The Requirements for a Free Market Economy

First Published: 2012-03-24

An earlier version of the speech was presented to The Nassau Institute on Wednesday, November 16, 2011.

Before we can understand anything as complicated as a free market economy, we must understand what economics is really about. Therefore, I begin with a brief understanding of the basics to economics as I see them.

Economics is the study of human action. Human action is about human energy. From the moment we are born we expend our energy in one direction or another. We cannot spend our energy without replenishing it. Initially, as an infant, we replenish the energy we expend through sucking milk from our mother’s breast. As we grow older, we replenish it through eating various foods.

There is a relationship in nature between the energy we receive from what we eat and the energy we expend to both get the food and to eat it.  For instance, if we expend more energy finding, picking, cleaning, biting, chewing, swallowing and digesting an apple than we receive from eating it, we are unlikely to do it twice.

When we were nomadic we were free to pick an apple from any apple tree and eat it. Then we settled on the land.  With that came property rights and laws to protect private property. Some people owned and controlled land and others didn’t.

Those who didn’t own the land upon which apple trees grew had no legal access to apples. They had to ask the owner of the land if they could pick one.

The owner of the land could then require them to pick two apples and leave him one or, perhaps even to pick one hundred apples and leave him ninety nine.

In both cases, the owner of the apples would have required the hungry person to expend more energy than nature intended. The hungry person would have had to expend either twice or one hundred times the energy nature intended to access the energy received from eating one apple. That is contrary to the relationship nature intended. In that sense it is unnatural. I am not saying here that property rights are unimportant. I am saying that they are not absolute and must be understood within a wider context than many see them.

Throughout the course of history, whenever those who controlled the essentials for human survival have required those not in control to behave too unnaturally – however that is interpreted at the time – revolutions have occurred.

The most significant change occurs when the second hungry person asked for an apple. The owner of the apples will not need him to pick two or even one hundred. The owner will already have apples from the previous person. Therefore he will ask the second hungry person to make something else or to perform some other service in exchange for an apple.

That is how we became the only species (of which I am aware) that busies itself producing what it doesn’t want in order to exchange that for what it does want.

From the moment we settled on the land, we have all lived in what I call a MANDATORY EXCHANGE SOCIETY from within which we have had to exchange to survive. That’s why we work. In this, we have no choice.  We are not free not to work. Nor are we free not to accept whatever job is available, regardless of its or our suitability. That, of course, flies in the face of the concept of individual liberty.

Most of us have not thought about how we got here. Most of us simply accept that we have to work to survive and to take care of our families and we try to generate as much choice as we can about what work we do and when we do it. We tend to look at liberty within this understanding.

When we look around our islands and the rest of the world, we see many unemployed, we see pockets of poverty, we see many uneducated or poorly educated youngsters and adults and we see many ill, all of whom are unable, in one way or another, to work and meet the requirements of this mandatory exchange society. They cannot provide for themselves or for their families. The mandatory exchange society does not offer them the freedom not to exchange. Yet, they cannot.

They need to be helped. The question then arises: who will help them? How we answer that question determines the type of society we live in.

If we believe that it is not our responsibility as individuals, then others must. If no individual or group does, then governments must. If governments do, then governments must raise the money with which to do it.

Over the past century, in most societies, since the introduction of the income tax, the solution for the many disenfranchised of this world has been for the government to provide for them. This, in turn, has led to politicians using taxpayers’ money to provide for those less fortunate.

These politicians may be people with good intentions, but they offer to do-good at someone else’s expense – not at their own expense. The taxpayer must pay. The state is then required to use its coercive and confiscatory powers to collect taxes from its citizens to pay for these social services. There is nothing voluntary about this for the taxpayer. This practice is known as Socialism.

Socialism removes the responsibility for looking after others less fortunate from individuals and transfers it to the state. So, successful individuals living in a socialist regime can simply pay their taxes and forget about those less fortunate. They simply say: “That’s why I pay taxes”.

They then need not worry about those less fortunate. They need worry only about themselves.  As individuals continue to focus on themselves alone, we soon find ourselves in a ‘me’, ‘me’, ‘me’ society.  That’s where we find ourselves today.

Further, politics is now a full time job for most politicians. It is their only means of earning an income.  Maintaining their job is essential for many. In order to get elected, many Socialist politicians deliberately confuse equality of opportunity with equality of living standards and promise the electorate more and better.

They then need to raise even more taxes to pay for the new promises they make. Thus, the taxpayer gets to keep less of his earnings whilst the recipient of this largess develops a dependency on government and votes to keep those promising more and better benefits. Then the politicians can vote themselves even better working conditions.

Taxpayers have no choice because the state employs its coercive and confiscatory practices to collect these increased taxes to finance both its largess to the politicians and its largess to those dependent upon it.

In the name of fairness and equality of living, these socialist politicians have introduced more and more rules to govern individual behavior. Each of these rules restricts choice and removes one more of our God-given freedoms after another. Now, many western countries find themselves bound in red-tape – rather like Gulliver in Lilliput.

