Tuesday, October 7, 2008

A Greater Danger

The greatest loss experienced in the recent “subprime crisis” has not been the loss of our homes, businesses or savings. The credit crunch, falling stock prices, mortgage foreclosures, bankruptcies are all set-backs which cause hardships, some quite significant. However, as long as our productive capacity remains intact, we can rebuild what has been lost, just as we would respond to a natural disaster. Happily, unlike a massive earthquake or killer hurricane, most aspects of our productive capacity are still intact. Buildings and equipment are still standing. Workers, blue and white, are alive and well. The infrastructure of transportation and communication are essentially unscathed. Knowledge, skills and creative thinking have not disappeared and, in fact, keep expanding. With all those things present and accounted for, what’s to stop us from picking ourselves up and working to regain what has been lost?

The missing ingredient.

Our greatest loss in this current financial down turn has been the successful attack on one of the most crucial elements in our productive capacity, an element whose destruction will have ramifications far beyond our immediate loss in wealth. That essential element is our economic freedom. The lack of understanding of the true source of economic stability has led people to cry out for and our lawmakers to enact a “solution" which merely extends the very factors which created the problem in the first place: government intervention into the market place. In an economic system consisting of a mixture of freedom and control, freedom is taking the bum wrap for the true villain, the government-backed controls which violate our individual rights. Fear and economic ignorance drive the clamor for the government to save us. Government grows and our liberty withers.

Economic freedom is simply individual rights applied to the realm of trade. It is the protection of the rights to private property and to free association (contracts, employment arrangements etc.,) all of which must be guaranteed under a system of the rule of law. The recently passed Emergency Economic Stabilization Act of 2008 undermines those rights, and the rule of law, in numerous ways. Instead of protecting property rights, new and expanded wealth distribution mechanisms have been established. Instead of the rule of law, arbitrary power has been delegated to Harry Paulson and the Treasury Department.

Freedom is the engine of prosperity. As long as men are free to act in their own self-interest and refrain from initiating force to interfere with the same freedom of others, then innovation, production and exchange will flourish. The available literature is rich with the economic and political theories explaining why this is so.* A new and expanding body of works is now available which proves that it is so. For elaboration on this point, I strongly recommend a recently posted article by Eric Daniels. This piece, excerpted from the first chapter of the U.S. Economic Freedom Index: 2008 Report, provides an excellent introduction to the concept of economic freedom and to the existing body of literature which demonstrates a clear connection between freedom and prosperity.

As Jean-Baptiste Say states in his Treatise on Political Economy:

[O]f all the means by which a government can stimulate production, there is none so powerful as the perfect security of person and property, especially from the aggressions of arbitrary power. This security is of itself a source of public prosperity that more than counteracts all the restrictions hitherto invented for checking its progress. Restrictions compress the elasticity of production; but want of security destroys it altogether.

Economic freedom is an indispensable element of wealth creation; it is also indivisible from political freedom. We can not preserve one without preserving both. Just as wealth is the solution to poverty, so freedom is the solution to wealth, and wealth and freedom are the means to life.

*I refer here to the works of Adam Smith, John Lock, Jean-Baptiste Say, Carl Menger, Ludwig von Mises, Friedrich Hayek, Milton Friedman, George Reisman, among others.


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