Research Reports: April 4, 2011
Markets Can Ease the Food Crisis
With proper incentives, developing nations can profit from higher prices.
by Craig J. Richardson, PhD, Visiting Research Fellow
Higher Tax Rates Won’t Fix Deficits
History has shown that increasing the tax burden of the rich would have little impact on cutting the deficit. Instead, it slows growth.
by Julie Ni Zhu, Research Intern
Ask the Expert: Health Savings Accounts
by Kevin T. McGrath, CPA, a tax partner with BST Advisors, LLC.
Business-Cycle Conditions, April 2011
The Consumer Returns, But Timidly
People are spending more and cautiously borrowing. But no clear engine of growth has emerged to drive the still-modest recovery.
by Polina Vlasenko, PhD, Research Fellow
RR20110404
History has shown that increasing the tax burden of the rich would have little impact on cutting the deficit. Instead, it slows growth.
by Julie Ni Zhu, Research Intern
Ask the Expert: Health Savings Accounts
by Kevin T. McGrath, CPA, a tax partner with BST Advisors, LLC.
Business-Cycle Conditions, April 2011
The Consumer Returns, But Timidly
People are spending more and cautiously borrowing. But no clear engine of growth has emerged to drive the still-modest recovery.
by Polina Vlasenko, PhD, Research Fellow
RR20110404
People are spending more and cautiously borrowing. But no clear engine of growth has emerged to drive the still-modest recovery.
by Polina Vlasenko, PhD, Research Fellow RR20110404
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Free Competition Is Voluntary Cooperation
From the viewpoint of anyone who is considering all the economic activities of a social group, “free competition” is another name for voluntary cooperation. This may seem a surprising statement, especially in modern times when many advocates of cooperative enterprise are criticizing competition and the profit motive. That cooperation is the opposite of competition seems to be generally assumed. However, careful analyses of the economic activities for which these words are names reveal that “free competition” and “voluntary cooperation” are two different names for the same economic behavior.
Sometimes the specific use of a word becomes plainer when placed in contrast with that which is not referred to. This step in the analysis is especially important for the word “competition” because it is so often associated with war. Phrases such as the “wasteful warfare of competitive enterprise” or the “commercial war” are common figures of speech. In order to avoid this seriously misleading association of ideas, the vital differences between free competition and war must be considered carefully.
Competition vs. War
Reference to any standard dictionary and brief consideration of the customary uses of these words facilitate explaining the association of competition and war. Webster’s International Dictionary (Second Edition) includes in its definition of competition the following phrases: “the act of seeking what another is endeavoring to gain at the same time; common strife for the same object; strife for superiority; rivalry for a prize.”
The word “competition” is common in describing sporting events of one kind or another. In this connection, common usage speaks of the winner, perhaps identifying him as the recipient of a prize; and his rivals in the contest are said to have been defeated. The words, win and lose, victory and defeat, also are associated with war. Armies march on to victory or defeat; and to the winner go the spoils of war, a circumstance that tends to make war even more closely associated with competition for prizes.
That most human beings have formed the habit of associating ideas long has been noted. Only those individuals who develop the additional habit of discrimination necessary for scientific analysis can successfully avoid the fallacies that may be introduced when conclusions are drawn from a careless association of ideas
Therefore, one can readily understand how the close association of such striking ideas as winning, losing, victory, and defeat should have encouraged the generally accepted notion that competition is analogous to war.
When a specific definition of war is used, the difference between it and competition becomes more clear. Webster’s first definition of war is “the state or fact of exerting violence or force against another.” In this connection, of course, “violence” is used in its most extreme sense. Every war that has been fought has proved again that there cannot be any Marquis of Queensberry rules for war.
Therefore, war is essentially different from free competition. In games, and even in the prize ring, unrestricted violence against the opponent is never permitted; whereas in war it is the accepted mode of conduct. As everyone knows who has trained soldiers for the battlefield, much of the training period is devoted to overcoming acquired habits of fair play, to teaching that a blow below the belt is not only permitted, but is essential to victory. What could possibly be farther removed from free competition?
The distinction between warfare and free competition becomes even more sharply defined when the dictionary’s use of “competition” in connection with economic problems is considered. The definition is: “the effort of two or more parties, acting independently, to secure the custom of a third party by the offer of the most favorable terms.” Restating the definition for war emphasizes the contrast: “state or fact of using violence against another.” These more precise applications of terms reveal that writers who associate free competition with war seriously mislead their readers as well as themselves.
We know, then, that competition is not analogous to war, but that of course does not prove the opening assertion, “From the viewpoint of anyone who is considering all the economic activities of a social group, ‘free competition’ is another name for voluntary cooperation.” Inasmuch as the behavior named “competition” has now been somewhat clarified, the next step is to analyze the actions described by the word “cooperation.” Also to be made clear is the significance of “voluntary” as contrasted with “involuntary” cooperation.