People in these Western societies find themselves divided and battling on two fronts. On the one front some battle to help those increasingly disadvantaged by the continuing inflation which I have already addressed in another forum, and on the other front some battle to regain much of the freedom lost. Unfortunately, whilst socialist policies do provide humanitarian solutions for those less fortunate, the cost is that we each continue lose more and more of our individual freedoms in the name of protecting the vulnerable.

I argue that the vulnerable can better be protected without the loss of freedom or the confiscation of individual and group wealth.

When the original thinkers of free market economics lived and wrote, the Judeo Christian ethic was alive and breathing. There was an underlying understanding of morality and how to behave. People understood their responsibilities to each other as well as their rights. Today, in too many people, that understanding no longer exists. Most understand their rights but not their responsibilities – particularly their responsibilities to each other.

Today, too many people are really looking for a license to take maximum advantage of their own position without regard to the position of others. The world today has become too focused on “me”. There is no sense of “enough-ness”. Few would limit themselves like the partners of the British Bank C. Hoare & Co, who state clearly “Yes, we are in business to make a profit – but not to profiteer!” In too many instances, the cause of freedom has been hijacked by the greedy.

This can lead to those of us who are genuine advocates of free markets being seen as ‘heartless’, ‘nasty’ and ‘uncaring’. The socialists then use these labels at every election to win votes. If we are not careful, we can allow this greed to lead to further losses of our freedom and, ultimately, a total loss of freedom. If we wish to regain lost freedoms and not lose further freedoms we must awaken to the danger of failing to understand or even be aware of our own individual responsibilities in a free society.

None of us can be totally free to choose the direction in which we each wish to employ our own energy unless each and everyone else is equally free to so choose. We must all be free to choose how we use our own energy.

Socialism and our loss of freedom has arisen because we have forgotten how to live in a voluntary exchange society or a free market. We have been conditioned to think that God made man to work.  Seemingly we accept without question that we live in a mandatory exchange society and therefore the unemployed of this world have to get on their bikes and find a job to survive whether or not there are jobs available and whether or not they are capable of handling a job. The reality is that if you cannot work due to physical or mental impairment or if there are no jobs to be had, getting “on your bike” cannot achieve anything.

Too many who advocate a voluntary exchange system assume that ‘the market’ will take care of the jobs required. Well, it doesn’t always work out that way – as we can plainly see today. Medium to long term unemployment is normally a sign that the market hasn’t provided adequately and that something needs to be done about.

Watch a video of this presentation by clicking here…

It’s time for us each recognize and accept that we are the market – you and me! We can and must ourselves ensure that those less fortunate receive the help they need, and we must ensure that it is provided within the voluntary or private sector. We must demonstrate that the private sector can and is willing to take care of all the vulnerable people of this world.

Here in the Bahamas we can best demonstrate that by doing it ourselves and setting a tone for the rest of the world. When the private sector properly provides for those genuinely less fortunate, the state will no longer need to use its coercive and confiscatory powers to interfere in any day to day operation of our lives except where our individual actions threaten the free choice of others.

To develop and ensure a free market, we can begin now, in the private sector, to provide even better social services than those which the Bahamian government now provides. Once we have them up and running – and running successfully – we can genuinely ask the government to begin to withdraw the services they now provide.  Government budgets can then be reduced.  Taxes can be reduced and government interference in our lives can be minimized.

So, what can those of us that wish to see a free market do as responsible citizens?

•    We can each ask ourselves, how much time can we individually devote to ensuring that the needs of the less fortunate are properly met. We must each ask: how much money can we each individually give to ensure these needs are met?

Some of us will be able to devote time and not money and vice versa.  That’s OK.  Some have already begun!  Witness Ed Fields and his “We the People” movement.  Witness the “Voluntary Bahamas” movement.  There is a growing and excellent voluntary sector in the Bahamas. We need to join them and help them to enlarge and expand their fields of assistance until every vulnerable person is covered.

•    We can, each of us individually, help to establish in our own community a network of people of similar interests: a network which is capable of identifying those within our communities who are ill, incapable or simply unemployed.

•    We can then examine the causes of each inability and see what we ourselves, and those within our network, can do to help them and to help to remove the impediments they face.  
•    Then we can begin immediately to provide the help required to those who are genuine. Those who are not genuine can also be identified and their cover removed.
•    When all obstacles have been permanently removed and everyone is free to make voluntary choices and when the needs of those who cannot participate are met, the government can then withdraw. A genuine free market can then exist.
•    We must then continue to monitor our network to ensure that any new impediments are removed and any people newly impeded are similarly assisted.

What does that mean here in the Bahamas?

•    First, let’s recognize that we have far less socialism than most western economies. Thus, we have far less government interference. Thank God for that. We don’t really want to go any farther down that road.

