Free Market

How Prices Promote Peace

By Matthew McCaffrey

Donald Trump’s plan to escalate the war in Afghanistan makes it necessary to once again stress the value of peace and the importance of rejecting US militarism and imperialism. Yet it also provides an opportunity to think about the foundations of a truly peaceful society, and to reaffirm a basic social truth: no institutions more effectively promote peace than the institutions of the market economy.

Cooperating not Expropriating

Peace begins at home, or rather, it begins wherever you and I decide it does: at any time and place we realize that the best way to improve our lives is to cooperate rather than to brutalize each other.

Trade allows us to benefit from our different values, while hurting no one.

As economists like Ludwig von Mises point out, this realization is actually the foundation of human social relations. It also explains why we establish social bonds through trade: we recognize, first, that we each possess resources and skills that are less valuable to us than others that we hope to acquire, and second, that other people value things in just the opposite way. Trade then allows us to benefit from our different values, while hurting no one. It is an act of peace, one reason why it’s no surprise that Mises refers to the moment after exchange as a “state of rest” – including an absence of conflict.

Voluntary exchange is thus a rebuke to violence and war-making: it reveals to each of us, in a personal way, that increasing our own welfare means cooperating, not expropriating.

Prices are a social recognition of this deeper fact. They tacitly acknowledge that many individuals have foregone violence and realized the benefits of cooperation and trade, so much so that they can establish between them an objective estimate of the social worth of the things we hold dear: a price.

Eventually, a vast network of individual exchanges creates the price system, a gigantic engine for improving the welfare of all members of society. This engine works 24 hours a day to overcome the greatest cause of conflict among human beings: scarcity.

The Struggle over Scarce Resources

Property, exchange, and the price system enable us to put aside our conflicts.

Scarcity presents seemingly intractable problems: how can we thrive in a world where human wants outstrip the resources available to satisfy them? How can we ensure that the goods and services we produce will get to the people who need them most?

Prices are the answer, and the price system works from moment to moment to appraise and allocate countless scarce resources over which we no longer have to fight.

Property, exchange, and the price system enable us to put aside our conflicts. In fact, when prices can’t be established because property rights are unclear – as in the tragedy of the commons – the result is a desperate conflict over scarce resources as each person tries to exploit a “free” good.

Similarly, price controls prohibit buyers and sellers from agreeing on a way to mutually benefit. Inevitably, someone leaves the market unsatisfied. In fact, price floors and ceilings cause conflict by eliminating exchange and replacing it with rationing. Without prices, producers and consumers arbitrarily discriminate, thereby creating special privileges for certain individuals and groups.

For example, landlords of rent-controlled apartments might choose tenants based on their racial characteristics rather than those who need housing the most. Similarly, faced with increasing minimum wage rates, fast food restaurants hire college students instead of workers from less wealthy or educated backgrounds who more urgently need a job. Inevitably, the non-privileged groups start to resent the beneficiaries of discrimination, and social conflict is the result.

Non-Market Goods

The lack of prices for such “goods” reveals that they’re nothing of the sort.

Importantly, this effect works across borders as well, as domestic producers and unions reap the benefits of trade barriers and immigration controls at the expense of foreign workers. This kind of exploitation sows the seeds of economic and, eventually, military conflict. Allowing prices to exist for foreign goods and labor is, therefore, a vital step toward achieving global peace.

For that reason, we should also be deeply skeptical about the production of any weapons or military technologies that have no market applications – and no prices – in a free economy. The reason is simple: the lack of prices for such “goods” reveals that they’re nothing of the sort. Their purpose is to destroy life, not improve it.

Seeing prices emerge and change in the marketplace should be a cause for celebration just as much as the sight of a soldier laying down his weapons. Both are victories for humanity, but prices especially reflect a deep commitment on the part of many people to choose cooperation over conflict. In that sense, it’s not much of an exaggeration to declare: Blessed are the price-makers.

Republished from FEE.org

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Twelve Economic Concepts Everyone Should Know

By Richard N. Lorenc


When I tell people that I work at the Foundation for Economic Education, they sometimes ask: “What economic ideas should people understand?”

We at FEE have thought about this quite a lot for our articles, courses, seminars, and videos. We have distilled “economic thinking” into 12 key concepts. The following list has guided us internally for a few years, and I figure it’s now time to share it with the world.

1. Gains from trade: In any economic exchange, freely chosen, both parties benefit–at least in their own minds.

2. Subjective value: The value of any good or service is determined by the individual human mind.

3. Opportunity cost: Nothing is free, and the cost of anything is what you give up to get it.

4. Spontaneous order: Society emerges not from top-down intention or planning but from individuals’ actions that result in unplanned outcomes for the whole.

5. Incentives: Individuals act to maximize their own reward.

6. Comparative advantage: Cooperation between individuals creates value when a seller can produce a given item or service at a lower cost than the buyer would spend to produce it himself.

7. Knowledge problem: No one person or group knows enough to plan (and force) social outcomes, because information necessary for social order is distributed among its members and revealed only in human choice.

8. Seen and Unseen: In addition to the tangible and quantifiable effects, there are quite often invisible costs and unmet opportunities to any action or policy.

9. Rules matter: Institutions influence the decisions individuals make. For example, property rights extend from the reality of scarcity which demands that ownership must be vested in individuals and not a collective.

10. Action is purposeful: Each person makes choices with the intention of improving his or her condition.

11. Civil society: Voluntary association permits people of all backgrounds to interact peaceably, create value, cultivate personal character, and build mutual trust.

12. Entrepreneurship: Acting on an opportunity to gather underused, misused, or undiscovered resources and ideas to create value for others.

You might think about all the ways and places these principles appear–as you shop, socialize, and plan your future. As we like to say, economics is everywhere!

Republished from FEE.org

Richard N. Lorenc

Richard N. Lorenc is the Chief Operating Officer of FEE and serves as managing director of FEE’s Youth Education & Audience Research (“YEAR”) project to develop and promote new content and distribution techniques for free-market ideas.

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Money Is the Real Social Contract

By Baudoin Collard

Despite major inconsistencies, the social contract theory remains one of the most prominent founding myths of our societies. Is it possible to revisit this dogma to correct its deficiencies?

The social contract theory finds its origins during the Enlightenment era in the 18th century. In the context of challenging royal institutions, philosophers like Rousseau and Hobbes sought to answer the following questions: How are societies born? Why do humans decide to live together? Where do governments derive their legitimacy?

According to Rousseau, an implicit contract binds men together to form a society. Through this contract, men relinquish some of their freedom to the state. In return, the state provides justice and security. This way, the general welfare is protected from special interests through the legislature, elected by the people.

The social contract theory has had a major influence on Western philosophy. As attractive as it is, the theory suffers from fundamental flaws.

