Honorable Mention

The term “new economy” is slightly misleading, in the same way that the term “information age” is misleading. The information age, properly speaking, began when Johann Gutenberg created movable type. That advance brought with it the earth-shaking revolutions of Martin Luther and John Calvin, of Cervantes and Moliere, of Hobbes and Locke, and of course, of Paine and Jefferson and Madison. “The general spread of the light of science,” Jefferson said in 1826, “has laid open to every view the palpable truth that the mass of mankind was not born with saddles upon their backs, nor a favored few booted and spurred, ready to ride them legitimately, by the grace of God.” (Peterson, 1984, 1517) But Jefferson probably knew that not only was this idea not new, not even the phrase was new. Over a century earlier, the English revolutionary martyr Algernon Sidney had said “Man therefore must be naturally free.... God [has not] caused some to be born with crowns upon their heads, and all others with saddles upon their backs.” (Sidney 1990 [1698], 510-511)

Calling the American Revolution’s ideas of liberty “new” is therefore not entirely honest. Jefferson himself insisted it was new—“It is no longer true that there is nothing new under the sun,” he wrote after being elected President. “For this whole chapter in the history of man is new.” (Peterson, 1984, 1086)Yet, even though the fundamental ideas of the American Revolution had been alive over a century before the Declaration of Independence, in a sense Jefferson was right: America was a place where the idea of individual liberty would finally have a chance; where there was no established monarchy or aristocracy to stand in the way.

Stand in the way of what? There we see what was new about the Declaration of Independence. Because where previous societies had believed that the fundamental value of political society was longevity—to preserve a nation in a particular form forever—to make sure that every person knew his place, and did not seek to escape the caste into which he was born—America was founded on the exact opposite presumption: that each individual has the right to choose his own position in society; to determine his course for himself; to, in other words, the pursuit of happiness. The founding generation sought to create a society which would foster individual advancement—we call it “social mobility” today. Previous nations had been preoccupied with preventing social mobility as much as possible.

This was a new economy. The old economy, of course, had been mercantilism, or variations on that theme; economic systems based on castes. A person went into a job because his father had been in that job, and his father before him. Mr. Smith was indeed a smith, as his ancestors had been. But America would instead foster what Jefferson called a “natural aristocracy,” based not on birth, but on “virtue and talents.” “Here every one may have land to labor for himself if he chooses,” he wrote, “or, preferring the exercise of any other industry, may exact for it such compensation as not only to afford a comfortable subsistence, but wherewith to provide for a cessation from labor in old age.” This was the first time a nation had been based on such an idea—that, in the cliché of our day, the son of a blue collar worker might become president.

Karl Marx claimed that popular media—movies and television today; bread and circuses in antiquity—were created by the capitalist class as a means of placating or lulling the working class into forgetting the miseries of their exploitation. Religion was an “opiate of the masses” in this sense: it was a tool for keeping at bay the revolutionary forces which otherwise would upset the system of class control laying at the heart of capitalist society.

But what capitalist society actually does is to absorb the “causes of revolution.” And the freer the economy, the more able it is to absorb those forces. A new advertising campaign—for Earthlink communications company—is a good example of this: one of their billboards shows a picture of a thumbprint, and a caption reading “You are not for sale.” A cynic might chuckle at this phrase being used in an advertisement, but the fact is not so cynical. It is an example of the market’s responsiveness to desires: we want more privacy in electronic communications, and Earthlink is willing to provide it. The free market responds to these revolutionary pressures, because it is in a constant state of revolution—of shifting not only towards “equilibrium,” but towards the needs and desires of people in that society. This is endlessly frustrating to enemies of the free market: why don’t the workers rise up against the bourgeoisie? Because the workers are not only quite happy, but in fact, many of the workers own stock portfolios. Today the workers are, indeed, the owners of the means of production. In that sense, the free market is always a “new economy.”

When we use the term “new economy” today, we generally refer to the Internet, and the ways that the Internet is making the world smaller. A person wishes to purchase, say, a book. Twenty years ago he would have to go to the nearest B. Dalton, or perhaps shop around the used book stores in his neighborhood, hoping to pick up a bargain. Now, he not only has access to the inventories of hundreds of used bookstores at the touch of a button, but websites where he can pay to have others search out a rare book for him, and send it to him. Everything from used cars to groceries—and, of course, stocks—can be ordered over the Internet, and delivered to the purchaser’s door.

