Freedom and Happiness; B. Caplan

THEFREEMAN IDEASON UBERTY Freedom and Happiness by Bryan Caplan "[F]reedom is undoubtedly the indispens able condition, without which even the pur suits most congenial to individual human nature can never succeed in producing such salutary influences. Whatever does not spring from a man's free choice, or is only the result of instruction and guidance, does not enter his very being, but still remains alien to his true nature; he does not perform it with truly human energies, but merely with mechanical exactness." -WILHELM VON HUMBOLDT, The Limits of State Action 1. The Varieties of Human Welfare Let us begin with a thought experiment inspired by Charles Murray.} Imagine that you discovered you would be unable to raise your child yourself, and would have to entrust him to the guardianship of someone else. Naturally, your concern with the child's happiness would be paramount. But what does that actually mean? Your first concern would be for the child's material wellbeing; but would that be the only con sideration? What if certain wealthier guard ians would not instill the same strength of character that other parents of more modest means would provide?

The point here is that human welfare is more than material wellbeing. When we Mr. Caplan is a graduate student in economics at Princeton University. The essay was awarded first prize in the 1995-1996 Olive W. Garvey Fellowship competition (see page 3). compare the ability of markets versus gov ernment to advance human welfare, we should consider not just their ability to produce consumer goods. It is at least as important to examine the broader effects of these institutions on the human personality. 2. Economic WellBeing The connection between markets and economic wellbeing is best illustrated em pirically. The recent histories of Germany and Korea provide the equivalent of two controlled experiments demonstrating the link. In both cases, what scientists would call "exogenous" forces suddenly split ho mogeneous nations into two parts. In both cases, one government adopted market oriented policies, whereas the other im posed a rigid state-run economy. In both cases, the living standards in the more capitalist nations became so far superior to those in the "control" nations that ruthless emigration restrictions were imposed to pre vent a steady population drain.

Korea and Germany offer the best exper iments in alternative economic systems that we are ever likely to observe. But other goodexamples exist, allpointing in the same direction. Both Hong Kong and Taiwan can be profitably contrasted with mainland China (at least prior to China's move toward market policies). India's success could be measured against Japan's, or most of Latin America against Chile. In case after case, we have the spectacle of culturally similar peoples lifting themselves out of poverty 37 38 THE FREEMAN • JANUARY 1996 under free-market policies, while stagnat ing, regressing, and even starving in state run economies. Some may doubt the validity of this in duction: just because market economies do better than government-run economies, why should we assume that a mixture of the two types of policies won't do even better? Almost every nominally "capitalist" nation has adopted extensive regulations and trans fer programs. How can comparisons be tween Hong Kong and China show some thing wrong with the modern welfare state?

Nevertheless, it would be a mistake to dismiss such comparisons completely. In statistics, it is well known that you learn more about a population if its members vary significantly in the dimensions in which you are interested. If you want to study the effect of a drug, but the dosage ranges only from .99 mg to 1.01 mg, medical researchers will be unable to figure out how much of the difference is due to the drug, and how much to chance. In contrast, if the researchers observe the whole range of dosages, from none to a lot, it becomes much easier to rationally generalize. In the same way, if we compare hard-core free-market regimes to mildly socialistic regimes, it will be much harder to infer the economic importance of markets than if we broaden the comparison to include economic systems which reject the market altogether. In any case, many arguments can be turned on the modern welfare state directly.

Its most pervasive and expensive policies involve government pension programs and government supply of medical care. What is most curious about these policies is that they generally payout to everyone, rich and poor alike. The result is that in the majority of cases, they tax citizens who could easily have paid for their retirement and medical care by themselves, at least before they were taxed. Similar complaints could be lodged against the regulatory wing of the welfare state, which frequently restricts and prevents competition with one bureau while a second agency tries to correct the market for insufficient competition. Along the dimension of economic wellbeing, markets work extremely well, and there are good reasons to think that moder ately market-oriented policies are worse than extremely market-oriented ones. To people who live near the subsistence level, this is extremely important: their welfare is primarily a function of their ability to satisfy their daily needs. But does this really matter for the citizens of the industrialized democ racies, who live far above this meager level?

Summarizing the psychological literature on wealth and happiness, Murray writes that "Happiness is very low until subsistence is reached, rises very steeply immediately thereafter, but quickly levels off as subsis tence is left behind. ,,2 Later it will be argued that the indirect value of wealth, even for affluent nations, is greater than we might expect. But now we shall turn to some other components of human welfare which are apt to be very important in economically well off countries. 3. Character and WellBeing People don't just want to have things; they want to be somebody. To be happy, a person needs to see something valuable about his or her character. This is no easy matter because it is often difficultto develop a virtuous character. Aristotle explains that "Neither by nature, then, nor contrary to nature do the virtues arise in us; rather we are adapted by nature to receive them, and are made perfect by habit.,,3 We develop a good character by practice, by actually living through difficult experiences and learning to master them. The problem is that in the short run, weakness of will may lead people to develop vices instead of virtues, even though they would be happier in the long run if they developed a character they could be proud of.

