Ten Things that Guarantee a Free Market

Ten Things that Guarantee a Free Market

“Free markets depend upon the moral profile of those who participate in them.”

It is so often assumed that a free market economy functions on its own. Some claim that it is enough to establish the means of exchange, assure the security of contracts and the market will be put in motion and thrive.

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However, that is not the case. Free markets depend upon the moral profile of those who participate in them. In his book, A Humane Economy: The Social Framework of the Free Market, economist Wilhelm Röpke points out ten elements needed for free markets to flourish. They include:

1. Individual effort and responsibility.

2. Absolute norms and values.

3. Responsibility for planning one’s own life.

4. A proper coherence with the community and family feeling.

5. A sense of tradition and the succession of generations combined with an open-minded view of the present and the future.

6. A proper tension between individual and community.

7. Firm moral discipline.

8. Respect for the value of money.

9. Courage to grapple on one’s own with life and its uncertainties.

10. A sense of the natural order of things and a firm scale of values.

Taken from Wilhelm Röpke, A Humane Economy: The Social Framework of the Free Market, Chicago: Henry Regnery Company, 1960, p. 99.

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Hatred of Intermediary Associations

Hatred of Intermediary Associations

“In 1791, the French Revolution abolished guilds and trade corporations.”

Throughout modern history, there is a constant hostility toward those associations that act as a buffer between the individual and the State.

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Distrust of intermediate social bodies can already be seen in Hobbes’ support of the strong State in his book Leviathan. Rousseau did not hide his own dislike for “partial associations” (See Jean Jacques Rousseau, “The Social Contract,” in Montesquieu, Rousseau, vol. 38 of Great Books of the Western World, p. 387).

In 1791, the French Revolution abolished guilds and trade corporations. It later imposed the infamous Le Chapelier law, which, under the pretext that no corporation should stand free subscriptionbetween the individual and the State, forbade the establishment of intermediate associations. Napoleon broadened and systematized such laws when, in 1810, he extended the prohibition to include any association of over twenty persons. An uproar led to progressive relaxing of these restrictions. The controversy continued until the laws were repealed at the end of the nineteenth century.

Taken from Return to Order: From a Frenzied Economy to an Organic Christian Society—Where We’ve Been, How We Got Here, and Where We Need to Go.

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Flying with the Hacker

Computer Hacker

“When we hack down the moral firewalls that restrain us, we also take down the supporting pillars that prevent society’s collapse.”

Internet security has left me with many concerns, especially as I meet more and more people who have had their accounts hacked or vital information stolen. Despite all the security measures companies may take to keep bad people honest, the sad fact is there are plenty of people out there who break into these systems and make our lives miserable.

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The typical response of the industry is to heap on ever more complex security and firewalls. However, I believe that the best firewalls are the moral firewalls inside souls that recognize the distinctions between good and evil and lead us to act accordingly. When those moral walls go down, there really are no possible means to keep everything secure.

My security concerns were only confirmed during a recent plane trip. As I made my way down the aisle to my seat in the aircraft, I saw a young, bearded, twenty-something man next to my seat. I noticed his bubbly temperament, which almost guaranteed an in-flight conversation. I also noted that he was incredibly adept at manipulating his iPhone.

True to my expectation, we soon engaged in a conversation after takeoff. I introduced myself as a writer and he promptly identified himself as a hacker.

A hacker? Yes, but, of course, he was a “good” hacker that works on the other side of the hacking equation. He is paid by companies to hack into their systems to verify their security measures.

The hacker was an amiable fellow, but he was all nervousness as he constantly fidgeted with his devices. He spoke incredibly fast as it seemed his mind was working much faster than his ability to speak. It was as if he were all impulse. Over the course of our conversation, he explained his hacker’s creed to me — a philosophy of life apparently shared by many fellow hackers on both sides of the equation.

Hackers, he explained, question everything, doubt everything and are irreverent to all that is sacred. They trust no one and decide everything by their own standards. They live life intensely, as if that is all there is and hence do not acknowledge any religious considerations. They accept only those limits needed to survive in a frenzied world and are constantly pushing the envelope.

Such a creed only facilitates the task of hacking, since it creates in the person an obsessive desire to break down barriers and challenge all structures. When I asked the hacker what kind of systems he hacked, he replied not without a little pride that he had entered all sorts of systems almost with impunity. He entered one banking system and removed $100,000 and reconciled the ledger without the bank noticing. He even hacked a railroad transport system and commandeered a freight train from his laptop. Hackers, he claimed, could bring the whole system down if they so wished.

