The Freedom of Production and Trade Under Capitalism (Part 3 of 10)

by | Apr 14, 2023 | Trade

An appropriate vehicle for the establishment of the freedom of production and trade, whether all at once or gradually, would be the establishment of one last regulatory-type agency: the Deregulation Agency.

This article is excerpted from chapter 20 “Toward The Establishment of Laissez-Faire Capitalism” from George Reisman’s Capitalism: A Treatise On Economics (1996). See the author’s page for additional titles by Dr. Reisman.

The establishment of the freedom of production and trade implies the abolition of all government interference with production and trade. It implies, for example, the abolition of all labor legislation, licensing laws, the antitrust laws, and zoning laws. It implies the abolition of virtually all of the alphabet agencies. It also implies the freedom of international trade and migration.

An important principle that I think we should adopt in fighting for the freedom of production and trade is to show how its establishment would enable individuals to solve their own economic problems. For example, there are few more serious economic problems than mass unemployment. As we have seen, this problem is the result of the government restricting the freedom of individuals to offer and accept the lower wage rates that would make full employment possible. The restrictions are in the form of minimum-wage laws, prounion legislation, unemployment insurance, and welfare legislation. Abolishing such legislation and establishing the freedom of production and trade should be presented as the solution to this problem–as a solution that would enable the voluntary, self-interested actions of individuals to establish the terms on which everyone seeking employment could find it.

In the same vein, we must take the initiative in calling for a widening of economic freedom as the solution to the problems the United States is encountering in international trade. We must show that the inability of major American industries to compete with foreign goods is the result of government intervention, and that the remedy is not the imposition of further intervention, in the form of tariffs or quotas, but the repeal of existing intervention. For example, prounion legislation causes artificially high wage rates and holds down the productivity of labor, thereby causing an artificially high level of costs for American manufacturers. The tax system and inflation have prevented the introduction of more efficient machinery, and thus have also contributed to the artificially high costs of American manufacturers, as have numerous government regulations. Such intervention should be the target of campaigns for repeal. Obviously, this would be a fertile area for the writing of books and monographs demonstrating the general principle in terms of the specific conditions of individual industries.

Similarly, the freedom of production and trade should be presented as the means of sharply reducing the cost of housing, thus making it possible for many more people to afford decent housing. The abolition of prounion legislation, building codes, zoning laws, and government agencies that withdraw land from development (such as the California Coastal Commission) would all serve to reduce the cost of housing, as would the abolition of property taxes that support improper government activities. (As should be clear from previous discussion in Chapter 10, all of these points, of course, apply to the solution of the problem of homelessness, which is greatly exacerbated by the imposition of government requirements concerning minimum housing standards.)

The freedom of production and trade should also be explained as the means of sharply reducing the cost of medical care. As explained in Chapter 10, under present conditions the government restricts the supply of doctors and the number of hospitals through licensing. Its solution for the consequent inability of many people to afford medical care is then to pour more and more public money into subsidizing their medical bills. The effect of the government’s spending programs is to bid the price of medical care ever higher, progressively substituting new, ever higher income victims for previous victims just below them who are added to the subsidy rolls–and, of course, to reduce the quality of medical care for all groups. The obvious real solution is to end government interference in medical care and thus to make possible the largest and most rapidly improving supply of medical care that free and motivated providers can offer.

In sum, our theme must be the opposite of the one people are accustomed to. Instead of it being what new programs the government must undertake to solve this or that problem, it must be what existing government programs and activities must be stopped, in order to allow individuals to be able to act in their own self-interest. Instead of the question being “What can the government do?,” we must explain what it must stop doing that it now does, and that has caused the problem complained of.

We need to show how abolition of the antitrust laws would mean more competition, greater efficiency, and lower prices; how abolition of the Environmental Protection Agency would mean more efficient production and thus a greater ability of man to improve the external material conditions of his life, i.e., his personal environment; how abolition of the Food and Drug Administration would mean the introduction of more life-saving drugs; how abolition of medicare and medicaid, the National Institutes of Health, and all other government interference with medicine would lower the cost and improve the quality of medical care.

