In a primitive, economically poor society, a person has to do a lot of basic jobs just to survive. He has to be a master of many trades. But as a society becomes wealthier and more complex, people begin to specialize at doing those things at which they are comparatively more talented. They then trade with others who are doing the same.
In a free society, people would be able to enter into any economic enterprise without political permission or interference; enter into any mutually beneficial exchange with others; and accumulate unlimited amounts of wealth in the process.
Would this mean that everyone would become wealthy? Of course not. People have different talents and abilities. The accumulation of wealth in a free society would depend not so much on the value that a person places on his own attributes, but rather on the value that others in the marketplace put on them.
In an unhampered market economy, the consumer, not the producer, is the sovereign. The consumer’s spending — and abstention from spending — decide who is going to become wealthy and who is going to be poor. If consumers decide to buy the recordings of a certain singer, that singer will become wealthy. If not, he might have to find another line of work.
Advocates of the socialistic welfare state claim that a free society would produce a small group of wealthy people who would then control our lives. This was the rationale behind one of the earliest interventions leading up to America’s paternalistic welfare state — antitrust laws. Capitalism is fine, the welfare statists said, but only up to a point. Without antitrust laws to protect the common man, big business would oppress and suppress the little guy.
What nonsense! Take Bill Gates, the owner of Microsoft. This guy is worth billions of dollars, somewhat more than what you and I own. This may surprise you, but Gates has never oppressed or suppressed me. I have walked into many computer stores that sell Microsoft products and they have actually let me leave without buying anything. Not one of Gates’s agents has ever held a gun to my head and forced me to buy anything.
Gates has a certain talent, and he capitalizes on it. But the reason he has become phenomenally wealthy is that he has been successful in serving other people. He has produced a product that other people are willing to pay for because it has tremendously improved their lives.
It is worth reemphasizing — Gates’s billions do not enable him to suppress me or oppress me. Whether I choose to buy a Microsoft product or not is up to me, not him.
I repeat: In a free society, consumers are sovereign. They decide who becomes wealthy and who becomes poor.
Welfare statists say, “Yeah, but big companies will just keep getting bigger and bigger under freedom. We need government to confiscate a large portion of their income and money to make sure they don’t get too big.”
What nonsense! The unhampered market economy is a process that constantly redistributes wealth. Consumers are fickle people. A company that has successfully satisfied them in the past is under constant pressure to continue doing so. If it fails to do so, consumers go elsewhere, and the company loses market share and possibly goes out of business. Again, the consumers, as sovereigns, redistribute wealth through their buying and abstention from buying. If a producer or seller stops serving the consumer, he’s history.
For example, take a look at the Fortune 500 list for the last 50 years. How many companies from 50 years ago — or even 10 years ago — are still on it? I’d be willing to bet hardly any.
Or look at the Dow Jones Industrial Average. If big companies just kept getting bigger, then why wouldn’t the index have the same companies as when it was first developed?
Twenty years ago, I remember welfare statists talking about the steel and automobile industries. They said, “These companies are different from other companies. They are oligopolies. They can set any price they want in the market. They have to be controlled by the government because otherwise they will get as big as they want.”
Yet, within a few years, what happened to these “special cases” that welfare statists said had the power to control prices and oppress consumers? Steel and automobile companies were fighting for survival. If a company has the omnipotent power to control consumption, why would it ever have to fight for survival? The welfare statists never answer that one. They simply go on to envy and condemn companies that currently are successful in satisfying consumers.
Welfare statists say, “But in the absence of antitrust laws, companies would get together and cooperate.” Yeah, and so what? It’s their property, isn’t it? If a person owns a company, why shouldn’t he be free to merge or enter into agreements with other people who own their company? Again, if the consumer is dissatisfied with the result, he doesn’t have to buy what is sold. Moreover, anyone is free to enter the market and offer an alternative product or service.
And there are benefits to consumers that arise from that kind of cooperation. For example, suppose all of the automobile companies were free to get together and form a joint venture for research and development. It’s possible that by combining efforts in that way, they would come up with much more efficient and significant improvements in automobile quality. And then they could compete in other areas — the model of the car, the features, the accessories, and so forth.
“But what about workers?” the welfare statists ask. “You can’t deny that Karl Marx was right — capitalism enables employers to oppress and suppress the working man.”
