One of the most common ethical charges levelled at the free market is that it fails to provide “security.” It is said that the blessings of freedom must be weighed against the competing blessings of security—to be provided, of course, by the State.
The first comment to make is that this world is a world of uncertainty. We shall never be able to forecast the future course of the world with precision. Every action, therefore, involves risk. This risk cannot be eliminated. The man who keeps cash balances suffers the risk that its purchasing power may dwindle; the man who invests suffers the risk of loss; and so forth.
Yet the free market finds ways of voluntarily relieving risk as much as can possibly be done. In a free society there are three prime ways that men can alleviate uncertainty about the future:
(1) By savings. These savings, whether invested in production or kept in cash balances, insure money for future needs. Investing in production increases one’s future assets; cash balances insure that funds will be immediately available.
(2) By entrepreneurship. The entrepreneurs, i.e., the capitalist-entrepreneurs, assume the bulk of the risks of the market and concomitantly relieve laborers of a great deal of risk. Imagine the universal risk if laborers could not be paid until the final product reached the consumers! The pain of waiting for future income, the risk in attempting to forecast consumer demands in the future, would be almost intolerable, especially for those laborers toiling in the most remote processes of production. It is difficult to see how anyone would embark on longer processes of production if he were forced to wait the entire length of the production period to earn any income. But the capitalist-entrepreneur pays him, instead, immediately and himself adopts the burden of waiting and forecasting future wants. The entrepreneur then risks loss of his capital. Another method of entrepreneurial assumption of risk takes place in futures markets, where hedging allows buyers and sellers of commodities to shift the risk of future price changes onto a body of specialized traders.
(3) By insurance. Insurance is a basic method of pooling and abating risks on the market. While entrepreneurs assume the burdens of uncertainty, insurance takes care of actuarial risks, where stable collective frequencies can be arrived at and premiums can be charged accordingly.
The State cannot provide absolute security. The slaves may have believed that their security was guaranteed by their master. But the master assumed the risk; if his income fell, then he could not provide security for his charges.
A fourth way to provide security in a free society is by voluntary charity. This charity, of necessity,comes out of production. It has been maintained that the State can provide security for the people better than the market because it can guarantee a minimum income for everyone. Yet the government can do no such thing. The State produces nothing; it can only confiscate the production of others. The State, therefore, can guarantee nothing; if the requisite minimum is not produced, the State will have to default on its pledges. Of course, the State can print all the money it wants, but it cannot produce the needed goods. Furthermore, the State cannot, in this way, provide security for every man alike. It can make some secure only at the expense of others. If A can be made more secure only by robbing B, B is made more insecure in the process. Hence, the State, even if production is not drastically reduced, cannot provide security for all, but only for some at the expense of others.
- Murray Rothbard, Power & Market