Friday, July 1, 2011

The Spirit Of 1776

July Fourth Seventeen Seventy Six was the publish date of the book on free market capitalism in Scotland. This book became the core of the thinking of our own founders who too were busy rewriting the world that same week in America. This book was "The Wealth of Nations" by Adam Smith. Today we find ourselves in dire need of returning to the wisdom of Smith and cast aside the mistakes of John Maynard Keynes.

Rather than trying to do a deep dive into the mind of Smith let's take a look at the core belief that the rest was built around. Adam Smith's "Invisible Hand" that guides business in a free market has been misunderstood, and misrepresented for now more than two centuries from those who are against a free market system.

What is the Invisible Hand? In a word greed. It's a burning desire for gain, and a fear of loss that ultimately guides human nature in a free market. There are many people who will try to tell you that if not for government regulations or unions protecting us from business people we will be treated unfairly and oppressed. However, that simply isn't true.

The examples they will use is the abuses in the factories of the industrial revolution. If there wasn't a crony system with the local governments at the time, they wouldn't have been needed. If someone tried to strong arm, do bodily harm, or even kill anyone who resisted laws would have been broken and if not condoned by local politicians and police it would have ended.

The Invisible Hand is based on personal self-interest and desire for profit. Here is how it would work in a true free market system. If I was a tyrant of an employer and treated my employees horribly, underpaid them, abused them, and was a bad guy, someone would start a company to compete with me and would take away my best employees, leaving me with the most unproductive ones, dooming me to failure.

If I, as a businessman, abused my customers, treated them badly, sold them an over priced, poor quality product and wouldn't stand by it when it failed, someone would compete with me. When they sold a better product at a better price and stood behind it they would cause me to lose my business. I would only have two choices with either story above. One is to keep doing what I was doing and go broke, or to change, improve how I treat my employees and customers to try to compete.

So in my own selfish best interest, I would be forced to be fair, forced to treat customers and employees well for the simple motive that I want to profit. If you read Ayn Rand's book "Atlas Shrugged" that is the core of it's message as well.

When anything interferes with the free market with government regulations or union meddling, or crony capitalism at the local, state, or federal level, it ties the Invisible Hand and takes away it's power to guide the process. When it is tied, the results are always less than it should be, higher prices, lower service. If you want to see how bad it can get look at our health care system in America. It has been so highly regulated for so long there is no way it could be affordable. Rather than a government take over, we would be wise to let the Invisible Hand control it to see what would happen.

Two recent examples of the destroying effect of government intervention are happening right now. One is in Arizona where the state of Arizona is protecting those who pay them dues in the Cosmetology Board to shut down eyebrow threading businesses. They are demanding that these businesses take 600 hours of courses on Cosmetology School for about ten thousand dollars to get a license to practice. However, if you consider that not one minute of those six hundred hours will teach eyebrow threading, it appears that they are simply stopping competition from coming into the market.

In Louisiana right now there is a battle going on with Florists. The State is requiring a four and a half hour test to get a florist license. The judges who test the candidates are competing florists, the results are that the failure rate on the Florist test is twice as high as the bar exam for Louisiana. Once again allowing the competition to use the power of government to keep others from entering the market.

We see crony capitalism from the smallest to largest government entity. Maybe it is time we go back to the Spirit of 76 in both small government Republic and the Invisible Hand.

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