First, no one has ever signed such a contract. One can argue that elections represent a tacit renewal of the contract. But in this case, abstention should be considered. And what about countries like Belgium where voting is compulsory?

Second, history teaches us that human societies emerged well before the institutions that govern them. It is the society that begets the institutions and not the reverse. Moreover,  these institutions have been set up in bloody wars and revolutions.

Lastly, according to Rousseau, since the parliament represents the people, the minority must accept any decisions taken by the majority in the name of a nebulous “general interest.” In the 19th century, Alexis de Tocqueville had already mentioned the risk associated with this belief. Such a system drifts into a tyranny of the majority.

If we looked closer, we would see an institution inseparable from the human society that could perfectly fulfill this role of the social contract: money.

Is Money a Social Contract?

Money is proper to man. Historically, no society could develop without the support of some form of money. Conversely, the concept of money is meaningless when taken out of its social context. It is from its acceptance by users that money derives its legitimacy and value. Men voluntarily adopt money because they benefit from it.

By facilitating exchanges, money allows specialization — the source of new technological developments. As a store of value, it allows users to save, which is the source of investment and protection against the hazards of life. Investment and technological progress both generate growth. This is the fundamental reason why men unite: in order to draw greater benefit from each other’s labor.

Currency Manipulation

If money is the cement that binds society together, what happens when this cement disintegrates? The German hyperinflationbetween 1921 and 1924 is certainly one of the most tragic examples of monetary collapse, but it is far from an isolated case.

Given its critical role, it may be tempting for a minority to manipulate the currency to its advantage. If the phenomenon is not new, it has also become more complex over time.

An early example occurred with the use of minted coins.

Originally, coins ensured the weight and quality of the currency. But gradually, the right to mint coins has become a state monopoly. This has allowed governments to control currency and extract a rent (seigniorage and sometimes debasement).

The invention of the banknote was a major technological evolution. Originally introduced to facilitate increased trade, banknotes have gradually become a monopoly of the power in place. As a striking example, Napoleon Bonaparte gave the monopoly of printing bank notes to the Bank of France, of which he was a major shareholder.

The creation of central banks is the logical continuation of the state’s growing influence over money. Under the pretext of stabilizing money issuance and protect depositors from banking crises, the creation of central banks actually greatly facilitated state indebtednesswar funding, and ultimately inflation.

Speaking of inflation, here is precisely what Keynes said about it:

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.”

From Social Contract to Social Control

But inflation is not the only stab to the social contract of money. From the moment the money is imposed by the government rather than freely chosen by citizens, it loses its legitimacy. Initially acting as a social contract, money in state hands becomes a tool of social control. It allows a minority to exploit their privileged position for profit and power.

The states impose the use of their currency in more or less subtle ways. In the most authoritarian countries like China, the currency is subject to strict controls.

Exchange rates are set by the government and capital movements are tightly monitored. In the so-called democratic countries, the currency is imposed through legislation and numerous regulations. For example, the official currency is the only one allowed for the payment of fines and taxes. Banking and insurance regulations require individuals to invest a proportion of assets in state bonds, to inform the government of all transactions above a certain amount, etc.

In terms of social control by the currency, governments can be very creative. One example is the introduction of price and wage controls. Another example is the introduction (and increasingly pervasive use) of the food stamp program.

A more pernicious threat now hangs over the money with the disappearance of cash so desired by our governments. The abandonment of cash threatens to increase our dependence on the banking system. It also increases the stranglehold of states over their citizenry by facilitating the establishment of taxation on savings accounts or even an outright confiscation of bank accounts, as was the case in Cyprus.

Freeing the Money

All monies do not fulfill their social contract equally. Among fiat currencies, large differences exist, depending on the objectives of central banks and economic policies. So if we compare the consumer price index (a proxy for inflation), we observe that the US Dollar has lost about 54 percent of its purchasing power over the last 30 years.

The Swiss Franc saw a decline in purchasing power when it was limited to 31 percent and then 14 percent for the Japanese Yen. At the same time, the currency’s purchasing power fell by more than 99 percent in Mexico, Turkey, and in many countries of the former Soviet Union.

Gold and precious metals enjoy a lasting credibility because these commodities are difficult to manipulate. Precious metals have also provided an effective hedge against inflation and other monetary turpitudes throughout history. Gold is still a reserve currency of choice for central banks.

Finally, a new form of currency has recently emerged: the cryptographic currencies among which Bitcoin is undoubtedly the most famous. Bitcoin appeared in 2009, at the height of the subprime crisis and bank bailouts by the taxpayers. If they have often aroused disbelief in their infancy, these cryptocurrencies now enjoy a combined capitalization largely exceeding $100 billion.

More fundamentally, cryptocurrencies are the perfect illustration of the competitive bidding of private currencies. This is similar to what was proposed by Friedrich Hayek in his book “The Denationalization of Money.” 

Since the use of these currencies is free, their value fluctuates according to the interest they generate and the resulting demand. Their course is closely linked to the services they can provide, as a means of payment, and their credibility, as a store of value. The proliferation of these cryptographic currencies is a full-scale laboratory experiment for the future of money.

Money Guarantees a Free Society

Money, even more so than democracy, embodies the essence of the social contract. Its legitimacy comes from its acceptance, freely chosen by all users. 

The fundamental role of money in exchange explains its catalytic action in the seeding of the development of human societies, long before the emergence of democratic institutions. Finally, currency manipulation inevitably causes the decline of a society,as democratic as it may be.

Nothing better sums up money that Ayn Rand’s quote:

“Money is the barometer of a society’s virtue.”

Money is a tremendous source of emancipation for the society. It promotes cooperation and peaceful exchanges between humans, no matter their views, gender, origin or preferences. It is the conductor that imperceptibly regulates the human action.

Conversely, anyone who aims to suppress money should be prepared to substitute it by a planned economy with cohorts of bureaucrats who impose by force. Anyone who denounces the dictatorship of money should recall that the worst tyrannies are those where citizens were deprived of their currency. And if money is regularly accused of being the root of all evil, it is all too often the victim of those who control it. Rather than blaming the money, let’s blame those who corrupt it.

Perfect currencies do not exist. As the brainchild of fallible humans, monies are bound to constantly face primal temptations. Failing to find such an illusory ideal, the freedom to choose currencies is the best guarantee of having sound money in a free society.

 

Republished from FEE.org

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Millennials Are in a Love Triangle with Capitalism and Socialism

By Andrew Taylor

There’s been a lot of talk recently about how Millennials – the generation born between roughly 1980 and 2000 – think about economics. Much of it was sparked by the fanatical support for self-described “Democratic Socialist” Bernie Sanders from young people in the Democratic primary for president last year.

Gallup found in April 2016 that, whereas Hillary Clinton had a net favorability rating of -23 among 18-24 year-olds, Sanders’s score was +39.

