“Bush and Paulson and Greenspan and their clique are “free marketeers” in the same way (to borrow from A. J. Jacobs) that Olive Garden is an Italian restaurant. They adopt the language, and some of the form, of market advocacy without any of the content.”
In Ayn Rand’s Capitalism: The Unknown Ideal, she writes,
Every government interference in the economy consists of giving an unearned benefit, extorted by force, to some men at the expense of others. By what criterion of justice is a consensus-government to be guided? By the size of the victim’s gang.
The logic behind this statement is simple and largely self-evident, though often ignored in policy discussions. It should be noted that the article I write about below has nothing to do with the above quote – which is precisely the problem.
A November 19th article from The Economist ponders the question of how governments can best raise revenue through taxes. To the author’s credit, he states in the first paragraph:
Although spending cuts could, and should, be the preferred route to prudence, taxes are all too likely to be part of the mix—at least judging from the experience of those countries that have already acted.
Unfortunately, the article concludes that developed countries would do best to focus on “efficiency” rather than “fairness.” If a government’s goal is to pursue the utilitarian goal of the “greatest good for the greatest number,” this preference for efficiency over fairness would be correct. However, any government with such utilitarian goals is an abomination.
The author does make some important points about alternate tax systems. Taxes on consumption, including a value-added tax (VAT), are regressive; meaning the lower an individual’s income, the higher he is taxed. Consumption taxes do, as the author points out, encourage saving – but they simultaneously discourage spending. Corporate taxes, it is noted, are particularly market-distorting. The critical numbers of the article can be found in the graph below (click to enlarge).
The author also illustrates an interesting phenomenon that often goes overlooked. Very collectivist (communist, socialist, fascist, etc.) have government revenues that make up a relatively large percentage of GDP, when compared with economically liberal countries such as the U.S. Russia, for example, has government revenues equal to 47.7 percent GDP, while the U.S. has government revenues equal to 33.7 percent GDP. But these percentages do not tell the whole story. It is also important to look at the components that make up these percentages. In Russia, non-tax revenues (largely related to state-owned oil companies) make up 14.5 percent of GDP, while in the U.S. non-tax revenues comprise only 5.7 percent of GDP.
At first, this may seem to be a much more efficient way for governments to raise revenue (though, to be sure, the article never makes this claim). It is easy to understand why a person unfamiliar with the record of history may see no difference between a government-run entity earning revenues and a private firm collecting profits. Is there any real difference between the Russian government selling oil and ExxonMobil selling oil?
The answer is a definite “yes”.
History and economics both teach us that no central body can determine the amount of goods and services needed by individuals. Only the invisible hand of market forces can provide society any degree of efficiency. So even if government raises its revenue through so-called production instead of taxation, there will still be massive transaction costs and inefficiencies on both the supply and demand side. And of course, the government has incentives that conflict with offering the best product at the best prices. Governments typically have two goals: 1) gain power, 2) create social value. Yes, these are often at odds; and yes, the second is often a means to the first. Regardless, governments are not motivated by profits. And the profit motive is the driving force behind real economic efficiency.
But all of this talk of efficiency misses the point. I’ll return now to the point of the quote I began with.
When reading such articles, it’s easy to get wrapped up in the author’s arguments and lose the ability to distinguish the forest from the trees. Though the free market is far more efficient than a centrally-planned market, is that really a concern when so many tax systems and government sources of revenue violate individual rights? ExxonMobil has vast resources at its disposable to best its competition. But the one thing it does not have is the ability to coerce by force. Only by offering its customers the greatest value at the lowest price can it win in a free market. While the Russian government (or any other government) only has to pass laws – backed, of course, by men with guns – to maintain its supremacy. Take the U.S. Post Office, for example. If FedEx and UPS were allowed to carry mail, would the USPS have any chance at remaining viable? Of course not. Only by regulation and force can the USPS continue to provide income for the U.S. government.
So whether you are concerned with efficiency or freedom, the property confiscated by government should be reserved only for the protection of our individual rights.
One final thought from Ayn Rand on the subject:
There can be no compromise between freedom and government controls; to accept “just a few controls” is to surrender the principle of inalienable individual rights and to substitute for it the principle of the government’s unlimited, arbitrary power, thus delivering oneself into gradual enslavement. As an example of this process, observe the present domestic policy of the United States.
“Business, especially big business, is happy with crony capitalism, franchised monopoly, or any other device that will avoid the Darwinism of the free market. Of the billions of dollars now spent lobbying, almost none supports the free market as a concept or an institution.”
I believe our free market system works best when it rewards hard work.
~ President Barack Obama
This is rather redundant. Capitalism works by rewarding hard work. Self-interest and incentives are at the foundation of any free market system. True, there are times when the market fails to reward hard work – but these instances are, by an overwhelming margin, caused by government intervention in the market. When any one group gains unfair advantages in the marketplace, it is normally because the government has intervened on their behalf. Throughout U.S. history, various groups have gained unfair advantages in our society which they have used to violate the rights of other groups. Corporations have gained coercive monopolies by which they have exploited consumers, workers have possessed unnatural influence over their employers, one race has oppressed another, and so on unto near-infinity. But in all the above-mentioned cases, it has been the hand of government that allowed these various groups to gain their power. It is government that has mandated utility monopolies, allowing companies to operate without competition and to exploit their customers. It is government that has shackled companies with anti-trust laws but allowed unions to engage in the type of collusion that has bankrupted entire industries. It is government that gave whites the authority and the power to enact Jim Crowe laws in the South. When the free market fails to reward hard work, it is not due to an inherent fault in capitalism. It is due to government intervening with force on behalf of a particular group, instead of protecting individual rights and thus protecting the free market and clearing the way for freedom, equity, and prosperity.
