Economic Freedom and Political Freedom

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This article makes several points:

  • Economic freedom is an important part of freedom of the individual and is more satisfying to most people than political freedom.
  • Economic freedom is an exacting standard that is seldom fully reached. Even in the US where economic freedom has been regarded as our most important strength, we have become used to many restrictions on that freedom.
  • Economic freedom is robust in that it can exist with or without a like amount of political freedom. In other words, either a democratic or an autocratic government can adopt the economic policies of a laissez-faire free market. On the other hand, political freedom cannot exist without a like amount of economic freedom. History provides no example of a politically free society in which there is no economic freedom.
  • In the realm of politics, only a small number of political viewpoints (sometimes only one) can govern at any point in time. In a large diverse society like the US that leaves a large part of the population politically un-empowered and in opposition. Because of this limitation of politics, differences in political philosophy fragments and divides society. (This is why the constitution enumerates federal power and leaves the rest to the states who are able to achieve better representation of their smaller and more cohesive populations.)
  • Economic freedom, however, is much more representative and accommodating of a diverse society.
So much so that a common objection to it is that it gives people what they want rather than what politically powerful people think they should have.
  • A free market economy is the best protector of freedom that we have.

Before we get into the article let's play a game.
We'll set up a scenario of two alternatives and you vote for which you would prefer to live in - an economically free society or a kind of hybrid. It is an exercise to have you consider what economic freedom means before reading the article and to illustrate that the standard of economic freedom reaches far beyond what we are used to today. It will be clear which alternative offers greater freedom. The question to ask yourself is which alternative will produce the most beneficial economic results for all citizens - the most robust economy, the widest range and number of jobs, and the highest quality of life at every level. Is your vote for which to live in the same as your pick as the most economically beneficial for all? We don't have a convenient way to record your votes. But, if you are so inclined, you can leave a comment on the "Discussion" page for this article by clicking on the tab at the top of the article to tell us how you voted.

Here is the scenario: The United States splits into two countries - states on one side of the border retain the political and economic arrangements of the U.S. as it is today (as-is). On the other side of the border there is a new U.S. that adheres to a policy of maximum economic freedom. The focus in this game is on economic freedom with political freedom playing a supporting role only as needed. Don't try to think about how it splits geographically. That is unimportant to the game (though it might be a fun diversion).

Alternative 1: The new US:
In the "new" US, economic freedom is pursued as an end in itself.
It is too difficult to describe everything that entails and we want to be brief,so we'll list just enough to give you the flavor.

  • No one is required to contribute part of their income to a retirement program that is administered by the federal government. Voluntary tax deferred savings accounts are allowed.
(i.e., no Social Security taxes or benefits, but 401Ks and IRAs are allowed)
  • No one is required to contribute part of their income to purchase old age health insurance.
(i.e., no Medicare taxes or benefits)
  • The government does not intervene financially or politically to rescue or bail out any non-government financial institute or business enterprise.
(i.e., there is no "too big to fail".)
  • No commercial corporation, company, or group is singled out for special tax or regulatory treatment.
(i.e., no crony capitalism whatsoever)
  • Farmers are not regulated in how much of a certain crop they can produce.
Nor do farmers receive federal subsidy or price controls for any agricultural product.
  • There are few government regulations restricting trade.
In the "new" US, you can buy a foreign product or sell to foreigners with the only restrictions relating to national defense - i.e., you can buy foreign made steel or a car or pair of shoes, but you can't sell weapons or weapon technology to enemies.
  • In the "new" US, investors, consumers, and providers of services and products are protected only by generic laws that enforce contracts and similar laws of fairness. The federal government does not attempt to solve all ills with targeted regulatory legislation in reaction to each crisis or stress to the economy.
Example: The Dodd-Frank Wall Street Reform and Consumer Protection Act does not exist
  • Business entities face far fewer regulations. There are only the essential regulations that enforce contracts and punish fraud.
Example: The Sarbanes-Oxley Act of 2002 that took financial reporting requirements to new levels does not exist.
  • Licenses are not required to engage in any occupation.
Examples: cab drivers, barbers, doctors, lawyers, optometrists
  • The government takes no role in determining pay for any employee of a private enterprise nor does it regulate comparable pay between occupations or groups of people. (example: there is no minimum wage or laws that try to determine "equal pay for equal work")
  • Employees have the right to form and support unions, but each employee has the right to work without belonging to a union or paying union dues. Association with and support of unions, guilds, and associations is voluntary.

