The government images printed on American currency and stamped on our coins reflect a great conceit: that wealth is the result of the actions of politicians and bureaucrats in Washington.

Quick thoughts: Money is a medium of exchange and a store of value. Money is not wealth. Government can create money, but government cannot create wealth.

Perhaps it would be better for our money to bear the logos and trademarks of our most successful private companies, both large and small. Perhaps, like postage stamps, our money could feature a variety of these colorful images that change from year to year.

When Liberals want to appear economically responsible, they usually start talking about the deficit: the shortfall between government revenue and government spending. Of course, the deficit can be reduced two ways: by reducing spending and by raising taxes. Pop-quiz: When Democrats start talking about reducing the deficit, which solution are they most likely to promote, spending cuts or tax hikes? (Answer: not spending cuts).

Here’s an interesting fact that is not generally understood. Assuming that government spending is held constant, it is more efficient for the government to borrow the money (and increase the deficit) than to raise taxes. This is because the government is able to borrow money at cheaper rates than most citizens. Also, much of the interest paid to the government’s creditors is taxable, which further reduces the cost of government borrowing. How would you like to get a rebate check every year from your mortgage company for 35% of the interest you paid them? For this and other reasons, government borrowing, and therefore the size of the deficit, is not the most destructive economic problem.

It’s the spending!

Much (perhaps most) of government spending destroys wealth and makes us poorer.

You have probably heard about farmers who are paid by the government not to farm their land. For most of us this seems like a waste. The stated purpose is to keep the price of certain goods stable by creating incentives to reduce supply. That last phrase is just policy-speak for government paying people to destroy wealth. In this case, the government pays a person to take a valuable asset (farmland) out of production. Though this seems wasteful, most of us assume that it’s just a weird thing the government does with farmers. No! This is exactly what government does with most of every dollar it spends!

Every dollar that the government spends consumes resources that would have been available for consumption by citizens. For a moment, forget where that dollar came from - taxes, borrowing or even a solid gold meteor that landed on the Whitehouse lawn. Focus on the resources it was spent to consume. The talent, motivation and time of government employees, every brick in every new government building and every steel beam in every new bridge all represent valuable resources that have been removed from the free market. Just like that farmer who is paid not to farm his land, these resources are bought by the government and taken away from other uses. As valuable resources are consumed by government, there is less for the rest of society.

Here’s another way to look at this. The price of any good or service is subject to the economic law of supply and demand. That’s why paying farmers not to farm increases the price of farm goods. By decreasing supply, the smaller amount that remains available costs more. This is because we are all involved in a giant, invisible auction for all of the things we buy. If something is expensive, it isn’t because the seller just wants to make more money, it’s because somebody else is willing to pay that price. To secure any good or service, you must match the bids of all the others in the auction. When government consumes goods and services, it too participates in the auction, and it too drives up the price for all of us. Think about that: every time you go out to purchase a good or service, you are in a bidding war with someone who is spending your money!

Excessive government debt is a problem, but it is not the most destructive problem. Government spending destroys the nation's wealth by diverting resources away from productive uses, thereby leaving less and driving up the price for the rest of society.

It’s not the number of carrots; it’s where you put them.

Instead of putting one juicy carrot in front of the horse, the Democrats have placed a bucket of juicy carrots behind it, and they wonder why the horse keeps moving backwards.

There are various arguments in favor of economic liberty, some moral, some practical.

The moral arguments rest on a number of principles, many affirmed in the U.S. Constitution, including the individual’s right to acquire and use personal property, within the boundaries of the rule of law. The various moral arguments are sufficient to defeat collectivism in the arena of ideas, but the practical arguments are also compelling and deserve attention, especially at a time when collectivists claim to posses the necessary economic insight to steer the market towards the “Common Good.” Their claim is absurd.

The practical argument for the free market advanced by Adam Smith, and further refined by others, starts by taking account of the unfathomable economic complexity of any large society. These classical economists reasoned that, given this immense complexity, liberal free-markets provide the only practical way to efficiently allocate scarce resources so that the greatest number of people are able to enjoy the greatest amount of good.

The practical problem can be stated: “how can society best invest scarce resources in order to provide the greatest return?” These economists believed that the problem of achieving economic efficiency was not so much about political will - the power to force or convince people to do what they don’t naturally want to do. They were convinced that it was an information problem. They argued that the amount of information was much too large for any individual or organization to obtain or comprehend.

It would be difficult if not impossible to list all of the economic decisions each person makes in a single day. Such a list would not only include obvious economic decisions like how much to spend on certain goods, but would also include decisions like what time to start or stop working, whether or not to quickly accelerate at a particular stop light, or which clothes to wear.

