What is wealth?  Who is the wealthiest man alive?  These are questions that no single individual can answer.  Let us look at two individual men.  One is a billionaire with a plush apartment overlooking a vast city in which he owns multiple factories.  He is one of the most productive men alive, producing vast amounts of goods at his factories that the multitudes willingly buy.  He has worked for decades building his industrial empire and has earned great esteem with both his colleagues and competitors.  He is proud of his work and is happy in life.  The other man is a writer who lives in a small cottage on the edge of a large forest.  He works from home and spends a great deal of time with his wife and three children.  He has published a few books and although not a famous writer, he has found moderate success and has a small savings.  He is happy spending most of his time with his family.  Who is the wealthier man?  Most today would point to the billionaire and say he is wealthier because he has more money.  However if you look at it in terms of a free society, the true answer is that they are each wealthier than the other.  They each have taken action in their lives in the pursuit of their own happiness.  The billionaire would not be happy living a simple life no more than the family man would find happiness in building an industrial empire.  Each has deemed certain things more valuable than the other.  Both are wealthy men in a free society. 

This is the true meaning of the American Dream.  That dream is dying today but most do not understand why.  What people see is that individuals need to work longer and harder just to put a roof over their heads and food on the table.  There is talk of the “rat race,” greed, and envy.  I agree that greed and envy are what is destroying the American Dream, but not in the way most people think.  The majority of our economic problems stem from government’s misuse of force.  When force is used beyond protecting the individual’s unalienable rights to life, liberty and property, society suffers a loss in quality of life.

In a free society, there is only one logical economic system:  The free market. The free market is based on choice.  In a free market people are free to choose how and where they work and spend their money.  People may work the hours they desire and they may spend and save however much they want with no coercive forces being implemented.  This system is not perfect, as people are not perfect, however it is a system built on choice, not force.

I will cover the fundamentals of economics.  As economies grow, the market does become more complicated, however fundamentals do not change.  Any society that chooses to ignore fundamentals does so only at their own peril.  For simplicity sake, I have listed below six laws of economics.  I will cover these laws and show the results of ignoring them. 

Laws of Economics
1. All humans will take action in the pursuit of happiness.
2. An individual can only consume what has first been produced.
3. The value of an item can only be determined by the individual.
4. Profit is the mathematical difference between production and consumption.
5. Capitalism leads to an increased quality of life.
6. Real money is a commodity valued by individuals.

These are laws that are fundamental in human choice, value, and action.  They exist whether we want them to or not.  To truly understand where we are with our economy today, we must go back and examine how our economy began and how it developed.  I will discuss the individual’s economy and their role as producer, consumer, capitalist, and entrepreneur and how the economics of the individual then translates into the economics of society. 

The Individual’s Economy

Imagine a woman alone in the jungle.  Her existence was gifted to her and with her existence come natural rights.  She has her physical being, a mind capable of reason that drives her to take action, and natural resources which she must labor with in order to continue her existence.  Nothing else is given to this woman.  This is the free market at its most basic level. 

Law #1:  The woman observes her surroundings and takes action in the pursuit of her own happiness. 

In other words, an individual will have a goal and employ means to attain that goal.  In this particular case, the woman’s pursuit of happiness is the goal of survival. This woman needs many things to survive.  She needs food, water, protection from the elements, and protection from predators.  She must take action and labor with the natural resources around her in order to continue her existence.  In taking action, she assumes several different roles within the free market.  The first role is that of producer.  Falling in line with production is consumption, and our lone woman must also be a consumer or she will wither and die.  For example, if our woman wishes to consume a berry, she must walk to a bush and pick a berry.  Now that her labor has produced a berry for her consumption, she may eat it.  This brings our woman to our second law.

Law #2:  In any economy, an individual can only consume what has first been produced. 

Some of the items may be produced with greater ease than others.  If there is a fresh water spring nearby, she will need to spend much less time gathering drinking water than hunting meat.  If there are a great many predators in the jungle, she may spend a great amount of time building weapons and a strong shelter.  Each situation is different and every individual will value certain items over others depending on their personal situation.

Law #3:  The value of an item can only be determined by the individual.

Whatever this woman decides to do, it is her own decision and she is free to take action in order to achieve her desired ends.  In this extreme case she has deemed that food, water, warmth, shelter, and safety will bring her the greatest amount of happiness. 

As the woman produces the needed items, she is playing the role of producer.  As the woman consumes the items she has produced, the woman is playing the role of consumer.  These are the only roles she needs in order to survive. 

The problem with limiting one’s self to the roles of producer and consumer is that there is no room for an increased quality of life.  When the woman is thirsty she gathers water and drinks, and when she is hungry she gathers berries and eats. She builds herself a modest straw hut that collapses on itself often but can easily be rebuilt at the end of each day.  This is a state she can maintain indefinitely, but she will never progress.  It is part of human nature to take action in the pursuit of happiness, and it is at this moment that the woman decides to improve her current condition.

 Discovering Capitalism

The woman has grown tired of picking berries and gathering wood for hours a day.  She decides to construct a tool in order to do her work more efficiently.  The woman decides to make herself an axe.  Currently, the woman eats one hundred berries a day in order to survive.  She believes that she can construct an axe if she works at it for one full day.  However, if she is working all day, she will have no time to gather berries to eat.  In this moment of need the woman discovers capitalism.  The woman decides to work extra hard for two days.  She will gather one hundred and fifty berries each day, eat the normal one hundred, and have fifty berries left at the end of each day.  These remaining berries are her profit. 

Law #4:  A profit is the mathematical difference between production and consumption.  This is an equation dealing with profit.  Production – Consumption = Profit

In saving fifty berries a day, the woman is accumulating capital, in the form of berries, to use at a time of her choosing.  By seeking a profit to save capital, the woman is acting in the role of capitalist.  Any individual who chooses to produce more than they consume and save the difference is acting in the role of capitalist.  At the end of two days, the woman has the required one hundred berries needed in order to sustain herself for the construction of her axe.  She builds her axe, and now, by trimming branches, can gather one hundred berries in less than an hour.  The woman has become more efficient and therefore can produce the same amount with less time and energy.  This frees up more time and energy for the woman to pursue other courses which she believes will bring her happiness.  The construction of the axe has increased the woman’s quality of life.

This increase in quality of life is only possible through capitalism.  Without saving capital, an individual must labor at the same work for the same amount of time, with the same results.  Progress is only gained through doing the same task with greater efficiency, freeing up more time and energy for other tasks.  Saving capital, in whatever form needed, is how an individual creates tools and procedures that maximize efficiency to increase quality of life. 

Law #5:  Capitalism leads to an increased quality of life.

The woman continues this process.  She saves capital in the form she requires, and uses the saved capital to construct tools that increase her efficiency and therefore her quality of life.  After several months she has a modest cabin with a fire place, several buckets for storing drinking water, an axe, and a bow and arrow for hunting.  She gathers water, firewood, berries, and tends to her cabin three mornings a week and hunts wild boar one day a week. 

This leaves the woman almost every afternoon and some mornings free for more desirable endeavors.  The woman is free to stop increasing her efficiency at any time.  When the woman believes she has enough material possessions to sustain her happiness, she will pursue other ventures in the pursuit of happiness that do not relate directly to efficiency and production.  She may spend her afternoons relaxing, going for long walks, exploring the jungle, or any other leisure activity she deems desirable.  In a free market, the choice is left to the individual. 

Restrictions and Regulations on the Individual

Imagine an individual’s economy with artificial restrictions imposed by an outside force that ignores our basic laws.  It is deemed by the outside force that the individual is required to spend an equal amount of hours each day looking for food, water, firewood, and building a shelter.  In doing this, the outside force is ignoring law #1:  All humans will take action in the pursuit of happiness, and law #3:  The value of an item can only be determined by the individual.  The outside force does not take into account that this woman lives next to a fresh water spring, that berries take a long time to pick one at a time, or that dry firewood is hard to come by in the jungle.  In one hour she can produce enough water for two dozen individuals.  However in the same amount of time she is unable to gather enough berries to fill her stomach.  The firewood she collects is only enough for a small fire that lasts only an hour each night.  This woman is now hungry, weaker every day, and cold at night.  She is not free to spend extra time on certain tasks, so she has no way to save useful capital.  The axe, cabin, and bow and arrows that would have come into existence as a result of saved capital, never come into existence.  Instead the woman works harder and is hungrier and weaker every day.  Under these conditions, the woman will eventually die.

Imagine instead that the outside force allows the woman to take independent action, but views profits and capitalism at evil and ignores law #4:  Profit is the mathematical difference between production and consumption and law #5:  Capitalism leads to an increased quality of life.  The outside force prohibits the woman from making a profit or from accumulating capital.  The result is that the woman will live as a producer and consumer only.  When she is hungry she will pick berries and when she is thirsty she will drink water.  However, she will never make a tool in order to increase her efficiency, production, and quality of life.  Her quality of life will stagnate. 

Prohibiting a person to take independent action so they must gather more water than they could ever use at the expense of eating is illogical, and without heat and an adequate food supply this woman will eventually die.  Prohibiting profits and capitalism sentences this woman to a stagnated quality of life with no hope for improvement.  Any artificial restriction imposed upon an individual’s economy causes absurd distortions.

  Economics in Society and Free Trade

Let us imagine that our lone woman continued on in the jungle free of outside restrictions.  The axe, buckets, cabin, bow and arrows did indeed come into existence.  If we add but one other individual to our equation we have the potential for a society. 

While walking through the jungle one day, the woman comes across a lone man.  At first, although aware of each other’s presence, the two individuals continue to do everything for themselves.  Each individual builds their own house, hunts their own meat, gathers their own water, and everything else an individual must do to survive.  After doing this for some time, the woman notices that the man spends much of his time attempting to hunt the wild boar with a crudely made spear.  She hunts quite easily and efficiently with the bow and arrow she constructed.  The man however eats a great deal of fish from the river with a net that he constructed.  The woman goes to the man with a deal.  She offers to construct him a bow and five arrows for hunting if he will construct her a net for fishing.  The man likes the idea of being able to hunt with greater efficiency and agrees.  This trade benefits both individuals because it increases the efficiency and production of both individuals. 