Alternative 2: The as-is US:

  • The starting point is a snapshot taken in the fall of 2014 about the time of the 2014 mid-term election.
  • In the as-is US all of the examples of programs and regulations that are noted above as absent in the "new" US, are present in the as-is US.

Welfare is not at issue in either alternative. We'll leave that for another discussion.

Consider the two alternatives and decide which you would prefer to live under.

Now let's get on with the article:

Economic Freedom and Political Freedom

For purposes of this article (and some others), we must say what we mean by "liberal" as it has taken on a meaning in modern politics that is different from it's origins. There is a more detailed article about it, but in brief a liberal is one for whom freedom of the individual - both political and economic liberty - is the ultimate goal. This meaning gave birth to the word "liberal". The liberal is concerned with the economic relations among people in which freedom is the first priority.

Economic freedom presents its own demands. A free market will provide a wide range of choices and opportunities, but it will not make the choice for you. In an economically free society, each person must decide what to do with their own time and efforts. Having such choices is fundamental to life for the liberal and for most but a burden to some. However, no one likes being directed in such a choice against one's will. A great example is the ["control of engagements order"] that briefly became policy in England after WWII when the Labor Party, elected to control of government on the basis of a socialist platform, gave itself the power to allocate individuals to specific jobs - the government could direct someone to perform a specific job for a specific employer. It proved unpopular so quickly - interestingly, primarily among the miners who were the major labor party constituents - that it was repealed after a short time. That point marked a swing in government policy back toward laissez-faire (economic freedom) in England and other countries for a time because socialism, as it approached its logical conclusion, not only failed to achieve the expected results, it violated cherished economic freedom of the individual.

The game we concocted above illustrates that economic freedom is a part of freedom itself but also that economic freedom is a principle that is frequently ignored in the political process as a political constituency is favored over another group with less political weight or when the government of the moment uses a "crisis" to push legislation that fits its political goals. In either case, freedom is restricted. For a liberal, liberty is the standard and freedom must be maximized. On the other hand, many people would not want the freedom provided in the "new" US. They view free markets as somehow unfair and that government is a more appropriate protector of rights than the market place. So they want restrictions placed on economic freedom.
It must be acknowledged that government is necessary to a well ordered society. And that there are legitimate restrictions on freedom (one does not have the freedom to do harm to others) that must be tolerated if society is to remain prosperous and well ordered. For instance, individuals do not get to decide for themselves how much money is to be spent on defense. That must be decided for everyone by government. Government also has a role in ensuring that transactions are voluntary and honestly informed - we must all play by the same honest rules. Government is needed to provide the rule of law and property rights to prevent coercion of individuals; and enforcement of contracts so that a properly constituted agreement is honored. It is such indivisible matters for which society requires a government rather than relying on individual market action. Beyond that, little government participation is required. Calls for regulations and restrictions on economic freedom outside the essential functions of government are usually calls for special treatment and special protections of specific groups at the expense of someone elses economic freedom.

Are economic and political freedom separable?

Is it possible that economic freedom and political freedom can exist in isolation from one another in the sense that any political arrangement can be coupled with any economic system? It is believed so by some.

  1. By "socialist democrats" who believe that a state run, centrally planned economy can be run by a government that guarantees individual freedom through political policy. This group attracts intellectuals who consider "material" considerations to be beneath them and of little importance. They see intellectual pursuit on a higher plane.
  2. By autocratic governments who seem to believe that, by allowing a limited amount of economic freedom, that their population will be sufficiently comfortable to endure single authority rule that cannot be challenged.

