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January 25, 2005

On the Incredible Utopia
That is the Free Market

R.J. Rummel

Many see capitalism -- the free market -- as the incarnation of greed. These critics see entrepreneurs and business people as being out only to make a profit, and economic competition as nothing more than capitalists climbing over each other to profit from the poor. Such critics want an economic system wherein each tries to help others and provide for their needs, rather than people trying to get rich at each other's expense -- a view that lies at the root of much leftist and socialist thought today. Even many that strongly support a free market see greed as its driving force. This not only gives ammunition to the enemies of this freedom, but also mischaracterizes it altogether by reference to something that is an aspect of the system and not its central, psychological dynamic.

Imagine a utopia where people are highly motivated to provide services and fulfillment to others, usually total strangers. They see this as being in their own self-interest. Many of these people also spend sixty to seventy hours a week trying to provide such services. Also imagine -- unbelievable as it may seem -- that in this utopia some of these people spend their life savings and borrow huge sums of money to discover or provide new things that they believe other people might want. That is, in this society the chief preoccupation of people is to satisfy the wants of others, or to determine how they might do this, and do so with the least expense to those getting the services or goods.

Such an unbelievable other-directed society does seem utopian. But if we could have such a society, would it not be inherently moral? Is this not the dream of many communitarians, philosophers, and theologians -- that people spend their time, energy, and resources to provide others with what they need and want?

This utopia does exist. It is the free market. Lawyers, doctors, teachers, intellectuals, writers, authors, journalists, computer programmers like Bill Gates, movie stars, business owners, financiers, stock owners, and all other individuals making up the whole population comprise the free market, as do all large and small businesses. The automobile repair shop, the computer discount house, the Italian restaurant, the Chinese laundry, the small Catholic college, the mom and pop grocery store, and so on and so on, exist to give people a particular service. If this service is unwanted or the business charges too high a price, then it goes bankrupt. Moreover, entrepreneurs are constantly trying to invent new businesses or services that will fill some need or want not yet recognized by others. If no such want exists, or its fulfillment is not worth the cost, the businesses fail. Such working and striving to satisfy others is a moral ideal. That this is the essence of the free market is unappreciated.

Consider what Bill Gates and Paul Allen did before founding Microsoft. They spent unbelievable hours of their own time learning about computers and how to program them. This they were doing out of sheer interest, not because of greed. When they had learned enough, they began to satisfy the needs of others, particularly in helping to debug mainframe computer programs, and in writing their own programs to fill needs that others had expressed. When they started Microsoft, they wanted to sell software and make money, to be sure. But to do this, they had to speculate on what kind of software would most benefit the users of computers, and they had to make an initial investment of time and resources in writing it. If they were wrong, they lost what they put into the program. If they'd struck out enough times, Microsoft would have gone bankrupt. Microsoft succeeded, however, more than anyone dreamed possible, and the simple reason for this is that Gates and Allen, and then Gates alone, saw what people needed most, and worked to satisfy that need.

Years ago I wanted a good word processor to use in writing my books, and a spreadsheet program with which to do my analyses. Microsoft foresaw my need with very good software, and I bought their Word and Excel. I thereby contributed to Gates' wealth, to be sure, but I did this freely and received in return two programs I could not write, and which have made me far more productive.

Bill Gates and Microsoft are participants in a technological revolution that began in the eighteenth and nineteenth centuries, one that was really a revolution in freedom. As government loosened its stranglehold on national economies and foreign trade, as it allowed creative and enterprising people to produce new things, there was a surge in new inventions, new businesses, and the earnings and wages of the poor. Before this revolution, laws tied workers to a farm or manor and forced them to live the most basic and poorest of lives. They often faced the threat of starvation if a harvest was meager, if they lost or broke their tools, or if they were dispossessed of their land by the government or feudal lords. They wore the most basic and plainest of clothes and ate the simplest and cheapest food. The revolution of freedom liberated the poor from this kind of servitude, assured them of a basic wage, and enabled them to improve their consumption. Much to the complaint of the upper classes, who saw this as "putting on airs," the poor began to dress in better, more colorful clothes, and to eat a greater variety of foods.

All of us are the inheritors of this freeing of the market and the resulting technological revolution. The automobiles people drive, the televisions they watch, the movies they see, the cell phones they answer, the planes they fly, and -- exemplified by Microsoft -- the computers they use, all owe their development and availability to the free market. At a more basic level, we can best see the operation of the free market in the availability of an amazing variety of cheap foods for the poor and lower middle class. An American supermarket is a cornucopia of agricultural wealth, with choices of fruits, vegetables, meats, cereals, breads, wines, and so on from many areas of the United States and countries of the world. Similarly, department and hardware stores shelve, hang, and display a wide variety of goods. To see the results of freedom, you need only shop in any of democracy's stores.

Let's look at new inventions and innovations. Freedom promotes a continuous reduction of the cost of goods compared to the average wage, such that even the most complex and advanced products are available to the common person. An example of this is the rapid evolution of the handheld calculator.

When I was a graduate student working on my M.A. thesis in 1960, I had to calculate statistics on a large Monroe mechanical desktop calculator. I had to punch the numbers into it, move some switches to do a specific calculation, and physically crank it (like starting an old car) to get the results. By computer standards today, this Monroe was painfully slow and clumsy, but it was still better than doing the arithmetic by hand. I could calculate sums, cross products, and correlations, but it took me about two months and a sore arm to do all the necessary calculations. My university paid about $1,100 for the machine then, or about $6,408 in current money.

By the early 1970s, I could pick up a handheld Hewlett Packard electronic calculator that would do all these calculations and many more, such as logarithms and trigonometric functions, store one figure or calculation in memory, and function on a small battery. It cost about $400, or about $1,709 in today's dollars.

Now I can get such a handheld calculator for $10; paying slightly more will get me a calculator that will do much more than the obsolete Hewlett Packard. And for about $900 I now can buy a personal computer -- for example an iMac with monitor, keyboard, modem, CD drive, and an internal hard disk -- that has a capability undreamed of a mere decade ago and on which I could have done all the necessary calculations for my M.A. thesis in seconds, not months. This is comparable to the free market, through innovation and competition, bringing the price of a new automobile in 1960 down to the cost of a new shirt today -- which makes one wonder what the price of an automobile now would be without any government regulations on its production and quality.

I did my Ph.D. dissertation on the Northwestern University mainframe, a central IBM computer worth tens of millions of dollars in current money. It had a memory of 36 kilobytes and filled a huge, air-conditioned room with its blinking lights, spinning tapes, massive central processor, very slow printer, batch punch-card input, and bustling attendants. The whole atmosphere of computer, lights, air conditioned room, and all the rest created a feeling of almost spiritual mystery. To use this monster, I had to learn to write my own computer programs, and to change some of its functions I had to rewire part of the computer. That was in 1962 and 1963.

Today I sit before a flat seventeen-inch color monitor connected to a new Macintosh G5 that has one gigabyte of memory (nearly 28,000 times the memory on the mainframe), a 28.5-gigabyte hard disk, a DVD-rewritable drive, a modem, and a color printer. The total cost of all this was about $3,500. Incredible power at an unbelievably low cost compared to what I could have bought only one human generation ago. This is the fruit of freedom.

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