In a free society these two are free to agree on any trade at any price they wish.  Trades will be different depending on the individuals involved and the timing of the trade.  The point is that in the moment of need or desire, individuals are free to decide for themselves what they desire to trade.  This is free trade.

There are some that attach definitive values or prices to certain items.  In this case, an outsider might say that a fishing net is worth a bow and five arrows.  This is incorrect.  When gauging value, each item must be looked at from the point of view of each individual.  The man already has a fishing net and cannot use more than one.  A second fishing net in his personal possession is near worthless, but in the hands of the woman who does not have one, it is incredibly valuable because it provides a new food source.  The same is true of the bow and arrows for the man.  The man and woman each value the other person’s item more than their own so both benefit from the trade.  Attaching a specific value not attached to an individual’s particular situation is impossible.  So the only accurate statement an outsider can make is that, “At that particular moment the man valued the bow and arrows more than the net and the woman valued the fishing net more than the bow and arrows.”  Remember law #3, that the value of an item can only be determined by the individual.

Restrictions of Free Trade

Imagine this same scenario where an outside force imposes artificial restrictions.  This outside force imposes a price ratio between the two tools.  This outside force decides that a bow is worth three fishing nets and each arrow is worth one fishing net.  When the woman attempts a trade with the man, the man would need to construct eight fishing nets in order to obtain a bow and five arrows.  He believes that making eight fishing nets is not worth his time, and the woman only needs one fishing net, but is not allowed to accept less than eight.  No trade occurs.  The man does not get his bow and arrows and the woman does not get her net.  They together as a society are not as efficient and productive as they would have been had the trade occurred.  The two have suffered a loss in quality of life that they otherwise would have gained.

Even if the trade had occurred, efficiency and productivity would have been lost.   The man would have labored for days making eight nets, and when finally given to the woman, she would have only been able to use one.  The man’s time and energy could have been put to a more productive use.  All outside restrictions on prices and value ignore law #3 and create distortions that slow or halt productivity and progress in efficiency. 

The Importance of Life, Liberty, and the Pursuit of Happiness

There are those who argue that morals or religion have no place in government and economy.  These individuals argue that only reason and logic based on a cost/benefit analysis should guide political and economic decisions.  This may be true, but life, liberty, and private property go directly to human existence and therefore must be protected in a free society and free market.  Respecting the life, liberty, and property of individuals is certainly a moral choice supported by all major religions, but there are logical reasons to respect these natural rights as well.

Let us look at a few examples in our current jungle scenario.  All humans will take action in the pursuit of their own happiness.  The woman notices that the man is catching quite a bit of fish, but has no bow and arrow to hunt boar.  She realizes she has a marked advantage over the man and decides to exploit the advantage.  At the end of the day, after the man has caught a great many fish, she shoots the man with the bow and arrow, killing him, and she takes his fish and his net.  Let us put aside the obvious moral dilemma in this scenario and examine the economic implications.  The woman has gained in the moment a great many fish and a valuable tool in the fishing net.  She has suffered a much greater long term loss.  The man had the knowledge to build fishing nets and the knowledge is now gone.  The potential productivity of the man in catching the fish and hunting boar in the future is also destroyed.  She has killed a valuable trading partner which could have benefitted her greatly in the jungle.  The killing of the man is an immediate economic gain, but in the long run it is a great economic loss to the woman. 

Instead, pretend that our woman is savvy enough to understand the obvious negative effects of killing a trading partner.  At the end of the day after the man has caught a great many fish, the woman goes to the man and threatens to shoot him if he does not hand over half of the fish.  He does and the woman benefits.  The woman likes this arrangement and continues each day in this manner.  As a result, she realizes that she no longer needs to hunt because the man will provide the fish she needs for food.  In this scenario the woman is obviously gaining and the man is obviously loosing.  But what has their small society gained?  What has it lost?  The man is now working to support both himself and the woman.  The woman has ceased to hunt because with no work whatsoever she can have fish every night.  The result is that no one is eating boar.  Also, the bow and arrows that the woman might have produced and the fishing net that the man might have produced in a free trade environment have never come into existence.  As a whole, the two have lost as the quality of life of both the man and the woman would have been higher in the long run had no force been implemented. 

The distortions do not stop there.  The woman is not the only one able to take action, and the man will eventually decide the time has come to improve his current condition of slavery.  He may kill the woman while she sleeps or he may steal her bow and arrows and enslave her in return.  Either way, time and energy that could have been spent on productive activities that increase quality of life are wasted on fighting each other.  All individuals will take action in the pursuit of happiness, so any threat to their own life or liberty will force them to take action in response. 

The Importance of Property Rights

Finally, imagine our sly woman does not believe in murder or slavery at the point of a weapon, but also sees no need to respect the right of private property.  When the man finishes fishing at the end of the day, he has caught more fish than he can eat at that moment.  He is saving capital, in the form of fish, to eat for the next couple days so he can construct a better net.  Accumulating capital is an essential component in how a society increases its quality of life.  While he is away, the woman goes and steals the fish.  When the man returns he finds his capital, the saved fish, is gone and is forced to spend the next day fishing instead of building a better net.  The woman is very satisfied with the outcome and repeats the process again and again.  The woman is gaining in the short term, but what is the long term economic effect of her stealing?

The man can save no capital so he is unable to spend time building tools in order to increase his efficiency and productivity.  The woman, realizing she can have all the fish she desires with very little work, continues to steal.  The economic loss to both parties is evident again.  Neither have boar to eat and no tools are being constructed to improve quality of life.  The man will also see no need in respecting the property of the woman once he realizes it is she who is doing the stealing.  He will retaliate by stealing berries or firewood from her.  Now the two must spend valuable time either guarding what little capital they have, thereby slowing progress; or simply reject savings all together because any capital they accumulate will probably be stolen.  Progress in quality of life is stunted or halted.  Stealing does have an immediate economic benefit to the thief, however in the long run it hurts everyone in society by slowing progress in quality of life.

Birth of the Entrepreneur

Let us say that no outside restrictions are imposed on the man and woman, but they do respect each other’s rights to life, liberty, and property.  The two naturally progress, each one taking action in order to improve their current condition.  In this way their quality of life improves by small measures continually.  However, each one is still completely self-sufficient, meaning, they each hunt and gather their own food, build their own shelters, and anything else they need to survive.  The man goes out once a week to hunt boar and always shoots one inside of two hours.  He fishes everyday and needs to fish for half the day to feed himself.  The woman on the other hand hunts all day long for just one boar, and some days she has no luck and must spend two days a week hunting.  However, she has a natural gift for fishing and is able to catch more fish than she could ever eat in less than an hour.  The man notices this and has an idea.  He goes into the woods one day and hunts two boars.  He returns with the boars and goes to the woman and offers to trade.  The man is acting in the role of entrepreneur.  He sees a need within his society and takes action to fill that need.  He will provide her with one boar in exchange for twenty fish.  The woman likes the idea of the trade, but not the price.  She says no, but offers ten fish for the boar.  They eventually agree on fourteen fish for one boar.  They both leave happy with the trade.

The man in the role of entrepreneur is not exploiting the woman.  He is offering a trade that he believes will increase both their qualities of life.  The woman is free to accept, decline, or negotiate the trade as she sees fit.  In a free society, the most successful entrepreneur is the individual who can increase the quality of life for the greatest amount of people.

Division of Labor

The woman now has a better thought.  She tells the man that she goes through about one boar a week, and that if he returned each week with a boar, she would offer him fourteen fish.  The man likes this idea and agrees.  The man will now do all the hunting and the woman will do all the fishing.  The man now only has to hunt for a couple hours a week and will have as much boar and fish as he can eat.  The woman only has to fish for a few hours each week and will have as much boar and fish as she can eat.  Each individual has increased their own quality of life by this trade.  By specializing in a task, they each can produce more with greater efficiency and thereby dramatically increase their quality of life.

It is also important to remember our basic law #2, that as a society, they cannot consume anything that they themselves have not produced.  The woman may consume something the man has produced and vice versa, however everything needs to be produced by someone.  There is no such thing as a free lunch. 

Regulating Division of Labor

Imagine now this small society with regulations on their labor imposed from an outside force.  Each individual is assigned certain tasks with a certain amount of time spent on each one.  This again disregards law #1:  All humans will take action in the pursuit of happiness and law #3:  The value of an item can only be determined by the individual.  Let us say that on this particular day the outside force assigns the woman to gather water for two hours and the man to construct fishing nets for two hours.  The outside force does not take into account the fresh water spring nearby or the difficulty in constructing fishing nets.  The woman gathers enough water for the two of them in ten minutes time and spends the rest of the time relaxing having accomplished her assigned task.  The man works furiously and barely finishes a quarter of one net.  If they are trading goods, the man has nothing of value to trade.  If they are forced to share, the woman is angry because she has produced enough drinking water for them both in no time and he has barely produced anything.  The man is angry because he has slaved for hours while the woman has been resting.  These outside restrictions imposed upon our small society cause great distortions in labor and create feelings of social unrest.

 The Village 

Let us say our society continues free of all outside restrictions.  More individuals choose to enter into the society and a village is formed.  As before, the individuals recognize that if they specialize in certain jobs, the society as a whole will be more productive.  The individuals will produce more and allow the society to consume more so the quality of life of everyone in the society rises.  Some build houses, some hunt, some farm, and so on.  Some individuals form partnerships and pool their efforts, but most trade what they have produced in exchange for what others have produced.