Alexander Tabarrok (2000) sees this as “one part of a broader change in the economy which has been proceeding slowly for many years, that is the shift from production of physical goods to the production and application of ideas.” The Internet has increased the speed of communication, so that within seconds one can access anything from the latest stock market information to the works of John Milton, to a webcam showing what’s happening at that moment in Moscow’s Red Square. But an economy is always a system of applying ideas. An entrepreneur has an idea for a new business, and the investors judge whether they have enough confidence in the idea to invest in it. Day-traders on the Internet are privatizing this process of market judgment.

How does this definition of the “new economy” relate to Jefferson’s idea of “something new under the sun”? To answer that question, we have to ask first why the interaction of ideas is itself a good thing. Ideas are, of course, what keep our species alive. We lack the instincts of nestbuilding or hunting that the animals have; we must share recipes, philosophies, even prejudices and fears, in order to survive. Any group of people dedicated to discovering the truth must therefore dedicate themselves to certain principles of behavior—tolerance of dissent, for instance. (Bronowski 1965). Karl Popper and Friedrich Hayek made this point half a century ago. In The Open Society And Its Enemies, Popper criticized the “closed society” politics of Plato. Plato’s political scheme sought to establish “the arrested state,” a society in which all change has been banished by freezing each individual into a particular social caste from which he is not allowed to escape. In The Constitution of Liberty, Hayek (following an argument of Mill’s) argued for a state where individuals would be generally free to devise their own ways of living and to try out these lifestyles, in social “experiments.” The populace would thus be free to choose from successful experiments in a process of social evolution. The free society will “allow for gradual and experimental change. The existence of individuals and groups simultaneously observing partially different rules provides the opportunity for the selection of more effective ones.” (Hayek 1960, 63)

In his famous opinion dissent in Whitney v. California, (274 U.S. 357, 375-377 {1927]) Louis Brandeis wrote that

Those who won our independence believed that the final end of the State was to make men free to develop their faculties; and that in its government the deliberative forces should prevail over the arbitrary.... They believed that freedom to think as you will and to speak as you think are means indispensable to the discovery and spread of political truth; that without free speech and assembly discussion would be futile; that with them, discussion affords ordinarily adequate protection against the dissemination of noxious doctrine; that the greatest menace to freedom is an inert people; that public discussion is a political duty; and that this should be a fundamental principle of the American government. They...knew that order cannot be secured merely through fear of punishment for its infraction; that it is hazardous to discourage thought, hope and imagination; that fear breeds repression; that repression breeds hate; that hate menaces stable government; that the path of safety lies in the opportunity to discuss freely supposed grievances and proposed remedies; and that the fitting remedy for evil counsels is good ones.... If there be time to expose through discussion the falsehood and fallacies, to avert the evil by the processes of education, the remedy to be applied is more speech, not enforced silence.

This idea has come to be called the “marketplace of ideas,” but it is older by far than Justice Brandeis. Brandeis got the idea from Thomas Jefferson, who wrote in Notes on Virginia “Reason and experiment have been indulged, and error has fled before them. It is error alone which needs the support of government. Truth can stand by itself.” (Peterson 1984, 286)
The exchange of ideas requires a free market. Not just a free “marketplace of ideas,” but a free market in the economy as well. Ideas are spread through newspapers and books, television, radio, and now the Internet. Restrictions on access to these things will inevitably restrict the access to ideas, and thus our ability to discover the truths upon which we can build the happiness we are pursuing. This is why such notions as “commercial speech” are so difficult for the law: all speech is commercial, in some way. Even pure political commentary printed in a political magazine is meant to sell the magazine. The notion of “commercial speech” is based on an antiquated and illusory distinction between “personal freedoms” such as speech and “economic freedoms” of buying and selling. Every manipulation of the market manipulates also our access to ideas. If (as Mises and Friedman have pointed out) prices convey information, then every tax, every price control, conflicts with our ability to learn from the price, and thus interferes with our access to ideas.