I then asked him why, if it could be done, the hackers did not take the system down. He replied that hackers fear severe legal penalties, especially in the post-9/11 world. He also claimed the best hackers (like him) are very well paid by the business establishment.

However, I found these answers a bit unconvincing since they do not include terrorists, anarchists, and enemies who are constantly probing our systems and making our world a dangerous place.


“Such moral firewalls, weak though they may be in the souls of postmodern men, are still our best and only defense against chaos.”

The better answer came when I asked why he, in particular, did not so bring the whole system down, since the hackers’ creed pretty much allows and even encourages such behavior. And then a moral firewall kicked in. Although he found it hard to define right and wrong, he said he felt it would be wrong to do something of this nature.

Such moral firewalls, weak though they may be in the souls of postmodern men, are still our best and only defense against chaos. Just as no police force in the world can prevent a whole population intent upon stealing, so also no security system can stop a network of unscrupulous hackers determined to create cyber chaos. Moral restraint on the part of most people keeps society in order. Remnants of such restraint hold back even the hackers from bringing on Armageddon.

I was struck how the hackers’ creed was consistent with the frenetic intemperance of our culture which likewise accepts no restraint and breaks down barriers. Not only our computer systems are at risk, but all modern-day systems — whether financial, infrastructural or educational — are vulnerable when moral restraint is gone. The more complex and interconnected our systems become, the greater the risks when they fail.

When we hack down the moral firewalls that restrain us, we also take down the supporting pillars that prevent society’s collapse. That is why a return to order is only possible when the moral issues are debated. If everyone adopts the hackers’ creed, society will be like a commandeered train heading toward the cliff.

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Why Economic Efficiency Is Not Enough

R.H. Tawney, Why Economic Efficiency Is Not Enough

British economic historian R. H. Tawney

British economic historian R. H. Tawney argues that economic efficiency cannot be the only criteria of judgment for the well being of society. Undoubtedly, every “sane and vigorous society” needs efficiency and those who deny this are but “incorrigible sentimentalists.”

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However, the noted scholar wrote that “to convert efficiency from an instrument to a primary object is to destroy efficiency itself. For the condition of effective action in a complex civilization is cooperation. And the condition of cooperation is agreement, both as to the ends to which effort should be applied, and the criteria by which its success is to be judged.” (R. H. Tawney, Religion and the Rise of Capitalism, New York, N.Y.: Harcourt, Brace and Company, 1926, p. 283)

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Will We Ever Learn? Subprime Lending Is Back!

sunset lone manIn 2008, the nation was hit by a financial crisis brought about by mortgage loans to those with low credit scores. For years, the country has struggled to recover.

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However, it now seems nothing has been learned: subprime lending is back with a vengeance.

It is true that the type of loans has changed. Lenders are staying away from mortgages. Last year, subprime mortgages accounted for a mere $4 billion compared with the 2005 high of $625 billion.

But lenders are quickly expanding their reach into other areas.

During 2014, an estimated 40 percent of auto, credit card and other loans went to subprime customers. This involved more than 50 million loans worth some $189 billion. This is the highest number of non-mortgage loans since 2007 when 41 percent of consumer lending went to subprime consumers.

With the rollout of subprime loans, new types of nonbank lenders have appeared on the scene that can target the subprime sector. Because they are outside the traditional banking establishment, the new lenders avoid the regulatory scrutiny generally applied to big banks. Many are brand new firms backed by venture capital or hedge funds seeking higher returns on investment.

The new subprime lending is disturbing. Such a trend represents what might be called the “frenetic intemperance” of the times when sound economics is sacrificed to short gain gains. It is easy to blame lenders who extended easy credit to risky prospects. However, blame must also be assigned to consumers who overextend themselves to buy that which would be better postponed until later.

Lenders and borrowers alike are consumed by the desire to throw off restraint and engage in unwise lending and spending. They are struck by the illusion that this particular credit bubble will not burst – at least not on their watch. The reality is that such patterns of consumption always represent an unbalance in economy that often ends in crashes and default. Like the 2008 subprime mortgage crisis, everyone pays in the end.

But tragically some analysts do not see any problem with such lending. They even see it in a positive light since the willingness to take on more debt is, for them, a sign of growing confidence in the economy. Likewise, banks which extend such loans express a similar confidence by being more willing to take on greater risks. Meanwhile, household debt has returned to pre-2008 levels. In the fourth quarter of 2014 alone, it increased $306 billion.

