Free Enterprise, Part One: The Future Economywebdev
The American Dream
America was established on the hope of relief from political and religious tyranny. Over time it became the bastion of liberty founded on the principles of limited government, freedom of religion and Free Enterprise. About a hundred years ago with the advent of widespread use of the business corporation in close relationship with government, Free Enterprise morphed into Capitalism.
Free Enterprise is inalienable freedom and responsibility of individuals and families to provide for themselves and engage in trade or commerce with a minimum of governmental interference or regulation. Free Enterprise is most effective from the bottom-up, exhibiting its greatest social advantages when applied on the individual, family and family business level. Time and experience have shown the commingling of government and business interests to be detrimental to the average American family, as the government/business marriage favors government growth and corporate profitability, while hindering small business.
Free Enterprise enables individuals and families to create, produce, transform, develop, innovate, and compete in the marketplace, while providing for many of their own physical needs, enriching their family life and stabilizing their economic future; for which they are responsible. As they are able and willing, enterprising people produce goods and services for self-sufficiency and then for profit, offering their surplus labor, services, and products to the marketplace.
In this system, no one forces people to be creative, productive or enterprising. Instead, they pursue what they believe to be best for them. By producing the goods and services they need and that society values most highly, a free enterprise system results in the greatest efficiency, or lowest costs, of any economic system. It is the system most compatible with individual freedom and social liberty.
To protect the local economy, citizens are encouraged to provide as many needs of life for themselves that they can, to avoid debt and to live frugally. Production and consumption are encouraged to remain local as the surest means to economic stability.
All national education programs are designed with in purpose in mind: the perpetuation of the standing government. With such a mandate, various economic systems are taught at all levels of academia and disseminated throughout society which are thought to best protect and grow the existing or desired political structure of state.
Government controls all means of production and distribution of goods and services. The mentality is that all resources, including the citizens and the yet unborn, are the property of the State and will be used and disposed of in the best interests of the State. All economic gain is owned exclusively by the state.
The basic concepts of Capitalism are taught to the masses in many free countries, especially in the United States, but the realities of this debt-based inequitable system are only taught to and understood by a few.
Although citizens are allowed a great degree of control of their own economic determination (heavily influenced by personal education), the wealthy are treated more favorably in general, by both the finance and legal systems. Capital is the basic concept here; those with it have innumerable opportunities to increase their wealth, often unknown to the general public, while the average citizen is scrutinized and availed few prospects of any increase much beyond the rate of inflation. In all cases, business is taught and managed from a perspective of crushing debt for all but those at the very top, and the unspoken rule of Capitalism is “dog eat dog,” and “its not personal, its just business.” The politics and economics of Capitalism have morphed from the role of government being the protection of the rights of all citizens and the American Dream, to cradle to grave regulation from government, heavily influenced by multi-national corporations, many of which have more economic and political clout than most countries.
A strong emphasis on family and community, the politics and economics that come from this line of reasoning appear to be an improvement on Marxism and Capitalism, indeed, the thinking process is revelatory. The problem lies in the application. To avoid the foibles of Capitalism and Marxism (top-down heavy handed national government control), a distribution of the land and a ceiling on growth are called for. In a “what is seen what is not seen” reality, this ultimately leads to strong local government taking more control, leading to a return to the days of fiefdoms; local control of a small region by a few wealthy families who rule from economic superiority and use that superiority to reduce the balance of the population to something less than free men.
Take all of the good elements or reasons for existence from the above, establish a set of fair laws that treat all men equally regardless of socio-economic status or ethnic background, encourage families to be economically independent, promote a liberal arts education and culture for all citizens, let people live their lives as they see fit without infringing the rights of others, and you have Free Enterprise.
Origin of Free Enterprise
Today we constantly use the terms “Free Market,” “Capitalism,”and “Free Enterprise” interchangeably. They do not however, carry the same meaning and they most certainly do not lead to the same conclusion.