The roles of the consumer, producer, capitalist, and entrepreneur go hand in hand in a free society and free economy.  Each individual plays all these roles while interacting with others.  If an individual makes fishing nets for a living, as he labors to make the nets he is acting in the role of producer.  He may go and offer his product to a woman who catches fish.  The man is now acting in the role of entrepreneur.  If the woman agrees, there will be a trade.  The woman, who is a fisherman, pays the man with fish she has caught.  She is acting as a consumer by buying the net from the man.  The man takes payment of the fish.  When he returns home he eats some of the fish he has earned through the day.  He is now acting as a consumer.  He saves the rest of the fish to use at a later date, either to eat himself or trade for something he needs; by saving, he his acting in the role of capitalist.  It is all an act of natural equilibrium which will maintain its balance free of any outside control. 

The Role of the Consumer:  A consumer is any person who consumes a product.  Any individual who drinks water, eats food, goes to the movies, or buys a car is a consumer.  The consumer only has two options for the products he consumes, he can produce them himself or he may acquire them from another individual.
The Role of the Producer:  A producer is anyone who makes a good or provides a service.  An individual who picks an apple to eat, an inventor, and a person who hunts deer is a producer.
The Role of the Capitalist:  The capitalist is any individual who produces more than he consumes and saves the difference.  He saves this unused productivity for use at a later date of his choosing.  He may save for his retirement or save for a larger item that requires several months of saving to acquire.  Anyone who has a savings account, a retirement fund, or a piggy bank is a capitalist.
The Role of the Entrepreneur:  The entrepreneur is any individual who sees a need in society and takes action to fill that need.  The entrepreneur produces an item in hopes that he will be able to trade it in exchange for something else that another has produced.  Anyone who builds houses for others to live in, repairs tools, runs a factory, cuts hair, runs a farm, or shines shoes is an entrepreneur. 

Some individuals in the free market will have more material goods than others.  This is a natural state in a free market.  An individual can only consume as much as they produce.  An individual who produces more will be able to trade what he has produced for more consumer goods.  However, equality in a free society means every individual has an equal opportunity to take action and each will have their natural rights protected.

The system is always in balance.  As long as life, liberty, and property are protected in this system, the production and consumption of each individual will always balance out in the long run.  There may be short term imbalances where individuals save capital thereby producing more than they consume, or when they spend large amounts of saved capital thereby consuming more than they produce, however in the end a balance is always reached.

Defending Life, Liberty, and Property in the Village

Imagine that no outside restrictions were imposed on our simple village.  It would be nice to imagine that the village would continue to progress, the quality of life of all individuals increasing, and our small village would grow into a thriving modern society with absolutely no restrictions put in place.  However this would be unrealistic.  In our village, all humans will take action in the pursuit of happiness, and most, as they take action, will respect the rights of other individuals.  However, there are always a few who have no respect for the natural and unalienable rights of others.  For a time, the individuals in the village defend their own rights, however, as with other services the people of the village realize that specializing in this service would be more productive.  The problem is that the society must empower these chosen individuals with the right to use retaliatory force in the execution of their job.  The individuals of the village come together and decide to elect one individual to protect all their rights and empower this one person the right to use force on others.  This individual becomes the village sheriff.  The town empowers him to use retaliatory force in order to protect the natural rights of all individuals within their community. 

The Sheriff does this effectively against brazen acts of murder, assault, theft, and vandalism.  Another problem arises within the village.  Now that the village has a sheriff, most acts are not brazen, but disputes among neighbors with no clear cut right and wrong.  For this reason the village also designates one of the older, wiser individuals to be the judge and hear disputes among villagers to decide who is right and who is wrong.  The decisions are then enforced by the Sheriff.  These two individuals make up the village government.  They are the only two granted the privilege of utilizing retaliatory force in the execution of their jobs.  They are granted this privilege in order to protect the life, liberty, and property of all individuals in society.  In payment, the villagers put aside a portion of what they produce in order to support the two individuals of government.  The villagers pay this tax for the privilege of living within the safety of the village.  At any time, an individual could choose to leave the village. 

As the village grows, so does the government.  Sheriff’s deputies are needed and the judge hires clerks and administrators to document prior cases and deeds to different portions of property.  Now that the village has a sheriff’s department and a court system, the people desire an individual to coordinate their actions.  A mayor is elected to guide the use of force in the village.  The individuals of the village maintain ultimate power over all three.  If at any time one or all of the individuals of government become corrupt or destructive towards the community, the villagers will replace them.

Direct Exchange

The village continues trading what they produce for what others produce, exchanging one valuable item for another.  One person will agree to build a fishing boat for another in exchange for a certain amount of meat.  Services also arise in this free market economy.  A hunter with a good house may return one day to find leaks in his roof.  Another individual may offer his services to the village to the upkeep of houses once they are built.  The repairman offers his skill to repair the leak for a certain amount of meat.  This provides the repairman with meat and the hunter with more time to concentrate on his specific task rather than spend valuable time trying to figure out how to patch his roof.  These two trade directly with one another in a system of direct exchange.  This system of direct exchange works very well in a small and simple society.

Indirect Exchange

Direct exchange continues and more villagers are specializing in products and services that are not vital for survival but increase the quality of life of the villagers.  The village now has doctors, teachers, and entertainers to name a few.  It is at this point in society that direct exchange runs into a bump in the road.  Suppose the teacher really needs meat but the hunter has no children that need to be taught to read.  The teacher must find something the hunter wants, like corn, trade his service for corn and then trade that for the meat he needs.  This system of indirect exchange can get very complicated as a teacher who needs meat must exchange his teaching service for a cow, trade the cow for 5 axes, trade the axes for 100 ears of corn, and finally trade the corn for the meat he originally wanted.  This system of indirect exchange is very inefficient and time consuming.  It reduces overall productivity and slows progress.

A Medium of Exchange (Money)

Some sort of medium of exchange, or money, must be found.  That is, a commodity that all people want, use, and value that can be traded for almost anything else.  Before I continue it is important to recognize I am drawing a distinction between real money and fiat currency.  I will first discuss money and I will cover fiat currency at a later point. 

Societies all over the world have chosen many different commodities for money.  Wheat and other food have been used as money by many societies throughout time and are still used today.  Food is vital for people as a commodity and so makes good sense as the chosen money. If wheat is the societies chosen money, a person knows if he exchanges his product or service for wheat, he will be able to exchange the wheat for whatever else he needs.  Wheat and other food stuffs have problems as money.  Wheat does not last forever so an individual cannot build a savings of money over a lifetime.  The other commodity that has been used as money and a symbol of wealth in most societies throughout history has been livestock.  Livestock are vital for food in the milk and the meat they offer.  Livestock also produce offspring, so an individual can have his wealth grow.  Even livestock run into problems as money.  An individual cannot make change with cows or oxen, so livestock must be used only in large purchases with other forms of money like wheat, being used in smaller exchanges.  Although livestock last longer than most food items, they are still susceptible to disease, floods, and other natural disasters.  They require food to eat and water to drink and a drought may destroy much of an individual’s wealth.  They are also very hard to transport.  However, all things considered, livestock is still one of the best forms of money in a small society.  Whatever a society chooses, real money has value to the individuals of society. 

Law #6:  Real money is a commodity valued by individuals. 

The Superior Form of Money

Some individuals run into a problem.  The village is growing and good grass lands necessary to raise livestock are becoming hard to find.  A young couple has built up a good herd and is considered well off in the community.  However this young couple feels constrained and wishes to travel to a place with larger amounts of land to raise a larger herd.  They have heard of a place on the other side of the mountain range with vast amounts of land that only a few people have populated.  They wish to travel there and start a new life for themselves.  The problem is travel.  Others have attempted to travel across the mountains with their heard and have lost most of their livestock in the process.  This young couple must find a way to travel to the other side of the mountain range with their wealth intact. 

There is one commodity that the young couple has that is very light in relation to its value and easy to transport.  It is the jewelry they wear made of yellow and white metal, gold and silver.  One ounce of gold can buy a whole cow in the village.  The gold and silver is light, does not need water to drink, and will not die of disease or starvation along the way.  Gold and silver do not produce offspring like livestock, however for travel they are a far superior form of money.  The young couple exchanges almost everything they own for gold and silver jewelry that fits neatly into one small chest.  They then make the trip in a small wagon with their entire life savings.  When the young couple arrives at the new village they are able to exchange the gold and silver for cattle and again able to start their lives anew in a different area.   

Gold and silver are easy to recognize, they have an outstanding value/weight ratio that makes them easily transportable, they can be melted or broken into any size, and disease or floods do not destroy them.  All humans put a value in them as a commodity and a symbol of wealth, ensuring that no matter where an individual travels in the world, gold and silver will be accepted as money.

Worthless Money

Let us imagine that the local government decides to make every individual in the village rich overnight.  The mayor imposes on the village that the official money is grass.  Villagers are ecstatic. They walk out their front door, shove their pockets full of grass and go to the nearest shop to buy the expensive item that the day before they could not afford.  But everyone in the village is rich so the expensive dress that used to cost five ounces of silver now costs not five blades of grass, but five crates of grass.  The store owners, seeing that everyone is rich, have raised their prices.

The government then freezes all prices at the level they were at the day before when gold and silver were accepted as money.  The man goes to the shop with his five blades of grass, but the dress has already been sold, along with everything else in the store.  The whole village is rich so people run to the shops to buy everything they ever wanted but previously had to work for.  All the shops are immediately emptied of all their goods.  The shop owners are also rich, so they run to their suppliers to buy more products.  The village is overwhelmed with euphoria, buying up everything in sight.