Yet, we have already gone sufficiently far down that road that according to recent newspaper reports:

‘the Bahamian government appears to be running an “irreversible” increase in debt accumulation due to deficit spending and that our debt will continue to grow until the world economy begins to grow. Then our revenue can begin to increase faster than our expenditure.’

Surely this is a sign to act now. We must begin to replace government expenditure with private expenditure.

I genuinely believe we are not in another economic cycle. Recovery is nowhere in sight and may well not be imminent. Government expenditure reductions can be achieved by implementing private sector social initiatives and thereby allowing the government to reduce social programme costs.

•    Second, let’s recognize that we in the Bahamas already have a very good voluntary sector doing much in these very areas. Yet, there is so much more to be done:

1.    We must acknowledge and support the excellent work already being done in the private sector with adult education in teaching adults who cannot, to read and write. This is only a beginning and much more needs to be done. We must ask what more we can each do to help those already helping.

2.    Some four to five thousand youngsters graduate from Bahamian schools every year. Some of those graduates have adequate education and can find work, others have inadequate education and cannot.

To improve our education standards, I suggest we consider how we might help the Bahamas to benefit from a recent study by Andrew Coulson which showed how private sector education has replaced public sector in many areas and is not only better, but less expensive.

This research could help us find a way forward to improve our schools and help future graduates.

3.    For those who have already graduated and still remain ill-equipped, we could consider initiating an outward-bound type of residential school, perhaps on one of the out islands. The Island School, recently featured in the local paper, seems a great step forward. We must do what we can to assist in its development as well as to encourage others and help them all to finance worthwhile initiatives. We can certainly learn from the good work being done around the world by the Duke of Edinburgh’s Award Scheme and the Prince’s Trust. These are but two very effective schemes designed to help the young to improve themselves. There are others and we must study them all to find the best ways to help our young. I am sure there are many in the Bahamas who have ideas of their own.

4.    In any event, there are few jobs available and certainly not sufficient even if every youngster had a fully adequate education. We must seek ways to promote entrepreneurial behavior amongst our young graduates and develop systems to support those who are willing to try.  We must appeal to the business community to establish a substantial Venture Capital Fund to support these individual entrepreneurial ventures.

We must all be prepared to accept that some will fail.  Others will succeed. We must build on the successes.

I noted that the Bahamas Credit Union League has been trying to meet some of this need but face a 50% rate of delinquency. We must thank them for trying. However, venture capital should not be provided by debt using someone else’s money. There will always be some failures in venture capital investments and failures lose the capital. How, then, can depositors possibly be repaid?

Venture capital is a field for equity investors who understand that a 50% success rate can still be profitable and are who prepared to accept the failures.

The government has already begun to meet that need with its own venture capital fund.  So, too, has ‘We the People’. Yet, governments should not be doing this with taxpayers’ money. Where is the rest of the private sector?

We must also ask: what can we do to bring manufacturing to the islands?  What kind of manufactured products will suit and benefit the Bahamas?

Can we encourage more and better agriculture?  What about olive plantations?

Can we encourage some manufacturing that will help to develop a skilled workforce here in the Bahamas?  There are so many possibilities.

5.    With respect to the poor, we must find the means to harness the excellent networks that already exist in the churches, the Red Cross, charitable bodies, etc. to identify those in need. Where these networks fall short, we must develop other networks.

Then, through our own efforts and contributions we must find ways to help those identified as genuinely less fortunate to help themselves where they can. Then they, too, can help those around them.  Where they cannot, we must help to provide for them.

6.    We must help the ill to receive the medical attention necessary. This may well mean both help with the provision of benefits and help with improving our available health services.

All of the above we must do through the private sector in both ‘for profit’ and ‘not for profit’ ventures.

7.    To help to pay for some of these private sector provisions, we might establish a ‘Society for Assistance for the Less Fortunate’. We must then all be prepared to contribute to it what we can.

8.    The most important thing for us all to remember is that we must see to it ourselves. We must do it.  We must not call upon someone else to sort things out.

For instance, in the October 29th 2011 edition of the Tribune, there was an article about the state of Englerstone Park and the dreadful state into which it had been allowed to deteriorate.

“Frustrated residents demand action” the headlines ran. Why aren’t these residents cleaning it up themselves and setting an example to the community? That’s the sort of behavior we need to see in every walk of life.

These are just a smattering of thoughts about some of the things we can do to ensure a voluntary exchange society can exist here in the Bahamas. I am certain that amongst this newspaper’s readers and the wider population, there are a great many more and better ideas that can all help to make our society better and freer.

The truth is: if we don’t do these things ourselves, the government must. That means more cost to the government which, in turn means more revenue is required. Eventually, if we don’t act, the government will have to impose further taxes and eventually an income tax. Then we, too, will be on the road to serfdom.

To avoid this route, we must shoulder the responsibilities of good citizenship and see to it ourselves. It’s that simple and it’s time to start now.

The views expressed are those of the author, and not necessarily those of the Nassau Institute (which has no corporate view), or its Advisers or Directors.

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