A study of human nature reveals that "value" is psychological rather than real. Whether a thing is "worth" a certain amount depends entirely on the mental value attached to it. Capitalism has proven to be a dynamic economy in which everyone participating in a transaction can increase the value of what he has, or, in other words, make a profit. This can be true of both the buyer and the seller. For example, take a man who wants to buy a used car. He has a certain amount of money or credit. When he offers this money to the dealer it means that he would rather have the car than that amount of money -- the "value" of the car is greater to him than the "value" of the money. If the dealer agrees it means that the dealer would rather have the money than the car. In fact, he won't sell the car unless the price he gets is of greater value to him than the value of the car. As the car is driven away, both men have made a profit. Both men feel they have improved their position as a result of the transaction.
This is a strong contributing factor to the success of Capitalistic free enterprise. It allows everyone to win, either by making a profit or by improving his position as the result of an honest transaction.
The Meaning of a Free Economy
Capitalism thrives best in a free economy but freedom is a much misunderstood subject. For example, there is no such thing as total, unrestricted freedom. Freedom means simply the chance to choose. Therefore freedom can only relate itself to specific choices such as the freedom to speak or not to speak, the freedom to believe or not believe, the freedom to buy or not to buy, and so forth. Furthermore, freedom can move in only one direction at a time. If a man has ten dollars and chooses to spend it on a night of celebration he has thereby lost the freedom to spend that same ten dollars on some new clothes. Once the choice is made, a person is not free to avoid the consequences of that choice. That is why we say there is no such thing as unrestricted freedom, or freedom in general. Freedom is always restricted to some specific choice and freedom is always restricted to choosing one direction at a time.
It is for this reason that a free economy requires a continuous education of its people so that they will exercise their "freedom to choose" in such a way that it will sustain sound moral principles and build a dynamic economy with a strong social structure to preserve it. In making such choices, the people must sense what is best for both the individual and the community. They must be well informed. They must know enough about each problem so they can anticipate what the result will be when they have made their choice.
There are many notable examples in both modern and ancient history to illustrate what happens when people are only casually concerned with their right to make a choice or exercise their freedom. Free peoples require alert, aggressive leadership and a socially and politically conscious citizenry. This is not easily maintained, but it is the price of freedom. Sometimes the streak of natural laziness in people makes them wish that a commission, a dictator or a king would make all the decisions and force the people to do what is good for them. But this is the road to ruin for a free economy. The people must retain the sovereign right to choose, for that is all freedom is.
Now we come to the four great freedoms which must always exist in a truly free economy.
First -- Freedom to Try
One of the most essential ingredients in a healthy economy is the freedom to try. This is really the freedom to achieve and it is based on the principle that "the genius of one or a few men cannot begin to compare in the aggregate to the genius of all the people."
Therefore, in a free country a man can develop a new kind of shorthand, a different kind of screwdriver, a new breed of cattle, or an improved type of mousetrap. When he is through, no one may wish to buy the new product or service, but at least he is free to invent it and try to sell it if he can. This is an in indispensable characteristic of Capitalism -- the freedom to try.
One of the reasons atomic energy was shared with the people for peacetime development was because Americans have been educated to believe that this is the best way to harness atomic power for a vast multitude of domestic services. With many thousands of scientists working on ways and means to exploit atomic power -- instead of using just a few hundred -- the results should be correspondingly greater. This is particularly true where each of the scientists is free to try anything his inventive genius may dictate.
This was precisely the way we developed radio, television, the prevention of polio, the wonders of the modern automobile and the sound-barrier-breaking speed of the propeller-less jets. By way of contrast, it is interesting to note that the providing of an adequate road system was reserved to the State and Federal Governments. Notice that this monopolized program has never come up to the public needs at any time in our history. It is interesting to consider what might have happened if highways had been left in the open market where businessmen could compete for the opportunity of serving the public with adequate systems of highway facilities. In fact, during recent years there have been several places where toll roads have been built by private capital with the permission of state legislatures because the people were so dissatisfied with the inefficiency of government supervised thoroughfares.
Second -- Freedom to Sell
If men are to be left free to try their skill and inventive genius they must also be protected in their freedom to sell their product for a profit. Of course, some new product might make a whole industry obsolete, temporarily throw thousands out of work and require numerous economic, social and political readjustments. But this is one of the keys to success in free enterprise economy. It must not be curbed except in the case of products or procedures which involve an immoral or criminal aspect, such as narcotics, pornographic literature, quack medicines, fake stocks, and so forth.