The organic roots of Free Enterprise stretch back to colonial America and are well articulated by Adam Smith in the proper context of agrarian America in his best seller, An Inquiry into the Nature and Causes of the Wealth of Nations. Although much of this volume is a dissertation of business, trade, monetary systems and the like; it reveals the essence of Free Enterprise: individuals and families unmolested in their rights by others citizens or governments, to live as they see fit. Smith adds a lot to a current discussion of economics in modern America – 235 years after his initial publication. Below is a summary of his seminal work borrowed from the website economictheories.org:
In the first sentence of The Wealth of Nations, Smith explained his conception of the nature of the wealth of nations. In so doing, he separated his views from those of the mercantilists and physiocrats.
The annual labour of every nation is the fund, which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consists always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.
In a number of places throughout Wealth of Nations, Smith berated the mercantilists for their concern with the accumulation of bullion and identification of bullion with the wealth of a nation. Smith believed, in fact, that most mercantilists were confused on this issue. For him, wealth was an annual flow of goods and services, not an accumulated fund of precious metals. He also revealed an understanding of a link between exports and imports, perceiving that a fundamental role of exports is to pay for imports. Furthermore, in his opening sentence he implied that the end purpose of economic activity is consumption, a position he developed more fully later in the book. This further distinguishes his economics from that of the mercantilists, who regarded production as an end in itself. Finally, in emphasizing labor as the source of the wealth of a nation, he differed from the physiocrats, who stressed land.
Smith went on to suggest that the wealth of nations be measured in per capita terms. Today when it is said, for example, that England is wealthier than China, it is understood that the comparison is based not on the total output or income of the two countries but on the per capita income of the population. In essence, Smith’s view has been carried forward to the present. In the same paragraph in which Smith stated that consumption is “the sole end and purpose of all production,” he rebuked the.mercantilists because in their system “the interest of the consumer is almost constantly sacrificed to that of the producer” and because they made “production, and not consumption . .. the ultimate end and object of all industry and commerce.”
So much for the nature of the wealth of nations. The rest of Smith’s book is concerned with the causes of the wealth of nations, directly or indirectly—sometimes very indirectly. Book I deals with value theory, the division of labor, and the distribution of income; Book II with capital as a cause of the wealth of nations. Book III studies the economic history of several nations in order to illustrate the theories presented earlier. Book IV is a history of economic thought and practice that examines mercantilism and physiocracy. Book V covers what today would be called public finance.
Causes of the Wealth of Nations
Smith held that the wealth of a nation, what we today call the income of a nation, depends upon (1) the productivity of labor and (2) the proportion of laborers who are usefully or productively employed. Because he assumed that the economy will automatically achieve full employment of its resources, he examined only those forces that determine the capacity of the nation to produce goods and services.
Productivity of labor
What determines the productivity of the labor force? In Book I, Smith stated that the productivity of labor depends upon the division of labor. It is an observed fact that specialization and division of labor increase the productivity of labor. This had been recognized long before the publication of Wealth of Nations, but no writer emphasized the principle as Smith did. In our modern economy—even in the academic world—division of labor is widely practiced, with notable influence on productivity. Smith illustrated the advantages of specialization and division of labor by borrowing from past literature an example that measured output per worker in a factory producing straight pins. When each worker performs every operation required to produce a pin, output per worker is very low; but if the production process is divided into a number of separate operations, with each worker specializing in one of these operations, a large increase in output per worker occurs. In Smith’s example, when the process is divided into eighteen distinct operations, output per worker increases from twenty pins per day to forty-eight hundred.
It is interesting that although Smith recognized the economic benefits of specialization and division of labor, he also perceived some serious social costs. One social disadvantage of the division of labor is that workers are given repetitious tasks that soon become monotonous. Human beings become machines tied to a production process and are dehumanized by the simple, repetitive, boring tasks they perform. But Smith had no doubt that human welfare is, on balance, increased by the division of labor.