This situation deteriorates very quickly. Let us look at a specific example with the village repairman. The repairman used to charge one ounce of silver to repair a roof.  Now, for his service he will be paid one blade of grass.  The repair man has two choices.  Spend his time working on roofs for a few blades of grass, or walk out and pick as many as he desires and then spend his time doing something he really loves.  Remember that all humans will take action in the pursuit of happiness.  The repair man may still patch roofs if that is his true love and passion in life, but he will most likely spend much more time in leisure activities.  He will spend time reading books, playing with his children, going for long walks with his wife, and fixing an occasional roof to pass the time.  This sounds very nice for the repairman, but now the individuals of the village have no one to fix their roofs and must do it themselves.  This phenomenon is occurring in every job.  Each person has the choice to produce items of value, or simply go out and pick blades of grass.  As a result, almost no services are offered, new products cease to come into existence, and the productivity of the village regresses.

When all the food runs out, people must begin sustaining themselves by producing their own food and shelter.  A whole society regresses to the state of our original lone woman in the jungle, providing everything they need for themselves.  This is the inevitable result of instant, unearned wealth for a whole society.  Everyone stops producing because they are now wealthy, the society lives off the capital it has built up in the past in a short state of euphoria.  When the saved capital runs out, the society regresses.  

The Nature of Real Money

The reason the society regresses is that the government is ignoring law #2, #3 and #6. Whatever is consumed must first be produced, the value of an item can only be determined by the individual, and real money is valued by individuals.  Individuals produce items of value for consumption.  When individuals trade with direct or indirect exchange, they are trading one valuable item for another.  The values change depending on timing and the individuals involved, but items of real value are being exchanged nonetheless.  Real money, like gold and silver, is valued by individuals, so when an individual pays with gold he is exchanging value for value.  When the government mandates that all trades must involve something that has little or no real value to individuals, they are robbing all productive individuals.  Individuals that otherwise would have worked productively, do not work because anything valuable they produce will be exchanged for something that has no real value to them.  Free trade is based on exchanging value for value and worthless money destroys free trade by destroying value.

Banks and Bank Receipts

Let us say that government did not intervene with the society’s medium of exchange.  Gold and silver are still the chosen forms of money.  Even gold and silver have their limits.  A very productive person might accumulate over a lifetime a vast amount of gold and silver.  Others may accumulate only a modest amount.  However once an individual has gold, he must either walk around with it on his person or he must store it somewhere.  So another service arises in the society.  An individual agrees to store and protect gold and silver for others.  He calls this storage area a bank.  When an individual goes to store the metal, the bank issues him a receipt for a certain amount of gold or silver.  The individual now has a piece of paper that confirms there is a certain amount of gold in the bank.  Over the years the bankers build a strong reputation for honesty and safety.  The people in the society put so much faith in the integrity of the bank that they no longer see the need to accept only gold or silver coins, but will also accept the paper receipts from the bank.   The society now has a paper currency.   

The paper currency is only worth something because it represents actual gold or silver.  At any time, the paper currency can be turned into the bank for the actual precious metal.

Investing Capital

As the society progresses, individuals are able to save more and more capital.  Some individuals accumulate a vast amount and others a moderate amount.  What about the average man in society who is not a great entrepreneur?  A simple good man who works hard day in and day out but was not blessed with a magnificent mind for business or invention.  Does the free market and capitalism destroy or exploit this man?  No it does not, it benefits him greatly. 

Let us say our average man is a local repairman.  He works hard every day and never is lacking in work because people know him as a competent and honest worker who does his job well.  He saves 10% of everything he makes.  After a number of years he has accumulated a bit of capital in the form of silver, but believes he should put it to better use than just sitting idly in a bank.  He has no great inventions of his own, but as a competent repair man he knows a good product when he finds one.  He is aware of another young man, a brilliant engineer who has developed a new form of metal that is stronger than the current metal that is being used in arrow heads and farm tools.  The young engineer has built only a few farming tools so far, but the repair man comes to have a look.  He is very impressed and believes the tools will be able to be built cheaper and will last longer than current tools.  The metal is also lighter, and he believes that farmers will be able to harvest greater amounts of crops in less time, thereby lowering food prices.  He decides to invest his capital with the young engineer.  The repairman also lets his friends know about the young engineer and encourages them to go see the new tools for themselves.  They too invest their saved capital with the young engineer.  With the capital of a number of people, the engineer is able to build several machines that produce the new metal. 

Cheaper, stronger, lighter tools are built, which greatly benefit the individuals of the society.  The quality of life of the whole village rises.  The young engineer becomes very wealthy because he has provided to the society a valuable new product.  The modest repair man receives his initial investment back, but also a large profit, as do the other investors.  The repairman gained this profit by investing capital in a product that increased efficiency and the quality of life of all individuals in the society.  Those that chose not to invest any money also gain because food prices have dropped and they have more money to spend on other items of their choosing.  The society, as a whole, gains.

This now brings into society a valuable new service.  Those with money in the bank may choose, once they have enough savings, to invest a portion of this savings.  Investment specialists can always be on the lookout for a good new product or business idea.  An individual with an idea can bring his idea to a bank in an attempt to secure investors or a loan.  The important distinction is that the money in a savings account is not money that can be loaned or invested, that is money that the individual can withdraw on demand.  Money that is loaned or invested is money that is tied up for a certain amount of time and cannot be withdrawn.  If a banker were to loan out money in a savings account without the owner’s consent, that banker would be committing an act of theft and fraud.

In a free market with real money, a banker, loan officer, and investment specialist provide one of the most valuable services to society.  Most individuals are not geniuses, but almost all individuals are able to work hard, produce something of value, and save some capital.  If we take the example of the engineer, he can sell his new metal at a high price for a while until he has saved enough capital to build machines to increase efficiency and produce the new metal at a lower cost.  Or, he can secure a loan or investors so he can build the machines immediately.  In this way, the people of the society will receive new tools at a lower cost much faster, and the engineer and all those who invested the money will receive a profit. 

In a free market with real money, the bankers and investment specialists are able to focus saved capital into the most productive places and increase the quality of life for all members in society.

Our System

I have covered a basic free market economic system and the basic laws which govern that system.  As our economy grows it does indeed become more complicated, however, these fundamentals never change.  There are some who argue that we can ignore these fundamental laws of human choice, value, and action.  They argue that by implementing rules they can improve the economy.  The problem is that these laws exist no matter how many rules and regulations are created that contradicts them.  Let us now look at many economic policies pursued by governments all over the world throughout history that have ignored these fundamentals and as a result, made society poorer.  I will confine my examples to our single village, in order to see the true effects of certain government policies more clearly.
Ten Policies that Ignore the Laws of Economics and Make Society Poorer

Laws of Economics:
1. All humans will take action in the pursuit happiness.
2. An individual can only consume what has first been produced.
3. The value of an item can only be determined by the individual.
4. Profit is the mathematical difference between production and consumption.
5. Capitalism leads to an increased quality of life.
6. Real money is a commodity valued by individuals.

Policy #1:  Fiat Currency Ignores Laws #1, #2 and #6

There are those individuals that believe in a free market but argue that money is different.  They argue that money is so important that it cannot be left to a free society; it must be controlled by the government.  These individuals favor a fiat currency, which is a government controlled currency that is not backed by a valued commodity.

Why do many people argue in favor of a fiat currency?  A politician is elected into office by making many great promises.  This politician promised new roads, bridges, schools, and many other wonderful things paid for by the government.  He was elected because the people believed in his promises.  The politician now has a problem.  How will he pay for all these amazing promises?  Law #2 states that all items need to be produced, and the roads, bridges, and schools will simply not come into existence.  Materials must be bought and paid for, land acquired, workman paid to do the actual building.  In order to pay for these projects, the politician begins to raise taxes.  The people in the village become angry.  The politician never said anything about raising taxes when he made all his fantastic promises.   The politician must find a way to pay for all his promises without raising taxes.

The solution is a secret tax.  Instead of taxing people directly, the politician will simply increase the money supply.  If there exists a total of 10,000 ounces of silver in the village, the prices of all the other goods and services in the village reflect that amount of silver.  If there were 20,000 ounces of silver in the village but the same amount of other goods and services, the prices of the goods and services would be about twice as much.  However, if there exists a total of 10,000 ounces of silver in the village, but one day a single individual showed up with another 10,000 ounces of silver, he would be able to buy anything he wanted before prices rise.  As that individual spent his silver, prices would slowly rise as the silver circulated through the village.  This is what a politician needs in order to pay for campaign promises.  The problem for the politician is that silver cannot be created out of thin air.  It must be mined with human labor. 

The practice of the banks has provided the politician with the perfect method to tax the people without them knowing it. The paper receipts that the banks issue do not need to be mined; they are simply printed on a printing press.  So the politician creates a government approved receipt for all banks to use.  All private banks that before used to issue their own paper receipts are now forced to use the government approved paper receipts.  A great deal of propaganda is put out to the people in the society, telling them that government controlled paper receipts are in the best interest of society.  The newly elected politician now starts printing paper receipts that are not backed by real gold or silver.  He uses these newly printed receipts to pay for his campaign promises.  As time passes people begin to get suspicious as they see prices all over the village rising.  They rush to the banks to exchange their paper receipts for actual gold and silver.  The banks panic because if it continues all the gold and silver in the banks will soon run out.  So it is decreed by the politician that the paper receipts are the actual money of the society and gold and silver can no longer be used.  Anyone who now attempts to use gold and silver as a tool of exchange will be thrown in jail. 

This paper currency does not possess the actual value of gold and silver.  The paper currency has little more value than the blades of grass discussed earlier.  The only difference is that in this scenario, it is only the government officials that have the ability to create currency.  The society now has a fiat currency.  A fiat currency is a medium of exchange that has no real value, but government has decreed by law the society will use it as the only medium of exchange.  Anyone who refuses to accept the fiat currency will be thrown in jail.

The great benefit of a fiat currency is that the government is now limitlessly wealthy.  The government officials are free to print as much currency as they desire to pay for whatever programs they desire.  Most individuals of the village do not understand they are being secretly taxed.  They only see that every year the prices of all goods are going up.  The worth of the goods for the most part remains the same.  A loaf of bread feeds the same amount of people today as it did five hundred years ago.  What is actually happening is that the value of the currency is dropping because the government prints more of it every year. 

