The Virtues of the Free Economy; B. Anderson

Bill Anderson The Virtues of the Free Economy IT IS FITTING,I believe, that this 1982 meeting of the Mont Pelerin Society be held in West Berlin, for it is in this place that the realities and ironies of the free economy and· col lecti vism stand as stark and clear as the Schandmauer, the oppressive Wall of Shame that surrounds this free city in a sea of totalitarianism. If we are to present the case of the superiority of capitalism over collec tivism, this is as good a place as any to begin. Were I a lawyer presenting the case of economic freedom, I would be tempted to use Berlin as my exam ple. After all, the good economic for tune of West Berliners is well-known, especially by East Berliners who have been kept from the western ~ector of their city by the imposing barrier of concrete, barbed wire, land mines and machine guns for longer than twenty years. In the free West Berlin, people move at liberty throughout the city; in communist East Berlin, the Bereitschaftspolizei, the civil police, harass and intimi date citizens at will. The West Ber liner's income is higher than that of his eastern counterpart, whose wages, while the highest in the com munist bloc nations, would place him below the poverty line in the West.

Mr. Anderson is a teacher of social studies at Ross ville, Georgia, Junior High School. This article is pub lished by permission from his prize-winning essay in the 1982 Olive W. Garvey Essay Competition in co operation with The Mont Pelerin Society. 225 226 THE FREEMAN April There is no question that West Ber liners are freer, wealthier and hap pier than their eastern counterparts. Western Intellectuals Persist in the Denigration of Capitalism But the minds of men are con fused and muddled on the subject of economic freedom. The western world in the last two centuries has been a showcase for the virtues of economic freedom, yet, as theologian Michael Novak points out, "Few themes are more common in Western intellec tual history than the denigration of capitalism."l George Gilder, in his perceptive Wealth and Poverty, notes with sadness that many who give intellectual support to free enter prise do so not because they agree with its ethos (which they see as morally bankrupt), but simply for utilitarian reasons: it creates more wealth than does collectivism.

2 Yet, if capitalism is to continue to be a vibrant part of the world order, it must be seen as having virtues beyond its immense productive ca pacities. Those who wish to enlist economic freedom in the quest for human progress, for justice, for an end to world hunger, for freedom it self, must see capitalism not only as an efficient dispensary for human greed, but basically as a conduit for moral actions. Capitalism is an eco nomic way of life that can help pro mote not only material well-being, but also spiritual well-being. At the present time, however, people-even many West Berlin ers-are abandoning the road to economic freedom and supporting, instead, the ethos of collectivism as they seek values they deem worth owning. But such a road, Walter Lippmann wrote, "leads down to the abyss of tyranny, impoverishment and general war."3 It is the purpose of this essay to examine this west ern abandonment of capitalism and to show that the alternative to col lectivism, the free economy, is, in deed, a worthy and moral choice by individuals and by nations.

The Paradox of Freedom The free economy is a study in paradox. Persons vote against it at the polls and vote for it with their dollars. Collectivist governments place it at the top of their enemies lists, yet turn to it to help cure their economic ills. 4 Clergymen denounce the capitalist spirit as immoral, yet the very foundation of the free mar ket is dependent upon what Novak calls "the exercise of moral charac ter of certain sorts."5 The free mar ket seems to have become a social prostitute: people of all income, ed ucation and cultural levels de nounce it publicly for its alleged sins while at the same time seeking it in times of economic need. Perhaps this is not surprising. Af ter all, the intellectual and legal ba sis of capitalism-that the individ1983 THE VIRTUES OF THE FREE ECONOMY 227 ual is free, has the ability (and responsibility) to make moral choices, and has certain rights that cannot be pre-empted by his government runs counter to the deeply-held te nets of pantheistic traditional thought that have ruled human minds since the beginnings of civi lization. At the heart of traditional thinking, whether or not it be artic ulated by a Plato, a Confucius, a Rousseau, a Castro or a Mao, is the contention that one's identity begins not with himself but rath.er with his community, his guild, his tribe, his predetermined social class, or,. in modern terms, his state. 6 While it is true that Christianity (and especially the legacy of Protes tantism) has undermined tradi tional thought-and gave spark to the rise of capitalism-the commu nal ideology of pantheism, with its emphasis on "aristocracy," social or der and varying rights and privi leges to be granted to persons of dif ferent castes, became officially mixed with the Christian religion in the Middle Ages. Nor did the Protestant Reformation and its resulting doc trines instantly change the long-held conception of "superiors" and "infe riors" in the social order. 7 The superiors included the clergy, the university professors, royalty, political figures and soldiers of high rank; the iRferiors were the serfs, the merchants (who were espeeially fiis trvsted) aDd:8ther t.w~ IJ8rn of less than nobility. As one can imagine, such a "moral" order was more than popular with the upper classes, for along with being the natural heirs to leadership over the masses, they were free to impose their "superior" values upon their subjects, and that meant sumptuary laws and thousands of rules govern ing business practices. 8 The free economy is a stUdy in paradox. Persons vote against it at the polls and vote for it with their doilars.

