Today, the average American enjoys a standard of living that is virtually unmatched in history. For centuries, the majority of human civilization lived a basic hand-to-mouth existence; gathering, hunting, or farming the goods needed for survival. In many parts of the world this is still the case. What then have been the major contributing factors for economic progress in America? What makes our high standard of living possible?  

American prosperity was not the result of an edict from a king, decree from a pope, or redistribution of some static wealth from the haves of the Old World to the have-nots of a new nation. American prosperity was created; created by individuals homesteading new land, producing to the best of their ability, and exchanging goods and services voluntarily to mutual benefit. American prosperity was created by hard work and real savings. The availability of real savings allows for capital investment which enables an economy to exponentially augment its production capabilities.

It is important to note the reasons why Americans were able to amass real savings and invest capital at an unprecedented rate. Perhaps most importantly, the political and economic system in America has been largely structured in such a way that the rights of the individual have been respected. While not perfectly applied, the concept of individual liberty flourished in America and led to the abolition of slavery and advancements toward the equal treatment of races, religions, sexes. There is no question that we still have a long way to go. The concept that each and every man and woman has a right to his or her life, liberty, and property is still very new to human history and is far from being fully understood and upheld by most.

While the protection of individual rights has never been upheld in full consistency, having a sense of security that the fruits of labor would not be confiscated by the masters and feudal lords allowed the American entrepreneur to flourish. The American system has traditionally respected the individual's right to justly acquire, use, and dispose of private property (at least to a relatively high degree). The rule of law provides stable expectations, minimizes fear of unjust seizures, and helps to enforce contracts in an evenhanded manner. When people are left free to produce, trade, and innovate then limited resources are directed towards the fulfillment of the needs and preferences of the people in society. As Murray N. Rothbard explains:

“The productivity of the private sector does not stem from the fact that people are rushing around doing "something," anything, with their resources; it consists in the fact that they are using these resources to satisfy the needs and desires of the consumers. Businessmen and other producers direct their energies, on the free market, to producing those products that will be most rewarded by the consumers, and the sale of these products may therefore roughly "measure" the importance that the consumers place upon them.”

If the consumer behavior directs resources to their most preferred use through the process of the free market, then any interference in the market necessarily diverts resources away from their highest and best use leading to a relatively lower standard of living than would otherwise be enjoyed. Unfortunately, market interference has become the new American standard. Onerous taxes, regulations, subsidies, bailouts, and handouts are now the norm. Political pull has become more important than ability to serve customers on the market.

Many Americans today have incorrectly inverted the cause of prosperity with the effect. They believe that prosperity is not something that is to be created, but rather something to be redistributed. Most all Americans support policies of taking from the earned and giving to the unearned in one form or another. This primitive, irrational ideology of the Old World is still deeply ingrained in American culture. If we wish to avoid returning ever closer to the hand-to-mouth existence of our ancestors, it is a political system that tolerates violations of individual rights that must be fought.

Finally, we should recognize that the freedom of the market does not deliver some kind of perfect utopia, however in the span of a few generations enough real wealth has been created in America to allow even the poorest citizens to enjoy luxuries not available to kings a short time ago. We are able to enjoy these luxuries because we produce. The degree of economic progress is highly correlated to the degree that individual rights are protected.

The only social system that is conducive to a prosperous society is one that respects people as free and morally equal. The only economic system that respects individual human rights is one that operates by mutually beneficial voluntary exchange; not the compulsive force of government. We have flourished despite the onslaught of market interventions. It can only be imagined what level of prosperity would be possible to a free people liberated from the yoke of the political class.

In Liberty,

Jason Riddle

In 1983, I won the birth lottery. I was born at the end of the twentieth century in the greatest country in the history of the world. I was born of healthy body and mind to two loving parents who ensured I was provided with all of the grandiose middle-class luxuries that many in our society today take for granted as basic necessities. I never went hungry, though sometimes I would complain that our fridge was stocked full of healthy food while my friends feasted on delicious, processed junk!

As a child, I did not have to work in the fields, or in a factory, or on the streets to make ends meet. I would do my homework and then spend my afternoons on the baseball diamond perfecting my batting and fielding abilities. I was given a car on my sixteenth birthday (which I still drive today, thirteen years later). I was given a cell phone. I bought a guitar with the money I saved from my summer job. I received an academic scholarship that covered my college tuition. My parents paid for my living expenses, including my entertainment, during my four years at the university. Relatively speaking, I had it pretty easy growing up.

