The Price of Liberty
DECEMBER 01, 1969 by PAUL L. POIROT
"Eternal Vigilance," advised John Philpot Curran in 1790, is the price of liberty; and numerous scholars have elaborated on that theme. But the "price" to be discussed here is of another order: the rate at which an item moves in trade.
Now, the price of liberty is not just a figure an owner arbitrarily selects to print on a tag. At his figure, buyers may or may not appear. Nor is the price of liberty a figure arbitrarily selected by a prospective buyer. Again, his bid may or may not attract a seller. Rather, the price of liberty is the figure or the ratio at which a trade occurs between a willing buyer and a willing seller in open competition—without coercion or fraud on the part of either trader or any third party.
If the point seems belabored here that the price of liberty can only be derived through voluntary exchange, the excuse is that so many people act as if they had missed the point. The individual who lacks sufficient self-respect to respect the dignity of every other human being has missed the point. He who uses his own life or property in ways that violate the property rights of other individuals has missed the point. The person who does not understand why scarce resources must be privately owned and controlled if they are not to be wasted has missed the point. Anyone who thinks that buying and selling, saving and investment, production and consumption could occur in a logical or orderly manner without the institution of private property has missed the point.
The point is that unless there is private ownership and control of property then voluntary exchange or free trade between willing buyers and willing sellers could not occur; one must hold full and clear title before he may transfer the right of possession and use. Furthermore, except as it is thus established through voluntary exchange, the price for a commodity or service will not accurately reflect the available supply of the item or the effective demand for it—and will not serve as a rational and reliable guide for producers or consumers. This is why the price of liberty necessarily must be the price determined through open competition in a free market.
Probably by a process of trial and error and long experience, tradesmen invented or discovered money—a universally traded, easily recognized, readily acceptable item such as silver or gold that would help to facilitate the trading of other goods and services. In any event, further discussion of the price of liberty requires recognition at this point of the vital role of money in the market economy—money that not only originates as a result of voluntary exchange but also serves as the essential unit of accounting and calculation for those who would engage in production and trade.¹
Money and the Market
The market process of voluntary exchange, and that alone, gives value to money as a medium of exchange and as a unit for purposes of economic calculation. The vital information a trader needs concerning supply and demand is afforded only by the free-market price. Money serves as a common denominator for pricing all kinds of goods and services, for comparing the cost or value of one scarce resource with alternatives or substitutes, for deciding whether to save or spend, produce or consume, buy or sell. But to effectively serve its purpose, money must originate in and derive its value from the working of supply and demand in free and open competition. Governmental declarations of legal tender or issues of fiat money are useless at the very best; and far more often than not they lead to false price signals and the waste of scarce resources. It is important to buyers and sellers to be able to express exchange ratios or prices of all items in terms of money. But it is equally important that the nature and value of the monetary unit be established by willing buyers and sellers in the market rather than arbitrarily by government edict.
Once again, why this repetition or emphasis of the relationship between money and the market and the importance of money for the purpose of business accounting and economic calculation? And the reason again is that so many people act as if they had missed the point. Among the top echelon of economists are those who would possibly agree, if pressed, that gold could serve as money but who prefer instead to debate whether the government should print 2 per cent or 5 per cent or 10 per cent of additional fiat paper money each year, or whether Special Drawing Rights (SDR’s) might better serve the purposes of a World Bank than have other paper promises; those persons have missed the point. Anyone who advocates government spending for purposes he is unwilling to finance with his own resources (which probably means that others would rebel if directly taxed for such purposes—which in turn means deficit spending and inflation by government) that person has missed the point. The point is that when either the government or an illegal counterfeiter arbitrarily increases the supply of "money," the market is flooded with deceptive prices, economic calculation is thwarted, and the result must be a wasteful use of scarce and valuable resources.
So, once more, liberty is personal freedom of choice, and the price of liberty is the market price arrived at through voluntary exchange between a willing buyer and a willing seller. The enemies of liberty are coercion and fraud, and the result of such intervention is a false and misleading signal rather than the price of liberty that accurately reflects supply and demand and upon which producers and consumers may reliably base their economic calculations.
