Inspired by a good post by my W4 colleague Jeffrey S. on the minimum wage, I've been thinking a bit lately about anti-free-market approaches to economics and what makes people tick who advocate such approaches. In this comment (as in other posts on this blog) I said that the central error of such approaches is the idea that we can make something from nothing--that by simple fiat we can create prosperity. An obvious example is thinking that we can increase the real wealth and well-being of workers simply by legislating a rise in the minimum wage. Another example is thinking that we can simply (ta-da!) make things free by declaring that from now on they shall be free.
Yet I've encountered a surprising number of otherwise sensible people who are subject to the delusion that goodwill can create something from nothing. Often the form it takes is saying, "Why can't x just be cheaper?" though sometimes it literally takes the form of saying, "Why can't x just be free?" I must admit that I've never yet convinced anyone who can ask such a question to change his mind. But here are some thoughts on it. Pick a product or service. For the sake of keeping this interesting, let's make it a good and valuable product, even a terribly important product. Make it bread or heart medication. Or medical care. (Hmmm.) Now let's ask the question: Why can't it just be "made free"? And if we apply our common sense for the moment, the answer comes back: Because it actually costs something to grow, produce, and distribute that product or service. Because it isn't, in fact, free. But there's more: Even if bread fell from heaven, someone would have to go out and gather it and provide it to people. When it comes to any service, and a fortiori to highly skilled services like medical care, there is actual labor involved as well as many materials. Medical care can't be free both because all the products used in it, from sterile gloves to expensive equipment, don't make themselves, don't mine the raw materials for themselves out of the earth, and don't deliver themselves to the point of use, and also because the doctors themselves are not slaves. Even if they were slaves, they would have to be fed and housed, and guarded so they wouldn't escape from the slave compound, so the work still wouldn't be free. But they should, of course, not be slaves. They have to charge for their services both to pay their expenses and to support themselves and their families. All of this should be obvious. It shouldn't need to be said.
Ah, but our anti-free-market folks will reply that they needn't charge so much for their services. And the same for all sorts of other things. The greedy CEOs and shareholders of the companies that make and sell bread (or medicines or sterile gloves) shouldn't make so much, and so on and so forth throughout all levels of the economy. And if they made less, then all else would remain equal (right?) and that money could just be redistributed in the form of higher wages for their workers, without any rise in prices, because the company would make less in profits. Right? Someone who dislikes the free market can always find someone who, in his opinion, is making too much money and ought to make less. In fact, lots of someones. Therefore, on his view, there is nothing in principle wrong with forcing all those people to make less, if only we could find a way to enforce such virtuous economic behavior. On this view, profit is a kind of pointless epiphenomenon of an economic system. People can always do without it, and if CEOs, doctors, and everyone else won't voluntarily pare themselves back to the point of doing their work for something close to subsistence level, they might as well be forced to do so, or at least to come closer to that "ideal."
The problem with this view is that, to the extent that it is acted upon, it creates economic stagnation, shortages, and loss of jobs, and everyone is worse off. If a potential entrepreneur knows that he can't make a decent profit by starting a company, he won't start a company. If doctors are paid less and less, there is less and less reason for them to go through the long, grueling, and debt-encumbered training required to become a doctor, to work the long hours and put up with the stress of being a doctor, and to subject themselves to the constant possibility of malpractice suits. So we have a doctor shortage. Companies go out of business or are absorbed by other companies that don't need to employ as many workers. Productivity and effort are not rewarded, so the motivation for them wanes. As more and more people lose their jobs, more and more people come to be supported by the government, which is getting less and less tax revenue while paying out more and more in entitlements. The government thus operates more and more on the fiscal equivalent of gas fumes--deficit spending. The whole system creaks on until it is no longer sustainable, and then we have...a problem.
Now, really, that's the end of the story. There isn't really any "on the other hand." But I'll just point this out: How are we supposed to stop people from saying, "The heck with it" and ceasing to produce goods and services, once we have taken that evil profit motive off the table? Isn't, ultimately, the only fallback (and it isn't much of a fallback) to make them keep going? Which takes us right back to enslavement.
Now, that isn't going to happen directly. Nobody is actually going to go to a CEO and say, "You will work for less or we will throw you in prison." But our government is pretty clever at harassing the goose that laid the golden egg. We enact punitive measures via labor law to force companies to pay their workers more, for example. The anti-free-trade folks would like to punish them for outsourcing. The idea is to find that perfect balance where they'll keep on operating, keep on putting out the effort, keep on supplying the jobs, on the terms that are dictated to them. But the very phenomenon of outsourcing shows that eventually, they get tired of hanging around and being dictated to to that extent, so they go elsewhere. We have no record of the number of people who have had an idea or thought of starting a company and said "the heck with it" when brought face-to-face with the regulations and taxation that would be involved in actually starting or running a business. The anti-free-market folks really have no answer to this, but their minds always run in punitive directions. How can we punish "excessive" profits? How can we punish "union busting"? How can we punish outsourcing? How can we punish those who don't pay their employees enough? How can we forcibly cap medical payments? What all of this is essentially saying is, "How far can we go towards making productive members of society slaves without doing so outright? How far can we force them to carry out their productive activities on unprofitable or notably less profitable terms while not immediately causing our economy to collapse?"
Those who pontificate to the effect that "morals should be part of economics" and mean by that not merely that bad products (such as pornography) should not be sold and not merely that fraudulent practices should be punished but something more like, "There is a moral amount that you should make for your goods and services and a moral amount that you are in duty bound to pay your laborers, and it is just to stop you from making more than you should or paying less than you should" simply never confront the cold, hard facts about shortages and economic stagnation. Nor do they confront the tendency towards the enslavement of the productive inherent in their views. They don't confront all of that because it is in conflict with their intuition (or perhaps with their understanding of some religious teaching) that really it should be possible and is right to force people not to pay "too little" and not to make "too much." And that we know what "too little" and "too much" are and can create a healthy economy that promotes human flourishing on that basis. They're so sure that this is possible that you cannot argue them out of it.
And that's a shame. Because you can't make something from nothing, and enslaving people is wrong.