I obtained a position as a consultant at a global risk management firm upon graduation and earned a salary that allowed me to purchase a house and travel the world. The opportunities and experiences I have been afforded in my lifetime would make the great rulers of history rile with envy. King George III would be jealous of my summer vacations to Europe, Asia, and Central America, not to mention, my ability to enjoy the best food from around the globe on any given night of the week at local restaurants.

Emperor Caligula, in all of his mighty extravagance, could not imagine the marvelous riches I command to my doorstep with a few simple keystrokes. Heck, even Alexander the Great who learned under the tutelage of Aristotle, perhaps the greatest mind in the history of the world, would be awestruck at the access to information that I possess. Not only do I own the Complete Works of Aristotle, I can access the planet’s greatest libraries from the comfort of my living room.

I am not royalty, but I live better than kings and queens of the past. I would much prefer my DVR to an entire court of jesters. Thanks to the incredible advances in technology, I get to watch my high-definition LCD television with better than 20/20 LASIK-corrected vision.

Kings and noblemen lived in magnificent stone castles. I have central plumbing and climate control. I wouldn’t trade my backyard for the gardens of Versailles if it meant an August without air conditioning and a February without heat. King Louis XIV can keep his royal carriages, too. I travel in airplanes and automobiles.

It is amusing to think how much better I am living than history’s ruling elite. My family is not ruling elite. I come from average America. The choices available to the average person in America today could not be imagined by the aristocracy of a century ago. Stories similar to mine are common for millions of people around the developed world. We live far more lavishly and have far more opportunities than most all people that have walked the earth at any time throughout history; including the present day.

Next week I will consider a few of the factors that make it all possible.

In Liberty,

Jason Riddle

The price on the market for any particular resource emerges as producers and consumers compete for the resource's alternative uses – i.e. what has to be given up in order to obtain a scarce good for its highest subjectively valued use. It is important to remember the market is a complex series of events caused by the purposeful action of individual humans. It is not correct to say the market “sets” a price for goods. The very essence of every human action is change. As individuals act, their subsequent actions (including their valuations) change. For this reason prices refer to the price of a specific resource at that specific time based on the subjective valuations of the buyer and the seller.

Because individuals in the market are competing for scarce resources with alternative uses, prices emerging on the market provide vital information about the relative scarcity, surplus, and consumer demand for resources. It is only through the voluntary interactions of individuals participating in the market process that the relative importance for resources is determined and allocated based on the subjective preferences of consumers and producers.

• F.A. Hayek - "The Use of Knowledge in Society":  "...every time some small adjustment in the allocation of resources had to be made—go explicitly through all the relations between ends and means which might possibly be affected...In any small change he will have to consider only these quantitative indices (or "values") in which all the relevant information is concentrated; and, by adjusting the quantities one by one, he can appropriately rearrange his dispositions without having to solve the whole puzzle...this problem can be solved, and in fact is being solved, by the price system....Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coordinate the separate actions of different people in the same way as subjective values help the individual to coordinate the parts of his plan.”
  

Prices can also be artificially set and enforced by coercive central planning / regulatory agencies. Regardless of the well meaning intentions of central planners, artificial price controls deviating from the market price (such as minimum wage laws and rent controls) always moves away from the preferences of consumers in the market. Resources are diverted away from their highest and best use and the result is always a net loss to an economy. One group may benefit from the government-granted price controls to confer special privilege, but only at the expense of the group that did not receive such privilege.

Artificial price controls necessarily interfere with the essential role of prices in an economy (providing information regarding the relative subjective preferences of buyers and sellers in the market). The concepts of price and private property are inextricably linked. As Lew Rockwell notes, “...prices simply cannot do their work apart from private property and concomitant freedom to contract.”

Private property is a prerequisite for market prices. Market prices are the way buyers and sellers communicate knowledge and information regarding the preferred uses of scarce resources. Not only is coercive price control a violation of property rights, but, economic calculation is not possible without private property and prices.

• “[Prices] are the exchange ratios of various goods, which result from the voluntary interactions of distinct individuals based on the institution of private property. Without the institution of private property, the information conveyed by prices simply does not exist. Private property is the necessary condition—die Bedingung der Möglichkeit—of the knowledge communicated through prices.” - Hans-Hermann Hoppe

Once we understand the importance of market prices, we quickly see how destructive it is for central planners to artificially fix prices. The fact that one of the chief tasks of the Federal Reserve is to fix the price of money strikes me as a recipe for economic disruption. History seems to validate.

In Liberty,

Jason Riddle