Economic freedom is an end unto itself and also a means to achieving political freedom. In theory, a country could be run by an autocrat who decrees that free market policies and complete economic freedom. History provides instances in which a country was run autocratically and lacked political freedom but had many elements of competitive capitalism. Some examples can be taken from Europe in the fist half of the 20th century. (Nazi Germany is not one of them.) China today is an emerging example. Inside China there is no political freedom, but the government has slowly been allowing increasing economic freedom. They may have let the genie out of the box and be compelled to continue economic liberalization - which could very likely lead to political liberalization. On the other hand, there is no example from history in which political freedom was not accompanied by a similar measure of economic freedom. This suggests that "democratic socialism" is a euphemism and not actually achievable - that economic freedom is necessary to political freedom but not sufficient. Economic freedom by itself will not guarantee political freedom. But the absence of economic freedom seems to guarantee the absence of political freedom. This is not surprising. It seems intuitive that economic freedom can be required by an all powerful government that enforces free market policies, but that political freedom without economic freedom is meaningless. What purpose can political freedom serve, indeed how can it exist if one is not allowed to control one's own economic transactions and decisions, decide one's own occupation, choose one's own employer (or one's own employees), and decide how to spend one's time and energies in the production of the services and goods one chooses to exchange with other economically free people in the pursuit of material well being?

History provides numerous examples of states with economic systems that are partly free and partly centrally planned. The United States is one such example - though far from the most egregious. Such systems are always in a state of flux, either moving with political winds toward more central planning or toward more laissez-faire in reaction to the inevitable results of the lack of economic freedom. China seems to be a country attempting to back slowly away from central planning, though progress will be very slow unless it becomes unstable. Some European countries (Greece a notable example) are attempting to loosen government economic control and getting resistance from the parts of their society that have been favored by control. It seems that freedom is difficult to keep and difficult to regain. It has always been so.

Competitive Capitalism

In society the problems of social organization are how to accommodate diversity and how to coordinate economic activity. There are two ways of coordinating the economic activity of a large society[1]. One is central direction as is used in an army or a totalitarian state, with coercion as a ready option. The other is voluntary cooperation of individuals participating in an open market. Friedman states that such transactions must be voluntary and informed on both sides if market coordination is to work correctly (Capitalism and Freedom chapter 1)[1].

"Exchange can therefore bring about co-ordination without coercion. A working model of a society organized through voluntary exchange is a free private enterprise exchange economy--what we have been calling competitive capitalism."

In a simplified model of competitive capitalism there are individual households that use their resources to produce goods and services that they trade with other households on mutually acceptable terms. Division of labor makes efficient use of resources. The trades are voluntary in that each household has the option to produce what they need themselves. In our real economy we have advanced to the complexity of private enterprises that act as intermediaries that allow families and individuals to more easily participate in a more highly specialized division of labor - these are businesses large and small. In both examples, the ultimate parties to the exchanges are individuals and the exchanges remain voluntary.

Economic vs. political freedom

A free market has built-in protection from coercion. Both sellers and buyers are protected from coercion by the other by the fact that there are alternative sellers and buyers of both goods and services. For example, the market protects a worker by providing alternate employers. Free markets do this so well that the biggest objection is that they provide people with what they want rather than what the political elite think they should have, and that a truly free market does not provide the politically powerful with advantages that are obtained through special treatment by the government (cronyism). Such objections are behind most criticism of free markets and reveal an opposition to freedom itself.

