[Excerpted from Capitalism and Commerce: Conceptual Foundations of Free Enterprise (2002). Thanks to David Schatz.]
The egalitarian belief that people must be identical throughout society is wrong. Those life forms that are most alike are the lowest life forms. Man, the highest form of life, displays the most diversity and the widest individual differences. A legitimate political and economic system must be firmly based on human nature. A society of free and responsible individuals includes a diversity of tastes, values, desires, and visions of happiness.
People should have the maximum chance to select their own way of life (within the constraints of resource scarcity) according to each person’s structure of desires, and without value judgments regarding the decisions made by each individual, as long as the individual does not encroach on the freedom of others to make their own life choices.
Today, our freedoms are invaded by external government controls. The less economic policy, the better. We must reduce as much as possible the weight of the state and increase the jurisdiction of the market. It is not regulation but individual action, private-property rights, competition, and fluctuating prices that force adaptation to changing conditions and that promote efficient resource utilization.
A capitalist system is not egalitarian. You cannot achieve excellence and progress unless you have inequality and diversity. Division of labor and specialization are natural outcomes of the multiplicity of natural conditions. Economic progress requires the freedom of individuals to use the diverse talents and localized information that only they can possess. Our material abundance and opportunities for fulfilling work are largely the result of the productivity and creativity of our competitive economic system, despite the existence of many bureaucratic barriers.
Progress is difference and change. If individuals were not free to try new things, then we would never have any improvements. In order to have progress, there must be freedom to attempt new advances. Progress is impossible unless people are free to be different. Regulation and controls stifle innovation and experimentation. Bureaucracy gets in the way of change. Capitalism has made advances possible, not solely in providing life’s necessities, but in science, technology, and knowledge of all types upon which human society depends.
Freedom attracts innovators and explorers and gives life to their ideas. Freedom for people to act in their own self-interest is the mainspring for a diversity of ideas, innovations, and experiments that lead to the discovery of new products, services, and other means of production.
Progress requires the use of information that exists only as widely dispersed knowledge that each person has with respect to his own circumstances, conditions, and preferences. Such tacit, locationally specific knowledge is only useful if people are free to act upon it. A free market permits prices to emerge from the use of people’s localized knowledge. These prices contain more and better information and result in better decisions than what can be achieved under a regime of central planners. Limited government and decentralized markets permit more freedom and foster more prosperity than do state-dominated and centralized bureaucracies.
The free market is superior to central planning regarding the uses of localized information and in combining those uses into an efficient system of production and consumption. Markets spread ideas, encourage the constant search for improvements, and evolve through trial and error, experimentation, and feedback. Markets produce a positive, emergent order.
Technological progress has reduced the ability of the state to control productive processes. Production systems are now smaller, more flexible, and more mobile than they were in the past. By accelerating change and disaggregating the distribution of knowledge, technological advances increase the preeminence of market-based economies.
There is an inextricable connection between freedom and technology. Information empowers people. The information age and information technology are the enemies of centralized bureaucracies and totalitarian states. As information, technological progress, and businesses move faster, it will be increasingly more difficult for the state to keep pace.
Without doubt, cyberspace and the Internet will permit a more open, participatory economy, thus furthering and enhancing the importance of the free market. Nations based on political control and a centralized economy will be undermined by the free market and the microchip. By giving people access to information, the Internet empowers people and disempowers government.
Cyberspace permits limitless opportunities and empowers the individual. The Internet is making existing forms of commerce more efficient and is fostering the emergence of self-organizing supranational communities. These new virtual communities are bound by common interests rather than by physical borders. The Internet provides immeasurable “space,” allows people to choose their own communities, transcends national and cultural boundaries, enhances personal freedom by facilitating the spread of information and ideas, and provides access to a whole new world of goods and services.
“Totalitarian governments cannot keep pace with the rewards of freedom in an open society.”The Internet is a medium that can transmit a person’s ideas to the rest of the world without revealing his physical location. People are able to erect walls of cryptography in their efforts to create new social experiments. Cyberspace privacy, stemming from the science of cryptology in the private sector, will ultimately take too much effort and cost for the government to break. Widely available, low-cost encryption devices will make it difficult, if not impossible, to keep track of individual knowledge workers who offer their trades on the Internet. Networking tools, such as reforwarders, will make undesired identification and location more and more difficult.
People will be able to create and exchange wealth without being watched by some sovereign power. Technological progress will alter the production of wealth in fundamental ways and reduce the threat that governments pose to people’s liberty and prosperity.
The products of men’s minds can be communicated via the Internet, which provides the power to access and to distribute information and ideas. People will be able to take a large part of their productive work and use it to participate in unconstrained commerce within an economic system essentially immune from government surveillance. Of course, the goods most readily traded in cyberspace are an individual’s skills and knowledge.
Although there will always be products with physical attributes such as steel and automobiles, the majority of the new wealth in the economy will be created in the information industries. Much of the wealth produced in this parallel economy may never exist in the physical world and may not have to be exchanged for government currency in order to be useful in commercial transactions. Wealth can be transferred electronically in the substance of the products and services sold over the Internet and in the form of newly developed monetary instruments.
Technology is the enemy of bureaucrats and dictators. By freeing people from centralized control, technology gives them power over their own lives. Totalitarian governments cannot keep pace with the rewards of freedom in an open society. Free markets always defeat industrial policy.
We need to demonstrate to the world that a free society is good for people. To do this, we need to adopt policies for freer trade and greater international investment. We need to eliminate restrictions on trade and capital flows and to encourage the free flow of information around the world. Globalization can be a liberating process for human beings everywhere.
Of course, there is also still much to be done in the United States, which is currently under the influence of an interventionist and regulatory government. The time is ripe to reestablish the philosophy of freedom as the foundation for the American economic system. People are becoming less antagonistic toward business. There is now less confidence in welfare-state programs.
More and more, people are talking about tax and budget cuts, privatization of some government functions, and spending reductions with respect to Social Security, Medicare, and other government programs. It is time to take steps toward the establishment of a laissez-faire society.
This article is excerpted from Capitalism and Commerce: Conceptual Foundations of Free Enterprise, chapter 29, “The Future” (2002).