But what does this have to do with the relative abilities of government and the free market to promote human welfare? Though not immediately obvious, the connection is interesting. Governments have two sorts of policies with profound effects on the devel opment of virtue. On the one hand, govern ments typically favor paternalism-using the threat of punishment to discourage self destructive and vicious behavior. At the same time, governments often take care of people who are suffering because of their own irresponsible behavior. The free-mar ket policy, naturally, is simply the negation of both. Can one or both of these brands of state action help develop the human character and thereby enrich human well-beingin non economic terms? The problem with the paternalistic variety is that at best it merely compels good outward behavior. But inter nal strength of character tends to atrophy due to lack of opportunity to practice self regulation. For example, if it were possible to successfully ban alcohol, alcohol abuse would cease to exist. But virtues like tem perance and moderation would fall into disuse. Despite its association with an em phasis on moral character, paternalism tends to replace the development of virtue with shallow public displays thereof. If peo pIe's happiness depends on actually devel oping their character rather than merely seeming to do so the paternalistic route is a dead-end. Or as Thomas Szasz observes: "Paternalism is the mortal enemy of dignity: How can a person feel dignified vis-a-vis a medical profession, a judiciary, a govern ment that never says to him: 'I don't know.

It's none of my business. It's your problem. You deal with it.' ,,4 Other common government policies aim to shield individuals from the effects of their lapses of character. Of course, many prob lems are a combination of bad luck and bad choices, but the role of choice-especially habitual choice-is much neglected. The problem with government policies aiming to soften the blows of ill fortune is that it is nearly impossible to do so without reward ing bad character as well. Consider the case of a young man who says he is unable to find work and deserves government help. The difficultyis that by the time he requests help it may be impossible for him to extricate himself from his situation. Just making different choices won't save him now, so it appears that his problem is due to bad luck. And yet, from a broader FREEDOM AND HAPPINESS 39 perspective, his condition may be largely due to his habitual choices-in short, his character. When considering human wel fare, it is tempting to consider merely the man's current distress. But this perspec tive overlooks the harm that this sort of bailout willprospectively do to the character of the young man in question as well as others in comparable situations. Lacking the natural guidance of cause and effect, of poor choices gradually leading to intolerable situations, other young men may fail to develop their characters, and in the long run lose the happiness that comes from self respect.

The market doesn't have any perfect way to develop character either, but at least avoids the pitfalls of these two breeds of state policy. Character won't spring up on demand under any system. But the market environment does tend to foster it by simul taneously giving people the freedom to test their strength of will along with the disci pline of the natural rewards and punish ments of virtue and vice. 4. Autonomy and WellBeing A close link exists between discontent and government decisions. Every time the government makes a decision, a dissatisfied minority necessarily feels oppressed and ignored. When the government makes a wide range of decisions, almost every citi zen is going to frequently land in the position of the unhappy minority. Consider how the typical consumer feels in contrast to the typical citizen. The jazz aficionado rarely feels "outvoted" by the lovers of opera. The buyer of a luxury sedan doesn't feel that the drivers of compact cars are taking advantage of him. What is it about markets that creates the across-the-board satisfaction that no government policy seems able to evoke?

The crucial difference stems from what we could call a need for autonomy, or self-determination. It is degrading to feel that other people make your important de cisions for you; and the happiness of getting to tum the tables and decide for them is poor 40 THE FREEMAN • JANUARY 1996 compensation. When you are in the minor ity, it might seem as though it would feel glorious to assume the position of control; but attaining it just cements the realization of how precarious your dominant position is. In short, the minority feels humiliated by its powerlessness, and the majority feels threatened by the voices of discontent which will strip it of its power at the first opportunity. Political decision-making government decision-making-fails to re spect individuals' autonomy and thus re duces happiness along another non economic dimension. The opposite holds for market decision making. Its crucial feature is that people make decisions for themselves, not for oth ers. The objects of choice are not aggregate policies for everyone, but personal deci sions for oneself. There is something deeply satisfying about this: one can participate in society while holding one's individuality intact.

Undeniably, many people want to control those who differ from them; but taking aggregate choices away makes it easier to accept the need to respect the rights of others. Thus, when the State determined the lawful religion of all of its subjects, the majority felt it unbearable to leave dissent ers in peace. Privatize religion, take it out of the public realm, and gradually the contrary practices of others grow less painful to endure. Tolerance is, as it were, another virtue which we acquire by practice. In contrast, no amount of practice makes it easy to endure the denial of self-determina tion involved in political decision-making. Imagine how people would feel if the free market in magazines were replaced with democratic collective choice. No longer do we have a marketplace where widely differ inginterests can be simultaneously satisfied. No longer can an individual independently decide which periodicals he or she would like to read. The result is that only publica tions that win majority approval get printed.

