Terrorists' Target: Our Free Market System
Paul Guppy, Vice President for Research, September, 2001
We face a new war in a new century. Last week's barbarous assaults, the worst ever on U.S. soil, shocked the nation, and steeled us with resolve for the future. The terrorists targeted our political and military leadership in Washington, D.C., but the heaviest blow was directed at our financial institutions, the very core of our free market economic system. For that reason it is useful to pause and ask ourselves, "Just what is it about America that these mass assassins wish to destroy?"
It is clear the terrorists hate freedom, but it seems they hate the capitalist system especially, because this is largely how Americans live out their freedoms. The marketplace is where liberty moves from theory to practice.
Economist Adam Smith said in his classic work "The Wealth of Nations" that nothing is more basic to human nature than "the propensity to truck, barter, and exchange one thing for another." The fundamental quality of this exchange is that it is voluntary. By definition the free market operates without coercion. Sellers must persuade, not force, customers to choose their products.
When someone buys an item costing, say $100, it means he wants that item more than he wants the $100. At the same time, the seller wants the $100 more than the item offered for sale. Both parties walk away satisfied. That's why the phrase most often heard at the end of an exchange is "thank you." The principle applies equally to a multi-billion stock transaction, or to buying a pack of Juicy Fruit at the local convenience store. Attracting customers to make voluntary choices drives excellence and innovation. Free market competition makes America strong, and that is what the terrorists attacked.
Our right to engage in free economic exchange is our greatest liberty, because it is the only thing that gives us the means to defend all our other freedoms. Everything we prize as Americans, freedom of movement, of expression, of religion, is meaningless without economic freedom. Without it, our other liberties can never be secure.
We are about to see the collective use of this principle in action. The astonishing productivity of the free market system allows the government to buy, through taxes, all the military and intelligence assets necessary to face the current crisis. Congress has already appropriated $40 billion, and there's more to come as needed. For the country's defense, money is literally no object. Only capitalism can generate that kind of wealth.
The World Trade Center site is now being chillingly referred to as Ground Zero. It is also ground zero for our nation's financial network. Almost 300 firms had offices in the twin towers, and the complex as a whole was home to about 1,200 companies. Tenants included such icons of industry as Bank of America, Lehman Brothers, Morgan Stanley Dean Witter and Sun Microsystems. We are learning that losses were heavy. At Marsh & McLennan 600 workers remain unaccounted for. Keefe, Bruyette & Woods can't locate 67 of its 171 headquarters employees. One trading company, Cantor Fitzgerald, lost 700 of its 1,000 employees.
Despite the grievous losses, our financial system is proving encouragingly resilient. The market functioned perfectly on Monday. The financial world was placed on hold for a few days, and while there was a downturn, trading was not permanently disrupted.
We've weathered crises before. After Pearl Harbor the market dropped 6.5%, when President Kennedy was killed it fell 2.9%, and during the Gulf War it fell 4.3%. Each time the market and the nation recovered and went on to unprecedented periods of growth and prosperity. We can expect this pattern to be repeated.
Out of grief grows determination. We won the Cold War because of the will of our people and the strength of our free market economy, and that's how we'll win this war too.