Coercion Sends False Signals
Unfortunately, the prospective trader in the market is ordinarily unable to distinguish between the price of liberty and the false price signals thrown forth by interventionists. The "eternal vigilance" urged upon him must be directed toward an identifiable cause of the misleading signal, toward the coercion that enters and disrupts the market. It is the common duty or responsibility of every would-be trader, of every citizen interested in a free and viable economy, to help police the market. And this is the principled role of government: to maintain the peace, to detect and discourage outbreaks of violence and fraud, to protect the life and property of every peaceful person and his right to enter unmolested into the processes of production and voluntary exchange.
The case for the limitation of government has been made over and over, and the only excuse for taxing the reader’s patience with this repetition is that the vast majority of people act as if they had missed the point. Businessmen who advocate intervention to place and hold them on a protected pedestal above the ordinary trader in the market have missed the point. Labor union leaders and followers who demand special rights and privileges, unavailable to others competing for scarce resources, have missed the point. Would-be educators who advocate the use of force to impose their "superior wisdom" upon others have sadly missed the point. Humanitarians who would confiscate the property of the thrifty and productive to subsidize the shiftless have missed the point. Dreamers who would populate the moon at the expense of those with their feet on the ground have missed the point.
How Government Intervenes
The point is that the only justification and appropriate role for government is to protect and defend the dignity of the individual and the private property each has earned; that government may not be perverted into an instrument of plunder without destroying man’s best chance for life and livelihood.
Whenever the individual relaxes his vigilance and allows his duly constituted police force to clip the coins or arbitrarily add to the stocks or decree an artificial value for each monetary unit, the inevitable cost he must bear is a loss of liberty.
The minimum wage established by government edict always has to be a false price signal; it is not the market-established price of liberty—it is a loss of liberty. The false wage or price creates an unmarketable surplus of that most scarce of all resources, human labor; and such a "surplus" is sheer waste.
Rent control laws that hold rental rates below market levels encourage the wasteful occupation of the scarce housing space that already exists and discourage the construction of additional housing. This coercive intervention reflects a false picture of supply and demand; it disrupts economic calculation; it wastes resources; it is antisocial and a denial of liberty. The same is true of any and every attempt at government price control.
There is no end to the examples that could be cited to illustrate how intervention destroys life and property and liberty. What they all illustrate, in effect, is that socialism cannot be made to work, no matter how brilliant the man in charge, because socialism disrupts the market, renders it impossible to know the price of liberty or to make the economic calculations by which human beings can rationally decide what to do with themselves and their resources. "Irrational," "irresponsible," "unaccountable," and "antisocial" aptly depict the socialist. And all he lacks is the price of liberty.
Why Socialism Must Fail
Karl Marx was a socialist whose mind was closed to the price of liberty. "From each according to ability and to each according to need" is first and foremost a denial and denunciation of the institution of private property. This necessarily precludes voluntary exchange. It closes the market and deprives producers and consumers of vital information market prices would otherwise reveal concerning the supply of and the demand for scarce resources. How is anyone’s "ability" or his "need" to be evaluated in the absence of free trade and market prices?
So Marx, like most socialists before and since, turned to the "cost-of-production" or the "labor" theory of value. And it’s true that human labor is a scarce resource and can be valuable; but it is a half-truth at best and a gross illusion at worst. What gives real value to a tool is not the amount of labor that can be used in producing the tool but the amount of labor saved and the satisfaction gained through the production and use of the tool—as against doing without it. And only through willing exchange in the market is it possible for anyone to know whether to spend his time producing this tool, or that, or neither one. Marx could guess wildly, and enforce his edict if his police power were strong enough; but he would have no way to compare the results with the alternatives under his system. For that comparison, he would need the price of liberty; yet, his basic premises denied the functioning of the market.
This is why Soviet bureaucrats, if they stick rigidly to their closed system of coercion and control, can never know whether to produce spikes or tacks, tractors or toys, human food or jet fuel, shoes or sputniks. Nor can any other government force in the world ever know how hard or how far to push any project, relative to the alternatives, once the project has been pulled out of the free market and out of the realm of rational economic calculation.
That politicians, with their penchant for power over others, should stumble into such chaos is to be expected. But how can one condone the utopian intellectual, whose noble aim is to help his fellow man, but who insists that socialism is a reasonable means to that end? Should not he be expected to know the price of liberty?
1 See "Money and the Market" in THE FREEMAN, August, 1969, page 464. See also "Value: the Soul of Economics" by W. H. Pitt, THE FREEMAN, September, 1969, page 515.