The historian Arthur M. Schles inger Jr. certainly showed an affin ity for the precapitalist structures when he wrote of mercantilist En gland, "Power was held to imply re sponsibility, and all classes were to be brought together in harmonious union by a sense of reciprocal obli gation."9 Yet, as demonstrated by the numerous peasant uprisings that periodically threatened the founda tion of the feudal order, it is clear that the masses did not share Schlesinger's enthusiasm for their plight. And well they did feel dis content; their lot was a most miser able one. The lower classes were as poverty-stricken then as the poorest villagers in _titllte Third WerW ..iefts~y.

228 THE FREEMAN April The vast number of regulations restricting price, supply, manufac turing procedures and-above all competition, served as effective bar riers to limiting economic growth. Only the nobility could be wealthy; after all, believed the superiors, weal th was fixed and could only be divided, not expanded. It was un thinkable for one of a lesser social order to gain wealth. So when it came to gaining riches in the old world, "the worldly order," wrote Lippmann, "was to be predatory."l0 Neighbor plundered neighbor, city plundered city and nations constantly plun dered nations. It is of little wonder, then, that the aristocratic upper classes in post mercantilist Europe neither appre ciated nor understood the new capi talist economic and social revolu tion. After all, as one grasps when reading The Wealth ofNations , Adam Smith developed the concept of Nat ural Liberty precisely for the benefit of the poor, not the rich. The aristo crats could not comprehend the fact, as Lippmann put it, "that the Golden Rule was economically sound."ll They could not envision the self-interest of the merchant being freely chan neled to serve others, nor could they accept the merchant's gaining not only wealth but social prestige as well. The Industrial Revolution, in reality, was a revolution of the com mon man, and those who had once set the public agenda were left behind in democratic capitalism'~ wake.

And despite the vast increase of wealth and power capitalism has brought to the western world, and despite the great steps that have been made in eliminating the once-com mon poverty in the industrial na tions, the free market is still an anathema to many of those outside the business realm-the New Class, as Kristol calls them-who seek to determine the "social agenda." These people are hostile to business, but the reason for their hatred, in my opinion, has little to do with social and economic inequalities that exist within our society. After all, the tra ditional societies for which many of capitalism's critics share an affinity are often wretchedly poor with ine quality the norm. As Kristol has noted, the reason for their contempt of the free market is the lack of so cial and political power the liberal, individualistic capitalistic order gives to them. 12 Within a society that per mits a free market, power lies within the market itself, and "is dispersed among so much of [the] population rather than concentrated solely in a governing elite. "13 Novak, commenting upon the hos tility many clergymen seem to hold toward capitalism, writes: In traditional societies, church leaders (whether in Rome or in Geneva) were able to impose their own values on the entire civil society. It is difficult for church leaders to play such a role within a dif1983 THE VIRTUES OF THE FREE ECONOMY 229 ferentiated society. Thus there is often a secret hankering, a lingering nostalgia, for a planned society that would once again permit church leaders to be in al liance with civil leaders in suffusing an entire society with their values. This new Constantinianism appears today as so cialism in totalitarian states, and as statism in mixed economies. 14 Democracyin the Market Critics of the capitalist system, especially those who might share the paternalistic biases of Kristol's "New Class," simply are not impressed with the democracy inherent within a market system. The aristocracy never had confidence in democratic institutions, especially during the precapitalist era; their descen dants-though they may espouse a .belief in democratic equality-have as little confidence in free choice as their forebears. For when they speak of equality, they talk not of a state of equality under law, but rather a state of equality brought about by the law. Their religion demands an equality of results to be adminis tered by a governing elite.

