Public Choice, Businessmen, and Liberty
APRIL 25, 2011
Opponents of free markets love to create the caricature of businessmen as greedy heartless individuals out to gain only at the expense of everyone else. They create stories of the Ebenezer Scrooge’s that are even willing to ruin poor Tiny Tim’s Christmas just to make an extra buck. As a critique of free markets, however, this caricature completely fails, as has been shown time and time again. It is true that economics treats individuals as self-interested, but it does not mean people can’t and don’t care about others. Still, even if we assume that they don’t care for others, the only way to make money within the free market is to make others better off first.
Yet, Public Choice economics, which applies the tools of economics to the political realm, can present an interesting problem. What if
businessmen could make money without competing within the free market? Now self-interest may indeed become a problem. If businessmen are able to operate free from competition then they can charge monopoly prices, squeezing every penny they can from the hapless consumers. After all, what can the consumer to do? Their choices have been restricted.
This problem is sadly far from the work of science fiction and very much steeped in reality. But, it is not an outcome of free markets; it is a product of government intervention. Governments restrict competition through various laws and regulations creating special interests which will do anything to keep their advantageous positions. This system also creates incentives for others to try and spend their way into gaining favors through additional lobbying. This process is known as rent seeking. It is the use of resources in a non-productive manner, i.e. the few are gaining at the expense of everyone else.
This is why businessmen are typically against free markets and in favor of regulations. Society would be better off without such policies but businesses stand to gain big from them. So, why are they enacted? The answer is in the concentrated benefits and dispersed costs. Businessmen gain greater profits from the reduced competition and thus lobby politicians, through financial kickbacks. Politicians, on the other hand, love the greater political campaign funds this process creates for them. The rest of us end up picking up the tab, but we barely notice because each of us pays only a tiny fraction of the whole cost.
Recently the billionaire Koch brothers have come under attack for supporting free market policies, “just to help their business.” It is true the Koch’s have been funding free market policies and research, but as the above shows, this hardly would be the best way to help their business in the short run. Yet, the Koch’s are not the first, and probably won’t be the last, businessmen to support free markets.
The free market movement since the early 20th century has seen many virtuous benefactors who have used their wealth to spread economic liberty. Today’s document, entitled Why Liberty?, was written by a businessman, who was also a founder of Liberty Fund, Inc., Pierre F. Goodrich for the 1958 Mont Pelerin Society’s meeting in Princeton, New Jersey. Goodrich understood why we needed liberty. Why it was a good idea in the long run, for not only businessmen, but for everyone, to embrace liberty as much as possible. He asked the right questions as this pamphlet shows. And the answers all point to liberty.
Many businessmen deserve the criticisms, but they should receive criticisms them for the right reasons. The blame is often placed on the free market notion, rather than on government interventions. The public needs to understand better the process public choice economics studies, and then maybe we will get more of the type of businessmen we need. Its never too late to get more Pierre F. Goodrich’s.