Harvard University poll administered at about the same time revealed how this has been translated into policy views. The survey reported that only 42% of Millennials supported capitalism. According to a contemporaneous Gallup poll, that was about 10 percentage points lower than the general population. The Harvard survey showed 33% of Millennials wanted socialism.

So Millennials have economic attitudes that are different from older Americans. But is their economic behavior different? Do they walk the socialist walk?

Here, the evidence is decidedly mixed.

Health Care

Socialists tend to embrace public goods because all citizens can consume them. Millennials certainly like them. A Pew Research Center poll from June revealed 45% of 18–29-year-olds favored a single-payer health care system. This was 14 percentage points higher than any other single age group.

Census data show Millennials adopted health insurance more rapidly than any other age cohort when Obamacare began in 2014-15. I’m not entirely sure what kind of political philosophy this behavior illustrates, but it does seem to suggest Millennials embraced the Affordable Care Act, legislation most people believe moved health care in this country solidly to the left.

Recycling and Personal Consumption

Socialism, unlike capitalism, makes a virtue of constrained personal consumption. A major reason for this, of course, is that it is less suited to production. But the connection has helped fuse ecology to socialism in the platforms of left-wing parties across the globe.

You may have heard the argument that Millennials are more environmentally conscious than the rest of us – they don’t use plastic shopping bags or flush the toilet, etc. A survey commissioned by Rubbermaid reported earlier this year that two-thirds of Millennials would give up social media for a week if everyone at their company recycled.

Interestingly, however, the data on behavior do not bear this out. A 2014 Harris poll conducted for the Institute of Scrap Recycling Industries (ISRI) revealed that whereas roughly a half of respondents over thirty said they “always” recycled, only a third of the younger group did.

Millennials talk about saving the planet for humanity, behavior a socialist mindset deems heroic, but they do not seem to be doing more than anyone else to secure our world’s survival.

Transportation

Millennials also use public transportation much more than other groups. Over one-fifth ride a bus or train on a daily or almost-daily basis according to a Pew survey from late 2015. This was nearly double the proportion of any other age group.

Indeed, younger people seem to have much less love than their elders for that ultimate of American private goods, one’s own car. The number of licensed drivers in both the 24-29-year-old and 30-34-year-old cohorts decreased by about 10% between 1983 and 2014 according to the University of Michigan’s Transportation Research Institute. The drop for 18-year-olds was a fifth. At the same time, everyone over 45 continues their love affair with the automobile.

This seems consistent with the socialist rejection of material goods, but whether this is correlation or causation is unclear.

Sharing Economy

Moreover, Millennials have almost single-handedly nurtured the “sharing” economy – a marketplace in which peer-to-peer transactions are facilitated by a software platform that permits participants to divide consumption, as exemplified by Uber and Airbnb. According to Vugo, 57% of all ridesharing customers are aged 25 to 34.

The sharing economy may sound quite socialist because it seems to eschew private ownership. But as Duke professor Mike Munger has pointed out, people, in general, wish to consume the services that tangible goods provide, not the goods themselves. The sharing economy, in fact, provides access to the services of more material goods than the user would otherwise have – whether that’s a five-minute ride in a car or a two-day stay in a house. Its fundamental principles, therefore, are capitalist.

Entrepreneurialism

A 2014 Bentley University survey of Millennials reported that two-thirds of respondents expressed a desire to start their own business. But Millennial behavior is different. An analysis by the Wall Street Journal last year found that the proportion of Americans under 30 who own a business has dropped by 65% since the 1980s. Millennials might say they want to be Mark Zuckerberg, but they’re not particularly entrepreneurial.

There does exist therefore a disconnect between Millennial economic attitudes and behavior. What explains it? The generation is intrigued by the idea of socialism. It embraces many of its values and the public policies that would bring it about. But Millennials’ behavior is ambiguous. Entrepreneurship in private enterprise is not a particularly appealing career path to them in practice.

Additionally, Millennials’ reduced consumption is probably as much a function of economic necessity as it is a sacrifice of their personal wants to some grand social plan. The Great Recession has left them playing financial catch-up. A Pew analysis of census data reveals 15% of 25-to-35-year-olds still live with their parents. Traditionally that fraction has been around one tenth. A 2016 study by the left-leaning Center for American Progress found that Millennials make less than Gen Xers did in their early 30s. They only earn about the same as Boomers, who are 30 years older and 50% less likely to have graduated from college.

So perhaps there’s another explanation: When they appear to be rejecting capitalism, it’s often because Millennials are simply adjusting America’s core economic principles to new technologies and economic realities.

Reprinted from Learn Liberty.

 

Andrew J. Taylor

Andrew J. Taylor is professor of Political Science in the School of Public and International Affairs at NC State University. He received his Ph.D. from the University of Connecticut and teaches courses in American politics, including Introduction to American Government, the Presidency and Congress, the Legislative Process, Public Choice and Political Institutions, and the Classical Liberal Tradition.

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Corruption Rises as Economic Freedom Falls

By Richard M. Ebeling

The corruption of government officials seems to be as old as recorded history. For example, the ancient Roman senate passed laws against such political corruption in the first century, B.C. They defined a corrupt act as “whenever money is taken and a publicly-conferred duty is violated.”

Local magistrates in the Roman Empire were permitted to legally receive cash gifts of up to 100 gold pieces a year, but anything beyond this amount was considered “filth.” There was also a separate criminal category against what was called concussio, or the “shakedown” and “extortion.” A Roman official might claim to have a legal order against someone and demand a bribe not to enforce it against the individual’s person or property.

Emperor Constantine issued one of the strongest decrees against corruption during this time in A.D. 331. Those found guilty of such crimes might be exiled to an isolated island or a far-off rural area, while others might even be condemned to death. A judge, for example, might be executed if he had acquitted someone guilty of murder for the right price.

Ranking Corruption

Today, high levels of political corruption remain one of the major problems people confront around the world. While most of us think of such corruption as primarily impacting the hundreds of millions who live in the underdeveloped and developing parts of the globe, it touches those of us fortunate enough to live in the industrially developed Western democracies.

The Berlin-based non-profit organization, Transparency International (TI), annually surveys various forms of corruption around the world by various measures and types. A score of 100 in their 2016 Corruption Perception Index means the absence of any political corruption. A score approaching zero suggests a society in which little happens or gets done without layers of governmentally corrupt processes for people to get through in their daily lives. TI points out that “No country gets close to a perfect score” on the index.

However, according to Transparency International many of the least corrupt nations around the world are in the European Union and North America. In fact, Denmark ranks the least corrupt worldwide, followed by New Zealand. Among the remaining top ten of least corrupt countries are: Finland, Sweden, Switzerland, Norway, Singapore, the Netherlands, Canada and Germany. All of them have scores of 80 or better on TI’s scale of 100 having zero corruption.