A marketplace based on ideas requires a free market even more than a marketplace based primarily on providing goods and services. Goods and services can be produced by forced labor, but as Ayn Rand wrote,

Freedom is the fundamental requirement of man’s mind. A rational mind does not work under compulsion; it does not subordinate its grasp of reality to anyone’s orders, directives, or controls; it does not sacrifice its knowledge, its view of the truth, to anyone’s opinions, threats, wishes, plans, or “welfare.” Such a mind may be hampered by others...it cannot be forced; a gun is not an argument. (Rand 1967, 17)

Internet commerce brings this fact home—literally. As a computer engineer is said to have remarked, it’s very hard to hold someone at gunpoint over a modem line: there just isn’t the band width. If we are living in an information age, we should not be surprised to see some corresponding shifts in our laws. Of course, I doubt we will ever see the Court apply First Amendment speech protection to laws which manipulate prices. But we have already seen some shifts with almost the same potential for changing our society. Take the case of United States v. Playboy Entertainment Group, (529 U.S. 803 [2000]), in which the Court struck down a regulation requiring cable providers to scramble the signals of adult television programs. The Court held that the regulation did not satisfy the “least restrictive means” test which is routinely used in free speech cases, because free-market alternatives—i.e., commercially available cable scramblers—were less restrictive than the government scheme. “Even upon the assumption that the Government has an interest in substituting itself for informed and empowered parents,” the Court held, “its interest is not sufficiently compelling to justify this widespread restriction on speech.” (825)

Such a holding would have been inconceivable half a century ago. Then, the Court’s “least restrictive means” test did not ask whether there were less restrictive private means, but whether there were less restrictive legal means. It compared one regulation with another. If the Court is now going to consider the availability of private, free market alternatives to legal restrictions, then there are a great many things which will not qualify as the “least restrictive means” for achieving state goals. This is especially true on the Internet, where there are already so many private alternatives to regulation. Take eBay, for instance. There are already many people who make their entire living through eBay’s auction website, and the only time they need to deal with the government is to pay taxes, or enforce a contract if a buyer refuses to follow through. (Even this last isn’t necessarily true, since eBay relies on private arbitration procedures.)

In essence, this new technology is actually forcing the government to compete with free market alternatives. The Playboy Entertainment Group holding requires the government to compete with private means for blocking pornographic material from children. The availability of electronic mail is requiring the government postal service to compete—a competition which it is gloriously losing. Access to great works of literature via the Internet is even making home schooling easier, thus forcing the government schools to compete—which, again, is a competition the government cannot hope to win. In nearly every aspect of life, people are devising radical new ideas for pursuing happiness: for defining themselves. They are moving between different social classes—creating their own classes—and the Internet is a magnificent new medium for such self-definition. The Internet is fostering self-expression of a previously unimaginable scale. And this is a perpetual revolution.

Internet trading is tying all of these things together in a remarkable way. Private people, whom Marx would otherwise have called the “working class,” are trading goods, or stocks, on the Internet, in the privacy of their own home.s Many of them do not need to rely on the formalisms of regulation—stockbrokers and the like. They are relying on themselves, to pursue their own happiness. They do this by judging the different ideas which new businesses are built upon: business plans in which they feel confident investing their money. And since this is done on the Internet, any distinction between “speech” and “commerce” breaks down. Government cannot compete with private alternatives, in the era of the Internet. Why go through the trouble of getting the various permits required to build and operate a store, when one might just as easily list goods for sale on eBay? On the Internet, the marketplace of ideas is an essentially free market, responding instantly to the desires of the purchaser.

The conclusion, then, is not that we have suddenly learned that the free market is good for humanity. It’s not so much that the new economy—meaning the Internet—requires a free market, although it does. Instead, the lesson we should learn is that the new vision of man which was inherent in America’s founding principles requires a free market. Any notion of man as a creator of ideas requires a free market. Any notion of the right to the pursuit of happiness requires a free market.

Works Cited

Bronowski, J. (1965). Science and Human Values. (2nd ed.) New York: HarperPerennial.

Hayek, F. (1960). The Constitution of Liberty. U Chicago P.

Peterson, M., ed. (1984). Jefferson: Writings. New York: Penguin.

Popper, K. (1971) The Open Society And Its Enemies. (5th ed.) Princeton U P.

Rand, A. (1967). Capitalism: The Unknown Ideal. New York: Signet.

Sidney, A. [1698] (1990). Indianapolis: LibertyPress.

Tabarrok, A. (2000). “New Policies for the New Economy.” Paper delivered at Conference of the Intercollegiate Studies Institute, Berkeley, California.