The division of labor, in turn, depends upon what Smith called the extent of the market and the accumulation of capital. The larger the market, the greater the volume that can be sold and the greater the opportunity for division of labor. A limited market, on the other hand, permits only limited division of labor. The division of labor is limited by the accumulation of capital because the production process is time-consuming: there is a time lag between the beginning of production and the final sale of the finished product.
In a simple economy in which each household produces all of its own consumption needs and the division of labor is slight, very little capital is required to maintain (feed, clothe, house) the laborers during the production process. As the division of labor is increased, laborers no longer produce goods for their own consumption, and a stock of consumer goods must exist to maintain the laborers during the time-consuming production process. This stock of goods comes from saving and is, in this context, what Smith called capital. A major function of the capitalist is to provide the means for bridging the gap between the time when production begins and the time when the final product is sold. Thus, the extent to which production processes requiring division of labor may be used is limited by the amount of capital accumulation available. Smith therefore concluded: “As the accumulation of stock must, in the nature of things, be previous to the division of labour, so labour can be more and more subdivided in proportion only as stock is previously more and more accumulated.”
Productive and Unproductive Labor
The accumulation of capital, according to Smith, also determines the ratio between the number of laborers who are productively employed and those who are not so employed. Smith’s attempt to distinguish between productive and unproductive labor became confused and reflected normative or value judgments on his part. However, it manifests an awareness of the problem of economic growth. Labor employed in producing a vendible commodity is productive labor, Smith held, whereas labor employed in producing a service is unproductive. As an advocate of the changing social and economic order, he postulated that the activities of the capitalists, which resulted in an increased output of real goods, were beneficial to economic growth and development, whereas the expenditures of the landowners for servants and other intangible goods were wasteful. “A man grows rich by employing a multitude of manufacturers: he grows poor by maintaining a multitude of menial servants.”10 According to Smith, what is true of the individual is true for the nation; thus, for the economy as a whole, the larger the share of the labor force involved in producing tangible real goods, the greater the wealth of the nation. Capital is required to support the productive labor force; therefore, the greater the capital accumulation, the larger the proportion of the total labor force involved in productive labor. “Capitals are increased by parsimony, and diminished by prodigality and misconduct.”
This distinction between productive and unproductive labor also affected Smith’s view of the role of the government in the economy. Just as the expenditures of the landowning class for servants and other forms of unproductive labor are detrimental to economic development, so is some part of government expenditures. “The sovereign, for example, with all the officers both of justice and war who serve under him, the whole army and navy, are unproductive labourers.”12 Smith insisted that the highest rates of economic growth would be achieved by distributing large incomes to the capitalists, who save and invest, and low incomes to the landlords, who spend for menial servants and “who leave nothing behind them in return for their consumption.”13 Furthermore, because economic growth is inhibited by government spending for unproductive labor, it is better to have less government and, consequently, lower taxes on the capitalists so that they may accumulate more capital.
(SCARLETT: HISTORY OF ECONOMIC THEORY AND THOUGHT
Now, before you declare that Smith clearly makes the case for Capitalism, let us consider the context in which he declared his philosophy. At the time of his publication, 9 out of 10 Americans were farmers and even in Europe, virtually every family had a subsistence vegetable garden, chickens and maybe even a cow. The average New Yorker at the time made their own soap, manufactured their own clothing, grew and harvested at least 50% of the food they personally consumed, privately secured fuel for heating the home, dug their own water well, etc.
Smith was making the case for the concept of the division of labor during a time when families were much more self-sufficient than we are now–and much more politically independent I might add. He even states, “In a simple economy in which each household produces all of its own consumption needs and the division of labor is slight, very little capital is required to maintain (feed, clothe, house) the laborers during the production process.”
Smith was suggesting that the processes of manufacturers could become more profitable if they incorporated his ideas in to their business model.
Somehow we have translated that into meaning that we should include his concepts into our very homes and families.