The United States, however, is only ranked 18 with a score of 74. That placed America just below Belgium, Hong Kong and Austria. But the U.S. did rank above Ireland, Japan and Uruguay. And, happy to report, America is above France, which had a score of only 69.  

The most corrupt nations of the EU, perhaps not surprisingly, are in Eastern Europe, in those countries that had been part of the former Soviet bloc. Poland only scored 62, followed by Slovenia (61), Lithuania (59), Latvia (57), Czech Republic (55), Slovakia (51), and Hungary and Romania (58).  On the other hand, Greece, a longtime member of the EU, only earned a score of 44.

Former Soviet republics further to the east are even worse. The Russian Federation and Ukraine only scored 29, with the former Soviet republics in central Asia – Kazakhstan, Turkmenistan, Uzbekistan, for instance – barely making it above the low 20s range on the scale.

Africa, Asia, and Latin America

The lowest TI scores are generally earned in Africa and parts of the Middle East and Asia, with some other very corrupt countries in Latin America. The most corrupt countries on the planet, according to TI, are Somalia (10), South Sudan (11), North Korea (12), Syria (13), Yemen (14), Sudan (14), Libya (14), and Afghanistan (15). But in corruption depravity, Venezuela, Iraq, and Haiti are not far behind them.

In fact, on the Transparency International scale there are hardly any countries in Asia, the Middle East, Africa or Latin America that make it even to the 40s mark on their political corruption scale. The vast majority of the countries in these parts of the world are in the 30s and 20s, or less levels under TI’s scale.

As part of their annual survey on global corruption a few years ago, TI also asked people the frequency with which they had to pay bribes to government officials of one type or another in attempts to get by in their daily lives. In North America, one percent of Canadians surveyed said they bribed someone in government. In the United States that reply was given by two percent of the people asked.

But even in countries that have long been members of the EU bribery was reported. The worst occurred in Greece, where 27 percent of the people said they paid bribes during the preceding year. In most of Western Europe the bribery level was around 2-3 percent of the population, though the number was 6 percent in Luxembourg. (The bribery question was not asked in Germany and Italy.)

Bribery is far more endemic in the rest of the world. Africa suffers from political bribery the most, with 42 percent of all those in the countries surveyed saying they had paid bribes. The most extreme case was found by TI in Cameroon, where 79 percent – almost four out of every five people – admitted paying bribes, with the number being 40 percent of the people in neighboring Nigeria.

Bribing the Police

In Asia, the overall rate of bribe giving was reported to be 22 percent of the population. The highest rates were found in Cambodia (72 percent), Pakistan (44 percent), the Philippines (32 percent), Indonesia (31 percent), India (25 per- cent), and Vietnam (14 percent).

Finally, in Latin America, the average bribery rate was recorded at 13 percent of the people. But as in the rest of the world, it varies from country to country. Among the handful of Latin American countries surveyed, the highest rate was in the Dominican Republic with 28 percent. Bolivia followed with 27 percent.

Around the globe, the most bribes are paid to the police. In Africa, 47 percent of the respondents said they bribed the police; in Asia, 33 percent; in Latin America, 23 percent; and in Eastern Europe, almost 20 percent. Worldwide, about 17 percent of the people in the survey paid bribes to the members of law enforcement.

Bribing people in the judicial system came next, with the global response being about 8 percent of all those surveyed. About the same percentage around the world said they bribed government agents for business licenses and permits, though again the highest rates were in Africa (23 percent) and Asia (17 percent). But even in the United States and Canada, around 3 percent admitted paying such bribes.

Medical care is also a major area for such corruption. In Africa, 24 percent of the respondents said they paid bribes for access to medical services; in Asia, the response was 10 percent; in Russia and Ukraine, 13 percent; in Eastern Europe, 8 percent; in the EU, almost 5 percent; and in North America, 2 percent.

The Cause of Corruption

Political corruption, clearly, is found everywhere around the world and people, regardless of where they live, do not expect it to go away anytime soon. Yet, in spite of its global dimension, corruption pervades some parts of the world more than others and permeates certain corners of society to a greater degree. Why?

Part of the answer certainly relates to issues surrounding ethics and culture. The higher the degree of personal honesty and allegiance to ethical codes of conduct, the more we might expect people to resist the temptations of offering or taking bribes. However, economic and business analyst, Ian Senior, in his, Corruption – the World’s Big C: Cases, Causes, Consequences, Cures (2006), concluded that there were no significant correlations between high degrees of personal honesty and religious practice and less bribe-taking around the world.

A far stronger explanation can be found in the relationship between the level of corruption in society and the degree of government intervention in the marketplace. In a generally free market society, government is limited to the protection of the citizenry’s life, liberty, and honestly acquired property. The rule of law is transparent and assures impartial justice for all. Any other functions taken on by the government are few in number, such as a variety of public works projects.

Under these circumstances, government officials have few regulatory or redistributive responsibilities, and therefore they have few special favors, privileges, benefits, or dispensations to “sell” to some in the private sector at the expense of others in society.

The smaller the range of government activities, therefore, the less politicians or bureaucrats have to sell to voters and special interest groups. And the smaller the incentive or need for citizens to have to bribe government officials to allow them to peacefully go about their private business and personal affairs.

Influencing Market Outcomes

On the other hand, the very nature of the regulated economy in the interventionist state is to short-circuit the free market. The interventionist state goes beyond protecting people’s lives and property. Those in power in the interventionist state intervene by using government authority to influence the outcomes of the market through the application of political force.

The government taxes the public and has huge sums of money to disburse to various programs and projects. It imposes licensing and regulatory restrictions on free and open competition. It transfers great amounts of income and wealth to different groups through sundry “redistributive” schemes. It controls how and for what purpose people may use and dispose of their own property. It paternalistically imposes legal standards influencing the ways we may live, learn, associate, and interact with others around us.

Those in the government who wield these powers hold the fate of virtually everyone in their decision-making hands. It is inevitable that those drawn to employment in the political arena often will see the potential for personal gain in how and for whose benefit or harm they apply their vast life-determining decrees and decisions. Some will be attracted to such “public service” because they are motivated by ideological visions they dream of imposing for the “good of humanity.”

Some will see that bribing those holding this political power is the only means to attain their ends. This may be to restrict or prohibit competition in their own corner of the market or to acquire other people’s money through coercive redistribution. For others, however, bribing those who hold the regulatory reins may be the only way to get around restrictions that prevent them from competing on the market and earning a living.

The business of the interventionist state, therefore, is the buying and selling of favors and privileges. It must lead to corruption because by necessity it uses political power to harm some for the benefit of others, and those expecting to be either harmed or benefited will inevitably try to influence what those holding power do with it.