Such a concept of law-that it re strain some and unleash others-is rooted not in the spirit of equality manifest by the rise of 19th-century liberalism, but rather in the des potic mentality of ancient tribalism. Therefore, the modern results of a legal system of equality by coer cion-including progressive tax Where inequality before the law prevails,so prevailsthe specter of despotism,of tyranny,of pov erty, and loss of freedom. rates, transfer payments, housing subsidies, food stamps and other welfare programs, or the brutal re sults of collectivism seen in the past 50 years in the Soviet Union and Asia-reflect not some sort of ad vanced social compassion, but rather a mental leap backward into an age of monarchs who thought them selves to rule by divine fiat. I5 And such a mentality, it needs to be stressed, mutually excludes the lib eral view of equality before the law. For where inequality before the law prevails, so prevails the specter of despotism, oftyranny, ofpoverty, and loss of personal freedom.

Henry Hazlitt, Gilder, Kristol and others have intelligently argued that government poverty programs based on legal inequality actually retard potential economic gains poor per sons can make. What they have not pointed out, however, is the link be tween today's agenda of statism and the paternalistic ethos of ancient times. And it is here that nations can learn from the past, for it is the indisputable fact of history that le gal inequality, enforced economic isolation (called self-sufficiency) and 230 THE FREEMAN April the throttling of the free market leads not to the desired ends ofjustice and prosperity, but to the reverse. It has only been the practice of free divi sion of labor, free markets, and equality before the law that has led to freedom and economic growth. It has long been the contention of tra ditional man that he must choose between liberty and bread; the ex perience of freedom has demon strated the opposite. Liberty leads to more bread, and much else besides.

Ultimately, it is both the liberty and prosperity inherent in the dem ocratic capitalist order that brings those grounded in ancient ideals of society to distrust of the free mar ket. For the liberty of this order per mits those who once labored under the domination of despots to govern themselves, while the prosperity brought about by the free market system allows those who once were desperately poor to support them selves and not be dependent upon the paternalistic whims of the aristoc racy. Lippmann once commented about those who seek, in effect, the older order: ... the only instrument of progress in which they have faith is the coercive agency of government. They can imagine no alternative, nor can they remember how much of what they cherish as pro gressive has come by emancipation from political dominion, by the limitation ef power, by the release of personal energy from auihorityand collective coorcion.16 And it was Frederic Bastiat who so eloquently predicted the results in store for those who seek coercion under the guise of freedom: Capital, under the impact of such a doctrine, will hide, flee, be destroyed. And what will become, then, of the workers, those workers for whom you profess an affection so deep and sincere but so unenlightened? Will they be better fed when agricultural production is stopped?

Will they be better dressed when no one dares build a factory? Will they have more employment when capital will have disappeared?17 Giving and Receivinl One who gives is held in far greater esteem than one who receives, and it is widely believed by those em bracing traditional views that capi talism is simply the economy of re ceiving; that is, the poor labor and the -rich receive. Hence the view, ar ticulated by John C. Bennett, presi dent emeritus of Union Theological Seminary, that the free economy, if not altered by forces of government, is "morally intolerable."18 Economic freedom as demon strated by two centuries of unparal leled fiscal growth, has given those nations that practice it wealth that far exceeds even the richest monar chies of ancient times. And yet, the spirit of economic freedom is seen by critics as just "the unguided lust of the businessman for profit."19 Seh.lesiug-er, an EMltsp8&eftadvocate 1983 THE VIRTUES OF THE FREE ECONOMY 231 of the planned economy, describes the philosophy of free enterprise as an anarchic creed of "everyone for him self and the devil take the hind most."20And Ronald J. Sider, author of Rich Christians in an Age ofHun ger, dismisses capitalistic economic growth as simply the product of covetousness.