What nonsense! For one thing, the assumption is always that employers hold all the cards when it comes to bargaining power. But often the situation is exactly the opposite. For example, suppose that there is an unexpected shift in consumer demand in favor of a new type of computer software. Producers have to scramble to find competent programmers. The programmers will be able to write their own salary ticket, even if the company is worth billions. And the same principle holds true for people in all walks of life — legal secretaries, farm workers, busboys. Sometimes a labor shortage in a particular line of work enables the employee to hold a strengthened position in relationship to his employer.
But here again, it is the consumer, not the producer, who ultimately directs the pattern of wages and wage rates. Wages tend to rise in those areas where consumers are demanding more.
And the producer does not pay a higher wage because he’s a nice guy. He pays it because he knows that if he doesn’t, the employee is apt to go work for a competitor who is offering a higher wage.
But what if several employers get together and set wage rates too low? Then, there is always the threat that an upstart company will come along and steal workers away. Employees are always on the lookout for employers paying more money, either to use it as leverage for a raise or to leave for greener pastures.
Welfare statists never tire of saying to us, “But there is an inherent conflict between employers and employees. It’s us against them.”
What nonsense! The exact opposite is true. Both the owner and the worker have a joint interest in a successful company, that is, one that successfully satisfies consumers. If the company fails to do that, it goes out of business, which leaves the employees unemployed. If the business successfully serves others in the marketplace, employees have a better chance for employment security.
If a company continually gets wealthier, what is the assurance that it will pay higher wages? That depends on what other employers in the marketplace are paying. If others are paying significantly more, they will tend to attract the best workers to their companies. The successful company might find itself less successful if it starts losing its best people to the competition. Self-interest motivates a successful company to continue paying top wages in the marketplace.
Ultimately, the only way wage rates can rise generally in a society is through the accumulation of capital. Capital comes from savings. Savings come from the accumulation of wealth in the marketplace. When people in a society are free to accumulate wealth, the wages of workers rise.
For example, suppose there are 100 workers on a farm who are using nothing but hoes. They produce 1,000 bushels of wheat that the farmer sells for $10,000. He pays the workers $5,000 in wages and keeps the other $5,000 for himself.
The farmer decides to save his money rather than spend it on a vacation. The following year, he takes his savings and buys a new tractor, which he teaches his workers to operate. With this new equipment — capital — the workers produce 5,000 bushels of wheat, which means $50,000 in revenues for the farmer.
Let’s assume that the farmer is the most self-centered, selfish Scrooge in the world. Will he pay more in wages? Yes. Because the farmer next door will. If Scrooge fails to match him, Scrooge loses his workers to the competition.
Wages for workers rise because capitalists are free to accumulate wealth. If the capitalist had had his initial $5,000 confiscated and redistributed to the workers, not only would he not have had the money to pay for the tractor, he also would have had no incentive to continue the business.
“But we need government to set a floor — a minimum wage — to protect the guy at the bottom,” the welfare statists tell us.
What nonsense! An employment relationship is the same as any other transaction in the marketplace. An employer is going to hire someone if he believes that what he gives up is less valuable to him than what he is getting. The same holds true for an employee. Assume that a 17-year-old boy with no work experience asks for a job. The employer thinks to himself, “He’s worth $4 an hour to me but not a dime more.” The kid thinks to himself, “I’d like more but I’m willing to settle for $4 so that I can learn the business.” A mandatory minimum wage of $5 an hour means that the kid goes unemployed. What a great law that is!
Contrary to everything they teach in public schools in America, a nation cannot destroy poverty through laws. If it could, every nation on earth would be wealthy. After all, it doesn’t take a rocket scientist to pass a law.
Poverty is the natural state of mankind. People have always been poor. The real question is: How do nations (or more accurately, people in nations) get wealthy?
The answer is freedom. When people are free, they are able to utilize their respective talents and abilities to provide goods and services to others in the marketplace. Those who are most successful in serving others are the ones who become the wealthiest. It is the market’s signal that says, “Good job. You used your resources well in the service of others. This is your reward.”
As people accumulate ever growing amounts of wealth, more and more money is invested in capital, which ensures an ever growing standard of living for everyone in society. It is not a coincidence that people who take vows of poverty in wealthy societies live significantly better lives than those who do the same in poor societies.
A free society would be one in which people would be able to peacefully and harmoniously coordinate their lives with others. It would be a society in which government would be constitutionally prohibited from interfering with the unlimited accumulation of wealth. Not only would such a society provide the widest ambit of freedom of choice, it would be a society that would raise the economic well-being of everyone.