The Correlation between Freedom and Corruption

For 23 years the Heritage Foundation in Washington, D.C., has sponsored an annual Index of Economic Freedom (IEF). The IEF tracks a series of 10 measured indicators that include the following:

(1) business freedom; (2) trade freedom; (3) level of fiscal burden; (4) size of government; (5) degree of monetary stability; (6) investment freedom; (7) financial freedom; (8) protected private property rights and the general rule of law; (9) flexible labor markets; and (10) freedom from corruption.

The premise is that the greater the degree of individual freedom, the more secure property rights, the smaller the size and intrusiveness of government in the marketplace, and the greater the open competitive market environment at home and in foreign trade, then the more likely a society will experience rising prosperity and higher standards of living over time.

No country in the world is free from some degree of government intervention and regulation. Unfortunately, the nineteenth-century era of relative laissez-faire is long gone. But the extent to which governments intrude into the economic, social, and personal activities of their citizens does vary significantly around the globe. This includes the extent to which citizens are protected by an impartial enforcement of the rule of law, have the freedoms of association, the press, and religion, and the right to democratically participate in the selection of those who hold political office.

The Index of Economic Freedom, in its 2017 edition, estimates that based on composite scores of all ten indicators, the greatest amount of economic freedom can be found in the following parts of the world: Hong Kong, Singapore, New Zealand, Switzerland, Australia, Estonia, Canada, the United Arab Emirates, Ireland, and Chile. The United States ranks only 17 in the world by the Index of Economic Freedom benchmarks. Ten years ago, before the Barack Obama presidency, America ranked fourth in the world.

Regionally, North America, Western Europe, and Australia/New Zealand are estimated by Transparency International to be the areas of the world in which the lowest rates of corruption are to be found. The Index of Economic Freedom also ranks these parts of the globe as generally having the greatest amount of economic freedom or the least intrusion of government intervention (broadly defined) within the marketplace.

On the other hand, Africa, Asia, and Latin America are the parts of the globe with the highest reported amounts of bribery, and are also the areas that IEF estimates as far lower in the global rankings for degrees of economic freedom. Among the 180 countries included in the Index of Economic Freedom, many (though certainly not all) of the ones that Transparency International estimates as having particularly high levels of corruption are ranked at the bottom one-third in terms of economic freedom from government intrusion.

The correlation between a global low ranking in terms of economic freedom and a high reported rate of political corruption is certainly not one-to-one. There are many variables at work, including the extent to which different types of freedom used in the IEF surveys are restricted in the respective countries. Thus, domestic property rights might be legally more secure in one country compared to others, but that country may have a higher rate of price inflation and more restricted labor markets, resulting in it having a lower economic freedom ranking in the index compared to other nations.

But the assertion can be safely made that the wider and more intrusive the degree of government intervention, the greater the likelihood of a higher level of experienced and perceived corruption. The more the government interferes with marketplace transactions (e.g., through price and production controls, or import and export restrictions and quotas, or business licensing and permit rules, or high, complex, and arbitrary taxation), the more need and incentive for people to bribe those in political power to free or reduce the heavy hand of government over their lives.

Ending global political corruption in its various “petty” and “grand” forms, therefore, will only come with the removal of government from social and economic life. When government is limited to protecting our lives and property, there will be little left to buy and sell politically. Corruption then will be an infrequent annoyance and occasional scandal, rather than an inescapable aspect of today’s social and economic life around the world.

This piece was culled from FEE.org

Richard M. Ebeling

Richard M. Ebeling is BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina. He was president of the Foundation for Economic Education (FEE) from 2003 to 2008.

 

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Lawrence Reed: Thoughts on a Free Market

On Tuesday, March 28, Dr. Lawrence W. Reed, president of the Foundation for Economic Education (FEE), was invited by Young Americans for Liberty to speak about free trade and protectionism at the Miller Learning Center. Reed began his talk by explaining some fundamental definitions concerning economics and followed by making arguments in favor of free trade over protectionism, tariffs, and quotas.

In the past year, the question of how the United States should approach international trade has become an increasingly divisive topic, especially among conservatives. Many in the Trump camp favor his retreat from trade deals such as the Trans-Pacific Partnership (TPP) and his push to renegotiate the North American Free-Trade-Agreement (NAFTA). Concurrently, Dr. Reed and many other conservatives believe that Trump’s approach is ultimately regressive.

In his talk on the University of Georgia campus, Dr. Reed puts forth the question that was asked centuries ago by famous author and economist Adam Smith: “What makes a nation wealthy?” Reed’s answer is goods and services. He asserts that more and better choices in the market, not full employment, make a nation truly wealthy. “This is the general argument against protectionism,” says Reed. “Tariffs and quotas do not necessarily improve goods and services.”

Dr. Reed presents three arguments in favor of freer markets, confidently noting that he would say the same to a Detroit auto workers union.


THE LIBERTY ARGUMENT

He refers to his first argument as the “liberty argument.” This one is more principled than pragmatic. It declares that all potential traders have the right to voluntary exchange and that tariffs and quotas handed down by the government obstruct this right. This line of thinking is consistent with many libertarian and conservative positions dealing with individual and property rights.


THE PEACE ARGUMENT

The second argument is dubbed the “peace argument.” Here, Reed references French economist Frédéric Bastiat:

“If goods don’t cross borders, armies will.”

Many wars and conflicts in history have been catalyzed by trade disagreements, and Reed contends that diplomacy is a much preferable and more effective alternative. This argument has a basis among other free market thinkers, as well as national security theorists. Austrian economist Ludwig von Mises touted a similar theory to debunk the Marxist-Leninist contention that capitalism was a catalyst for war. Where Lenin saw the spread of worldwide capitalism as the internationalization of the eternal conflict between labor and capital, Mises posited that the interconnectedness of international trade established strong, mutually-beneficial commercial networks between countries that often served as a countervailing force against calls for martial conflict among trading nations. Ironically, though perhaps not surprisingly, a World Socialist website seemed to confirm Mises’ point back in 1999 when it noted: “The pledge to restart the talks [with China] came after a barrage of lobbying pressure by U.S. companies alarmed over the prospect of losing the billions of dollars in trade and investment opportunities.”


THE ULTIMATE ARGUMENT

Dr. Reed appropriately calls his final argument the “ultimate argument,” in which he takes a more economic look at the effects of protectionism. This argument claims that tariffs and quotas harm consumers by giving them inferior products, fewer options, and higher prices. Other trading parties also have the ability to retaliate to protectionist action. Dr. Reed closes this argument by saying, “You cannot close the door to imports without closing the door on exports.” Dr. Reed’s economic point has historical basis in our hemisphere, where “import substitution,” a much more drastic variant of protectionism, took Argentina from one of the top ten wealthiest countries at the dawn of the 20th century to an economic also-ran today. Chile, on the other hand, drastically reduced tariffs and opened its economy to the world, and has become the model economy for the region.


