2012 ERC Scholarship Essay Program $375 Recipient
Patrick Leake, Sammamish (University of Washington)
Competition and the principle of self-interest often encompass the basic defense of free markets. While they do indeed provide an important framework for understanding free markets and economic growth, in isolation these tenets do not appropriately explain why free markets work. In reality, free markets work because they are grounded in liberty. Among certain freedoms entrenched in a free market system are the freedoms to buy, to sell, to try, and to fail. These freedoms establish a certain standard of liberty which not only underlines the basis for prosperous markets, but which also unleashes the full capacity of the human spirit, which has no limits.
Surely, technological advances helped propel economic revolutions such as those in the 11th century and in the early history of the United States. But why did these technological and economic advances occur and why did they happen when they did? A certain attitude of liberty and the way that people conceived market interactions provide the best answer to this question. With new founded entrepreneurial freedoms and a system of laws to protect them, people began to channel natural self-interest in socially beneficial and positive directions. In addition, people of these times embraced the idea of creative destruction: the idea that new and cheaper modes of production can and should replace older and more expensive ones.
Actual market transactions in free markets also bear resemblance to certain attitudes of freedom and illustrate why free markets work better than controlled markets. In the pursuit of self-interest, people naturally cooperate with one another; this remains an empirical observation that holds true in any economic system. Free markets, however, function as a mechanism for natural and free associations rather than coercive ones. They establish the most effective means for cooperation through price competition, as opposed to other sorts of involuntary and sometimes forced competition. The price competition visible in free marketplaces remains the most effective way of allocating resources in an economy because it clearly establishes the relative value of some resources over others and directs resources to their most desired uses. The role of prices acts as a means not just for people to compete, but to cooperate with one another – cooperation being essential to freedom and leading to higher productivity, more output, and a greater standard of living.
If free markets work as a function of freedom, and this freedom promotes productive activities, economic growth can be thought of as the innumerable, voluntary actions of free people interacting towards productive ends. What the president should do to spur economic growth in the aggregate, therefore, really becomes quite obvious: return to policies that “free up” markets. This involves, but is not limited to, dismantling the regulatory infrastructure embedded in the United States, eliminating policies that destroy freedom of choice, and returning to the principle of profits and losses, i.e. no more bailouts and other government intervention. Specifically, eliminating subsidies, abusive taxes, price controls, and wealth reallocation will restore both freedom and economic growth in the United States.