While fighting against all existing violations of the freedom of production and trade, a further important principle to seek to establish is the exemption of all new industries from violations of the freedom of production and trade. This, in fact, was one of the principal methods by which economic freedom was established historically in England: the significance of the restrictions imposed by the medieval guilds was steadily reduced by the exemption of new industries from those restrictions.

Appropriate Compromises

It should be realized that if the immediate, total abolition of a given policy of government intervention cannot obtain sufficient support to be carried out, it is proper to work for programs of partial liberalization as temporary compromises–provided it is done explicitly and openly, in the name of the right principles, and no secret is made of our ultimate goals, which one is always prepared to defend and whose achievement serves as the standard and purpose of any temporary compromises.

Thus, for example, while openly advocating the full freedom of the housing industry, including the ultimate abolition of all building codes, one might participate in, or even launch, a campaign for a much more limited objective. Such an objective might be that the government be required to reduce the financial impact of meeting code requirements by an average of, say, X thousand dollars per house, and that it be guided by the advice of private insurance companies, mortgage lenders, and construction contractors in deciding which code requirements to modify or abolish in order to achieve this goal. Such a step would be helpful in reducing the cost of housing. A campaign for it, properly conducted, would help to make people aware that it was government intervention that was responsible for the high cost of housing and high costs in general. If carried out under the terms mentioned, a major value even of campaigns to accomplish such limited objectives would be that government intervention, not private business, would be made the target of restriction. Government force, rather than the profit motive of business, would come to be established in the public’s mind as the evil that must be controlled and progressively rolled back.

Similarly, if the immediate, full freedom of medicine cannot be achieved, then, as a temporary compromise–again, presented as such and in the name of the right principles–one might work to allow merely registered nurses and licensed pharmacists to begin practicing various aspects of medicine. Such liberalization would significantly mitigate the problem at hand and, at the same time, it would promote the essential principle that more freedom is the solution to economic problems. It would thus be an important step in the right direction.

The Case for the Immediate Sweeping Abolition of All Violations of the Freedom of Production and Trade

If the public possessed the necessary philosophic and economic understanding, the ideal procedure would be the immediate and simultaneous abolition of all interferences with the freedom of production and trade. This would be both on the principle of individual rights and on the principle that pressure-group warfare is inherently self-defeating. It is self-defeating in that whatever any one pressure group gains by violations of freedom made on its behalf, is reduced by what all other pressure groups gain by violations of freedom made on their behalf, and reduced by more. For example, what the workers in the automobile industry gain in higher wages resulting from the existence of an automobile workers’ union, they lose back in higher prices that they must pay for the products not only of all the unionized industries (which by itself may be very considerable), but also for the products of all industries enjoying protective tariffs or receiving government subsidies, all of which is the result of the underlying principle of government intervention. And everyone loses by virtue of the unemployment and overall reduction in the productivity of labor that result, which simply cause less to be produced and sold in the economic system. In essence what is entailed in pressure-group warfare is mutual plunder. Under such an arrangement, not only does each victim lose an amount equal to what the predator gains, but the victims produce less, with the result that there is less to plunder. The process can be pushed to the point where virtually nothing is produced and thus very little can be plundered–much less than could be obtained by honest work in a free society. The pressure-group marauders have long since carried things to the point where the real wages of the average worker are far lower than they could be.

The simultaneous abolition of as much government interference as possible would help to diminish the losses experienced by any one such protected group when its privileges were removed, and would make possible correspondingly greater gains, both in the long run and in the short run, for everyone. Thus, for example, when the wheat farmers lost their subsidy, they would be compensated by the lower prices resulting from the abolition of others’ subsidies as well, along with lower prices resulting from the abolition of protective tariffs, labor-union coercion, and minimum-wage legislation. The substantial increase in production that would result would operate further to compensate them, through a fall in prices greater than any fall in the average of incomes that might result.