Dr. Reed is clearly wary of President Trump’s rhetorical tendency towards isolationism, and with good reason. It is imperative to maintain a free market for the nation’s continued prosperity. However, various conservatives believe that some countries have taken advantage of the U.S. due to its recent trade policy and that certain tariffs would put a stop to that. Our unwavering commitment to free trade is little solace to an entrepreneur whose intellectual property has been stolen by a state-owned Chinese manufacturer. To combat this, Joanne Butler, a former staffer of the House Means and Ways Committee, offers some enforcement tools that, she believes, can curb the violation of American property and intellectual rights. Butler references a law nicknamed “Special 301” as a means to punish countries that regularly engage in piracy of software, technology, high-end designer goods and other products by imposing tariffs on imported goods.

Former House Foreign Affairs Committee member Dan Burton claims that Trump was absolutely right to pull the U.S. from the TPP and renegotiate NAFTA. Burton opposes massive multilateral trade agreements that, he argues, “ceded our constitutional authority and economic autonomy to international organizations such as the World Trade Organization.” Burton goes on to stress the danger of the shift in manufacturing from domestic to globalized production has made the nation more vulnerable to international crises.

The key word in most conservative arguments for increased protectionism seems to be “fairness.” Dan Burton is not anti-trade, but he emphasizes the fact that trade only benefits the U.S. if it is free and fair. Finding a compromise in this discussion can be tricky, especially when dealing with a new president whose capacity for compromise is, at the very least, unproven. The United States has the world’s largest economy, and should not subject itself to unfair and harmful deals. However, those who argue for and orchestrate this pullback must not forget the principles of the free market and the benefits of free trade that allowed America to become great in the first place.

Republished from Archconuga.com

— J. Thomas Perdue is a sophomore studying journalism. He is a regular contributor to The Arch Conservative

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Why is the number of poor people in Africa increasing when Africa’s economies are growing?

By Laurence Chandy

2015 marks the 20th year since sub-Saharan Africa started on a path of faster economic growth. During that period, growth has averaged 5.2 percent per year. Meanwhile, the number of people on the continent reportedly living under $1.25 a day has continued to creep upwards from 358 million in 1996 to 415 million in 2011—the most recent year for which official estimates exist.

What can explain these divergent trends? 

The most obvious explanation would be if all the benefits of growth were captured by the rich, resulting in ever-increasing inequality within each country. But the data don’t show much evidence of that, thankfully. Distribution trends within African countries are a wash: The distribution is widening in about as many countries as it is narrowing. And in most countries the distribution isn’t changing much at all. It might be that the very richest people—the top 1 percent—are enjoying more than their share of the spoils of growth but that this is missing from the data, as this rarified class tends not to participate in household surveys from which distributions are derived. Yet, in the absence of supplementary data to back this theory up, such as the tax records used to measure top incomes in rich countries, this is mere speculation. Moreover, there is certainly evidence of rising average incomes for the people who do participate in surveys. 

Instead, there are five factors that can account for sub-Saharan Africa’s disappointing poverty numbers.

The first is the region’s rapid population growth of 2.6 percent a year. While African economies are generating more income, that income has to be shared among an ever-increasing number of people. Since the region’s income is growing faster than its population, average incomes are rising and the share of Africans living in extreme poverty is falling—from 60 percent in 1996 to 47 percent in 2011. But the rate at which poverty is falling is less than the rate at which the population is rising, so the number of people living in poverty continues to grow. More generally, sub-Saharan Africa’s record on economic growth looks much less impressive in per capita terms. The World Bank has just released a revised growth forecast for the region in 2015 of 4.0 percent. When you lop off 2.6 for population growth, you’re left with per capita income growth of only 1.4 percent. Compare that with the world average where projected economic growth of 2.9 percent combined with population growth of 1.1 percent results in per capita income growth of 1.8 percent in 2015. So, in per capita terms, Africa’s growth this year is expected to be below the global average.

The second factor is the depth of Africa’s poverty compared to poverty elsewhere. In other words, poor people in Africa start further behind the poverty line. So even if their income is growing, it is rarely enough to push them over the $1.25 threshold. In 2011, the average person living in extreme poverty in Africa lived on 74 cents a day, whereas for the rest of the developing world, it was 98 cents. I’ve written before about the implications of this trend for poverty reduction in Africa here.

The third factor is that even though inequality isn’t rising in most African countries, inequality is already at unusually high levels. Where initial inequality is high, it is to be expected that economic growth delivers less poverty reduction, since the absolute increases in income associated with rising average incomes will be that much smaller for the have-nots versus the haves. Moreover, the degree of inequality that exists on the continent is worse than it looks. The fact that Africa is divided into so many countries masks big differences in income between them. If Africa were a single country, its inequality would look much worse—worse even than Latin America. Since incomes across African people vary so widely, only a fraction of people are likely to cross the poverty line at any one time. That contrasts with India where a concentration of people immediately below the $1.25 mark means that even a small increase in incomes can result in a sudden flood of people moving above the poverty line.

The above three factors explain why you would expect relatively little poverty reduction for a given amount of growth in Africa compared to elsewhere (in technical terms, a lower poverty elasticity). But they can’t explain why the number of poor people in Africa has actually increased since the start of the century. For this we need the two final factors.

The fourth factor is that there is a degree of mismatch between where growth is occurring and where the poor are on the continent. To be sure, the region’s growth acceleration has benefited some of its poorest countries, including Ethiopia, Mozambique, and Rwanda. Yet others such as the Democratic Republic of the Congo and Madagascar have recorded little or no growth over the past 20 years, and the number of poor people in these countries has risen accordingly. So long as a handful of the region’s fragile states struggle to build and sustain economic momentum, the number of poor people in Africa need not fall. 

The fifth and final factor concerns data quality. Poverty estimates are drawn from household surveys which in most African countries are conducted infrequently. Those that do take place often suffer from operational glitches that affect the credibility of the results. Take Nigeria, which accounts for a quarter of the people on the continent living in poverty. There are some well-documented flaws with its most recent national survey of living standards (not to be confused with the issues concerning the country’s national accounts, which were recently rebased). When new data become available, be prepared to discover that Nigeria’s poverty rate is considerably lower and has been falling at a faster pace than previously thought. As a general rule, aggregate poverty numbers for Africa should be handled with care, and small increases or decreases should not be taken too seriously.

The dissonance between Africa’s growth performance and its poverty numbers is a striking phenomenon that demands an explanation. While intuition may lead us to call into question the region’s growth—it only benefits the rich, the quality of growth is deficient, the growth numbers are exaggerated—the above five factors suggest that the answer can instead be found by analyzing Africa’s poverty data more closely.  