One cannot read the parable of the rich fool [in the New Testament] without thinking of our own society. We madly multiply more sophisticated gadgets, larger and taller buildings and faster means of transportation not because such things truly enrich our lives but because we are driven by an obsession for more and more. Covetousness-a striving for more and more material possessions-has become a cardinal vice of Western civilization. 21 Such charges-and they are le gion-bring one to ask obvious questions, and they are: Have the vast improvements in the material quality of life, life-saving drugs, mass education, the elimination of fam ine, the breaking down of structures that once enslaved persons of little means and the concept of individual liberty simply arisen from greed, from covetousness, from the desire to harm one's neighbor? Have the economic gains made in the past two hundred years by the descendants of those once legally bound as serfs simply been a moral blight on history?

I leave the reader of this essay to answer those questions for himself. But my point is this: Capitalism has brought vast economic improve ments to nations practicing it; that is not in dispute. However, if the free market order is seen by a majority of men-and especially those who have the power to set social agen das-as a license for greed, deca dence' and moral bankruptcy, then nations will continue their slide to ward collectivism and statism and what is left of the free market will disappear into the dishonesty, graft and bribery that is the black market. 22 In establishing moral criteria for judging capitalism, I believe the free market must pass two tests. First, it must be consistent with the princi ples of the ancient time-honored Golden Rule; second, the society that produces the capitalist system must be a moral one that measures up to certain moral principles. Living by the Golden Rule In a predatory economy, the Golden Rule, "Do unto others as you would have them do unto you," cannot be easily practiced. If wealth can be gained only by extraction, then it seems logical to assume that one cannot become rich and simulta neously live by the Golden Rule. Ei ther one steals (and no one likes to be called a thief) or one is poor (which demonstrates why poverty has been held in such esteem in traditional 232 THE FREEMAN April religious thought). Traditional thinking dictates that a society gov erned by the Golden Rule be poor; it is not difficult to understand, then, why a mind governed by such ideas would interpret the' capitalist soci ety as rapacious.

But, as Lippmann, Mises, Gilder and others have articulated, the prosperi ty of the free market order has developed not as the result of theft, but rather by the forces of mu tual cooperation and trust between individuals. Lippmann's thesis of The Good Society was that a moral, co operative society could come about only by the practice of free market principles. He wrote: All of this [western prosperity] did not happen by some sort of spontaneous en lightenment and upsurge of good will. The characters of men were not suddenly al tered .... For the first time in human history men had come upon a way of pro ducingwealth in which the good fortune of others multiplied their own. It was a great moment, for example, in the long history of conquest, rapine, and oppres sion when David Hume could say (1742) ... "I shall therefore venture to acknow ledge, that, not only as a man, but as a British subject, I pray for the flourishing commerce of Germany, Spain, Italy, and even France itself." It had not occurred to many men before that the Golden Rule was economically sound. 23 For one to gain wealth in the cap italistic system, notes Gilder, one must first give, not receive. "The gifts of advanced capitalism in a moneThe capitalist 19th Century-so condemned by its critics as a hundred years of exploitation was the most peaceful century in human history.

tary economy are called invest ments .... The gifts will succeed only to the extent that they are altruistic and spring from an understanding of the needs of others."24Wrote Mises: Wealth can be acquired only by serving the consumers. The capitalists lose their funds as soon as they fail to invest them in those lines in which they satisfy best the demands of the public. 25 Within such a system of freedom, one is rewarded only if his neighbor is also rewarded. "A" profits only when voluntary choice prevails-by giving "B" either a product or a ser vice which "B" feels will meet his needs or desires. 26 If this interaction were to cease, the intricate web of cooperation that supports the capi talist system would quickly break down. Retailers would not sell if they could not trust their producers; con sumers would not buy if they had no confidence in the products and ser vices available. Investment would not be possible if those with the means to save and invest had neither con fidence in nor concern for the future.