The special importance of abolishing prounion legislation at the same time as minimum-wage legislation, should be obvious. This is necessary to prevent unemployed workers from having to crowd into a comparative handful of occupations at unnecessarily low wages, by opening all occupations to the freedom of competition.

* * *

It is important to understand that acceptance of the principle of laissez faire and the willingness to fight for that principle is the only safeguard of the public against the depredations of pressure groups. Each pressure group is in a position in which the comparatively small number of its members is able to have a potentially substantial gain. This gain comes at the expense of a relatively small loss on the part of each of the enormously larger number of people who constitute the rest of society. For example, if the members of a pressure group numbering, say, one hundred thousand people are to receive a subsidy of some kind, that subsidy may provide each of the recipients with $100,000 per year in additional income, while it costs each of the far greater number of taxpayers only a small fraction of that sum. In this case, the total cost of the subsidy is $10 billion (i.e., $100,000 x 100,000). If there are a hundred million taxpayers, the cost of the subsidy to the average taxpayer is just $100 per year (i.e., $10 billion divided by 100 million). The diffuse interest of the taxpayers in saving $100 per year each cannot remotely compare in strength with that of the highly concentrated interest of the pressure-group members who stand to gain $100,000 per year each. Accordingly, the pressure-group members are willing to make substantial financial contributions and to engage in intense lobbying efforts in order to get their way. Virtually no individual taxpayer, on the other hand, has a sufficient incentive to do anything to counter such assaults on the country’s treasury.

The taxpayers can acquire an incentive to protect themselves only when they view the depredations of each pressure group as a matter of the violation of a supreme political principle–namely, that of laissez faire–a principle whose violation by any one pressure group opens the gates to its violation by scores of other pressure groups. Taxpayers who would view the matter in terms of principle would recognize that pressure group warfare already costs them many thousands of dollars per year each in higher taxes and higher prices, and that there is no limit to its potential cost short of total financial ruin. If they could be led to view matters in this light, I believe that they could then easily be organized to overcome the pressure groups. By taking on all the pressure groups at once, they would have not only a powerful individual financial incentive, but they would also be able to play up all the inherent conflicts among the various pressure groups themselves, and thus obtain substantial support from within the ranks of the pressure-group members, a growing number of whom are also more and more harmed, the more widespread becomes the system of pressure-group warfare.

* * *

An appropriate vehicle for the establishment of the freedom of production and trade, whether all at once or gradually, would be the establishment of one last regulatory-type agency: the Deregulation Agency. Its powers would supersede those of any regulatory agency, the acts of state and local legislatures, and the prior legislation of Congress. In sharpest contrast to all regulatory agencies, however, its powers would be limited to the repeal of existing regulations and laws, including the narrowing of their scope in conditions in which considerations of political expediency prevented their total repeal. It would have no power to enact any new or additional regulation.

The mandate of this agency would be to ferret out all regulations of any federal, state, or local government department or agency, and all federal, state, and local laws, that violated the freedom of production and trade. Ideally, the agency would possess the power to render any or all of them null and void. As a minimum, the enabling legislation for the agency should require it, within a fairly short period of time, such as three years, to reduce the cost of government interference in the economic system as a whole by a minimum of 50 percent. (This figure would not apply to spending for social security, welfare, and public education, which would follow the less-radical reduction schedules explained below.) Further reductions of at least 2 percent per year would be achieved thereafter, until the full freedom of production and trade was established. If, for Constitutional reasons, the agency could not be given the power to supersede federal legislation, its tasks would include the annual submission to Congress of the necessary legislative proposals for the repeal of existing federal laws.


Articles in this Series

Copyright 1996 George Reisman. All rights reserved. The encyclopedic Capitalism: A Treatise on Economics is a required reference for every Capitalist’s library. Reisman’s treatise is now available in two volumes: Volume I (focuses on microeconomic issues) and Volume II (focuses on macroeconomic issues).

George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics and the author of Capitalism: A Treatise on Economics. See his author's page for additional titles by him. Visit his website and his blog Watch his YouTube videos and follow @GGReisman on Twitter.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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