Thursday, October 25, 2018

Economic Freedom, Part 2

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,, 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.

1 comment :

Unknown said...

Sir : This is a very resourceful and thought provoking article about economic freedom that might under some dialectic views be preceded by political ones. One might envision additionally that economic freedom by definition again addresses the actions and activities of very large business entities right down to the individual economic actor -- and again this subject to a dialectical view that all these should be based upon and determined by different utilities of sorts. This excellent summary that defies the utilitarian / dialectical view deserves a greater audience and readership.