Not only is the amount of information enormous, a great deal of the information remains hidden, as much of it relates to individual preferences that are concealed in the hearts of men. It is hard to conceive how any organization could obtain, comprehend or process the vast amount of information needed to efficiently direct society’s resources.

Multitudes of individuals exercise their preferences by making multitudes of choices in the marketplace, directing their hard-earned resources towards the goods and services that they most desire, at the lowest price they can find. These choices, in turn, direct production towards the efficient satisfaction of society’s aggregate desires. Consumers reward the producers of valuable and inexpensive goods, and capital flows to those producers to enable them to produce more. Producers who cannot produce popular goods either change their offerings, or go out of business.

Each individual economic decision is like a tiny drop of rain that seems insignificant in isolation, but contributes to massive flows of capital that cannot be completely predicted, understood or controlled by any one person or organization. Rather than producing more good for more people, governments that attempt to control their economies usually end up producing more poverty and misery for everyone.

Progressives claim they are committed to moving society forward. But who gets to decide which way society should go? Which way is forward? Progressives seem to believe that the answer is self-evident, that there is one obvious path and all that's lacking is the political will to go there. This may provide an explanation for the strange fascination Progressives seem to have with dictators like Hugo Chavez and Fidel Castro. Unimpeded by dissenting visions of progress, these totalitarians really get things done.

Contrary to Progressive rhetoric, there is no single way forward. Progress for one citizen may not be progress for another. Our founders created a country unlike any country that had ever existed before, where people could define “progress” for themselves and be free to pursue it (within the boundaries of the rule of law) unencumbered by coercive government. All would be free to pursue industry, or art, or charity or whatever else made them happy. There would be no single vision to which all would be forced to submit, except perhaps the vision of freedom itself, which would require everyone’s blood and sweat to defend.

Progressives reject this founding principle. They seek to collapse all of our many hopes and dreams into their singular, “enlightened” vision of the Common Good. They would rob each of us of the freedom to define and pursue our own notions of progress, by forcing all of us to bear the cost of enacting theirs.

The free market economic system consists of multitudes of citizens voluntarily engaging in productive activity that benefits everyone else. When just one person, responding to an opportunity for personal profit, decides to offer goods or services to the rest of us, we are all a little bit richer for it. This is a simple application of the economic law of supply and demand. When demand is held constant, an increase in supply puts downward pressure on price. When we pay less for something, we have more left over to save, spend or give away. If there was only one plumber in the country, no one would be able to afford his services. Three cheers for all the other plumbers!

The collectivist economic system consists of rulers directing citizens to produce only those things the rulers determine to be useful to society. In addition to direct coercion, the rulers use economic mechanisms, including the levying of high taxes on goods and services of which they don’t approve, and the redirecting of tax revenues to provide generous subsidies to those they do.

The differences between these two systems can be reduced to this: voluntary activity vs. involuntary, freedom vs. coercion.

At the heart of Marx's axiom, "From each according to his ability, to each according to his need" is the disconnection of the sustenance a man derives from society from the goods and services he contributes. This is one of Marxism's fatal flaws.

Rational people always do the least amount of work necessary in every situation. This is called efficiency. Doing otherwise is similar to deliberately purchasing the more expensive of two identical products. Since, under Marxism, work is disconnected from sustenance, men stop working… until someone shows up to enforce the from side of the axiom and points a loaded gun at them. At that moment, work is immediately reconnected to survival and the men reluctantly start working again.

And there you have the essence of the Soviet Union's economic system.

It would be one thing if Liberals simply wanted to expand the quality of benefits granted to the most needy in society - to expand the amount of comfort and relief granted to the most unfortunate. Depending on how you define "unfortunate," I would likely support such an effort. But this has not been their practice. What Liberals really seem to want is to expand the number of people whose sustenance is disconnected from their work. They want to expand the number of people who simply receive the basics of food, clothing, medicine, shelter and internet access, just for showing up at a government office to collect a voucher.

Unchecked, this continued expansion must eventually result in a majority of citizens deriving their sustenance, not as a result of their contribution to society, but for nothing else other than being alive. This seems to be the Liberal's unstated goal. For society to function, this disconnection, as was true for the Soviets, will eventually require loaded guns pointed at all of us.

One man's need cannot entitle him to another man's property.

If it can, society will suffer from a great epidemic of people in the Need Business, as there are few, if any, paying occupations that require less work than being needy.

There is NO VIRTUE in being generous with other people's money.

Social Justice, in as far as the term refers to something other than regular old Justice, is a moral pretext for inciting citizens to covet their neighbor's property.

