Welcome! For a first column, we will explore the basics of a vibrant economy.
Economics essentially studies the transformation of scarce resources through time and space into the products that best meet the unlimited wants and needs of market participants. Broadly speaking, a robust economy requires respect for property and the profit motive, impartial application of the law, a people of substance and sound money.
Thus free, the market unveils a natural canvas allowing its participants to create masterpieces enriching and beautifying life.
Property Rights
Ludwig von Mises highlighted property as the cornerstone of sound economics. Property, the accumulated capital of those who produce, represents the basis for a functioning market. Surely producers should enjoy the benefits of their production. This includes not merely the right to trade in what manners seen fit, but also the right to not trade, not hire or not deal in manners found unfit.
Unencumbered property rights should also allow the free movement of prices as the guiding signal instructing producers how to focus their efforts. When government obstructs the fluctuation of prices, it smears the tapestry. Shortages and other distortions inevitably result.
The sanctity of private property also demands moderate taxes and a minimally invasive regulatory infrastructure. We must be allowed to retain our lawful gains and be free to employ our property accordingly. Taxes must be sufficient to protect and enforce the rights resident in our persons and property, but the growth of government invariably comes at the expense of liberty. As Ronald Reagan warned, “Governments don’t control things. Governments control people.” A primary control mechanism involves dictating the use of our property.
The more freely we are left to conduct our affairs and exploit our belongings, the better aligned our efforts will be to gainful enterprise.
The Rule of Law
Other than some very basic supports such as ensuring honest scales and the impartial enforcement of contracts, governments can do very little except impede the natural flow of commerce. Bureaucrats should be like sport officials: absolutely impartial in every decision and performing at their best when their presence goes unnoticed.
Impartial application of the law ensures trade remains fair, i.e. between consenting parties acting in their mutual self-interest. However, value — economically speaking — is purely subjective. Assuming an honest measurement, fairness is determined entirely by the transacting parties. It’s not government’s just role to ensure or abet politically expedient outcomes.
Governments should never pick favorites. It’s our tapestry. Progressive tax policies and politicized spending to favor certain industries or demographics are hardly impartial. Regulations that deliberately tilt the scale to favor “green” energy or other politically correct shenanigans mock this principle.
President Obama promises a simplified, more efficient regulatory system. Here’s hoping we’re pleasantly surprised, but recent gargantuan intrusions like ObamaCare and FinReg invite skepticism.
The Character of the People
The drive to improve our material circumstances, i.e. the profit motive, manifests itself naturally, assuming our “betters” don’t squelch the entrepreneurial spirit through punitive tax policies or overly cumbersome regulations. Our instinctual drive for gain must be channeled into positive activity. We shouldn’t satisfy wants by robbing our neighbors. Nor do we want handouts given without accountability rewarding sloth or irresponsible behaviors.
Very little should be held in “common” to prevent parasitism and government safety-nets such as unemployment insurance or corporate bailouts must be minimized. Propping up the failures of the past prevents the successes of the future.
A government which tempers its innate longing to control its populace clears the tapestry for private citizens to create masterpieces of innovation and advancement.
Respect for the Profit Motive
It has long befuddled historians why certain nations emerging from the Reformation such as the Dutch Republic and England enjoyed such astounding prosperity. This nascent capitalism was once attributed to the Protestant Work Ethic: the notion that Calvinists working diligently in fear of eternal damnation spurred economic growth.
However, the underlying factor prompting this phenomenal prosperity was confidence, not trepidation. Thanks in part to Calvinist doctrine, profits finally garnered respect instead of jealousy. If fear drove productivity, communism might have endured, or at least it wouldn’t have failed so spectacularly. Slavery wouldn’t have long been recognized as an economic retardant yielding general impoverishment to all but the large slaveholders.
These nations thrived and ushered in the modern because for perhaps the first time in world history, wealth creation was recognized as socially beneficial. Previously, profits were considered evidence of a swindle and un-inherited wealth a cause for disdain since it threatened the nobility.
It takes ingenuity, discipline and perseverance to create. We all gain from the new inventions and rising living standards. Rather than demeaning the successful, we ought to emulate them.
Sound Money
As the primary measuring stick for almost every transaction, the dollar’s value reflects a vital arbiter for each of the above. Are we truly free when government technocrats can deliberately pilfer our property’s value through inflation?
Why delude ourselves concerning legal impartiality when Washington willfully alters the scale by obfuscating dollar denominated measurements?
Trading and investing require an element of faith that our transactions will be fairly measured. Ideally, we know that we can unequivocally trust the veracity of those with whom we trade. Short of such confidence, we expect the government apparatus to redress grievances. That every transaction conducted using debased dollars has been artificially swayed to one party’s detriment hardly provides an inducement for risk taking enterprise.
And finally, since the monetary stewards rarely admit their guilt, as inflation roars, businesses will be pilloried as profiteers due to the inevitable rising prices. W-I-N buttons anyone?
Sound money thus supports each of these other ingredients. We will explore what constitutes sound money next week.
America presently violates to some extent each of these principles. We remain an amazingly prosperous society thanks to the accumulation of capital bequeathed to us by our more prudent forbearers. We cannot live off this legacy forever.
It would behoove our present generations to remember from whence the wealth we enjoy came.
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