Recently by Thomas E. Woods, Jr.: Why Even an Anarchist Should Vote for RonPaul
A couple weeks ago a critic of the free market, quite appalled that I would exonerate the free market of blame for child labor, poor working conditions, and the like, unleashed a barrage of comments on Twitter directed my way (@ThomasEWoods). She was responding to a blog post in which I promoted this presentation to a group of high school students at the Mises Institute:
Her tweet read, "How right-wing Ayn Rand disciples INDOCTRINATE high school students." Subtle, she isn't.
As I clicked on her various links, I discovered scores, perhaps even hundreds, of common fallacies about the free market. I found very few I hadn't seen numerous times before. I'll take some of them on in this series — not to persuade my critic, who has unfortunately already made up her mind, but to help other people respond to arguments like these and to show people on the fence how backward and easily refuted these claims are.
(1) Among her criticisms was the familiar "survival of the fittest" accusation — why, the market rewards the strongest and grinds everyone else into the dust!
But it is precisely in a pre-capitalist economy — where the division of labor is poorly established and where capital investment is practically nil — that only the fittest survive. As F.A. Hayek pointed out, before the Industrial Revolution those who could not make a living in agriculture and lacked the tools to support themselves in a craft had no way to integrate themselves into the economy at all. The wealth (and employment opportunities) that the market economy creates makes possible the sheer survival of countless millions of the world's weakest and most vulnerable people, for whom the necessities of life would not previously have existed in sufficient abundance to keep them alive.
It is the capital investment that the unhampered market economy encourages that increases people's real incomes over time and makes the necessities of life less expensive over time, relative to wage rates.
When firms increase and improve the equipment and machinery at the disposal of workers, their labor becomes more productive. Imagine someone using a forklift, as opposed to stacking pallets with his bare hands, or producing books with modern equipment as opposed to a 16th-century printing press. The amount of production the economy is capable of is thereby increased, often dramatically, and this increase in production puts corresponding downward pressure on consumer prices (relative to wage rates).
There is nothing natural or inevitable about the availability of this productivity-enhancing capital equipment. It does not fall out of the sky. It comes from the wicked capitalists' abstention from consumption, and the allocation of the unconsumed resources in capital investment.
This process is the only way the general standard of living can rise. Only in this way can the average laborer produce the tiniest fraction of what today he is accustomed to producing. It follows that only under these conditions can he expect to be able to consume the tiniest fraction of what today he is accustomed to consuming.
The increases in the productivity of labor that additional capital brings about push prices down relative to wage rates. By increasing the overall amount of output, such increases raise the ratio of consumers’ goods to the supply of labor. Put more simply, improvements in the production process that lead to an increased supply of output make that output cheaper and easier for people to acquire. (On this, see George Reisman, Capitalism, ch. 14.)
That’s why, in order to earn the money necessary to acquire a wide range of necessities, far fewer labor hours are necessary today than in the past. Thanks to capital investment, which is what businesses engage in when their profits aren't seized from them, our economy is far more physically productive than it used to be, and therefore consumer goods exist in far greater abundance and are correspondingly less dear relative to wage rates than before.
As I've shown in Rollback, the poverty rate in the United States fell from 95 percent in 1900 to around 12-14 percent in the late 1960s — a period in which government antipoverty measures were fairly trivial. By the late 1960s, when Lyndon Johnson's War on Poverty programs began receiving substantial funding, the poverty rate stagnated. By 1994 it was about the same as it had been in the late 1960s, even though the federal government was by that time spending four times as much per capita as it had under LBJ.
Now suppose the situation had been reversed. Suppose the dramatic fall in poverty had occurred under the War on Poverty, and that it was under the free market that the poverty rate had stagnated. We would never hear the end of it: the free market does nothing to eradicate poverty, and only our wise overlords in the political class can do the job! But when exactly the opposite is the case, the facts are simply passed over in silence.