 

Laurence Chandy is a former fellow in the Global Economy and Development program and the Development Assistance and Governance Initiative. His research focused on poverty, fragile states, aid effectiveness, and globalization.

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George Ayittey in TED: Dead Aid

Culled from TED Blog

Economist George Ayittey gave a blistering talk at TEDGlobal 2007, laying out his case that not only has Western aid not helped in most African countries — it’s actually hurting.

We asked Ayittey for his thoughts on the new book Dead Aid, which has lately been burning up the talk shows and opinion columns with a message similar to Ayittey’s. Author Dambisa Moyo says that aid is killing the very countries it’s supposed to help. She singles out for criticism the celebrity crusades to “save Africa,” and the skewing view they present of African life.

(You can also download the unedited notes for this interview, including reading list, sources and more.)

Dambisa Moyo’s new book is drawing new attention to the question of aid in Africa, and her thesis is quite like yours, but aimed at a mass-market audience (as she said on Charlie Rose). Do you think it is risky to sensationalize the issue?

I don’t think Dambisa is sensationalizing the issue strong enough. Americans were justifiably outraged when AIG, which received billions in U.S. taxpayer money in bailouts, paid out hefty bonuses to its executives. So where is the outrage when African leaders, who receive U.S. taxpayers’ money in foreign aid, build palaces for themselves while their people wallow in abject poverty?

More important, the presumption that Africans don’t know what is good for them and that Americans or other foreigners know what is best for Africans is extremely offensive. If you want to help American farmers, you ask them what sort of help they need and whether such assistance is working. Why don’t Americans ask Africans what type of aid they need and whether the aid Americans have provided is working? So what is wrong with an African, Dambisa, telling Americans that the foreign aid they are providing isn’t working and it is “Dead Aid”?

It’s clear that Moyo’s thesis draws from your work. How would you respond to those who assert that her views and yours are idealistic and ideological?

Our critics have not been paying attention to the literature on foreign aid. Our views are neither idealistic nor ideological but rather factual. There are three types of foreign aid: humanitarian relief aid, given to victims of natural disasters such as earthquakes, cyclones and floods; military aid; and economic development assistance. We have no qualms with humanitarian aid, and I am sure our critics would agree that military aid to tyrannical regimes in Africa is the least desirable. Much confusion, however, surrounds the third, also known as official development assistance or ODA. Contrary to popular misconceptions, ODA is not “free.” It is essentially a “soft loan,” or loan granted on extremely generous or “concessionary” terms.

The consensus that emerged decades ago was that foreign aid had not been effective in reversing Africa’s economic decline. Dambisa and I are simply restating a fact. And it is not just Africa. That foreign aid has failed to accelerate economic development in the Third World generally was also accepted. In 1999, the United Nations declared that 70 countries — aid recipients all — are now poorer than they were in 1980. An incredible 43 were worse off than in 1970. “Chaos, slaughter, poverty and ruin stalked Third World states, irrespective of how much foreign assistance they received,” wrote the Washington Post, on Nov. 25, 1999. Except for Haiti, all of the 13 foreign aid failures cited — Somalia, Sierra Leone, Liberia, Angola, Chad, Burundi, Rwanda, Uganda, Zaire, Mozambique, Ethiopia and Sudan — were in Sub-Saharan Africa. The African countries that received the most aid — Somalia, Liberia and Zaire — slid into virtual anarchy.

Is there a fundamental place where you diverge from Moyo?

Though we are both on point regarding the failure of aid programs in Africa, we diverge in two respects.

First, Dambisa wants all aid to Africa stopped in five years, which won’t happen. Over the decades, various African civic groups and persons, including myself, have called for a cutoff of aid to Africa. In a report drafted during a five-day forum hosted by UNESCO in Paris in 1995, more than 500 African political and civic leaders urged donor nations to cut off funds to African dictatorships and called for free elections in such nations within two years. If the West could impose sanctions against Libya and South Africa, then Africans could also call for sanctions against their own illegal regimes.

Second, I believe that the foreign aid resources Africa desperately needs to launch into self-sustaining growth and prosperity can be found in Africa itself, not in China as Dambisa believes.

Moyo’s work speaks to that deep urge among Westerners to “do something” — even something that may be deeply unproductive. What’s a more productive way to “do something”?

I think Westerners should resist that urge to “do something,” because the worst type of help one can receive is that which doesn’t solve your problem but compounds it. If Westerners want to help, they must carefully scrutinize and reform current aid policies to make them more effective. Both the Clinton and Bush administrations tried to but failed. Business as usual is no longer an option, which is what both Dambisa and I are against.

Foreign aid should be tied not on promises of African leaders but to the establishment of a few critical institutions:

+ An independent central bank: to assure monetary and economic stability, as well as stanch capital flight out of Africa. If possible, governors of central banks in a region, say West Africa, may be rotated to achieve such independence. The importance of this institution resides in the fact that the ruling bandits not only plunder the central bank but also use its facilities to transfer the loot abroad.

+ An independent judiciary — essential for the rule of law. Supreme Court judges may also be rotated within a region.

+ A free and independent media to ensure free flow of information. The first step is solving a social problem is to expose it, which is the business of news practitioners. The state-controlled or state-owned media would not expose corruption, repression, human rights violations and other crimes against humanity. In fact, it is far easier to plunder and repress people when they are kept in the dark. The media needs to be taken out of the hands of government.

+ An independent Electoral Commission to avoid situations where African despots write electoral rules, appoint a fawning coterie of sycophants as electoral commissioners, throw opposition leaders in jail and hold coconut elections to return themselves to power.

+ An efficient and professional civil service, which will deliver essential social services to the people on the basis of need and not on the basis of ethnicity or political affiliation.

+ The establishment of a neutral and professional armed and security forces.

The establishment of these institutions would empower Africans to instigate change from within. For example, the two great antidotes against corruption are an independent media and an independent judiciary. But only 8 African countries have a free media in 2003, according Freedom House. These institutions cannot be established by the leaders or the ruling elites (conflict of interest); they must be established by civil society. Each professional body has a “code of ethics,” which should be re-written by the members themselves to eschew politics and uphold professionalism. Start with the “military code,” and then the “bar code,” the “civil service code” and so on. These reforms, in turn, will help establish in Africa an environment conductive to investment and economic activity. But the leadership is not interested. Period.

Effective foreign aid programs are those that are “institution-based.” Give Africa the above 6 critical institutions and the people will do the rest of the job.

Africa is poor because it is not free.

George Ayittey responded to emailed questions from TEDAfrica Director Emeka Okafor and TED.com editor Emily McManus. Download the unedited notes from this interview, an 11-page PDF with reading lists, noted sources, and much more. TED intern Mischa Nachtigal prepared this edited blog post.