Voluntary vs. Involuntary Competition
The word “cooperate” is simply defined as “to act or operate jointly with another or others.” Usually a common objective is implied, such for example as their mutual benefit. Therefore, although two or more parties are involved in a war, the fact that all concerned are using violence against others does not make them joint operators in the sense in which those words are used in describing cooperation. Evidently, therefore, cooperation and competition have at least something in common, inasmuch as each excludes the idea of war.
We now consider what behavior is referred to by “voluntary” as contrasted with “involuntary” cooperation. Again the selection of certain notions that should be excluded will be helpful.
Except for a Robinson Crusoe cast upon a desert isle, or an occasional hermit who has wholly withdrawn from contact with his fellow men, all human beings must cooperate with their fellows to a certain minimum degree. The unalterable circumstances of man’s existence force cooperation. In fact, the species would soon cease to exist if this minimum of cooperation, including cooperation between the sexes, were discontinued. For all practical purposes, therefore, every living individual must cooperate with others to some extent.
For the purposes of this discussion, analyzing what the minimum degree of cooperation must be at any particular time or place is not essential. We need only remember that the unalterable circumstances of man’s existence force upon him some degree of cooperation. To cooperation required for the preservation of the race (such as the cooperation of a mother nursing her child) we apply the name “inevitable cooperation.”
After the boundary of cooperation forced by unalterable circumstances is passed, customs, institutions, and laws established by men may force cooperation on the part of individuals. Such involuntary cooperation may be so extensive that virtually all the economic activities of men are prescribed by the state or other agency that forces the maximum degree of involuntary cooperation.
What Is Free Competition?
In an earlier section of this discussion, the phrase “free competition” was used repeatedly, but only competition was described. Inasmuch as the ideas suggested by the qualifying word “free” are essential to a clear understanding of the subject, description of what is meant by “free competition” is necessary.
Many writers who use this phrase “free competition” fail to realize that competition implies action in accordance with certain rules of procedure. Free competition, therefore, does not carry any implication of a “free for all” fight, with gouging, biting, kicking, and scratching all permitted.
Evidently, the rules and regulations governing or affecting competition may tend to create a fair field with no favor; or they may, on the other hand, through the award of special privileges of one kind or another, give advantages to some that are denied to their fellows. The phrase “free competition” implies the former condition. “Free competition,” therefore, implies that each
individual concerned must of course comply with the rules, but that the rules, including all the customs, institutions, and laws of the social group, are such as to ensure a fair field with no favor. Furthermore, there is no implication that free competition has ever actually existed or does now exist in any locality.
It may have existed in the past, may exist somewhere at present, and conceivably may exist in the future at some time or place, but the fact that it does not now exist in the United States, for example, does not lessen the usefulness of the notion for the purpose of this discussion.
Referring again to the economic behavior called “competition,” we repeat the definition: “the effort of two or more parties, acting independently, to secure the custom of a third party by the offer of the most favorable terms.” In other words, economic competition is the effort of two or more people to produce and offer a commodity or service for a third party on the most advantageous exchange basis from his point of view. In short, where there is free competition the competitors are striving to perform those economic functions that are most desirable from the viewpoint of the consumer, and of course nearly all of the consumers are likewise competitive producers. (In this connection, specialization or the division of labor not only increases the effectiveness of human effort but also raises to a higher level the minimum degree of cooperation required in an economic society.)
If now we enlarge our viewpoint, so that instead of considering only a few individuals, we regard the social group in its entirety, free competition is seen to be that situation in which men are voluntarily cooperating. All of the group, by purchasing what they prefer, encourage those best qualified to provide the desired economic things including services. Each of the group who is offering things in the markets voluntarily seeks to cooperate by performing in that economic role where he can most effectively serve his fellows and thereby maximize his own reward in the marketplace. In practical effect, under perfectly free competition, producers cooperate with consumers by endeavoring to provide the best of whatever is desired at the least cost.
Thus “competition” and “cooperation” become, under such conditions, merely different labels for the same highly efficient economic behavior.
Also important in this connection is the fact that the economic behavior we label “free competition” or “voluntary cooperation” results in the greatest possible total of benefits for all who participate. Unlike the competition in games where some lose what the victors win, and unlike war where even the winner may lose more than he gains, freely competitive economic behavior enables each participant to gain the greatest possible reward by voluntarily cooperating in a procedure whereby all concerned benefit.
One need only look about the world and observe conditions as they are to see the facts brought out in this discussion. In the early days of this country, when free land was available for the taking, the Nation was closer to a condition of perfectly free competition or voluntary cooperation than it is today. Perhaps the world’s nearest approach to free competition or voluntary cooperation still is found in this country, in spite of the increasing interference with free competition that has resulted from the growth of special privilege and government intervention.
In Russia, on the other hand, there is today nearly the opposite extreme. There is what was originally intended to be a fully cooperative society, but free competition has been nearly eliminated, and we find in its place involuntary cooperation, forced labor, in fact widespread slavery. Both careful reasoning and the obvious facts point to the same conclusion, that “free competition” is another name for voluntary cooperation, and that the elimination of free competition leads to a condition of involuntary cooperation, that is, slavery.
