditions and technology just to screw the workers because they're not nice.  2) If we allow businesses to compete conditions will improve over time on their own.  If an employee has pathetic conditions and that matters enough to him he will go to a place that has better conditions.  Eventually, the business losing employees will either fail or improve the conditions.  One of those two things will happen.  So yes, wealthy factory owners actually will consider the people who work for them, even if they are cruel people who don't give a darn for their employees, because they know without loyal employees and people who like their environment their business will fail.  And if they want to succeed, continue making a profit, they will have to do so.  This is how we get most everything that is fabulous in life, through competition, and people acting in their own self-interest.

As to your last question: "How does the free market correct for bad working conditions?" remember that it is all relative.  It takes patience and it takes competition.  Bad working conditions in USA 2011 are going to be far different than USA 1911.   It also takes patience because things that need fixing won't be improved instantly.  We're often impatient and for some reason have this notion that if the government makes a law that'll fix everything straightway.  Working conditions in Laos 2011, with their low pay, are far better than they were 40 years ago, and better than the alternatives.  I'd rather see sweat shops than sex trafficking.  And frankly, one of the best ways to decrease sex trafficking is by making business opportunities to people in poor areas no matter how low the conditions and pay.  It takes time and we need to be satisfied with incremental change in the right direction.  The USA wasn't born first world, though thanks to being born in the Greco-Roman and Western tradition we had a lot going for us.  After a couple centuries of virtually unfettered capitalism we got where we were today.

Again, much more could be said and whole books are written on this subject.  I'd encourage you to read them.  Feel free to point out errors in my logic or ask follow up questions. 

A case for the free market pt 2

Recently a friend asked me some questions regarding how to answer a college professor who was deriding capitalism for it's alleged mistreatment of people, especially in the workplace and the maximization of greed.  I am going to post my response in a series to show why I believe the market should be trusted over and against the government to make nearly everything in the world, including the work place in environment a better place.

Part 1
Part 2
Part 3

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Remember this foundational point from economics.  In a free, voluntary trade (where no one is forcing or coercing one of the parties to agree) there is mutual benefit.  I give you a pencil, you give me 10 cents. we are both better off.  If that were not the case, it would be ludicrous to trade.  People trade because they know by doing so they will be wealthier - their standard of life will be better.  I buy an iPad because I'd rather have that than the dollars I used to buy it.  This principle holds true in all places, in all times for all people.  When I bought lithium batteries in Islamabad I am better off for having the batteries and the shop owner is better off because now he has more rupees.  No matter how simple or complex the trade this holds true, period.  So again, if a 12 year old girl in Bangladesh is working in a so called child labor factory for a small sum, let’s say $2 a day, she is doing that that because it is very likely her best option.  Manufacturing plants and overseas outsourcing are such a boon for the areas they go to because of the wealth they bring to the people and because they lift them out of less desirable jobs like prostitution and other forms of slavery. 

Another question to remember, and then I'll probably write part two to you this weekend.  Often people (like your history professor) ask "why do we have poverty?" or "why are these people in such poor conditions?"  And they usually blame capitalism or some other cause that isn't the case...lack of natural resources, lack of education, etc. etc.  Actually the correct answer is the lack of capitalism or an oppressive government (both the same thing).  Ok, but here is the question we should be asking: "Where does wealth come from?"  Or "Why is such and such a people wealthy?”  An extremely small percentage of the world's percentage of people are wealthy and so the real anomaly are those of us who are.  Why is that? 

When I say wealthy, I don't just mean lots of cash and big bank accounts.  Remember that wealth means anything that makes life worth living or enjoyable for each individual.  Some people might value a ton of money and not much else, ok fine, that's weird but fine. Others might value hiking trips, going to sporting events, owning big entertainment centers, giving large sums of time and money to others, large libraries, a decent wardrobe, etc. etc.  All the cash in the world won't do you a lick of good if you don't have other things by which you enjoy your work and leisure.  What gets translated Bibles into the hands of the African Komono people? Wealth, lots of it.  In a world stuck in a poverty there is absolutely no way to spread and enjoy the truly rich things of life, whether that be Handel's Messiah oratorio, an art museum, a helicopter ride over a volcano, or spreading literature to other people groups. 

