With the price of goods, inflation, and government spending all steadily increasing at an exponential rate, it’s safe to say that Americans are acutely aware of today’s economy. While the global pandemic can take the brunt of the blame, ultimately economic policy has dug the hole even deeper. Reliance on the global supply chain and the ever growing relationship between big business and big government has stifled what was one of the strongest economies in recent history. Some blame “capitalism”, arguing that wealthy CEOs have hoarded the wealth at the expense of the average American. That being said, America’s economy is not truly capitalist, especially if you look to Adam Smith, Jean-Baptiste, or the Founding Fathers. So what is free market capitalism?
A capitalist (or Laissez-faire) economy is a system in which individuals have the right and responsibility over the voluntary exchange of goods and services. Government has little to no involvement in the economy except to protect those rights and break up trusts and monopolies. In this system supply and demand dictate market trends and competition helps regulate prices and availability. While not infallible, a free market economy provides the greatest opportunity for wealth and innovation. While it does not guarantee equality of outcome, it provides a level playing field where anyone can find success. Some may fail, but that failure does not have to be permanent. It is high risk, but has the potential for high reward.
The Founding Fathers understood these principles and made them an integral part of the fledgling country. In a 2010 report for the Heritage Foundation, Dr. Thomas West said:
There are three main Founding-era economic policy principles that make possible sufficient production, for rich and poor alike, of the goods that are needed for life and the pursuit of happiness.
The first principle is private ownership. Government must define who owns what, allow property to be used as each owner deems best, encourage widespread ownership among citizens, and protect property against infringements by others, including unjust infringement by government itself.
The second principle of sound policy is market freedom. With some exceptions, everyone must be free to sell anything to anyone at any time or place at any mutually agreeable price. Government must define and enforce contracts. Means of transportation must be available to all on the same terms.
The third principle is reliable money. To facilitate market transactions, there must be a medium of exchange whose value is reasonably constant and certain.
Since the early 20th century, the government has increasingly expanded its influence over the economy. This initially came as a response to the “Gilded Age” of the late 19th century where rich “robber barons” built up large monopolies and working class citizens had few laws protecting their rights. The government rightly stepped in to bust the trusts and provide relief to the exploited workforce. Government intervention grew past its bounds with the rise of the Progressive movement. Progressives saw the government as a vehicle for change in the name of “progress” (albeit a term often loosely defined and ever evolving). Government was used to regulate the market through the use of tariffs, income taxes, and government spending. Special interest groups and lobbyists have since taken a sizable role in policy and budgetary decisions. The highly competitive global market has also caused problems for the United States, in large part because countries like China play by their own rules.
This may sound discouraging, but the next generation of citizens can help steer us in the right direction. Below is a list of resources you can utilize to help inform and empower others to promote and defend true free market economics.
Milton Friedman, I, Pencil (a short video describing the iconic lecture given by the economist)
Adam Smith, The Wealth of Nations
Frederic Bastiat, The Law
Ludwig von Mises, Liberalism
Friedrich Hayek, The Road to Serfdom