What is forgotten is that the subprime borrowers are the hardest hit when a financial crisis appears. They pay much higher interest rates (sometimes as much as 30 percent) than those with good credit ratings. They are much more likely to miss payments at the first sign of a downturn. The upstart subprime lenders also are the hardest hit in times of crisis. They frequently file for bankruptcy and leave the economic arena when the going gets rough. All this has repercussions down the finance chain from lenders to security bundlers to investors as was seen in 2008.

Such a bloated debt burden also gives a false picture of the American economy.

Many economic indicators may be up, but debt obligations help create illusions. A case in free subscriptionpoint is the explosion of auto sales which many say is an indicator of a more healthy economy.However, much of the upturn is fueled by easy financing. The boom in car sales could go bust quite easily when the party stops. The “party” is the real problem.

Easy credit to those least able to pay is the telltale sign of a party economy. It represents a culture of unrestraint that does everything to extend the party and not consider the future. Until America understands this hard reality and returns to order, the lessons of 2008 seem doomed to go unlearned.


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The Decline of Social Involvement in America

girl in cart self checkoutThe decline of social involvement has been noted as a universal phenomenon in America. Especially since the sixties, Americans are less involved in civic associations that serve to bind people together with ties of trust and confidence. Such a decline is pulling American society and economy apart.

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Sociologist Robert Putnam notes that “virtually no corner of American society has been free subscriptionimmune to this anticivic contagion. It has affected men and women; central cities, suburbs, and small towns; the wealthy, the poor, and the middle class; blacks, whites, and other ethnic groups; people who work and those who don’t; married couples and swinging singles; North, South, both coasts, and the heartland.” (Robert D. Putnam, Bowling Alone: The Collapse and Revival of American Community, New York, N.Y.: Simon & Schuster, 2000, p. 247)


What Happens When Money Becomes the Primary Concern

When Money Becomes the Primary ConcernWhen money becomes the primary concern, it creates a dynamism of its own by empowering banks and other financial institutions to expand the money supply.1 This rule encourages many financial institutions to develop complex new financial products, credit innovations, and speculative instruments that enable them to profit from a tense climate of boom or bust. A central bank, as lender of last resort, can reinforce such risk-taking since it is often left to pick up the pieces by bailing out overextended institutions popularly deemed “too big or important to fail.”

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The creation of easy money leads to a situation where the money supply no longer corresponds to that which is needed for the normal exchange of goods and services that should characterize a sound economy. Instead, it leads to enormous amounts of money being used for speculation, leveraging risks, and investment bubbles that make frenetic intemperance possible, if not inevitable.

Such a system invites crises. As Mervyn King, then-governor of the Bank of England, noted in 2010: “Banking crises are endemic to the market economy that has evolved since the Industrial Revolution. The words ‘banking’ and ‘crises’ are natural bedfellows.”2

“Although many now-advanced economies have graduated from a history of serial default on sovereign debt or very high inflation,” write Carmen Reinhart and Kenneth Rogoff, “so far graduation from banking crises has proven elusive. In effect, for the advanced economies during 1800-2008, the picture that emerges is one of serial banking crises.”3

Excerpt from Return to Order: From a Frenzied Economy to an Organic Christian Societyfree subscription —Where We’ve Been, How We Got Here and Where We Need to Go by John Horvat II

1 One way this is done is through fractional reserve banking, where banks give loans with only a fraction of cash reserves to back them up.

2 Mervyn King, “Banking—from Bagehot to Basel, and back again,” BIS Review 140 (2010): 1.

3 Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, N.J.: Princeton University Press, 2009), 141.

The Importance of Trust in Business

when men calmly carried out their tradesEveryone knows that doing business requires production facilities and consumers who will buy wares. However, the cost of production cannot only be computed in terms of labor and materials. There is a social component to production which sociologist call social capital.

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Prevalent social norms and sanctions often serve to reduced costs by creating mechanisms of trust. Such measures reduce the need for expensive contractual arrangements, facilitate decision-making and supplement formal legal contracts.