So where does all this wealth come from that we (or anyone) has?  In short, it is due to giving people the freedom of choice in their lives.  Letting people decide what they want to do, how they want to do it, what they want to spend, and what they want to save.  Your dad and family are not wealthy because of your dad's amazing ability to work with spreadsheets.  The biggest reason for you your family is wealthy and you can live where you live and go to school where you go etc. is due in large part to people of the 18-19th century who did not live under an oppressive government and were free to conduct business as they wish and compete without the government stepping in. 

Why is there a third world and why was America a third world country at one point? Because we all start with nothing (this country wasn't born on July 4th, 1776 with an infrastructure and clean workplaces).  If we leave men and woman free to make their own decisions free to unleash the creative spirit and passion all of us individuals have *and* responsible for their actions, even if those consequences will be negative, then there is no telling the kind of wealth and progress and peace that will result.  Leave a person responsible for his decisions and soon enough, and in the vast majority of cases he will learn from his decisions and make better ones than poorer ones, becoming successful.  Poor decisions will reap poor results and good decisions will reap good results.  "God is not mocked; a man reaps what he sows."

So bring on the Rockefellers, and the Carnegies and the Wal-Marts of the world.  Because they have done the world far, far more good than ill and have done virtually incalculable good for the people they sell to and the people who work for them. 

A case for the free market pt 1

Recently a friend wrote me with questions regarding how to answer a college professor who was deriding capitalism for it's alleged mistreatment of people, especially in the workplace and the maximization of greed.  I am going to post my response in a series to show why I believe the market should be trusted over and against the government to make nearly everything in the world, including the work place in environment a better place.

Part 1
Part 2
Part 3

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There are two things about man that if we understand them provide a solid foundation for free market capitalism.  By the way, when I use that phrase I don't mean the kind of "free market" we have in this country, since our market isn't all that free anymore, and it's getting worse.  I mean the kind that would exist if most laws and regulations we have were obsolete.

1) Man is fallen and prone to great error.  If given the chance he will try to rip others off to get off good himself.
2) Man is made is made in the image of God.  We have a dignity and will that can and should never be taken away from us by anyone.

What should we do because of our depravity?  Place as little power in the hands of others as possible.  Lord Acton said, "Power corrupts and absolute power corrupts absolutely."  For from being a reason for preventing so called monopolies or "big" business or "big" paychecks, etc. man's fallenness is a reason to not give our fellow man much power (such as the kind our own government has).  Money, wealth, a business, popularity, etc. are not power.  A business or a person cannot force you to do something...unless they're government.  The government has a monopoly on the use of force in this country and can force people to do whatever it wishes.  If Microsoft wants to sell you software for $50 or Nikon wants to sell you a camera for $156 you are perfectly free to walk away from the sale for a different sale or just to save your money.  Those businesses are absolutely powerless when it comes to the relationship between the seller and the consumer.  Ok, so the main point is limit power as much as possible, and that means the power of the government.  Why? Because if we don't it will expand and expand until its tentacles are involved in everything from the education of your children to the healthcare your family receives (or doesn't receive!).  Books have been written on this subject (the formal school of thought is called Public Choice) but I just gave you one paragraph.

What should we do given that we are made in the Image of God?  We should maximize individual freedom.  Man has inherent dignity and was born to be free, not enslaved or told by others what to do or have his life taken from him.  A man should be free to decide what kind of job he wants and what his pay will be (obviously, by agreeing with his employer).  A man should be free to live where he wants, regardless of arbitrary borders.  A man should be free to eat what he wants even and have a particular life style even if we may not agree with it and it may be detrimental to himself.  It is simply not our right to force people to make certain decisions or close them out of certain decisions.  (A minimum wage is an example of closing people out of decisions because one may be willing to work for $5/hour but now is not able to even have a job because employers aren't legally allowed to pay at that rate; the government school system is an example of the government making decisions for you, in regards to how your children will be taught for 6 hours a day the first 13 years of their life.)   So, to bring it home to your specific example from "The Jungle", if someone freely chooses to work in a filthy factory for "low" wages he should be free to do that.

