Chapter 7: Markets
7.1 True Freedom in the Marketplace
The biblical prescription for markets and business is very simple: non-violence, enforcement of property rights, and enforcement of contracts. These principles are, of course, directly derived from three of the Ten Commandments: you shall not murder, you shall not steal, and you shall not bear false witness. Not only are they among the Ten, they all come from the second table of the law which is man’s “kingly” duty—laws that primarily relate to man’s relationship to man in society.1 In brief, a biblical civil society is one in which people are legally free to engage in business and commerce in any way that does not violate their neighbor’s person or property—life, liberty, or estate. Conversely, this means that individuals have a fundamental right to be free from coercion by others in these same areas. These are basics of God’s law.
The general right to freedom from coercion forbids State coercion as well.2 Civil government should not be in the business of coercing markets: supporting some or all businesses through subsidies, taxation, protections, price controls, or any of the other various loopholes or exceptions that may exist. Civil government “bears the sword” because it is “the servant of God, an avenger who carries out God’s wrath on the wrongdoer” (Rom. 13:4). It is thus an agency of the use of force to punish crime— “crime” being defined primarily as certain incarnate infractions of the three commandments mentioned already.3 Civil government should be involved only in this endeavor, and not in the promotion of favored businesses, corporations, the regulation of markets, etc. Individuals and businesses alike have a fundamental right to be free from the coercion of the State in all legitimate business and market matters.
The moment the State engages in manipulating the markets, it infuses a moral evil into society. This almost always produces negative practical results as well; these can be seen as God’s judgment on a society which departs from His law. But such results are not the main reason to keep markets free—this would be a merely pragmatic argument. The main reason is because God has created and commanded men to be free: to own property, to engage in production and exchange, to reap the fruits and rewards of these efforts, or, should it be the case, to bear the consequences of those efforts. Individual responsibility goes both ways: no one else has a legal right to the fruit of your labor, you have no legal right to anyone else’s, and no one else has a legal obligation to subsidize your failures or shortcomings. Legally speaking, “free markets” is the biblical view of markets. Anything short of this is evil—even the slightest regulation.
This means, further, that no level of civil government should be able to tell you whom you can or can’t hire, how you must compensate them, what benefits you must provide them, to whom you must provide goods or services, where you may or may not build or operate, or things of this nature. Nor should civil government be allowed to use public funds to enter into the markets—either directly through ownership and operation, or indirectly through planning and contracts. This includes all construction, engineering, architecture, utilities, inspection services, legal services, financing services, and of course, education, as well as anything else. The moment the government enters the markets with public money, with regulation, the markets become distorted and can certainly no longer be called free. Instead, they must be admitted, at that point, to be to some degree rigged markets.
Taxation and the Market
We should back up a step at this point: in truth, the moment the government appropriates funds via taxation (by whatever name), the fundamental distortion has already been committed. This takes money from the economy in one area, to be used in another area as determined by the government. This has some negative effects: first, it reduces freedom in that money which is taken through government coercion would otherwise have been used freely by the individual or corporation. The individual now has no (or very little) say over how their money will be spent. Further, the individual also loses any interest he or she would otherwise have earned should they have chosen to invest that money. Also, the reduction of liberty has an attendant increase in coercion. Not only is a central agency now forcing you to spend money in ways you don’t determine and with which you may not agree, but the whole process can only begin when the government takes your money to begin with. This taking is a form of violence. Worse yet, this sets a social precedent for how any given agenda or project may in fact succeed: through the initial and sustained violence committed by government agents.
Second, this practice feeds and breeds of a class of opportunists who rely heavily on government grants and contracts for their market livelihood. On one level, it leads to the rise of such a class which otherwise would not have had as many market opportunities had not the government provided them through coercive means. This means a class of businesses will thrive and grow which otherwise might have remained much smaller, while other types of businesses that may have arisen in a free market will never appear or will be squeezed out. On another level, since most “government projects” are large-scale, only larger companies even within the same industry will qualify to compete for the contracts. This subsidizes “big” business and withholds opportunities from the little guy to which he may otherwise have had access. Thus, government contracts tend to prosper not only certain businesses as opposed to others, but often certain big businesses as opposed to smaller.
With the rise of such big parasites comes a great moral hazard—the risk of a system of graft becoming self-perpetuating. When such a company grows largely due to infusions of tax money through government contracts, then the only way it will often be able to sustain its operations is through similar contracts in the future. In short, once created, monsters have big appetites. And more often than not, the monster will not sit and wait, but will go hunt to find its own food. Big government-contracted businesses then have an incentive to promote projects, suggest projects, foster conditions in which new public projects become “necessary” or “in the public interest,” and possibly even instigate crises—all by which their companies may grab new contracts to feed the beast.
Such moral hazard also breeds political problems. Large companies often employ large numbers of people. Thus, not providing more government contracts would mean potentially laying off thousands of people. Now you have a graft problem supported by a political obstacle. Thus do large voting blocks grow dependent upon tax-funded projects, and become special interests which sway elections.