Sociologist David Halpern notes that social capital is not only the domain of small free subscription businesses and more personal trade groups. He writes: “It is noteworthy that even in the toughest and most competitive financial centres of the world, much business continues to be conducted largely on the basis of trust relations and successful traders work hard to maintain this trust.” (David Halpern, Social Capital, Cambridge, U.K.: Polity Press, 2005, p. 45)

Why Johnny Can’t Sled Anymore

Coasting out of doors Boston Public LibraryIn the midst of this cold winter, I chanced to come upon a scene that gladdened my heart. It was a group of unsupervised boys sledding down a hillside. They weren’t only sledding. They were ramming into other sleds. At the bottom of the hill, they pushed each other down, rolling and tumbling in the snow. They threw snowballs at each other, all the while yelling and carrying on. The boys were just being boys, having a good old time in the process. I was thoroughly entertained by the spectacle, remembering scenes from my own youth.

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I was also edified by what I saw because in that scene there were all sorts of lessons being taught outside the politically-correct classroom. Here were boys joyfully defying the gender police by naturally exhibiting that aggressive and manly behavior that makes them different from girls. I saw them developing and honing social skills like conflict management and alliance making. In the rough and tumble, the boys also learned that acts have consequences that sometimes hurt and require one to measure risks and avoid undue dangers. In that short episode in their exuberant lives, the boys learned about life with all its joys and sufferings.

The scene also saddened me by the fact that such scenes are becoming ever rarer. The lessons are deliberately left untaught. Boys must no longer be stereotyped as boys (even though they are boys). Thus, they cannot engage in fighting and scuffles. It is better to be tethered to electronic devices which are considered much safer than zipping down hills.

This conclusion really hit home when I read that many cities all over the country are banning sledding at public parks. It’s just too dangerous. They are also closing down the hills because of liability concerns.

Cities like Dubuque and Des Moines, Iowa; Lincoln, Nebraska; and Columbia City, Indiana now prohibit or restrict sledding on public property. In Paxton, Illinois, officials even went to the point of bulldozing down its sledding hill to keep playful children off. Many cities have been hit with multi-million dollar lawsuits from sledding accidents.

Of course, children can be injured by sledding. No one denies this fact. Children can be injured in just any kind of intense physical activity. But the likelihood that any one of the nation’s 75 million children will be injured by sledding is measured in the low hundredths of a percent, many of which will be minor incidents. Such accidents are part of growing up. It does not exclude tragic accidents which will always be with us, since no civilization has ever been able to eliminate them.

However, “dangerous” activities like sledding serve a purpose. When children are exposed to small dangers, they then know how to deal with real dangers when they confront them later on in life. They learn how to gauge the risks involved and react accordingly. They need to learn from a very early age that acts have consequences that often hurt. Parents do their children no favors when they seek to eliminate all reasonable risks from their paths. They fail to see that the innocent fun found in sledding or rough physical activities connects the child to reality and helps him deal with future problems in a natural and organic way.

The real tragedy is that today’s youth are offered a contrary program. Instead of sledding, many children are often exposed to the frenetic intemperance of alternatives that help them disconnect from reality. While other children are “dangerously” playing in the snow, they will be engaged in video games full of all sorts of violent and risky activities — that have no concrete consequences. They are free to gun down, run down, and mow down anyone in their path to gain points or advance the game. While others play unsupervised, these “safe” children will often be watching alone (and also unsupervised) movies and programs full of violence, profanity and sexual encounters – all at the click of a mouse. With such lessons being taught, should parents wonder why their children cannot deal with life’s problems?

Overprotected from the real world, these unfortunate children are immersed in an unreal free subscriptionworld where boys cannot be boys, and girls cannot be girls. All must be safe and sterile. Every physical risk is avoided while every moral danger is embraced and marked by an intolerable tolerance. Such a world stifles wonder and spontaneity. Indeed, it is a dangerous world when Johnny cannot sled anymore.

Contrasting Living Beings with Machines

Charleston Belle Epoch RefinementMany authors have compared a living being with a machine to show the contrast between an organic society and an individualistic or mechanistic society.

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Indeed, compare the two. A living being grows and develops at its own speed according to its own inner dynamism and force that comes from the life of each cell. A machine is inert, operates at a determined speed, and always needs an external force or motor to make each piece move or act. Because they are part of the living organism, individual members or organs grow, change, and continually renew themselves in union with it. A severed arm, for example, cannot long survive separated from the whole body. In contrast, spare parts can exist outside the machine and be used interchangeably with others. No machine part can renew itself from within the mechanism; defective parts must be replaced.free subscription

To apply this to social terms: In an organic society, a person is treated as an integral part of society; in a mechanistic society the individual is an interchangeable cog in an organization.