One of the ideals of a free society is representation in politics and in the economic system. For a large and diverse society, how much representation is practical? How many political viewpoints can be reflected in government at one time? It's a very small number relative to the diversity of viewpoints. If half of the country is satisfied with government policy, the other half is likely opposed to it. Proportional representation is a goal that is unachievable in a diverse society. This difficulty produces deep political divides. In a free market system, on the other hand, proportional representation is achieved daily. You can go to the market and buy apples rather than bananas - or both. You can buy a red sports car or a blue bus. You have the opportunity to start your own business or work in the job of your choice. The options are not infinite and there is no guarantee that you will be able to fulfill every specific of the choice you make, but you will have agreed to the deal voluntarily and your preferences will be matched to a degree not approachable through politics. The only thing that can move a society away from such a high degree of representation in the market place is restrictions placed on economic freedom.

For a liberal, the only acceptable means to any societal end is free discussion and voluntary cooperation. The threat to either political or economic freedom is the power to compel - which power can be held by a monarch, dictator, oligarchy, or (in a democracy) a temporary voting majority. The protection of freedom requires that coercive power be eliminated wherever possible and that the limited power needed in a government be dispersed as was done when the US was formed. Economic freedom accomplishes that in the economic sphere and provides a balance to political power. Economic freedom by its nature means voluntary cooperation. Consider - if you have complete economic freedom you can tolerate a lack of political freedom as it is primarily economic freedom that determines freedom of action. Hopefully you have both for freedom is not complete where either is absent.

Milton Friedman provides an example of the liberating power of economic freedom that is worth repeating, in his first chapter of Capitalism and Freedom[1]. It had to do with the Hollywood blacklist in the 1950s. In 1959 Robert Rich won an Oscar for writing the screen play for The Brave One. He did not step forward to accept the prize. Rich was a pseudonym for one of the writers who were blacklisted in the '50s as communists. Rich turned out to be Dalton (Johnny Got His Gun) Trumbo, one of the original "Hollywood Ten" writers who refused to testify for the 1947 hearings on Communism in the movie industry. The producer later stated that "We have an obligation to buy the best script we can. Trumbo brought us The Brave One and we bought it" . . Economic freedom trumped political power.
You can believe, as the sponsors of CW do, that communism or socialism is incompatible with freedom because it restricts (or eliminates entirely) economic freedom and therefore all freedom. But you can accompany that with a belief, as do we, that no economic transaction should be prohibited or interfered with because one of the members of the transaction believes in communism or socialism. The market gets to buy what it likes from whomever it likes, with few exceptions.

Further, free markets are much more egalitarian than politics. You do not know, nor likely care about the race, ethnicity, or politics of the person who raised the chicken you buy or who bolted together your Ford F150. And this is true even if you are not so tolerant otherwise.
Free markets are far more tolerant than government regulators or planned economies. They are the best protector of freedom that we have.

This article needs further development.

  • We have not given a complete explanation of why political freedom cannot exist in the absence of economic freedom. It is vague because there probably is no example of a completely free system though there are examples of greater and lesser economic and political freedom. Perhaps some illustrations will help.
  • We have captured the thoughts of a couple of the liberal thinkers listed below in the acknowledgements. We would like to incorporate thoughts from the others including those of the openly socialist John K. Galbraith even though the CW sponsors believe that freedom and socialism cannot be reconciled.

Acknowledgements: The CW sponsors hold to the premises that underlie this article. However, many of the ideas in the writing of the article are guided by the writings of a few economist / social scientist thinkers - primarily: [Milton Friedman], [F.A. Hayek], [Charles Murray], [George Gilder], [John Kenneth Galbraith] and [John Maynard Keynes]. References are provided in some instances. But supporting arguments are also taken from these authors without providing specific reference. We admit to freely and frequently using their ideas and arguments. CW claims no economic expertise of a technical nature.

The reader may conclude that we are influenced more my some than by others, or positively by some and negatively by others. We state that we are influenced by a reverence for freedom of individuals, which is what it used to mean to be a liberal. Our starting point is that freedom is a virtue to be strived for and use the writings of the referenced authors accordingly. Our definition of freedom is presented in the article: Freedom

  1. 1.0 1.1 1.2 Firedman, Milton. Capitalism and Freedom. Chicago. University of Chicago Press. 1962