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Aristotle: Politics

Aristotle was an ancient Greek philosopherand scientist born in the city of StagiraChalkidice, on the northern periphery of Classical Greece. His father, Nicomachus, died when Aristotle was a child, whereafter Proxenus of Atarneus became his guardian.[3] At seventeen or eighteen years of age, he joined Plato’sAcademy in Athens[4] and remained there until the age of thirty-seven (c. 347 BC). His writings cover many subjects – including physicsbiologyzoologymetaphysicslogic, ethics, aestheticspoetry, theater, music, rhetoriclinguistics, politics and government – and constitute the first comprehensive system of Western philosophy. Shortly after Plato died, Aristotle left Athens and, at the request of Philip II of Macedon, tutored Alexander the Great beginning in 343 BC.

Our purpose is to consider what form of political community is best of all for those who are most able to realize their ideal of life. We must therefore examine not only this but other constitutions, both such as actually exist in well-governed states, and any theoretical forms which are held in esteem; that what is good and useful may be brought to light. And let no one suppose that in seeking for something beyond them we are anxious to make a sophistical display at any cost; we only undertake this inquiry because all the constitutions with which we are acquainted are faulty.

We will begin with the natural beginning of the subject. Three alternatives are conceivable: The members of a state must either have (1) all things or (2) nothing in common, or (3) some things in common and some not. That they should have nothing in common is clearly impossible, for the constitution is a community, and must at any rate have a common place- one city will be in one place, and the citizens are those who share in that one city. But should a well ordered state have all things, as far as may be, in common, or some only and not others? For the citizens might conceivably have wives and children and property in common, as Socrates proposes in the Republic of Plato. Which is better, our present condition, or the proposed new order of society.

Part V
Next let us consider what should be our arrangements about property: should the citizens of the perfect state have their possessions in common or not? This question may be discussed separately from the enactments about women and children. Even supposing that the women and children belong to individuals, according to the custom which is at present universal, may there not be an advantage in having and using possessions in common?

Three cases are possible: (1) the soil may be appropriated, but the produce may be thrown for consumption into the common stock; and this is the practice of some nations. Or (2), the soil may be common, and may be cultivated in common, but the produce divided among individuals for their private use; this is a form of common property which is said to exist among certain barbarians. Or (3), the soil and the produce may be alike common.
When the husbandmen are not the owners, the case will be different and easier to deal with; but when they till the ground for themselves the question of ownership will give a world of trouble.

If they do not share equally enjoyments and toils, those who labor much and get little will necessarily complain of those who labor little and receive or consume much. But indeed there is always a difficulty in men living together and having all human relations in common, but especially in their having common property. The partnerships of fellow-travelers are an example to the point; for they generally fall out over everyday matters and quarrel about any trifle which turns up.

These are only some of the disadvantages which attend the community of property; the present arrangement, if improved as it might be by good customs and laws, would be far better, and would have the advantages of both systems. Property should be in a certain sense common, but, as a general rule, private; for, when everyone has a distinct interest, men will not complain of one another, and they will make more progress, because every one will be attending to his own business.”

How immeasurably greater is the pleasure, when a man feels a thing to be his own; for surely the love of self is a feeling implanted by nature and not given in vain, although selfishness is rightly censured; this, however, is not the mere love of self, but the love of self in excess, like the miser’s love of money; for all, or almost all, men love money and other such objects in a measure. And further, there is the greatest pleasure in doing a kindness or service to friends or guests or companions, which can only be rendered when a man has private property. These advantages are lost by excessive unification of the state. ………. No one, when men have all things in common, will any longer set an example of liberality, or do any liberal action; for liberality consists in the use which is made of property.

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James Madison: The Federalist No. 10 (1787)

James Madison was an American statesman and Founding Father who served as the fourth President of the United States from 1809 to 1817. He is hailed as the “Father of the Constitution” for his pivotal role in drafting and promoting the United States Constitution and the Bill of Rights.

To the People of the State of New York:

AMONG the numerous advantages promised by a well constructed Union, none deserves to be more accurately developed than its tendency to break and control the violence of faction. The friend of popular governments never finds himself so much alarmed for their character and fate, as when he contemplates their propensity to this dangerous vice. He will not fail, therefore, to set a due value on any plan which, without violating the principles to which he is attached, provides a proper cure for it.

The instability, injustice, and confusion introduced into the public councils, have, in truth, been the mortal diseases under which popular governments have everywhere perished; as they continue to be the favorite and fruitful topics from which the adversaries to liberty derive their most specious declamations.

The valuable improvements made by the American constitutions on the popular models, both ancient and modern, cannot certainly be too much admired; but it would be an unwarrantable partiality, to contend that they have as effectually obviated the danger on this side, as was wished and expected. Complaints are everywhere heard from our most considerate and virtuous citizens, equally the friends of public and private faith, and of public and personal liberty, that our governments are too unstable, that the public good is disregarded in the conflicts of rival parties, and that measures are too often decided, not according to the rules of justice and the rights of the minor party, but by the superior force of an interested and overbearing majority.

However anxiously we may wish that these complaints had no foundation, the evidence, of known facts will not permit us to deny that they are in some degree true. It will be found, indeed, on a candid review of our situation, that some of the distresses under which we labor have been erroneously charged on the operation of our governments; but it will be found, at the same time, that other causes will not alone account for many of our heaviest misfortunes; and, particularly, for that prevailing and increasing distrust of public engagements, and alarm for private rights, which are echoed from one end of the continent to the other. These must be chiefly, if not wholly, effects of the unsteadiness and injustice with which a factious spirit has tainted our public administrations.

By a faction, I understand a number of citizens, whether amounting to a majority or a minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adversed to the rights of other citizens, or to the permanent and aggregate interests of the community. There are two methods of curing the mischiefs of faction: the one, by removing its causes; the other, by controlling its effects.

There are again two methods of removing the causes of faction: the one, by destroying the liberty which is essential to its existence; the other, by giving to every citizen the same opinions, the same passions, and the same interests. It could never be more truly said than of the first remedy, that it was worse than the disease. Liberty is to faction what air is to fire, an aliment without which it instantly expires. But it could not be less folly to abolish liberty, which is essential to political life, because it nourishes faction, than it would be to wish the annihilation of air, which is essential to animal life, because it imparts to fire its destructive agency.

The second expedient is as impracticable as the first would be unwise. As long as the reason of man continues fallible, and he is at liberty to exercise it, different opinions will be formed. As long as the connection subsists between his reason and his self-love, his opinions and his passions will have a reciprocal influence on each other; and the former will be objects to which the latter will attach themselves.

The diversity in the faculties of men, from which the rights of property originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties is the first object of government. From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately results; and from the influence of these on the sentiments and views of the respective proprietors, ensues a division of the society into different interests and parties.

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