-continued in next post

The coming great depression

Recently, Larry Reed, the President of the Foundation for Economic Education answered some questions for students from the Students for Liberty organization regarding the Great Depression of the 20th century.  I will be posting a handful of those questions and answers as they are relatively short and a good introduction to the ideas of liberty.

 “What are some of the primary causes of the upcoming Depression? What can be done to avoid it”

Answer: If another Great Depression comes, it will be once again because we have allowed politicians and their appointees to possess a commanding height of the economy, namely, control of our money and credit supply. Secondarily, another Great Depression could also come, or be exacerbated by, extraordinary uncertainty and high costs (taxes, regulations, tariffs) imposed by politicians and the rapacious, largely unaccountable bureaucracies they create. There may be no way to completely avoid a serious downturn in the future even if we pursued the proper policies of ending the Federal Reserve System and massively cutting the spending and intrusions of government, unleashing the entrepreneur and reviving civil society and personal character. You can’t get drunk without a hangover, but at least you can stop imbibing the intoxicants, dry out, and get a new, sound, and sustainable foundation for growth, sound money and honest living.

Does speculation have a place in the free market or should it be regulated?

Recently, Larry Reed, the President of the Foundation for Economic Education answered some questions for students from the Students for Liberty organization regarding the Great Depression.  I will be posting a handful of those questions and answers as they are relatively short and a good introduction to the ideas of liberty.


“The European Union intends to regulate speculation of agricultural goods in order to decrease prices now. What do you think of that?”

Answer: Not much. Speculation has long been a bogeyman to ignorant and demagogic politicians. They fail to understand that speculators perform valuable functions in a free market. For instance: If there’s good reason to expect future supplies of something will be more or less plentiful relative to demand than is the case now, the action of speculators tends to smooth out price swings. If it looks like a freeze in Florida might cut the orange crop in a few days, for instance, speculators push up prices right now. Some say, “That’s awful because it doesn’t reflect current supply demand. The speculators are profiting off of the future misfortune of others!” But by boosting prices today for today’s supply, it tends to curtail today’s demand and push some of today’s abundant supply into the future when it will keep prices lower than would be the case if the freeze does happen. And of course, speculators are assuming risk here than many of us are not willing to take, and if the speculator’s speculations prove wrong, they will suffer the losses.

Beyond that, I have utterly no confidence in the silly central planners of the European Union. They are pretentious politicians who respond to political pressures, charlatans who fall for fallacies that keep themselves busy and holding jobs while others labor to overcome their stupid policies. Many of them, like our own politicians, might even be unemployable in the absence of a government sinecure. They should be fired and the market should be allowed to work.

Did you know the US government made owning gold illegal last century?

Recently, Larry Reed, the President of the Foundation for Economic Education answered some questions for students from the Students for Liberty organization.  I will be posting a handful of those questions and answers as they are relatively short and a good introduction to the ideas of liberty.

“How did they get away with the gold seizures?”

The “state of emergency” during the several depressed economy provided an atmosphere wherein such unwarranted and totalitarian measures could be imposed with little public opposition. Moreover, as a sad commentary on judicial independence, wisdom and constitutional fealty, no court ever reversed the action and ruled that seizing our gold was unconstitutional. It was finally undone by Congress and private gold ownership was once again permitted in 1974.

How did the economy recover after the Great Depression and World War 2?

Recently, Larry Reed, the President of the Foundation for Economic Education answered some questions for students from the Students for Liberty organization.  I will be posting a handful of those questions and answers as they are relatively short and a good introduction to the ideas of liberty.

“How did the economy recover after world War II with the high income tax rates, which were maintained until the 1960s, still in place?”