Murray Rothbard relates some of the mane ways government market interventions have affected our society:
Urban planning has controlled and regulated the cities. Zoning laws have ringed housing and land use with innumerable restrictions. Property taxes have crippled urban development and forced abandonment of houses. Building codes have restricted housing construction and made it more costly. Urban renewal has provided massive subsidies to real estate developers, forced the bulldozing of apartments and rental stores, lowered the supply of housing, and intensified racial discrimination. Extensive government loans have generated overbuilding in the suburbs. Rent controls have created apartment shortages and reduced the supply of residential housing.4
All of these represent destructions of liberty and property. And all of this starts with one initial act of violence—coercive taxation—on the part of the civil government. As they say, violence begets violence.
All of this is to say that not only is government manipulation of markets unbiblical in principle, but it also has adverse pragmatic effects as the principle of entitlement through violence becomes the norm for society.
Markets in America
How have free markets thrived historically in America? Much like we discussed with the topics of taxation and money, America has never had truly free markets, at least not across the board. Of course, since both taxation and money and banking lie at the heart of commerce, any lack of integrity in those areas will reflect in direct proportion to the lack of freedom in markets. But just as we saw with those areas, markets have at least been much freer in many ways than they are today.
Perhaps the best single study of business development and entrepreneurship in American history is John Chamberlain’s The Enterprising Americans: A Business History of the United States.5 Chamberlain takes the story from colonial times up through World War II and a little past. He wrote specifically to fill a void in American historiography at the time: to confront the old, and more often than not false, leftist caricature of American entrepreneurs and businessmen as “robber barons.” Chamberlain rather more properly provides “a history that which would treat business as a prime creative force” in society.6
As we have discussed earlier, most of early America was settled as land grants from the crown. The governors and trustees of these grants then surveyed and allotted smaller grants of local lands to settlers who would cultivate the land, oftentimes using enticements of free land or property tax exemptions for several years to entice settlers to come. There were certainly also more ambitious types with visions of town planning, and leveraging port cities as centers of trade.7 Merchant classes arose, as did other forms of middle class achievement.
In early America, two famous examples will serve as good illustrations—though with a little bit of the “warts and all” we encountered earlier. The classic self-made boot-strapper is Benjamin Franklin. One of seventeen children born to a Puritan immigrant family, Franklin started with next to nothing and built himself into perhaps the most famous man in the western world before the Revolution. He started with an apprenticeship in his brother’s printing business, went through several rocky perambulations, and ended with his own printing business as well as scientific advancements, discoveries, and inventions (not to mention his vast political works). And yet what is commonly not stressed is that Franklin never missed an opportunity to leverage government power to tilt the markets in his favor. His business’s first major achievement was publically to shame the existing “public printer” in Philadelphia and swipe away that company’s lucrative post. He then entered the political arena for his own benefit: he published a tract on the hot issue of a new inflation of paper money in Pennsylvania (1729). The tract was in favor of inflation and was key to getting the measure through the Assembly. Not ironically, the contract to print the new paper money was immediately given to Franklin’s company. Franklin called it “a very profitable job and a great help to me.”8 Franklin and government power are rarely seen apart for the rest of his life.
On the other hand is the early life of our second example—the later arch-nationalist and nemesis from earlier chapters, Alexander Hamilton. As we mentioned before, he was an illegitimate child who was subsequently orphaned by age twelve. Whereas Franklin at least had sound if meager beginnings, the odds were totally stacked against Hamilton. Like Franklin, he was largely self-educated through voracious reading, and gifted with an enormous intellect. He was surely destined for greatness in the merchant classes, but as we saw, grew bored of accounting. Having read the classics, he lusted for military and stately fame. He got the whole classic shebang—including an ending straight out of a Greek tragedy.
In both of these great figures we see the ability to start with nothing and work one’s way to success—the classic American dream. In the case of each, ambition and lust for fame drove them to chase State power for themselves and their agendas. And yet, in regard to the original achievement of success in the marketplace, neither man needed nor profited from the intervention of the State. This is especially true for Hamilton who could have used a State-run welfare system at one time, but instead profited greatly by the private charity of the merchants who took him in without having to do so.
Through American history, you will find essentially three attitudes towards the market. There are actually only two, but one side breaks into two more. You have noninterventionists and two varieties of interventionists—left and right. Chamberlain captures the image of the early self-sufficient, non-interventionist types of American lore:
The mystery—and miracle—of early America is that people went to places before there was any way to get there—and took care of their transportation and marketing needs afterward. They followed Boone’s old trace to the Cumberland Gap and moved by Indian trails to the open “streets” trampled by the buffalo. They clawed their way over the Alleghenies, following the ridges above the tributaries of the Susquehanna and the Monongahela—and when they couldn’t find a way of getting their corn or wheat to market because of its bulk, they distilled it into whisky and shipped it back to civilization by pack horse. Pioneers settled in Marietta and Cincinnati (once called Columbia ) on the Ohio River somehow—and once in the West, and presumably “cut off” from their old homes, they made seagoing ships that actually sailed all the way back to the Atlantic by way of the Ohio, the Mississippi, and the Gulf of Mexico. In less exalted fashion they used crude flatboats to get their produce to New Orleans, returning overland by the Natchez Trace, a devious wilderness road where they risked losing the profits of their husbandry to a new breed of land pirate that infested the gloomy woods and canebrakes.9
The other two groups we have already essentially discussed—their decedents became the Hamiltonians and the Jeffersonians. In promise, they each offer only relative improvements upon the other, and in practice, both resorted to centralization and leveraging of government power to subsidized favored industries, impose tariffs, taxes, deficit spending, etc. Neither side, despite any lip service to liberty or free trade, stood on principle in the area of free markets.