Let us use construction as a specific example.  If the government starts building roads, bridges, and schools, new material must be purchased and workman hired.  The great rise in demand causes the wages of the workman and the price of raw materials to go up.  This is good for the direct recipients of the newly printed government currency, but there are negative effects on the economy as a whole.  The government isn’t the only entity employing workman and buying raw materials.  People looking to build or buy their own homes watch prices go up before their wages rise, and now cannot afford the house they had been planning to buy.  As the workmen and suppliers of raw material spend their new currency, prices of other goods throughout society rise as well, but the first area the government spends the money is where prices rise first.  No one sees the taxes being taken directly so no one complains, but prices in society continue to rise.  The government relies on the fact that most people do not understand what is happening to continue this secret tax.

The second and third order effects of a fiat currency are far reaching.  The place where the government decides to spend its currency receives an artificial boom in business.  As soon as the government stops pushing currency into that particular sector of business, that sector of business drops dramatically.  Also, entrepreneurs in society now have two choices.  They may work and produce items of value that help increase the quality of life in the society or they can seek favor among government officials to do anything to get hold of the newly printed currency.  The best way to attain wealth in a society with a fiat currency is be the first to receive the newly printed currency before prices go up. 

A society with a fiat currency does not have a free market.

Fiat currency is touted by many politicians, economists, and businessmen as necessary for a modern economy.  In reality it is a tool that allows politicians to secretly tax the individuals of society.

Policy #2:  Government Debt Ignores Laws #1, and #2

Even in a society of real money like gold and silver, there is another way a politician can secretly tax the individuals of society.  After making a great many promises in order to get elected, the politician must pay for his promised programs.  If creating a fiat currency is not an option, or the politician worries that creating an excessive amount of paper currency will cause a panic in the society, the politician has another secret tax at his disposal, government debt.

Let us first look at debt by an individual in a free market economy.  If a woman who owns a bakery wished to expand her operations, she has two choices.  On the one hand she can save her money little by little and expand her bakery slowly.  On the other, she can borrow money from others who have capital already saved and pay them back with the profits of her expanded business.  Investment, credit, and debt are useful tools when employed by the prudent and cautious individual.  Alter this situation slightly and imagine that the woman who owns the bakery is free to accumulate at much debt as she wants but is not required to pay it back.  All debt she accumulates will be paid back only after she sells her bakery to someone else.  Remember that the woman will take action in the pursuit of her own happiness.  She may still restrain her spending, but most likely she will take much greater risks in the debt she accumulates.  She also may throw all caution to the wind and accumulate massive amounts of debt.  When put in terms of the individual, this situation is obviously not logical.

Government debt is different.  Government is not a for-profit business; its only source of income is tax revenue.  So, what happens when government goes into debt to pay for programs?  Imagine a village of 1000 people.  A politician was just elected by promising to build new roads in and out of the village to increase trade but promised not to raise taxes.  Remember that no item can be consumed without first being produced.  So he borrows from 100 individuals 10,000 ounces of silver to build the new roads.  He promises to pay them back in ten years with interest.  When the ten years is up, tax revenue must be used to pay back those who lent the government their money.  In reality, what the politician has done is put all 1000 tax payers in debt to the 100 who loaned the government their money. 

Deficit spending and massive government debt is touted by many politicians as necessary for growth and development.  In reality it is a delayed tax levied against the next generation of tax payers.

Policy #3:  Government Spending Programs Ignore Laws #1, #2, #3, #4, and #5

There are those who believe that it is the responsibility of the government to spend money on work programs in order to boost the economy.  However the government has no wealth of its own, it only gains wealth by taxing the individuals in society. 

Let us examine the fundamentals of spending money:  Individuals observe their surroundings and take action the pursuit of their own happiness.  A part of this action in a modern economy is spending money on certain items they deem valuable.  Individuals will save money in order to spend it at a later date on items they see as having value.  Entrepreneurs see what individuals are spending their money on and build their businesses accordingly.  Government spending does not and cannot add anything to the economy; it simply takes away from the individual the right to choose how and where to spend their own money. 

Look at a specific example of a woman who owns a bakery.  The government in the village has decided to implement a spending program to stimulate the economy.  In order to pay for the programs the government raises taxes.  The woman who owns the bakery used to pay twenty ounces of silver per month in taxes, but now she is required to pay twenty-five ounces per month in taxes.  This means the woman does not have five ounces of silver that she used to spend.  The woman must cut her spending, so there is another person in society who will no longer receive the woman’s business.  If the woman used to treat her family to a large steak dinner twice a week, she may cut that down to only once a week.  The butcher who provides the woman the meat now has less business.  He also is paying extra taxes to support the government spending program and is watching his business make less money.  This occurrence is happening all over society.  Each person is paying more taxes and watching their own business make less money.  The businesses in society that are just scraping by will go under. 

The government takes this newly confiscated wealth from the whole society and spends it on one or a few high profile projects.  Government officials point to the projects with workman working and claim success.  In reality the government has taken wealth from everyone in society and focused the wealth on their own personal pet project.  The few direct recipients of the tax money do indeed benefit, but overall the society is poorer. Imagine our village of bakers, fishermen, and farmers.  The people of the village buy what they need in the proportion they desire.  The mayor decides he will stimulate the economy by creating a village garbage service.  The service will be paid for by tax money and free for everyone in the village.  Currently, the villagers deal with their own trash.  In order to draw capable workers, the mayor pays the newly hired garbage men very well.  These newly hired garbage men do not simply materialize, they come from somewhere.  Fisherman, bakers, and farmers seeing the high wages the government job is paying give up their current job to pursue the new government job.  The society now does have a garbage service with highly paid workers, however, people are paying higher taxes and there is less bread, fish, and crops being produced.  The prices of those products go up as a result. 

The value of items can only be determined by the individual.  Before the government spending program, the individuals of society were spending their own money on goods and services which they believed had value and increased their quality of life.  The pet projects of the politician, like a free garbage removal service, did not exist before because individuals in society were not willing to support it with their own money.  Government spending takes money from individuals and spends it on projects that the society has already deemed not worth the cost. 

Government spending projects claim to create jobs and stimulate the economy.  In reality, the government officials have taken by force from the people of society the right to choose where and how they spend their own money; the result is a society that produces less of what people actually want and creates a lower quality of life. 

Policy #4:  Rescuing Failed Businesses Ignore Laws #1, #2, #3, #4 and #5

There are some who believe it is government’s job to save large businesses that have failed.  There are many arguments, the most popular is that the businesses are too big to fail and their failure would cause a systemic failure that would cripple the society.  There are many fallacies in these arguments.  I will dissect a few fundamentals.  First, a business produces a product in order to sell it to make a profit.  A successful business is a business that is providing a valuable product or service to the society that individuals are willing to pay for.  A business that is losing money is consuming more than it is producing.  All these statements are merely restating laws #1, #2, #3, #4 and #5.  In a free society, a failed business is simply a business that is not providing a valuable product to the society.  Perhaps the actual product is bad, or perhaps there is another business providing that same product at a better value.  A business that is making a profit is a business that is producing and giving value to society.  So what happens when the government saves a failing business?  The government is ignoring basic economic logic.

Let us look at a housing business in the south end of our village, Southern Construction.  There exists the largest business of construction in the whole village.  There are other smaller construction businesses, but none compare to the immensity of Southern Construction.  Southern Construction made its name by being the best.  They built the best houses at the best price and over half the houses built in the village were built by Southern Construction.  Many people were able to afford nice homes at an affordable price because of Southern Construction.  In recent years, Southern Construction’s leadership has gone downhill.  Their efficiency has gotten progressively worse and as a result their houses are costing more.  Smaller construction companies started to attract more business, so in order to keep costs low, Southern Construction started operating at a loss, living off of saved capital.  Southern Construction also borrowed massive amounts of money from private investors, living off of others saved capital.  This kept them in business for another two years until finally, their savings were gone and the company had nothing to pay its workers or even to buy materials to build houses.  Private banks and investors refused to give them a loan.  It is at this point the failed businessmen of Southern Construction go to the government begging to be bailed out.  They give many good reasons for the government to save them. They claim to be a village institution whose failure would destroy the prestige of the village.  They claim that if they go under, their employees will not make any money and all the shops that the employees currently shop at will go out of business sending the society into a cataclysmic depression.  They claim all of their suppliers will go out of business because no one will buy their materials adding to the irreversible depression that will destroy the society. 

All these arguments forget law #1.  Southern Construction’s arguments are logical only if all individuals are incapable of independent action and will simply curl up in ball when Southern Construction goes under.  I have several questions to this argument.  Will human beings refuse to live in houses not built by Southern Construction?  Will the workers of Southern Construction refuse to build houses if they don’t work for Southern Construction?  Will the suppliers of Southern Construction refuse to sell materials to smaller companies if the demand arises?  My answer to all this is a resounding no.  If Southern Construction goes under, people will still want houses.  These people will go to the smaller companies.  The smaller and well run companies will have more business come their way, so they will need to expand their business, all this while there are a slew of newly laid off workers from Southern Construction looking for work.  The smaller businesses will need more material to deal with all the new business and order more from suppliers.  Houses will be built in an efficient manner and the society will not implode.  Southern Construction will go under, but in its place there will be a number of smaller, less prestigious companies doing the same work that one company use to do.

There will be a very difficult transition period in the village.  The period when Southern Construction goes under, where the workers are laid off and everyone is reorganizing.  Former clients of Southern Construction will need to choose another construction company.  The former workers will need to interview and get hired by the new smaller companies.  The smaller companies will need time to expand their operations.  This transition period will most likely be a depression in the village.  However, with no government interference, the depression will last only as long as it takes for individuals to reorganize their own lives.  The depression will be measured in months, not years or decades.

