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The Market, Or The Welfare State

by Paul L. Poirot for the Foundation For Economic Education

The open market is a highly vulnerable institution, for it rests primarily upon faith that each individual may dispose as he chooses of whatever is his own and that he will not coerce, defraud, or otherwise forcefully interfere with other peaceful persons.

In air terminals one may note signs to this effect: "Paying Passengers Only Beyond this Point." In other words, the object is to exclude free riders, stowaways, bunko artists, saboteurs, hijackers, or worse. Passengers and baggage may be screened against weapons. The open market is something like that — wide open to all willing sellers and buyers, but hopefully closed to anyone who would exercise coercion to gain something for nothing.

Note carefully, however, the price of admission to the open market. It is not free — that is, the goods and services are not free for the taking; they are economic resources, which are scarce and valuable enough to be worth owning. In other words, the price of admission to the open market is the ownership of something customers are willing to buy or receive in exchange.

Alongside the gate to the open market, however, is another entrance which many have found enticing. Behind it lies the Welfare State and the allure of something for nothing.

The owner of any scarce and valuable resource is always in a serious minority situation, possessing what so many others would enjoy having; they can easily muster an overwhelming majority to take his property if he doesn’t give it to them. And this is precisely the manner in which the larder of the Welfare State is stocked. Organized interest groups prevail upon the tax collector to take some or all of the property from those who would enter the market, thus providing the goodies dispensed to welfare clients.

Superficial observation of those entering the gates of the market indicates that many are coming empty-handed, with no property to trade. But closer inspection reveals that what such a person brings are his hands — his labor —always scarce and always valuable, property which he can trade for the things more valuable to him than his leisure.

Marketing One’s Labor

The nature of human labor does present marketing problems. Its value is quite variable, it lacks uniformity, it is perishable, not easily transported or stored. These shortcomings are especially conspicuous in international trade where citizenship requirements, immigration restrictions, language differences, racial prejudices, and national customs more or less close the market to foreign laborers. Furthermore, there are vast differences in the skill various laborers bring to a particular job — or the skill required for the job. One man’s labor may or may not substitute satisfactorily for that of another — or it may serve in one situation but not in others.

So, what the laborer especially among market participants urgently requires is a reliable medium of exchange, a wage paid in money that can readily be traded to satisfy his wants — even across national boundaries. Yet, so uncertain and variable are the qualities of labor that a viable market economy begins to evolve only as men develop tools and skills and become specialists in various productive activities and occupations. This increases the incentive for exchange, and increasing specialization and trade increases the need for money, that is, for a commodity more acceptable in trade than are most other goods or services. Thus do market activities lead to the development and use of money, because it facilitates trade. And chief among the beneficiaries of a market-originated monetary system are the laboring poor who have nothing to sell but their services. With money, they can pull supplies through barriers which they could not negotiate in person. Thus is a man’s range of choice expanded, thus are multiplied his opportunities for self-improvement — all within the context of the open market and its monetary system.

"Rising Expectations"

This growing affluence, of course, has not escaped notice by the seeker of something for nothing. His increasing envy is sometimes referred to as "rising expectations." Pressure upon the tax collector to "soak the rich" builds to the point of soaking every participant in the market, every owner of property, including the laboring poor. There is no better illustration of this tendency than the regressive income tax collected in the name of social security. Every employee engaged in "covered employment" —which includes almost every job and every worker — is subject to a tax of 11.7 per cent on the first $12,600 of his annual earnings. (That higher base takes effect January 1, 1974.) Earnings above that amount are exempt from the social security tax — which means that the effective tax rate for a wage earner in the $25,000 bracket is only half the rate for a worker earning the minimum or less. What the tax collector withdraws from the wage earner in the market is then siphoned into the coffers of the Welfare State. Thus is the worker tempted to leave the market promptly at age 65.

There is another law which bars from the market any laborer unwilling to earn, or incapable of earning, the "minimum wage." The coercive activities of labor unions also have the effect of closing the market. But there shall be no attempt here to explore in detail the countless ramifications and manifestations of governmental intervention parading as welfarism.¹ The one further aspect that should be mentioned again, and further examined, pertains to what the government has done to our money.

We have seen how important it is to all traders, and especially to the seller of his own labor and skill, to have a market-originated and market-regulated medium of exchange. But the trader’s purpose and use for money is by no means the same as that of the person who wants to regulate and control how other people are to live and act. The tax collector has no intention of earning the property he takes from the market. His object is something for nothing; and in monetary matters the most instant process is to create a fiat money and declare it "legal tender" in place of the money chosen by traders.

Perhaps the best definition of a trader is "one who is gainfully employed." One simply does not voluntarily trade unless he sees gain for himself in the transaction, especially so if he is to receive money in exchange, whether it be in cash or as credit. So, the trader wants money that will either advance in purchasing power or at least hold its own while in his possession. But in any transaction involving credit, the debtor would be delighted to pay later in depreciated legal tender. So the deficit-backed dollars pumped into the market by the Federal government seem for a time to be sheer debtor’s delight, affording something for nothing. However, bad debtors drive creditors from the market. Who wants to try to trade with a dead beat? As Gresham expressed it: "Bad money drives out good." In other words, fiat money tends to dry up the market — first at the level of international trade (our government can not force foreigners to accept our legal tender) and eventually domestic trade as well. Traders retreat to barter, and further back toward self-subsistence. And those who stand most to lose from the closing of the market are the laboring poor. Unable to sell their services, they are reduced to serfdom or slavery.

There comes a time when a man must stand — alone, if necessary —in defense of the open market and the trader’s opportunity to be gainfully employed.

Revolt Against Nothingness

The great task of the present age, in the field of morality, is to convince common men (uncommon men never fell into the snare) of the inane foolishness which envelops this urge to revolt, and make them see the cheap facility, the meanness of it; even though we freely admit that most of the things revolted against deserve to be buried away. The only true revolt is creation — the revolt against nothingness. Lucifer is the patron saint of mere negativistic revolt.

This article was originally published by the Foundation for Economic Education (FEE) in The Freeman on October 1973, Volume 23, Issue 10.


About The Author

Paul L. Poirot, editor, The Freeman, 1956-1987. The Foundation for Economic Education (FEE), one of the oldest free-market organizations in the United States, was founded in 1946 by Leonard E. Read to study and advance the freedom philosophy. FEE's mission is to offer the most consistent case for the "first principles" of freedom: the sanctity of private property, individual liberty, the rule of law, the free market, and the moral superiority of individual choice and responsibility over coercion.


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