Freedom to sell also implies the freedom to make a profit even if the price of a product is set at a level which wipes out the profit of a competitor. At first glance this may seem to be a cold, heartless system of economics, but if an American travels abroad through Communist or Socialist countries he begins to appreciate that "Freedom to Sell" is really the opportunity to survive. This means that a competitor must exert his faculties to produce more efficiently and reduce his price, or improve the quality of his product, so that the public will pay the difference to Set it. In either case, the public benefits, and newly improved forms of material wealth are created for the use of the public simply because two or more companies are competing briskly in order to survive.
Third -- Freedom to Buy
Now, of course, if the inventor of some new product is to enjoy the freedom to sell, then the public must certainly enjoy the freedom to buy. One of the most fatal restrictions on a dynamic capitalistic economy is rationing or governmental control of commerce so that the people are told what they can buy, in what quantity, where and at what price. These artificial devices so completely sabotage capitalism that prices get out of phase, black markets develop and many human needs are neglected. This is why the United States moved so quickly after World War II to eliminate price controls and rationing. Both are inimical to a healthy capitalist economy. France and England failed to follow suit but Western Germany did. As a result, the recovery of Western Germany was one of the sensations of the post-war period, while the recovery of France and England was extremely slow and painful.
Fourth -- Freedom to Fail
Last of all, we come to the freedom which harbors in its bosom the golden secret of all successful capitalist economies. This is the freedom to fail. Under free enterprise Capitalism every businessman who wishes to survive must do a lot of long term research as well as make a continuous study of his current operation. Services must be continually improved, waste must be eliminated, and efficiency in operations must be constantly pushed. And all of this is simply to keep the individual or company from failing. Occasionally we find a businessman, whose neck may be new to the yoke, refusing to extend himself in order to meet the competition of others who are more alert, more aggressive, and more anxious to serve and more accommodating. This newco
mer has a lesson to learn. Perhaps, without quite realizing it, he is exercising his freedom to fail.
In some planned economies a well-established business is not allowed to fail because it is described as "essential" to the economy. Therefore, if the product of that company will not sell at a profit, it is subsidized from taxes to make up the difference. The company thereby receives a bonus for its inefficiency. No lesson is learned. The expressed choice to fail is not allowed to result in failure. Other companions soon follow. Almost immediately inertia replaces energy. Progress is slowed to a snail's pace and human needs are no longer adequately satisfied.
In a dynamic capitalist economy the fact that a person or company will be allowed to fail is the very thing which spurs the individual or company to succeed. Of course, those who do fail are cushioned in their fall so that they do not starve nor do they lose their opportunity to try again. Nevertheless, the cushion is neither a dole nor a stipend which would be so comfortable that the person would want to relax and stay down. Capitalist cushions are thin -- by design.
How Capitalism Makes Things Plentiful and Cheap
"It was Marx's dream to produce everything in such overwhelming abundance and distribute goods so freely that no one would need to buy and therefore no one would be able to sell. Unfortunately for Marx, his economic dream was doomed from the start because instead of producing goods in overwhelming abundance, Socialism and Communism were found to stymie production and smother invention. Therefore, it has remained the task of free enterprise Capitalism to push mankind toward the economic millennium of a fully abundant material life.
An excellent example of how this is being accomplished is taken from a personal observation of Dr. George S. Benson of Harding College. He says: "In China I burned kerosene carried a hundred miles on the shoulders of a coolie. He owned his means of transportation, he owned a bamboo pole and a scrap of rope on each end of it, and he'd tie a five gallon tin of kerosene to either end of the pole and trot along back into the interior. He traveled over a little, single-file trail that nobody kept up, that wound its way between the rice fields in the valleys and then over the hills. He could make about ten miles a day with that burden.
"How much was he paid? Suppose he had been paid $5.00 a day. In ten days he'd have earned $50.00. But what would he have accomplished? He'd have transported ten gallons of kerosene a hundred miles, he'd have increased the price of kerosene $5.00 per gallon. Of course in China nobody could afford to pay such a price so he was paid what the traffic would bear; he was paid ten cents a day and then he added ten cents a gallon to the price of kerosene when carried a hundred miles -- he doubled the price of it.
"A miserable wage, wasn't it? But he could do no better with what he had to work with.
"Now observe how we move kerosene in America where there is an investment of $25,000 in cash for every job created -- the roadbed, the steel rails, the great locomotives, the tank cars, the terminals, the loading facilities and so on. We move kerosene at less than one cent per gallon per hundred miles, less than a tenth of the cost in China. What do we pay our workmen? Seventy times what the Chinese coolie gets -- and still give to the purchaser a freight rate of less than a tenth of that of a coolie. What's the difference? Simply the investment and management -- nothing else -- the result of our American way of life."
Here Dr. Benson has pinpointed another of the great secrets of Capitalism's success: to put expensive tools and vast quantities of power at the disposal of the worker. But since the worker cannot afford to provide these tools for himself, who does? The answer is simple: frugal fellow citizens.