Answer: Personal income tax rates did indeed remain high for a while after the war. Eisenhower cut the top rate a mere 1% from 92% to 91% in the 1950s. But by 1960, John Kennedy, a Democrat, campaigned on a platform calling for more robust growth. He rightly asserted that the economy of the 1950s was more sluggish than it needed to be and part of his solution to it was to bring that top rate down to 70%. Later, under Reagan, who rightly argued that 70% was way too high and a massive disincentive, cut the top rate down to 50% and then down to just 28%, a big reason for the sustained economic boom and remarkable innovations and entrepreneurship of the 1908s.

But the economy after the war did benefit from some major, positive things that allowed for a post-war boom: a) in 1945, the top corporate income tax rate was lowered massively, from 90% to just 38%; b) we had the greatest reduction in federal spending in U.S. history (largely because of war demobilization), which meant that resources tied up by government were now released to be deployed more efficiently for consumers (we started making refrigerators and cars instead of tanks and guns); c) war-time price controls and rationing were abolished; d) the “regime uncertainty” as Prof. Robert Higgs would put it, was substantially relieved when FDR checked in at the pearly gates for whatever reward awaited him and there was much less “attack business” demagoguery spewing forth from incompetents in Washington.

What causes economic downturns

Recently, Larry Reed, the President of the Foundation for Economic Education answered some questions for students from the Students for Liberty organization.  I will be posting a handful of those questions and answers as they are relatively short and a good introduction to the ideas of liberty.


“As the money supply grows and malinvestments gather in the economy, what is the straw the breaks the camel's back and causes the bust? As in, why do all the malinvestments collapse at one time?”

Answer: Let’s assume from the start that what you are referring to, Scott, is a growth in the money supply that occurs because of government policy, not natural forces in a free, healthy, responsive and competitive money market. I think that indeed is what you are implying because it is precisely that scenario that produces the subsequent “malinvestments” you are referring to.

Keep in mind that many different, usually unpredictable “straws” can break the camel’s back, so to speak, and cause a bust or downtown to begin. Monetary policy that is artificially inflationary and driven by government authorities certainly sets us up for that day to eventually happen, but the unsustainable directions that bad policy puts into place creates an inherent instability that can reverse because of any number of shocks that could take place, such as panics in other markets, wars, additional bad government regulatory policy, etc. But generally speaking, the bust commences after a period when monetary policy has reversed, that is, became less expansionary or even contractionary. The earlier, temporarily “stimulative” effect (especially in capital goods) of the expansionary policy wears off and dissipates throughout the economy, interest rates begin to rise, projects that seemed affordable but now become increasingly costly to continue to finance, and investors grow less confident of the future. The smart money sees these changes first and begin to sell and disinvest. Later, a stampede can begin as the masses of people sense change in the air.

In hindsight, the malinvestments seem to have occurred at about the same time period, as you suggest. This very fact is evidence of a systemic problem, not a particular economic sector problem—which is to say, it’s evidence that unwise monetary policy (which affects everything) is the culprit, not cycles peculiar to particular industries (there’s a natural boom and bust in tomatoes, for instance—lots of activity at planting time, a little less during growth, lots of activity again during harvest time, then nothing until the winter’s over, but that doesn’t produce economy-wide swings). Malinvestments are fostered in the first place by the false signals sent by inflationary monetary policy that suggest—falsely through low interest rates—that people’s time preferences have changed when they may really haven’t, that it will pay to borrow money now at artificially low interest rates to finance long-term, capital-intensive projects that will yield sufficient happy, paying customers down the road. But that’s a short-term phenomenon. It sends business in directions they wouldn’t have gone without the falsification of interest rates and relative prices caused by the monetary policy. When that policy changes, or wears off, or is reversed, it knocks the bottom out from the house of cards and many business plunge at about the same time.

This seeming failure of a primary entrepreneurial function—anticipating future market conditions—cannot be explained by casually asserting that a lot of business people at about the same time suddenly became bad planners. At any given time in even the freest and healthiest economies, some entrepreneurs will get it wrong or be overtaken by events or smarter competition or surprisingly reluctant customers, and they will go bust. That’s healthy. But when great numbers of them at about the same time fail, that’s evidence of something exogenous, namely the falsification of interest rates and relative prices caused by the systemic, economy-wide manipulation of money and credit.