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"No Free Lunch"

Editor’s Note: David Bahnsen, who founded Newport Beach’s Bahnsen Group that manages $3.75 billion in assets, recently published a book, “No Free Lunch; 250 economic truths,” which has been a best seller on Amazon’s Economics and Free Enterprise sections. What follows are excerpts where Bahnsen, who often appears on CNBC and Fox Business, opines on famous economic quotes.

 

If you master the first principles contained herein on the subjects I organized this book around, you will be prepared to champion the cause of human flourishing. And that will leave you miles ahead of modern economists.

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“Capitalists are motivated not chiefly by the desire to consume wealth or indulge their appetites, but by the freedom and power to consummate their entrepreneurial ideas.” – George Gilder

Anyone who has spent any time with the serial entrepreneur knows this to be true—that while the profit motive and quality of life considerations drive ambition to a degree, they can’t hold a candle to the innate desire to act, produce, create, and grow. The delivery and execution of an idea is at the heart of successful entrepreneurship, and profits merely follow.

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“Markets are not just about the steam engine, iron foundries, or today’s silicon-chip factories. Markets also supported Shakespeare, Haydn and the modern book superstore. The rise of oil painting, classical music, and print culture were all part of the same broad social and economic developments, namely the rise of capitalism, modern technology, rule of law, and consumer society.” – Tyler Cowen

This point is not made enough when we describe the fruits of the free enterprise tree, and that is because those who hold markets in contempt have every objective of “commercializing” enterprise as something sinister. When economics are more rightly viewed as the outpouring of human action, we see a much more holistic picture—that which is consumerist and yes, that which is beautiful, all from the same system and support mechanism.

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“Let me offer you my definition of social justice: I keep what I earn and you keep what you earn. Do you disagree? Well then tell me how much of what I earn belongs to you—and why.” – Walter Williams

The real principle being advocated for here by the great Walter Williams is that of private property and the inherent justice in protecting private property. Systems of confiscation undermine justice. The modern social justice movement does it in reverse. They start with the premise that the fruits of one’s labor first belong to the social needs of society, then work into what may be left for the earner or laborer.

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“The Universe is full of dots. Connect the right ones and you can draw anything. The important question is not whether the dots you picked are really there, but why you chose to ignore all the others.” – Russ Roberts

One of the most profound insights! Standing in the way of the knowledge that may enable authoritarians to command the affairs of society is not nearly the lack of basic information, but also the inability to discern what they do see. The knowledge problem extends to what cannot be known and what cannot be understood in proper context from what is seen.

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“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” – Adam Smith

In this widely-quoted excerpt from the great moral philosopher, Adam Smith, a key reality of market economics is borne—the benefits people in society receive from others acting in their own self-interest. This concept is the root of the “profit motive,” and it represents so much of the miracle of free enterprise. We cannot benefit ourselves without benefiting others—people will not pay us for goods or services they do not want or need. Out of this doctrine comes mutual cooperation, free exchange, and ultimately, wealth creation. It is the miracle of free enterprise.

“It is not true that Congress spends money like a drunken sailor. Drunken sailors spend their own money. Congress spends our money.”- Dr. Art Laffer
This may be funny, but it is also true. Profligate spending has a particularly negative connotation with it when it is one’s own money. But when extravagant, wasteful, reckless spending of someone else’s money takes place, it is a double dishonor.

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“When the government makes loans or subsidies to business, what it does is to tax successful private business in order to support unsuccessful private business.” – Henry Hazlitt

We must never forget that the mere existence of a benefit the government gives to some favored actor must first be taken from some other. The government does not have a “subsidy tree” or “crony tree” from which they can pick fruit and hand out at their discretion. The government’s picking of winners and losers is not an active help to those they want, but neutral to the other party. There is an active move to help one, and an active move to hurt another.

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“The essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process… At the heart of capitalism is creative destruction. Situations emerge in the process of creative destruction in which many firms may have to perish that nevertheless would be able to live on vigorously and usefully if they could weather a particular storm.”- Joseph A. Schumpeter

We hear plenty from the great Schumpeter throughout this book for good reason. But in this quote, we see three things that are all vital to a worldview of free enterprise. One is the ever-changing nature of it—the dynamics of human action, human needs, and human capabilities are always changing, and therefore the manner in which this is manifested in the marketplace is always changing. This inevitably leads to failures and successes, the latter often creating the former. But not all “creative destruction” is the natural result of competitive reality—much of it flows from the inability to survive difficult times. Free enterprise involves offense and defense.

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“If history could teach us anything, it would be that private property is inextricably linked with civilization.”- Ludwig Von Mises

One of the great achievements of the collectivist has been to frame discussions of private property around an implied greed of the holder. Putting a negative connotation around private property puts her defenders on the defensive, when in fact, the existence of private property, and a system that defends and enables and cultivates private property, is demonstrably necessary for a functioning civilization. History leaves us no doubt—where there is no private property, or legal system to defend such, chaos reigns. Where there is a healthy respect for the God-given concept of private property and private ownership, a flourishing civilization becomes possible.

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“One of the most important reasons for studying history is that virtually every stupid idea that is in vogue today has been tried before and proved disastrous before, time and again.”- Thomas Sowell

The advocates of 21st century socialism would do well to study the consequences of 20th century socialism.

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“One of the great mistakes is to judge policies and programs by their intentions rather than their results.”- Milton Friedman

Where public sympathy for the battle cry of the collectivist lies—that they merely want equality and more shared blessings amongst the under-privileged—we must do the hard work of analyzing how even the results of such intentions have played out. It is here that collectivism receives an even worse grade.

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