These frugal fellow citizens are called capitalists. They are often ordinary people who are willing to scrimp and save and store up goods and money instead of consuming or spending them. Therefore, anyone who has savings, stocks, bonds, investments, insurance or property is a capitalist. In America this includes a remarkably high percentage of all the people, No doubt it would come as a great surprise to Marx if he knew that instead of developing a capitalist class as Marx expected, America is becoming a nation of capitalists.
Each capitalist decides what venture he will sponsor with his money. He often risks his money in places where a government agency would never risk a cent. As a result, new oil is found, new inventions are promoted, new industries are started, "impossible things" are made possible and fantastic constantly accrue to humanity.
Of course, investing money which people have been painstakingly saving through a lifetime requires that the project be successful so people will continue backing it with their savings. This puts management under a great deal of pressure to cut expenses and get the product out at a price that will make it sell "in quantity." Management therefore constantly demands more efficient machines which in turn permit the worker to spend fewer hours on the job. The little book called The Miracle of America points out that this free enterprise system has:
1. Increased the real wages of American workers (wages in relation to prices) to three and one-half times what they were in 1850.
2. Reduced hours of work from an average of about 70 hours a week in 1850 to around 40 today.
3. Increased the worker's share of the national income paid out in wages and salaries from 38 percent in 1850 to about 70 percent today.
4. Increased the number of jobs faster than the growth of population, so that America has come closer to "full employment" than any nation in the world.
All of this is made possible because the American worker is furnished expensive equipment to do the job faster and cheaper, and this equipment is purchased with the savings of the workers business partner. He is the frugal fellow citizen called "the Capitalist."
The Law of Supply and Demand Sets the Price
Capitalism works best in a free market where the "value" of goods is fixed at that point where the graph line of "supply" intersects with the graph line of "demand." For example, if there is an abundant supply of potatoes people lose their anxiety to secure potatoes and the "demand" sinks to a low level. Even so, however, there is a level at which demand will establish itself and that is what "fixes" the price.
Several years ago, unexpected circumstances resulted in a threatened potato famine. The government made the mistake of interfering on the assumption that if it did not interfere the price of potatoes would shoot sky high and people of modest means could not buy them. It was considered "socially desirable" to peg the price of potatoes at a low level. But what happened? With a short supply and an unnatural, low price it was only a matter of a few weeks until the entire stock was exhausted and nobody could buy potatoes at any price. Here is why Socialism or human control of the economy stifles Capitalism and destroys the "natural" laws by which it has so successfully blessed mankind.
If the Government had left the market alone the price of potatoes would have gone up to that point where demand would have carried it. The higher price would have provided an "automatic" control of consumption and would have made the supply of potatoes last much longer because people would have considered it economically necessary to use fewer potatoes. They would have gradually begun to buy substitutes which were in surplus and therefore cheaper. By this means the price factor would have helped people limit their consumption of stocks which were scarce while increasing the consumption of stocks which were plentiful.
All this was turned topsy-turvy when the Government thought it would be "socially desirable" to peg potato prices.
It not only turned out to be unnatural but also impractical.
This brings us to our final comment on free enterprise.
Failure of an American Experiment with Socialism
One of the most impressive modern documents on American free enterprise in action is a dynamic little book by Ezra Taft Benson, former U.S. Secretary of Agriculture, entitled, Farmers at the Cross Roads. It verities with facts and figures the lesson our generation has learned from an experiment with Socialism through Government control of agriculture.
The Gove
rnment attempted to control farm prices by direct control of farm practices. The so-called "basic crops" which were put under controls were wheat, cotton, corn, rice, tobacco and peanuts. The idea was to protect the farmer by guaranteeing him a certain minimum price. To do this it was necessary to control production. Farmers were therefore restricted as to the amount of acreage they could plant.
The results were amazing. Take wheat for example. More than 30 million acres were taken out of wheat production in an attempt to reduce the supply and thereby maintain a good price for wheat. Each wheat farmer received a Government check which paid him for not planting wheat on a certain percentage of his land. This is what happened:
The farmer used the money to buy better machinery, more fertilizer and additional help so that frequently he harvested as much or more wheat from his limited acreage than he had previously raised on his entire farm. In other words, curtailed acreage did not curtail production.
Furthermore, land taken out of wheat production could be used to raise other crops which resulted in an over-supply of feed grains. Feed grain prices went so low that farmers and ranchers were able to greatly increase their cattle and hog production. This pulled the rug out from under meat prices. The government tried to save the situation by purchasing large quantities of each product which was being overproduced, This, coupled with price supports, encouraged even more people to invest in farming with the result that vast areas of sub-marginal land were opened up for production. Many of these investors were not farmers at all, and these made a loud noise in favor of higher supports when they could not make their inefficiently operated farms pay off.