Many Americans in the late 19th and early 20th century suffered from real poverty, which differed from today’s poverty in that it included large amounts of hunger and misery. Perhaps we should grant the progressives of that era some credit for seeking to bring real relief to real suffering. Perhaps we might even credit them with some success.

But today, the progressive moral ground of the last century is mostly gone. The poverty of today's America often includes large helpings of food and leisure, evidenced by the growing problem of obesity among the poor. But modern progressives continue to appeal to the misery of the poor, and society's obligation to relieve it, as grounds for suffocating the rest of us with ever-increasing government.

Why is this? Can't they see that prosperity has reached most of the citizens of this country? Don't they understand that much of the misery that remains is largely due to the side-effects of government itself? What accounts for their continued crusade to push government ever deeper into our private lives?

Here's a theory: perhaps a concern for the less-fortunate is really just a cover for psychological pathology. According to this theory, what many progressives of today really crave is not relief for the poor, but order. They are desperate to reduce the inherent chaos of the combined activity of three hundred million free people. There's just too much consuming and carbon dioxide belching going on for their liking. Perhaps a concern for the needy is nothing more than a morally convenient excuse to indulge a psychological disorder. Call it Progressive OCD.

Though not a Libertarian, I am a great admirer of the Austrian economists. They recognized the enormous power of individual liberty to unleash constructive human action and the converse power of oppressive government to restrain it.

There are 3 basic types of progressives.

1. Ordinary people who have been incited to covet their neighbor's property.

This is the Progressive political base. Properly harnessed, their discontent provides an enormous source of destructive political power.

2. Elites seeking relief from the personal guilt they feel for their own wealth and comfort.

While personally benefiting from Capitalism, they blame Capitalism and not themselves for society's "economic injustice". They obtain relief from guilt by helping to enable government to redistribute the nation's wealth. Since they pay in the process, they enjoy a sense of moral pride that their motive is pure and disinterested, though forcing others to sacrifice in order to gain relief from personal guilt seems patently selfish.

These are the politicians who acquire political power by peddling the collectivist utopian dream - at once appealing to the appetites of the base and the moral vanity of elites.

Perhaps there is a natural progression from free-market democracy, towards socialism, ending up in mercantilism, that free-market destroying, unholy alliance between "Big Business" and "Big Government."

Assuming that a democratic country starts out with a substantially free market, most citizens will enjoy increasing amounts of wealth as the system efficiently directs capital to the most productive and profitable uses. This benefits most everyone, but not equally. The most productive (and in some cases lucky) accumulate more wealth than the others, and this enables them to accumulate even more. The so called, "gap between rich and poor" inevitably increases.

At some point, certain politicians see an opportunity for power and begin to exploit the gap, claiming that it is an unjust effect of the free-market. These politicians promise to moderate the cruel and impersonal mechanisms of the free-market with their own wise planning, in order to distribute the nation's wealth more equitably. So, under the pretext of social justice, politicians begin to take control and re-jigger the economy so that their judgments (and power) replace the impersonal mechanisms of the free-market.

Here's where the plot thickens: On the way to The Worker's Paradise, things take another turn. In this new environment, those who have accumulated wealth now have an incentive to redirect significant resources away from productive uses, towards influencing the political process. The enormous stakes attract enormous amounts of talent and money. As a result, those with resources gain greater and greater influence over the politicians who now, under the pretext of social justice, have significant (and growing) control of the economy. This is Adam Smith's mercantilism.

At the time Adam Smith was writing, Marx was still a couple generations away. The real enemy of the free-market, Smith believed, was mercantilism. Welcome to USA circa 2009, perhaps?

Libertarians believe that government should have only a small role in a free market. They seem to think that, if government would just stay out of the way, prosperity would flourish spontaneously. However, freedom is not the natural state of man and free is not the natural state of the market. As Bret Stephens of the Wall Street Journal has pointed out, freedom and free markets are an achievement of civilization, requiring institutions that have resulted from centuries of acquired wisdom. If you handed racquets and balls to ancient nordic barbarians, it is unlikely the result would be tennis; it would probably look more like ice hockey.

Like any violent sport where raw human interests collide in the heat of competition, the free market requires a set of clear and consistent rules, enforced by strong and impartial referees. This is the active role of government, not to distort the market by picking winners and losers, but to protect the market from those who would seek political control over it for their own interests and the interests of their constituents.

No doubt, Libertarians are right that the current American government is far too big. But size isn't the main problem. Rather than acting as an impartial referee, our government (think congress) consistently throws the game in favor of those who pony up the most campaign cash.