The side effects of saving a failed business are much worse than a depression.   In order to prevent the depression, the government must raise taxes on everyone and give the money to Southern Construction.  This means that Southern Construction will indeed survive, but only through the capital of individuals.  Southern Construction is still inefficient and operating at a loss, but now doing it with tax money.  This action prevents a depression, but causes everyone in society to be that much poorer for however long Southern Construction receives handouts. 

If the village has a fiat currency the government prints massive amounts of new currency and gives it to the failed business.  Imagine in this particular case they double the supply of currency.  This means that Southern Construction will indeed survive, but only because the government has devalued the societies currency.  Within a few years, prices will have doubled and each working individual in society will be poorer, all to save a business that cannot run itself. 

Whether it is through direct taxation or printing currency, the result is the same.  Southern Construction has newly, unearned wealth, so they can keep their prices artificially low.  The smaller, well run construction businesses go out of business because they cannot compete with artificially low prices subsidized by tax money.  The society is forced to pay for the incompetence of Southern Construction.  This can last for years or decades, with large poorly run businesses running to the government every time they need to be bailed out.  Each time the government hands out tax money or prints more currency, the result is that the average working individual becomes poorer and poorer each year.  This is the end result of government saving failed businesses.

"Profits and loss withdraw the material factors of production from the hands of the inefficient and convey them into the hands of the more efficient." Ludwig von Mises (Planning for Freedom)

Policy #5:  Trade Barriers and Protective Tariffs Ignore Laws #1, #2, and #3

In a free society, individuals have the liberty to trade with whomever they desire.  No outside force uses coercion to restrict free trade.  Any restriction is a theft of liberty.  Let us imagine some sort of restriction against free trade in this village.  The village is divided into a north and a south and each side of town has their own government officials.  The government officials on the north side of town don’t like to see individuals from the north spending money in the south side of town.  They decide to implement a policy of “buy northern.”  They pass a law saying that all villagers from the north end of town must only buy goods from shops in the north end of the village.  The government of the north devotes a great deal of energy toward propaganda attempting to convince people this is in their best interest.  The government of the south retaliates with its own restriction.  A trade barrier is implemented.  But what has actually occurred? 

First, government officials are ignoring law #2.  The people on the north of town can still only consume what has been produced, as with the south of town.  It is true that northern money will stay in the north of town, but that also happens in the south.  The shops in the north that use to receive half their profits from individuals who live in the south, now must sustain themselves only with profits from the north.  A trade barrier works both ways, it keeps local money in, but it also keeps outside money out.  The only thing that has changed is a loss in specialization and efficiency.  Loss of efficiency leads to a lower quality of life for all individuals. 

Government officials have also ignored law #1.  The best producer of bow and arrows in the village may be in the south of town, so a producer in the north now must fill that need.  This may be good for the northern bow and arrow producer but the people of the north, abiding by law #1, were choosing the southern producer for a reason.  In this particular case it is because the prices were better.  Now, all northern villagers are forced to buy from a producer with higher prices.  The people of the north are poorer because they are forced to pay more for bow and arrows and have less money to spend on other things they desire.  This also happens to a producer of farm equipment in the north that has the best prices.  The people in the south of town are now poorer because they have to pay more for farm equipment.  Each section of town is now poorer than it was before the trade barrier.

The anomalies don’t end at efficiency.  Let us imagine that the north side of town has the lake for drinking water and the south has many trees for lumber.  Rule #1 states that all humans will take action in the pursuit of happiness, and the natural geography of the village has encouraged certain types of businesses in certain parts of town.  With a trade barrier, the south now has water shortages and the north now has energy and housing shortages for lack of lumber.  In a free market, individuals will adapt to their particular situation.  All of these problems of shortages, efficiency, and higher prices could have been avoided with a free market.

Imagine that the government of the north does understand basic economics.  Instead of putting up a complete trade barrier, they put in a protective tariff.  I will use the market for bow and arrows as an example to show how tariffs ignore certain laws of economics and impose a hidden tax on the people of society. 

For years a man from the northern end of town has been constructing bow and arrows.  He charges two ounces of silver per bow and two ounces of silver per bundle of twenty arrows.  Recently, a woman from the south end of town has begun producing bows for one ounce of silver and twenty arrows for one ounce of silver.  The bows and arrows are of equal quality so more and more people, abiding by law #1, are buying from the woman in the south end of town.  The man in the north is friends with a government official and asks for the favor of a protective tariff.  Through much propaganda, it is put out that the southern woman is hurting the economy of the north with her artificially low prices.  A protective tariff of one ounce of silver is put against each bow and each bundle of twenty arrows entering the northern side of the village.  In this manner, the bows and arrows of the man and the woman are now equal in price. 

What is the real result?  The man no longer has to compete with lower prices so he does indeed sell more bows and arrows.  That individual man is very happy.  However, the people of the north are hurt because instead of paying two ounces of silver for a bow and twenty arrows, they are forced to pay four ounces.  Every person in the northern side of the village is now poorer because of the protective tariff.  The government who implemented the tariff has gained wealth.  Every bow and bundle of arrows entering that side of town is charged two ounces of silver that goes directly to the government.  The people are paying an extra two ounces of silver for their bow and arrows, so in truth, the protective tariff is a hidden tax levied by the government against its own people.  A protective tariff protects the local producer and enriches government officials at the expense of the consumers in society.

Policy #6:  Health Regulations Ignore Laws #1 and #3

There are some who believe it is the responsibility of the government to regulate the health and medical industry.  These people give many seemingly good reasons for regulation.  They say that it is the government’s responsibility to protect life.  They say that greedy and selfish businesses will poison an unknowing public if the government does not regulate health care.  They say that quacks would claim to be doctors and kill unknowing patients.  They make every attempt to scare individuals into believing that society would break down without a government regulated healthcare industry.  All of these arguments are logical only if rule #1 is ignored and that individuals are incapable of taking independent action.

If one is to believe these arguments, one must believe individuals walk through life as vegetative persons.  To this I have several questions:  Will businessmen hoping to make a profit from lifelong customers intentionally poison consumers?  Do people walk the streets ingesting anything they see on the ground?  My answer to these questions is no.  Even in a society with a government regulated medical system, individuals seek advice and recommendations from people they trust before they pick a new doctor or try a new over the counter medication.

Before I continue, I wish to make clear that I am drawing a distinction between legal protection and government regulation.  When the government engages its power to protect the rights of individuals, it is taking action against criminals.  Investigators and prosecutors must find proof before they can take action against an individual or a business.  Government regulation is wholly different.  It requires individuals and businesses to prove innocence before they may take action in society.  This is not only horrible inefficient, it runs in contradiction to natural rights.

First, let us look at an example of free market health regulation.  In the village there are three companies that produce medications.  Medical Companies A, B, and C.  All three companies produce and market medications, but A is the largest company, B is midsized, and C is a small start up.  People within the village are not sure which medications are the best.  Another service springs up.  A woman in the village personally tests each and every drug and spends copious hours speaking with people that have used the drugs in the past.  She writes a book with all her findings and sells it.  The book is a huge success and a great majority of villagers start to buy the medications recommended in the book.  The medical companies see this and start to improve their drugs in order to draw in customers.  They invite the woman to come and test their new medications.  The woman creates a seal of approval for all medications that have passed her rigorous testing process.  The medications with this seal cost more because of the cost of testing.  Company A, the largest has all their drugs tested and approved by this woman.  Company B, has half their drugs tested.  Company C, the smallest company, cannot afford to pay for testing and does not get the seal.  The individuals in the village are free to buy the drugs with the seal or without it.  The choice is left to the individual. 

Imagine this scenario with government regulation instead of private regulation.  The woman, instead of developing a new testing method, goes to the government.  The mayor puts the woman in charge of a single regulation authority that is given sole power over the health industry.  She is tasked with inspecting all medications before they are made available to the public.  The businesses must now prove they are not committing a crime before they are put on the market.  This creates many absurd distortions in the quality of health care in the society.  Let us look at a few now.

The woman has been handed a government sanctioned coercive monopoly over the regulation of medicines.  She now has no incentive to keep her testing standards high because testing by her is now compulsory.  Her standards now drop.  However, companies are required by law to pass her tests before the medicines can be offered to the public.  This gives the woman every incentive to make her testing process long and costly because the more tests run the more tax money she receives.  So the woman runs many low standard tests.  Drugs that do come onto the market are now much more expensive and less safe if the government had never gotten involved. 

In a free market environment, the woman may drop her standards, charge more for the tests, or become corrupt; but in a free market there is no government sanctioned monopoly.  Companies are free not to get their medicines tested and individuals are free to buy the less expensive unregulated medicines.  Also, another individual can enter the business of testing medicines and put the woman out of business.

Government regulated health care claims to protect the lives of individuals in society; in reality the end result is a society with less choice, lower quality health care, and sky high prices.

Policy #7:  Free Health Care for All Individuals Ignore Laws #1, #2, #3, #4, and #5

There are others who believe that government should not only regulate health care, but provide free health care for everyone in society.  Again they give many fantastic sounding reasons.  People have a right to health care; normal people can’t afford good health care, and greedy insurance and drug companies exploit helpless consumers are the most common.  These reasons ignore many fundamentals of economics.  All individuals will take action in the pursuit of happiness, medications must be invented and produced before they can be consumed, the value of a certain medication or treatment can only be assessed by the individual receiving it, a medical company that gives away expensive medication to all people will be consuming more than it is producing.  All these are merely restating our basic laws.  The arguments for free health care ignore all these.