As demonstrated by Leonard Read in his 1958 article, "I, Pencil," even 1983 THE VIRTUES OF THE FREE ECONOMY 233 the basic products made within the capitalist system involve the coop eration of thousands of persons, even persons who by sight or creed might hate each other. Such is the power of the free market. It is no coinci dence, then, as Hans Sennholz points out" that the capitalist 19th Cen tury-so condemned by its critics as a hundred years of exploitation-was the most peaceful century in human history. 27 The Moral Foundations When Adam Smith in 1776 laid out his thesis in The Wealth of Na tions, he envisioned the free market order to arise not from a people con trolled by avarice, greed and ill-will, but rather from a society in which moral values were considered to be important, where creativity, sym pathy, thrift and the postponing of present gratification for future re ward were upheld as virtuous. Such an order had already arisen in Pu ritan New England, where the vir tues so vital to the establishment of a growing free market had become the basis of the region that gave birth to Yankee Ingenuity.

Puritanism gave the pursuit of such interests (work, thrift and enterprise) di vine sanction and showed that this work ing of divine will through an individual's daily work could be advantageous to so ciety at large .... It was because the Pu ritan .... was satisfied to postpone or delay his gratification, that capital accumulation was made possible and that investment leading to new kinds of pro ductivity emerged. 28 Conversely, one might add, the societies which are predatory and show little of the moral virtues as have been described, are also socie ties that show little or no economic promise. For as Novak has so elo quently stated, capitalism is not the end result of materialism. Rather, materialism-that is the insatiable desire for instant material gratifi cation-works against the free mar ket. He notes: Sustained economic growth does not consist solely in material abundance; it springs from and it continues to demand the exercise of moral character of certain 'sorts. Should such character disappear, so would sustained economic growth. A hedonistic, narcissistic culture is not likely to invest in its own future or to make the necessary sacrifices for its own posterity. 29 OutstandingEconomicGrowth a Consequenceof Freedom Despite the fact that breathtaking economic growth has occurred for more than 200 years, those two cen turies, when placed in the context of the millennia of human history, are but a blink of an eye. The rise in the Iiving standards of men once des tined to live in squalor and oppres sion has come, perhaps too quickly for most who have participated in or have been caught up in the capital234 THE FREEMAN April ist order. Men have profited greatly from the free economy, but few have ever understood why this sudden in crease in prosperity even occurred.

Thus, men, who are inclined to fol low the traditional philosophies so firmly etched in their minds, easily fall prey to those who would offer them coercion and collectivism as the road to an even better life. The free economy promotes co operation instead of conflict; it encourages peace instead of war. But the genie of freedom has been allowed to escape, and men, even while not understanding fully how freedom has given them economic opportunity, have still tasted of its fruits. Because of the phenomenon of individual freedom, the shackles that bound the serfs-and even their oppressive monarchs-in the pre capitalist era have, at least, been temporarily discarded. Therefore, men can dream ofa better life where their ancestors could only accept the poverty of their day. The experience of the free econ omy leaves one both optimistic and pessimistic at the same time. One is optimistic, because it has been dem onstrated for 200 years that freedom works, brings a better life to all, and is not a force to be feared. But one is also pessimistic, because so many have failed to understand the vir tues of the free economy and, there fore, turn to collectivism and stat ism in hopes that coercion will allow them to fulfill their dreams.

