Most of us have an intuitive or common-sense notion of the
meaning of economic freedom. A
smattering of features or attributes includes free markets, private enterprise,
voluntary exchange, capitalism, limited government, laissez-faire, free trade,
low taxes, free movement of capital, and other dimensions of economic life.
But we want to go beyond these descriptors to measures of
economic freedom. How much more economic
freedom does South Korea have compared with North Korea? Hong Kong with China? China 35 years ago with China
today? Has economic freedom increased or
decreased in Sweden during the last 10 years?
It would be ideal to develop a rating system that permits quantitative
comparisons across nations and over time.
A first step is to develop a philosophy or definition of
economic freedom in order to identify common (as well as divergent) elements
that should be measured.
Political philosophers and thinkers have explored the notion
of freedom from the beginning of recorded history. The first use of the word “liberty” is
traceable to ancient Sumer. Cuneiform
writing on clay cones excavated at Lagash, in Sumer, contained the freedom laws
of the good King Urukagina that he promulgated to rid the land of tax
collectors.
Ancient and medieval philosophers were largely concerned
with the political dimensions of freedom:
a voice in collective decision making (Greek democracies). Political freedom meant self-rule, or the
absence of external control. It did not
emphasize the rights of the individual to non-interference from the state or
protection under the rule of law.
The modern notion of freedom signifies non-interference in
the private affairs of individuals in a society governed under the rule of
law. The freedom to own a certain amount
of property was seen as a necessary condition for being able to maintain
personal independence. The development
of property rights went hand-in-hand with longstanding provisions of human
rights that were proclaimed in the Magna Carta in 1215, in thousands of
medieval charters in England and continental Europe, and in the procedural
safeguards of person and property that developed in the common law.
Against this backdrop, economic freedom seriously developed
into a coherent and powerful intellectual tradition with the publication of
John Locke’s Second Treatise of Civil
Government (1689). which emphasized freedom of association, private
property, and the sacrosanct nature of individual liberty secured under the rule
of law. David Hume reinforced Locke’s
emphasis on the right to property as the foundation of society and government.
Locke was followed nearly a century later by Adam Smith with
the publication of Inquiry into the Nature
and Causes of the Wealth of Nations (1776), which emphasized a system of
individual and commercial liberty based on private property. Nineteenth-century England was governed by
the principles of Locke and Smith. Its
hallmarks were free trade, laissez-faire, low taxes, low state expenditure, and
a minimally interventionist government.
Milton Friedman was a modern-day Locke, He asserted the primacy of the individual as
the ultimate entity in society, focusing on the role that private property
plays in fostering economic and political freedom, and economic prosperity. Friedman, with the assistance of his wife
Rose, set forth a coherent statement of
economic freedom in 1962 in a collection of essays entitled Capitalism and Freedom. The book explains the role of competitive
capitalism as a system of economic freedom.
It also discusses the legitimate role of government in a free society,
identifying those areas where government intervention in the private affairs of
individuals is warranted, but also where it goes beyond the limited legitimate
tasks of government harming both economic freedom and efficiency.
The legitimate tasks of government include the maintenance
of law and order to prevent physical coercion of one individual over another,
to enforce contracts voluntarily entered into, and to regulate activities where
one individual’s economic activity imposes harm or losses on another
(externalities).
In a later volume Free
to Choose (1980), the Friedmans set forth an Economic Bill of Rights, a
counterpart to the political Bill of Rights in the Constitution. These include a tax or spending limitation as
a share of national income, freedom to import and export (free trade), a ban on
wage and price controls, a ban on occupational licensure, a requirement for
proportional taxation (flat-rate tax), and others.
A third approach to economic freedom is embodied in the libertarian
work of Murray Rothbard, the purest expression of economic freedom. Rothbard grounded his political philosophy of
liberty on a natural law foundation, especially Locke’s treatment of property
and ownership. His theory of liberty
rests on the establishment of the rights of property, which determines each
individual’s sphere of free action. His
society of pure freedom is based on free and voluntary exchanges. The free market economy thus depends on upon
a free society with a certain pattern of property rights and ownership
titles. He departs from Friedman on the
need for the state to enforce contracts.
It is not the function of law to enforce morality or promises made to
each other. Enforcement is only
appropriate when one party steals the property of another.
Going further, Rothbard defines taxation as theft. The use of coercive taxation to acquire
revenue and the compulsory monopoly of force and ultimate decision-making power
over a given territorial area on the part of the state constitute criminal
aggression and depredation of the just rights of private property of its
subjects. Rothbard also contends that
the services generally thought to require a state, from the coining of public
money to police protection to the development of law in the defense of private
property rights (all part of Friedman’s legitimate role for government) can be
and have been supplied with greater efficiency and morality by private persons.
Rothbard’s libertarian vision is more utopian than practical. Other philosophers, from John Locke to Adam
Smith to Milton Friedman, grant specific, if limited, powers to government or
the state, including the power to tax, enforce laws, maintain order, and defend
the nation, which reflects the real world activities of government.
A fuller discussion of this synopsis of the philosophical
aspects or definition of economic freedom is found in the Books section of my
website, alvinrabushka.com, in Chapter 2, pp.23-55, of Economic Freedom: Toward a Theory of Measurement. See my article “Philosophical Aspects of
Economic Freedom” and accompanying discussion, which can be downloaded here. I encourage you to read the chapter.
The next post sets forth possible measures with which to rate economic freedom.