Let us first look at health care in a free society.  A doctor spends countless years developing a new drug to kill the infections that have been killing villagers for years.  After years of investing his own time, energy, money, and the money of others, he succeeds.  The doctor has the first antibiotic in existence.  It took him years of trial and error to do this, and although he finally has the product, it is very expensive to produce.  Only those willing and able to pay a high price are able to obtain the antibiotics.  However, the doctor’s work does not stop with the invention of the drug.  The more people that buy his drug the more money he will make.  So, with the profits from the initial buyers, he develops tools and procedures that increase his efficiency which allow him to manufacture the drug at a lower cost.  With the addition of these tools he is able to sell his antibiotics at cheaper prices so more people will be able to afford the antibiotics and he makes even more profits which leads to greater efficiency.  Add into this scenario bank loans and private investors, and the doctor will be able to develop his efficiency very quickly.  Once he gets his efficiency to a point where everyone is able to afford the antibiotics he can use the profits and saved capital to research newer and better medications.  In a free market where individuals are free to make a profit and save capital, efficiency, progress, and an increased quality of life are unlimited.

Let us look at the same scenario with free government health care for all individuals.  The doctor invents antibiotics, and the government officials deem that it is in the public good for everyone to have free antibiotics.  This does sound very positive, and in the short term the results are good.  Everyone gets the antibiotics.

What are the economic repercussions of free antibiotics in the long term?  Let us say the village does not have a fiat currency and is using gold and silver as their money.  Law #2 says that everything that is consumed must first be produced.  If everyone in society has the right to this new antibiotic, human labor must produce it, so massive amounts of labor and resources must be diverted in order to produce it.  If the government is going to provide antibiotics for everyone, the government must increase taxes or borrow the money.  In doing this it pulls labor and scarce resources away from other sectors of the economy.

Now that all individuals in society can afford the new antibiotic there is no incentive for the doctor to develop procedures that increase efficiency and lower the cost.  The government pays to have the antibiotic produced at its original high cost.  The doctor now can take all his profits and develop a medication that is equally costly to produce and again is deemed vital and paid for with tax money as well.  With every new medication or medical procedure, taxes must be raised to pay for the cost of health care.  Efficiency in production never develops because health care for everyone is paid for with tax money. 

The incentive for the medical industry is now to invent medications and procedures regardless of how outlandishly expensive or impractical they are because the government will provide for everyone.  Combine this with a government regulated healthcare industry, and medical companies, abiding by law #1, have every incentive to get on the good side of government officials in order to approve medications and procedures regardless of their true value to society.  Taxes continue to rise; quality of life continues to go down as people are forced to work harder everyday to afford new taxes in order to pay for the production of insanely high health care.

 

Policy #8:  Minimum Wage Ignores Laws #1, #2 and #3

There are some who argue that it is in society’s best interest to force individuals to work for a certain minimum amount of money.  The arguments for this are many, some of the most popular are that all individuals need a “living wage,” and individuals need to be protected from exploitation by greedy business owners.  These arguments ignore laws #1, #2, #3.  In a free society, an individual is allowed to trade free of outside compulsion or coercion.  

Let us look at how a minimum wage law truly affects individuals in society.  In a free society, a woman who owns a bakery is free to hire anyone she chooses for any amount she chooses as long as there is someone willing to do the work.  In addition, a young man looking for work is free to work at any establishment for any wage he desires as long as there is someone willing to hire him.

The woman who owns the bakery knows that one new employee would benefit her greatly.  One extra person working in her bakery would allow her to increase her productivity and earn three ounces of silver more per day.  If she hires an employee at a wage of one ounce of silver a day, she will increase her profit by two ounces of silver a day.  She interviews the young man looking for work and offers him the job.  The boy is free to accept this wage or reject it, in a free society the choice is his.  If the boy accepts the wage, he does so because in his particular case, working for the woman for one ounce of silver a day benefits him (Law #1).  The two are trading, labor for silver, in a trade that increases the quality of life for both.  There is no exploitation involved as long as no force is involved.  This all happens free of outside control.

Imagine this scenario with a government enforced minimum wage of five ounces of silver per day.  The woman who owns the bakery is still in the same situation.  A single employee paid one ounce of silver would still increase her profits by two ounces of silver per day.  However, if she hired the boy at five ounces of silver per day, the woman would be losing two ounces of silver per day instead of profiting.  So the woman does not hire an extra employee.  The young man that would have been hired is not hired and the woman never makes her extra profits.  The society as a whole is less productive than it would have been had there been no minimum wage imposed.

In reality, minimum wage does not raise wages; it simply destroys the jobs that might have existed without a minimum wage law. 

Policy #9:  Government Supported Labor Unions Ignore Laws #1, #2, #3, #4, and #5

In a free society, individuals are free to associate or not associate with any individual or groups of individuals they desire.  No human is forced by coercion to join or shun certain groups.

If a young man gets a job as a mechanic in a company, there will be many other individuals who work at the same company.  The workmen at the company may have combined into a group of workmen, or a union.  In a free society and free market, unions have the potential to provide a valuable service.  A young man, new to a particular trade, does not know as much as many of the older, more experienced workers.  The young man may not know what skills he should learn next, or what techniques may cause him injury.  There are many pitfalls a young person just starting out in the world may fall into, and a good union, run by the experienced men of the trade, has the ability to give great value to the young workers just starting out.  The young man may voluntarily join the union.  In trade for a fee or due, the young man will receive guidance and assistance from the experienced men in the trade.  The men in the company will only pay the dues if the union provides a valuable service.  If at any time the union ceases to be of value, the workers are free to not pay the dues and quit the union.

In addition, entrepreneurs and industrialists running large companies are rightfully concerned with efficiency, productivity, profits, and capital.  Managers many times overlook the obvious benefit of employing the best people.  A union, run by the experienced and competent men of the trade, has the ability to communicate to the managers concerning the quality of life of the workers, the safety in the work environment, and the reasons that the best men around are or are not coming to work for that company.  A well run company will only continue to produce a valuable product or service as long as it recruits and retains valuable people.  A good union can provide a valuable service to the company concerning the quality of skilled workers they are hiring and retaining.  This all can happen free of government intervention.

There are those that argue that it is the responsibility of government to support and give power to labor unions.  Let us now look at the situation where government imposes its will on the situation.  The government officials impose a law where every workman must be a part of a union in order to work.  This is simply extortion.  It demands a fee for the right to free trade.  Free trade is part of a free society and mandating a fee for the freedom to trade personal labor is in contradiction to a free society.  In addition, when unions are voluntary, the union must provide a valuable service to the workman or watch all members drop out of the union.  When government mandates membership into the union, the union now has the authority to be as poorly run as it chooses, because regardless of value, workmen are required to join.  This action is not pro-labor; it is anti-labor by favoring the entrenched union leadership over the new workers entering the labor force.

A government law that mandates that all business owners and managers meet certain demands of unions or suffer legal consequences is also illogical and offers further distortions in an industry or company.  In a free society the union provides value to the company by assisting in hiring, developing, and retaining the best people.  This service increases the overall productivity of the business.  A government mandate to deal with labor unions simply gives the leaders of labor unions a strangle hold over their employers by the use of government force.  The leaders of labor unions have no interest in developing efficiency.  This mandate ignores laws #2, #4, and #5.  If the company operates at a loss, meaning they are consuming more than they produce, the business will go under.  Even in the best case scenario, the business will make less profits so will be able to invest less in future machinery that will increase efficiency and productivity.  The labor unions political power over businesses slows change and development of efficiency, which is why many industries with politically strong labor unions are being chased out of the market by non-unionized companies.  Look at the American automobile industry vs. the Japanese industry.

In a free society, labor unions provide a valuable service to both the workmen and the businesses.  Politically empowered labor unions are a legalized form of extortion that hurts the workmen who pay dues, the businesses in which they operate, and the consumers who buy the over priced goods.

Policy #10:  Forced Charity Ignores Law #1 and #3

There are many who argue that charity towards the unfortunate or needy should not be a choice, it should be imposed on society by the government through taxation.  The government officials would then have the responsibility to distribute the tax money.  This argument completely disregards human nature.  All humans will take action in the pursuit of happiness.

Imagine our lone woman walking through the jungle, and she happens upon our lone man as she did before.  In this particular case, he is a sorry state on the verge of death.  For whatever reason, the man’s ability to reason and take action has not been sufficient to keep him alive.  Perhaps he does not use logic or has made one significant mistake which has caused him incredible hardship.  Whatever the cause, the man is on the verge of death.  The woman has two choices:  Let the man die or show charity and assist him.  In the vast majority of cases, as long as the woman is not on the verge of death herself, humans will choose to show charity to fellow human beings.  However, it is a particular kind of charity.

The woman gives the man some food and water, and when he is healthy enough, she begins to pass on her knowledge of how she survives in the jungle.  She shows the man how she has constructed an axe, cabin, and bow and arrows.  The man takes the knowledge from the woman and soon is able to survive on his own.  Even if the man has very limited problem solving ability, the woman can show him how to use the axe and a bow.  He is at least able to gather lumber, fish, and hunt with the tools she has provided.  The woman now has a trading partner, and although it would be better for both if he were able to create tools on his own, basic knowledge in his possession gives value to their small society.

If it turns out that the man is simply a parasite, and has no desire to exert any personal effort for his own betterment, the woman will soon recognize this.  She will recognize him as a parasite who desires to live off of her labor and she will cease her charity and allow him to return to his desolate state.

The natural charity of humans is the passing of knowledge and development to one another.  Humans will devote their own time, energy, and productivity to the development of those around them.  This type of charity is part of human nature and has great benefits for society as a whole.

Forced Charity Destroys Real Charity

Let us imagine this scenario with an outside force imposing its will on the situation.  The outside force decrees that all individuals struggling are entitled to the charity of the productive individuals.  The woman is forced to help the struggling man.  This decree ignores rule #1, all humans will take action in the pursuit of happiness.  At first, because the woman would have helped the man anyway, she does not object to the forced charity.  However, the man also knows of the decree and knows that as long as he remains helpless, the woman will be forced to support him.  The man makes every effort not to learn any new skill because as long as he remains helpless, the woman will support him.   If this were the case in a free society, the woman would simply stop giving her charity.  However in this case, the woman is forced to work twice as hard to support a parasite.  She is angry and will eventually take action to improve her condition of slavery by rebelling against the forced charity or the man himself.  She will either stop working herself, refuse to give any type of charity to anyone, or take violent action against the man.  These are second and third order effects of forced charity.

