On Free-Enterprise

Nobel prize-winner Milton Friedman stated that history clearly and unequivocally proves that there is (so far) no better system for the prosperity of the individual than free enterprise. Free enterprise includes any activity of free trading of goods and services between individuals or groups with minimal or no outside interference. Such activities could be thought of as natural to humans seeing that they reach all the way back to the first human settlements. In the beginning, they mostly included the trading of goods – an individual has something to offer in exchange for something he needs - and later it developed into what is now known as capitalism. It is important to note, therefore, that free enterprise is not the same as capitalism which began as a system in the 15th and 16th centuries during the Renaissance when the world started to get globalized through wide-reaching and long-distance travels with the goal of acquiring new products and capital. In other words, the way in which free enterprise developed into capitalism was by expanding the monetary endeavors to a point where large-scale financial institutions such as banks, insurance companies, and stock markets had to be organized. To illustrate this expansion, one can imagine planning a trip to another side of the globe in the 16th century; it had to include security from attack, insurance of weather disasters, organization of the buyer-seller relationship, enabling of investment in the voyage, etc. To be able to cover all of that, it was a logical step for people to develop companies that will professionally provide those services.

So, what are the benefits of capitalism and free enterprise? While there are many of them, and in many different aspects, only a few will be covered here.

 Firstly, the rules of functioning of a free enterprise minimize the inclusion of governmental decisions which makes them more durable and resistant. This being the case as minimized human interference limits the possibility of error and unintended consequences (at least to the extent possible in a given situation) which allows the system to function and develop despite the possible rough patches that lurk under any state. To illustrate the complexity of the economic system of a state, let alone the economy of the world which is probably the right unit of analysis considering the current point of globalization, and the human inability to take every necessary factor into account, one needn’t look further than the countries that adopted different economic systems than capitalism through history. Even if we currently close our eyes on their ever-present tendency towards totalitarianism, what usually happened as time passed by was that they had certain products in abundance while lacking others. This being so as their centralized system relied on the government to predict how much of what would need to be produced as opposed to getting that information through the healthy and direct way of supply and demand. What is more, even if one could imagine a government with perfect knowledge of the world economy and the needs of its population (which one shouldn’t do because utopias inevitably lead to dystopias), the human bias and corruption would most certainly interfere with the decisions and cause errors in judgment as well as discrimination. The Popperian argument against giving too much power to any political organization is equally useful in the economic sphere as the danger of the human propensity to turn corrupt once too much power is received is just as important in economics as it is in politics. Unfortunately (or not?), human knowledge, as well as human nature, is too fallible to base an economy, with all of its complexities, on it. Economic systems must, therefore, be automatized and left to develop on their own with the people in charge only ensuring a healthy and competitive landscape for them to prosper.

Endangering free enterprise also endangers the concept of meritocracy which is a necessary precondition to prosperity and development. In the words of the great Adam Smith, people should be left alone to take care of themselves and their families with their own personal ingenuity. By doing that, they will inevitably, even if they’re not aware of it, be guided with an invisible hand to develop society as a whole as well. Accordingly, letting people freely compete will create a hierarchy of competence through which the best of the best will form at the top and will be allowed to create more and more goods. Such a hierarchy is a precondition of prosperity as it allows to distinguish those who can solve problems from those who can’t and encourage the former to do so by monetary reward (the discussion on the socialist opposition to hierarchies will be avoided here as the text only focuses on the hierarchy of competence and sees one of its outcomes -namely, the financial inequality – not as an outcome reserved for that particular system, but something that happened in every other system in history as well). Solving problems is, of course (despite what the radical socialists would want you to believe), beneficial for everyone – even the ones at the bottom. John Locke, one of the fathers of laissez-faire economy, actually incorporated morality and care of the weakest into his economic system by stating that the system must pull everyone up, even the ones at the bottom, to be called fair and worthy. The often posed dichotomy between morality/humanity and financial profit becomes a non-starter as soon as one works the problem out completely; in order for someone to create a product of monetary worth, he must first take into account the needs of others seeing that the more problems a product solves, the better it is (and the better it sells). Hence, morality is embedded directly in capitalism itself. Taking a glance at the financial wonders western capitalism has created during the last 100 years (some of which can be found here: https://www.humanprogress.org/40-ways-the-world-is-getting-better/, even though such miracles aren’t known by the majority as they escape the usual mainstream news – reasons for which will not be discussed here) should be enough to prove these statements in practice.

Ensuring everyone can benefit from their skills and labor, being open for criticism and allowing adjustments without the whole system collapsing, creating a vast array of possible choices of products and services (and with that, enabling to dispense with those which are bad and corrupt), maximizing the pool of potential buyers/sellers, focusing on efficiency rather than political/societal/familial relationships that create unfairness (in fewer words; limiting discrimination), freedom to individually choose one’s area of work, being one of the factors that allow political freedom (by ensuring freedom of choice in all of the aforementioned activities), etc. are some of the others advantages of capitalism, but probably the most efficient one is the fact that we certainly don’t have a better system conceived as of yet. Maybe one day we will, but until then, the burden of proof is laid upon those who advocate against capitalism to show which alternative (and why) would be better. Hopefully, that model will take into account both the erroneous nature of humans and the limits of human knowledge with a lot of humility. Until then, we will continue to enjoy the benefits of capitalism while celebrating the fact that the world is economically (among other things) at the best place it has ever been thanks to the current economic system.