I have faith, in things I can see and buy and deregulate. Capitalism is my religion.
- Jack Donaghy
The above quote is from the Emmy and Golden Globe Award-winning television series 30 Rock. The character, Jack Donaghy, is an extremely wealthy and powerful executive of the GE Corporation, and an avowed capitalist. The show portrays his free market beliefs as antithetical to faith and, even moreso, religion. Here is part of a letter from Ayn Rand to Barry Goldwater, written in 1960:
The Communists claim that they are the champions of reason and science. If the Conservatives concede that claim and retreat into the realm of religion, it will be an act of intellectual abdication, the kind of intellectual surrender that the Communists’ irrational ideology could never have won on its own merits.
The conflict between Capitalism and Communism is a philosophical and moral conflict, which must be fought and won in men’s minds, in the realm of ideas; without that victory, no victory in the political realm is possible. But one cannot win men’s minds by telling them not to think; one cannot win an intellectual battle by renouncing the intellect; one cannot convince anybody by appealing to faith.
Capitalism is perishing by default. The historical cause of its destruction is the failure of its philosophical advocates to present a full, consistent case and to offer a moral justification for their stand. Yet reason is on the side of Capitalism; an irrefutable rational case can be, and must be, offered by its defenders. The philosophical default of the Conservatives will become final, if Capitalism—the one and only rational way of life—is reduced to the status of a mystic doctrine.
I am not suggesting that you should take a stand against religion. I am saying that Capitalism and religion are two separate issues, which should not be united into one “package deal” or one common cause. This does not mean that religious persons cannot crusade for Capitalism; but it does mean that nonreligious persons, like myself, cannot crusade for religion.
Granted, some of this letter is dated. Capitalism (a necessary component of freedom) is no longer at war with communism, per se. Individual rights now faces the much broader threat of collectivism. However, most of what Rand said still rings true today. The collectivists largely control academia, so they have been able to convince many that “progress” and “reason” are on their side. While conservatives (those mediocre champions of individual rights) frequently take up causes backed only by a subjective morality, or faith. For all the reasons stated in the letter above, this approach will lead to the victory of the collective over the individual.
It has been made clear by brilliant individuals (Milton Friedman, Ayn Rand, Adam Smith, F.A. Hayek) that free market capitalism is the political system that is consonant with man’s nature and the system that is supported by reason. But it is often asked whether or not a person of faith can also be a supporter of the free market. As both a Christian and an ardent proponent of capitalism, I believe that capitalism and faith are absolutely compatible. In fact, I would go so far as to say that free market capitalism is the only system compatible with the Christian religion. If one holds man to be created in the image of God, then it must follow that the individual is the highest object in the temporal realm. It is at this point that the atheist, agnostic, and deist alike come to the same conclusion: man is supreme on this earth. Any system of government must therefore be centered around man. As man’s nature is that of an individual and not as a collective, any system of government must be centered around the individual. As free market capitalism is the only political system built around individual rights, it is the only moral political system.
Let me be clear, I completely agree with Ayn Rand that capitalism can and should be argued by reason, not faith. However, many people of faith seem to believe that capitalism, because it requires at least a degree of selfishness, is incompatible with their religion. I would remind those readers that capitalism does not prohibit sacrifice in any way. The important point is that it does not enforce it. A collectivist society forces selflessness on its members, at which point sacrifice is no longer moral because it was not done by choice. Capitalism, on the other hand, leaves every individual free to pursue their own goals – allowing disparate beliefs to thrive without the violation of individual rights.
Tim Worstall of the Adam Smith Institute explains why capping the work week doesn’t reduce work, it simply reduces paid work,
There is, sadly, a terrible misconception about the world of work. This misconception leads to, as ignorance of the basics so often does, really rather bad policies being enacted. The misconception is that the only form of work we do is outside the home, the labour that we perform in offices and factories for cash and lucre under the lash of The Man.
This of course is not true, we all also work in the home, unpaid. There’s always the washing, the cleaning and cooking, the maintenance, the clearing of gutters and painting and so on. Some people enjoy these things, true, but then some also enjoy their paid work as well, and they are both work. Possibly the best description of what is work and what is not is the one used in time use surveys: work is whatever you could pay somone else to do for you*. You cannot pay someone else to sleep for you but you can to make your bed: you cannot pay someone else to eat for you but you can to cook, cannot to wash on your behalf but can for someone to wash you.
So in these time use surveys there are three basic classes of time: personal services, work (both inside and outside the home) and leisure. Those who have more leisure are those who are spending less hours in work, assuming that that personal part remains reasonably constant, as it does.
So what are the numbers for leisure in a country which deliberately restricts the paid for working week? Surely they have more than those who do not, no? Well, actually, no, France has an average of 4.28 hours of leisure a day for each adult while the UK has 5.08. The Americans, who everybody knows keep their noses to the grindstone, have 5.18.
The reason would seem to be that if people are denied the opportunity to work the paid hours they desire (possibly to then buy in parts of that unpaid household labour) then they will try to make up that desired income by unpaid household work. But the world of paid work, with its specialisation, leads to work being done more efficiently. Thus it is necessary to work longer hours inefficiently in order to reach the same desired outcome in material (ie, not just cash but goods and services) income. It is more efficient in the use of labour for the butcher to make the sausages in his factory than for every housewife to do so inexpertly at home, after all.
All of which leads me to a tentative and counter-intuitive conclusion. The laws which deliberately restrict the length of the working week actually increase the amount of hours of work done by those subject to them.
Another example of when intentions and results meet different ends.