This forced charity in a village environment creates even greater distortions.  Individuals who are capable of supporting themselves, but are lazy will also claim an inability to support themselves.  Every lazy individual, regardless of personal ability, will look to take advantage of this forced charity.  The productive members of society will become increasingly frustrated that much of their labor is wasted on individuals who have no desire to work.  The productive individuals will eventually take action to improve their condition.  They will either rebel or simply leave the village all together.  Either way, the quality of life of the village would have been much higher had no forced charity been imposed.

The Government Planned Economy

There are government officials that attempt to run economies by implementing all the policies mentioned earlier.  They do this with the intent of controlling and managing the economy for the collective good of society.  The largest fault of the government officials who pursue this path is that they presume to know what is in the best interest for all individuals in society.  The nature of the free market is the belief that each individual knows what is in their own best interest and that the choice should be left to the individual.  The most brilliant of politicians is still incapable of making life decisions for other people. 

This is not to say that the free market discourages planning.  The free market welcomes private health regulations, non coercive labor unions, charitable organizations, and all other forms of organization and planning that is required for a modern economy to function.  The free market objects only to forced planning.  Planning, when done by choice adds value to society.  It is only when government power is used to force economic planning that society and quality of life suffers.

When government pursues the interventionist policies listed earlier, the result is that the individuals in society must work harder and harder every year to attain the goods and services they require.  The government expands its power and the percentage of production it takes from society in the form of taxes.  Those closely connected to government become wealthy at the expense of the productive members of society.  This is the inevitable result of a government planned economy.

All government interventions view humans as a collective in a single situation with identical needs and desires.  The free market views humans as individuals, each with their own unique situations, needs, and desires.  Government intervention works in a society of clones, not individuals.  For a greater explanation on the end state of a government planned economy, read The Road to Serfdom by Fredrick Hayek, Nobel Laureate in Economic Science.

There are many individuals and groups of individuals in and outside of government who argue in favor of government intervention in the economy.  Men and woman claiming to be philanthropists and entrepreneurs argue in favor of government intervention.  When analyzing the validity of these arguments, it is important to understand that not all philanthropists and entrepreneurs are the same. 

Philanthropists vs. Philanthropic Tyrants

Many of the economic policies listed have not been implemented by corrupt politicians, but by men and woman who genuinely believed they were doing the right thing. These well intentioned individuals see a world of inequality and their goal is to create a balance. They consider themselves philanthropists.  The means by which they pursue this goal is using the power of government to take from some and redistribute to others.  These individuals take this action with the full conviction they are doing something morally right. 

True philanthropists work to produce their own wealth, or work to attain voluntary donations, and in the pursuit of their own happiness choose to devote that wealth towards assisting others.  The former group is using government force to seize other people’s hard earned wealth in order to give to others of their choosing.  These individuals steal from the productive to give to the needy.  This type of individual is a tyrant who forces his own philanthropic ideals on others.  There is nothing moral in this action; it is theft, plain and simple.  These philanthropic tyrants exist at all levels of government from those arguing for small city projects to large national initiatives.  All members of society should draw a distinction between these two types of philanthropists. 

 

Free Market Entrepreneurs vs. Political Entrepreneurs

In a highly politicized economy where the government controls a good portion of the businesses, it is very easy for many people to point to large corporations as the cause for a lower quality of life for the average working individual.  People see large corporations receiving massive amounts of taxpayer money in the form of subsidies and bailout packages and point an angry finger at all wealthy entrepreneurs and corporations as the source of corruption and struggle in society.  A dangerous pitfall is that many do not take the time to distinguish between free market entrepreneurs and political entrepreneurs.  Free market entrepreneurs are the individuals who seek no government favors or hand outs, and provide a valuable product or service to the society.  The individuals or businesses that provide the most value to society attain the most wealth.  These rich industrialists, financiers, and corporations are not the cause of society’s problems; they are the leaders of production and an increased quality of life for all individuals in society.

There are also those individuals and corporations who do not provide a valuable product or service to society.  They rely on favors from government officials handing out taxpayer money or newly printed currency in order to attain wealth.  These are political entrepreneurs and they are parasites living off of the productive members of society.  These types of entrepreneurs exist at all levels from individuals looking for welfare checks to large corporations looking for subsidies.  When examining the causes of a struggling economy and lower quality of life for society in an attempt to correct the situation, it is important for individuals to draw a distinction between these two types of entrepreneurs.  Burton W. Folsom does a very good job of documenting historical cases of political entrepreneurs and free market entrepreneurs in his short book, The Myth of the Robber Barons. 

True philanthropists and free market entrepreneurs work as productive individuals and in doing, give value to the economy of the society.  Philanthropic tyrants and political entrepreneurs are parasites of different forms that use government force to live off the labor of productive individuals.  A great book dissecting numerous economics fallacies is Economics in One Lesson by Henry Hazlitt. 

The Proper Role of Government in the Economy

The power that we have bestowed upon the individuals of government is the authority to use force in the protection of life, liberty, and property.  The question is how does government protect life, liberty, and property within the economy?  Economics is the study of human action in the production, consumption, and distribution of goods and services; therefore the only proper role of government in the economy is the protection of property rights.  This requires the establishment of legal contracts.  This service does not need to be provided by the government, but can be provided by individuals within society. The government simply needs to communicate to the individuals in society how property is defined and what elements must be included in legal contracts.  Individuals are under no obligation to draw up contracts for their businesses or their property.  However, if they desire to use the power of government to defend their property, a contract must be used and voluntarily signed by both parties. 

Let us look at a simple employment contract.  An owner of a construction company hires a young man as a workman.  The two agree on a wage of three ounces of silver per day.  In order to protect themselves from each other, they agree to sign a work contract.  In the work contract it states the young man will work each day for eight hours, five days a week.  At the end of each week the owner will pay the young man his wage for the week, fifteen ounces of silver.  The owner needs the young man immediately, so in addition to his pay the owner offers to pay the young man one month’s wage, sixty ounces of silver, if the young man comes to work immediately and stays for at least six months.  The young man agrees and all the points are put into the contract. 

If at the end of a week, the owner refuses to pay the young man for his work, the young man may bring the contract to a judge and have the courts force the employer to pay him his wage.  The court has the right to do this because the young man has completed his portion of the contract as promised.  The young man has earned the fifteen ounces of silver.  If the owner refuses to pay, he is committing an act of theft.  The government has the right and duty to protect individuals from theft and therefore it has the right and the duty to enforce the contract. 

If after three months of work, the young man accepts another job and leaves the construction company, the young man must return the sixty ounces of silver paid up front to the owner.  If the young man refuses to return the silver, the owner can bring the contract to a judge and have the courts force the young man to pay back the silver. 

In both cases the government only has the right to use its power to enforce the contract voluntary signed by both individuals.  The courts do have a limit in what they can and cannot enforce.  The courts cannot protect property by destroying the liberty of either of the individuals.  In the case of the owner refusing to pay the young man his due wage, the court has the right to force the owner to pay the young man what he is owed, however the court does not have the right to force the owner to continue to employ the young man.  In the case of the young man leaving the company early, the court has the right to force the young man to pay back the owner, however the court does not have the right to force the young man to continue to work for the construction company.  In either case, forcing someone to employ a person or hold a job they do not want is involuntary servitude and is in direct contradiction to the unalienable right of liberty.

The End State of the Free Market Economy

Individuals may wonder where the path of free market economics is taking society.  Free market economics and capitalism are focused individual action and on the ever increasing efficiency of production.  That process leads to a greater multitude of choices for the individual.  For those who pursue material possessions as a source of happiness, the free market economy allows individuals the liberty to work for as long and as hard as they desire, accumulating vast amounts of wealth.  Mansions, yachts, and private planes are all in the grasp of those individuals who are willing to work long and hard for the duration of their lives.  For those individuals whose pursuit of happiness lies more in the non-material and spiritual realm, the free market economy allows individuals to work for as short a time as they desire to attain only the basic material necessities of life.  Because the individuals who pursue material wealth can only attain great wealth through an ever increasing efficiency in production and competition, the prices of all goods and services will constantly lower.  The individual who desires minimal material possessions will need to work with less effort every year in order to attain their basic needs.  As the market progresses, that amount of time will become less and less.  This will allow those individuals who choose to pursue a strong family life or a life of religious study and reflection to spend less energy on material needs and more energy on their own pursuit of happiness. 

Constant progress and greater choice in the pursuit of happiness for all individuals is the end state of a free market economy.

There is a very good example of this process in today’s modern economy.  Computers and technology have minimal government restraints and laws imposed upon them, at least for the time being.  Sixty years ago a computer that cost millions of dollars had fewer capabilities than a modern day scientific calculator.  Every year new computers enter the market with fantastic new innovations and improvements causing the more simple models from the years past to drop in price dramatically.  In a totally free market, all industries would operate this way.  Each year new cars, medications, and healthcare devices would arrive on the market pushing the prices of past products lower and lower.  Healthcare, cars, houses, and everything else should and can act like the computer market in a totally free market. 

We now arrive at our most pressing concern.  A free market economy protected by a government whose sole mission is the defense of life, liberty, and property is the method of greatest happiness for all individuals.  However, in the United States today, our government, while giving lip service to free market economics, disregards the fundamentals of the free market and implements more and more controls and regulations every year.  The government, while giving lip service to liberty and the pursuit of happiness, dominates the individual’s existence with regulations regarding life and liberty.  This is how the United States functions today.  The question is how do we proceed from where we are right now?  In Part III, I will give a basic outline of a few fundamentals which the United States can implement today, which will again put our country on the road to liberty.