(2) We read in one of her links: "In the ideology of the free market, freedom is conceived as the absence of interference from others. There are no common ends to which our desires are directed. In the absence of such ends, all that remains is the sheer arbitrary power of one will against another. Freedom thus gives way to the aggrandizement of power and the manipulation of will and desire by the greater power."
Let's take this odd paragraph apart one sentence at a time.
(2)(a) "In the ideology of the free market, freedom is conceived as the absence of interference from others."
Correct. Freedom means no one has the right to initiate aggressive force against anyone else. What else could it mean without becoming Orwellian?
(2)(b) "There are no common ends to which our desires are directed."
I'm not entirely sure what this means. True, no one has the right to force anyone else to pursue any particular end he does not wish to pursue, but why is that a bad thing? Would it be better if we could all be coerced into pursuing particular goals? Are we sure the goals of the coercers would always be laudable? Where do the coercers derive the right to decide for everyone else what their goals should be?
And of course it is not true that, just because guys with guns can't order peaceful people around, we have no common ends in a free market. In the market economy we cater to each other's needs. We fit ourselves into that place in the division of labor where our abilities best serve the most urgent needs of our fellow men. Without any commissar having to dictate what to produce, in what quantities, and in what location, we devise structures of production in which labor, capital, and nature-given factors proceed through a series of stages until the finished consumer good is finally reached. It is an astonishing phenomenon, entirely missed by critics.
There are limitless ways business firms can combine factors of production to produce an equally limitless potential array of goods. Thankfully, firms do not have to grope around in the dark amid these trillions of choices.
If their production process uses an input more urgently needed elsewhere, that input gets bid away from them and they find a substitute. If they produce too much of something, their resulting losses prompt them to produce less, thereby releasing resources for the production of another good that consumers value more highly. At all times, resources are directed, in light of consumer wants, to those production processes in which they are most urgently demanded.
No dictators are necessary to force us into the coerced pursuit of common goals in order to bring about this happy outcome.
And far from dog-eat-dog, the resulting structures are fundamentally cooperative, with the industries in lower-order stages of production depending for their success on the output of the higher-order stages, and the higher-order stages depending on the demand of the lower-order ones. Our critic thinks we can't have common goals unless someone holding a monopoly on the initiation of violence — i.e., a government official — forcibly imposes them on us. This strange proposition is contradicted in a billion ways every day the market economy operates — even in the gravely hampered market economy of today. The title of Frédéric Bastiat's book Economic Harmonies reflects a central though unjustly neglected insight into the true nature of the market economy.
(2)(c) "In the absence of such ends, all that remains is the sheer arbitrary power of one will against another."
This is supposed to be a description of the market economy. It is instead a description of government. How else do we describe the exercise of force by a privileged class against peaceful individuals, in order that the peaceful individuals be expropriated and ordered about by that privileged class?
No one forces you to buy a Twinkie. But governments do force you to fight in their wars and pay for their bailouts. Some people might consider that "sheer arbitrary power." (Those people are probably just right-wing supporters of Ayn Rand.)
(2)(d) "Freedom thus gives way to the aggrandizement of power and the manipulation of will and desire by the greater power."
Again, this has things exactly reversed. It is government that does these things. Ever see governments propagandize for war? They manage to turn their populations against peoples they have never even heard of, much less actually met. If it is manipulation of the public our critic opposes, she might start with the political class in which she reposes so much misplaced confidence.
(3) She linked to this quotation from Abraham Lincoln: "Corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed."
Unfortunately for her, that quotation is a fake.
To be continued…
Thomas E. Woods, Jr. [send him mail; visit his website], a senior fellow of the Ludwig von Mises Institute, is the author of eleven books, most recently Rollback: Repealing Big Government Before the Coming Fiscal Collapse and Nullification: How to Resist Federal Tyranny in the 21st Century, as well as the New York Times bestsellers Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse and The Politically Incorrect Guide to American History. He is also the editor of five other books, including the just-released Back on the Road to Serfdom.
© 2011 TomWoods