The free economy allows men to be virtuous, to practice trust and honesty and be rewarded for it, to bestow a good life for their fellows, to help rid the world of plagues, hunger and other blights that prey upon the weakest of those in our midst. It promotes cooperation in stead of conflict; it encourages peace instead of war. When Lippmann exhorted his peers to turn from the drive to stat ism in the 1930s, he was jeered and declared by many of his fellow "lib erals" to be a "reactionary." And, yet, many of his insights were correct, many of his predictions of coming wars accurate. They are true today as well. The message of Lippmann, and the message 200 years of liberty has proclaimed is this: the Good Society, one in which men can strive for jus tice, virtue and a better life for all can come about only by the practice which "preserves and strives to per fect the freedom of the market. "30 This is not a utopian dream, for those who believe in utopia believe also that man can be coerced into perfection. I cannot accept the idea that somehow man in the world as we know it will lose his willingness to sin. But while man is in his imperfect state, the free eCOflomy win help him to create a mere prosper ous, a more tolerant, a more just, and a more virtuous werld. , -FOOTNOTESIMichael Novak, "The Ecooomic System: The Evangelical :Basis ef a Becial Market Ecen omy," The ReviewofPolitics,Vel. 43 (July, 19tH), 1'.355.

2(}eorgeGilder, Wealthand Poverty(New York, 1981), p. 4. 3Walter Lippmann, The Good Society (Bes ten, 1937), p. 204. 4Lenin's New Economic Pelicy of 1923, Sta lin's introduction of differential wages and other "capitalist" practices in 1931, and the encour agement of small, private enterprises in present day Communist China are notable examples of despotic, collectivist governments seeking help from the free market. 5Novak, p. 365. 6J. Kautz expressed the traditionalist ideals in his 1860 work Die geschichtliche Entwicke lung der Nationokonomik when he described the pantheistic views of Hindu India. ''Above all," wrote Kautz, "as a controlling fundamental of the entire social and economic theory of India can be placed the esthetic self-denial and re nunciation, the unreserved recognition and glo rification of absolute political despotism, the denial of the personal worth of man .... "

7The Calvinistic Westminster Confession of Faith, composed from 1643-1648, deals with the Fifth Commandment (Honor your father and mother) by extending the concept of parents to include social "superiors" as well. 8For example, during the French monarchy from 1666 until 1730 the French textile indus try faced a mountain of regulations contained in four quarto volumes of 2200 pages and three supplementary volumes. 9Arthur M. Schlesinger, Jr., "Neo-Conserva tism and the Class Struggle," The Wall Street Journal, June 2, 1981, p. 30. l°Lippmann, :p. 194. llIbid. 12Irving Kristol, Two Cheers for Capitalism (New York, 1978), p. 28. 13ltobert Heilbroner, quoted from Time, April 21, 1980, "Is Capitalism Working?" Heilbroner is an advocate of the planned society. 14Novak,Toward a Tkeology of the Corpora tion (Washington, D.C., 1981), ". 11-12. 15See "Inside North Korea, Marxism's First 'Munarchy,''' Reackr's lJigest,Fe&., 1882.

I6Lippmann, p. 5. 17Quoted in William H. Peterson, "Creating a 'Negative-Sum' Society," Business Week, No vember 16, 1981, p. 32. 18John C. Bennett, "Reaganethics," Christi anity and Crisis, December 14, 1981, p. 339. 19<'The New Deal in Review, 1936-1940," The New Republic, 102 (May 20, 1940), p. 707. 2°Schlesinger, p. 30. 21Ronald J. Sider, Rich Christians in an Age of Hunger (Downers Grove, Illinois, 1977), p. 123. 22For in-depth looks into how a state-stran gled econemy invites black market activity, read Antonio Martine, "Measuring Italy's Under ground Economy," Policy Review (Spring, 1981), and Ken Adelman's description of black market corruption in socialist Tanzania in "The Great Black Hope," Harper's, July, 1981. 23Lippmann, pp. 193-194. 24Gilder, pp. 24, 27. 25Ludwig von Mises, The AntiCapitalistic Mentality (South Holland, Illinois, 1972), p. 2. 261n a planned society where the state makes economic choices for its citizens, people must "choose," then, whatever the state gives them.

Under these conditions, however, the products and services usually leave much to be desired and the result is a bullied, dissatisfied customer. 27Hans Sennholz, "Welfare States at War," The Freeman (January, 1981). 28James T. Laney, "The Other Adam Smith," Economic Review, October, 1981, p. 28. 29Novak, "The Evangelical Basis of a Social Market Economy," pp. 365-366. 3OLippmann, p. 207.