However intense the preferences of minor ities, the majority will ignore them. We can now control others' reading, as we could not under the free-market regime. But this opens up the ability of others to control your reading. The point of this mental experiment is to show what different economic systems mean for autonomy, and why the destruc tion of autonomy tends to destroy human welfare in the process. The harm done to autonomy cannot be removed by making collective choice democratic-the harm lies in collective decision-making itself. While this does not show that government action is on balance worse in every case, the need to respect human autonomy is a much-ignored consideration which augments the case for the free market. 5. The Interaction of Economic and Broader WellBeing The second section argued that free mar kets are the best system for creating eco nomic prosperity, but added that after a point greater economic satisfaction may not be very important. The third and fourth sections considered other facets of human happiness, and argued that laissez-faire principles were just as beneficial from a noneconomic perspective. A final issue to consider is the relationship between these two aspects of happiness.

Charles Murray may be correct that greater wealth alone has little effect on happiness after a certain point. But this considers only the direct effects of wealth on happiness. Far more important, however, are the indirect effects: greater wealth means that we need to spend less time satisfying our physical needs, creating the option to pursue loftier concerns. Philoso phy, literature, and art have always flow ered in the world's centers of wealth: in Athens and Rome in ancient times, in Italy and Holland during the Renaissance, down to the development of motion pictures in the United States. A priori, you would expect that only after people can rest from the desperate struggle for survival would they tum to other activities. The effect of greater economic prosperity is greater comfort, leisure, and surplus wealth which permit the development of the human personality. Of course, wealth only creates the option to strive after noneconomic ends, which is why the correlation between prosperity and civ ilization is impetfect. The point is that wealth is the critical "enabling condition"

which makes the development of civiliza tion possible. Nor are the indirect effects of wealth confined to scholarly and artistic achieve ment. Prosperity is what allows every indi vidual to develop his unique personality and potential. Imagine a struggling peasant in precapitalist society: his trials are so oner ous that he lacks the leisure to explore his potential. Even more clearly, since greater wealth leads to a vast extension of the length of the human life, economic prosperity gives us the time to find fulfillingwork, search for true love, or try to satisfy any other ambi tion. Before the Industrial Revolution, lifespans of 30 or 40 years were common. After you subtract the years of dependence spent in childhood, just imagine how short your horizon and how limited your goals would have to have been. This indirect effect of prosperity dwarfs the importance of the obvious direct benefits of riches.

FREEDOM AND HAPPINESS 41 Conclusion Critics of the free market have often correctly pointed out how narrow-minded it is to equate human welfare with material possessions alone. The strategy here has been to accept this insight and show that free markets advance human welfare along non economic dimensions as well. Whether we consider. the raw ability of capitalism to "deliver the goods," its tendency to foster virtue, or its implications for human auton omy, the answer is the same. Moreover, those who belittle capitalism's material achievements are doubly in error; for in addition to its positive, direct effect on noneconomic welfare, the free market's seemingly infinite multiplication of primitive man's economic wellbeing is precisely what has made all of our other cultural, intellectual, and personal accomplishments possible. D 1. In his In Pursuit: Of Happiness and Good Government (New York: Simon and Schuster, 1988), pp. 79-82.

2. Ibid., p. 63. 3. Nichomachean Ethics, l103a23-25. 4. Thomas Szasz, The Untamed Tongue: A Dissenting Dictionary (La Salle, III.: Open Court, 1990), p. 236. The Foundations of American Constitutional Government Foreword by Clarence B. Carson An ideal primer for teachers, students, public officials-and every citizen who wants to better understand what makes our form of government unique. Special Bonus: An Appendix containing the U.S. Constitution and thc Bill of Rights, the Virginia Declaration of Rights, the Declaration of Indepcndcncc, and Washington's Farewell Address. /lIn this collection of essays, we learn exactly why the Founders said what they said. The Constitution becomes a living document that speaks, not just to our past, but to our future ....A welcome relief in an era of judicial activism and loose constructionism." -Burton W. Folsom, Jr. Historian and author 312 pages with index $14.95 paperback To order, call (800)452-3518 THEFREEMAN IDEASON UBERTY Liberty, Government, and the Rille of Law (excerpt) by Jeffry W. Duffy Editor's Note: In his essay, Mr. Duffy makes a critical inspection of the types of social ordering indicated by "free markets" and "govern ment controls" in terms of law.