Nevertheless, two great successes for market freedom occurred in that founding era. The first came with the Constitution, and the other came with the rise of industry. First, the Constitution created the largest free-trade zone in the world. This is perhaps the most important advance in the western world next to the optimistic Christian worldview which made it possible. By unifying interstate commerce and eliminating potential trade wars and turf wars between States, the Constitution achieved this goal.
This was a consequence of the Constitution; however, we should note that it certainly would not have required the imposition of the whole Constitutional settlement to bring it to pass, and in fact we shall see how that whole fabric has actually abetted the gradual centralization of commerce that has occurred since. It would have only necessitated at the most a tweak of the Articles of Confederation, or else a Congressionally approved treaty signed by any State that wished to participate (and few would have declined, all else being equal) to bring about the desired results. In fact, an early attempt at solving some of these issues more locally could have been a successful model: the 1785 Mt. Vernon Compact was an agreement reached between a few representatives of Maryland and Virginia during a meeting at George Washington’s house. It was essentially a free trade agreement between the states and agreed to share the waters of the Chesapeake Bay and the Potomac and Pocomoke Rivers. It could not have been a legal treaty, of course, since the Articles forbid interstate treaties not approved by Congress; but the proposal and the agreement were certainly a model for success. But instead of pursuing this route which would remained uncoupled with greater political centralization, the gentlemen involved decided to have a bigger, better version of the Conference with all the States. This occurred the following year at Annapolis but was largely a failure due to low attendance from several States. A bigger, better Conference yet was pushed for by a small group of men, and achieved. This led to the Philadelphia Convention in 1787, but by now the nationalist coup was tightly in control. Out of this came the Constitution and the system we have today. We will discuss more about this later.
The second major event was the industrial revolution. Vast increases in technology, manufacturing, transportation, and communications in a short period of time totally transformed production, lowered prices on consumer goods, and increased standards of living. Chamberlain provides a great example in one vignette:
The year is 1803, and Terry, the teacher of a long line of Yankee clockmakers, is already making clocks in his Naugatuck Valley [CT] factory for which he has no storage space. With four clocks ready for sale Terry has to tear himself away from his mill, load the clocks into saddlebags, and take off over the hills toward “York State,” walking beside his horse because the load is too heavy to permit a passenger. The clocks are offered at $25 each on the installment plan; when cash is entirely lacking they are “sold” for corn meal, beeswax, sailcloth, or woven cloth, commodities that can be bartered on the way home or passed on to workmen in lieu of cash wages. Four years later Terry has a bigger mill—and has adopted the full Eli Whitney technique of punching out standardized and interchangeable wheels and clock faces. He is now prepared to sell a clock for $5. . . .10
Thus in a mere four years did production techniques drop his product price by 80 percent. As soon as transportation caught up with the revolution—better roads, canals, the steam boat—sales would increase heavily.
Of course, the process of developing these roads, canals, etc., as well as many other big ventures, was hardly left to free markets alone. In many, many cases, companies took loans and grants from the government, secured monopolies and thus profits based on government intervention. But even in an atmosphere of rigged markets, the free market was always close, ready and often successful with competition and alternatives. Chamberlain relates this throughout American history:
Monopolies—oil was the most notorious of them—waxed fat only to recede into the pack, sometimes pursued by antitrust laws, as later arrivals came on the scene. Meanwhile new products and processes continually rose to compete with the old. Aluminum, even when there was only one company in the field, had to fight it out with wood at one extreme and steel at the other. Du Pont artificial fibers freed the textile business from dependence on cotton, silk, and wool. The railroads were controlled more effectively by competition from automobile and truck and airplane than they were by the ICC. From telephones to television, the electrical revolution leaped from dependence on wires to dependence on wave lengths in God’s free ether. Came, too, the supermarkets and consumer credit, washing machines, home freezers, and the split-level ranchhouse which never looked upon a longhorn steer.11
With successes such as these, both left and right interventionists have always been able to speak in favor of free market, but it’s always been largely an illusion on their part. Free markets persist in many ways not because of either major party, but mainly despite their various interventions. We can, however, say with confidence that the free market has historically prevailed more here in America than anywhere else. This is what has made her great and wealthy, and this is what has created the lasting reputation of America as a land of opportunity. The idea has been trampled many times, but it does shine through the cracks of the government superstructure that has so often overshadowed our greatest resource: the law of God, the belief in protecting private property, liberty, and life.
As well, we can say with confidence that average Americans once understood this and sought to practice it—private property, enforcement of contracts—beginning with their own bare hands. And when allowed to remain free, free markets have indeed worked and worked well. It took the efforts of many centralizers to railroad America into economic tyranny. We’ll tell that story in the next section.
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