In this brief discussion we have not attempted to ascertain whether or not free competition is desirable. That, no doubt, depends on the results to be achieved, the personal desires of those who are involved, and many other factors. Once the public fully realizes that free competition is voluntary cooperation, much nonsense that has been written on the subject can be discarded; and a fresh start can be made in the consideration of pressing problems, with the confident expectation of more useful results.
This article originally appeared in 1956
E.C. Harwood
Edward C. Harwood (October 28, 1900 – December 16, 1980) was an economist who founded the American Institute for Economic Research (AIER) in 1933. Harwood graduated from the U.S. Military Academy in 1920. He went on to attend Rensselaer Polytechnic Institute (RPI) before being appointed an Assistant Professor of Military Science and Tactics at Massachusetts Institute of Technology (MIT) in Cambridge, MA. While at MIT, Harwood became interested in economics, particularly money-credit problems, and began an intensive study on the topic. With the encouragement of MIT Vice President Vannevar Bush, Harwood founded AIER in 1933 to provide independent research to the public on current economic conditions. His earliest publications include Cause and Control of the Business Cycle and What Will Devaluation Mean to You?
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Only Freedom Will Save the Auto Industry
Nearly 900,000 of the auto accidents that happen yearly on U.S. roadways start with a blind spot. But because most vehicles have a blind spot due to their frame design, there’s little a driver can do that completely eliminates this problem. And while technology has come a long way, automakers are still far from finding a real solution.
Recently, however, a 14-year-old girl from Grove, Pennsylvania, designed a solution that might as well be the one that sticks. And perhaps because she did so independently, moved by a need put forth by members of her own family, and in order to participate in the Society for Science and the Public’s Broadcom MASTERS (Math, Applied Science, Technology and Engineering for Rising Stars) science and engineering competition, she had no pressure from industry heads trying to keep her on her toes because of the countless regulations the car industry must follow. In other words, she had the freedom to flourish.
With the help of projectors that cast images of what’s behind the car’s pillars onto their surfaces, Alaina Gassler made the A-frame structure of vehicles essentially disappear. This created “ghost pillars” that reproduce live footage of anything happening outside of the vehicle, giving the driver a greater awareness of the obstacles and potential risks he would have ignored if he couldn’t have looked beyond the car’s frame.
Thanks to this ingenious idea, Gassler took home the grand prize, pocketing $25,000 and making headlines across the country. But more than making a name for herself, Gassler managed to demonstrate how important the freedom to create is in a developed economy. Unfortunately, the heavy regulatory burden imposed on the industry creates a maze that is often complicated to navigate.
In order to develop new designs and technology, these companies must make sure they aren’t breaking the rules, forcing them to spend a considerable amount of their earnings on an army of regulatory lawyers. As pressure builds up, firms do all in their power to avoid producing something the government will veto later. And while they have a way around this by lobbying the government and hoping that regulators will be persuaded to change the rules to accommodate them, that route isn’t always a done deal.
Needless to say, this intricacy makes it difficult for auto engineers to be creative, so it is no wonder that such a creative solution for a widespread problem would come from a carefree young engineer working on a science project on her own time and dime.
Regulations Serve Only to Muzzle Talent
The aggregation of regulations has the power to harm entire industries, keeping young and inspired entrepreneurs from entering the market. In the end, the lack of freedom many of these geniuses encounter ends up stifling their desire to make a difference, as breaking into the industry is often difficult and prohibitively expensive.
The young Gassler, who completed her projector-based technology system while in eighth grade, was not being moved by power, money, or desire to break into the industry. Instead, she was upset her grandmother had scraped the paint from the side of her car after not seeing a pole that was in her blind spot.
She acted on a demand that impacted a member of her family, and she wanted “to find a way to get rid of them,” she said. The young engineer didn’t have an army of regulatory lawyers telling her what she could or could not do with her resources, and she was not told that there were limitations as to what kind of features she could develop to address this issue.
If anything, this proves the importance of freedom, especially if we want auto engineers, designers, and manufacturers to create products that are both safe and appealing to their audience.
As AIER’s editorial director Jeffrey Tucker explained in this piece, regulation has done a great deal of harm, forcing the industry to go down a path that puts all drivers inside ugly, boring, and unattractive vehicles. Can this be considered progress? And if so, what would the opposite of progress look like for the auto industry?
Unfortunately for drivers and car lovers everywhere, we might never have an answer to this question. Unless, of course, we were all made aware that the government’s meddling in the auto industry has killed beauty, innovation, and passion — and that giving people their freedom to explore back is what will save it.
Chloe Anagnos
Chloe Anagnos is AIER’s Publications Manager. She is a writer and digital marketer and has been an AIER contributor since 2017. Her work has been the subject of articles in FOX News, USA Today, CNN Money, and WIRED. She has been a writer, commentator, and panelist for media outlets around the country on subjects like political marketing, campaigning, and social media. Follow @ChloeAnagnos.
