Institutions of economic freedom Private property rights argued that economic freedom requires the
gold standard for protection of savings from confiscation through inflation. According to the liberal free-market view, a secure system of
private property rights is a necessary part of economic freedom. Such systems include two main rights, namely the right to control and benefit from property and the right to transfer property by voluntary means. David A. Harper argues that a system of private property is required for
entrepreneurship, because "entrepreneurs would not be able to formulate or carry out their plans unless they were reasonably sure that the people with whom they trade have exclusive control over the relevant resources." Bernard H. Siegan holds that a secure system of property rights also reduces uncertainty and encourages investments, creating favorable conditions for an economy to be successful. According to
Hernando de Soto, much of the poverty in Third World countries is caused by a lack of Western systems of laws and well-defined and universally recognized property rights. De Soto argues that because of legal barriers and because it is often unclear who owns what property, poor people in those countries cannot utilize their assets to produce more wealth. David L. Weimer, surveying a series of
empirical studies about economic growth, reports that "a number of economic historians have noted the importance of credible property rights, especially in terms of freedom from arbitrary seizures of property by governments, for understanding relative rates of growth in different time periods and regions," and concludes that countries with strong property rights systems have economic growth rates almost twice as high as those of countries with weak property rights systems. At the same time, he notes that the risk of unexpected seizure, and not state ownership in and of itself, is responsible for this outcome, saying: "the degree of state ownership of property does not have a statistically significant effect on growth rates after controlling for the risk of seizure."
Freedom of contract Freedom of contract is the right to choose one's contracting parties and to trade with them on any terms and conditions one sees fit. Contracts permit individuals to create their own enforceable legal rules, adapted to their unique situations. Disputes arising from contracts are typically resolved by the
judiciary branch of government, but not all contracts need to be enforced by the state. For example, in the
United States there is a large number of third-party
arbitration tribunals which resolve disputes under private commercial law. Negatively understood, freedom of contract is freedom from government interference and from imposed value judgments of fairness. The notion of "freedom of contract" was given one of its most famous legal expressions in 1875 by Sir
George Jessel MR: In the United States, courts have at times stated that the U.S. Constitution protects the freedom of contract. For example, in the case of
Lochner v. New York the U.S. Supreme Court struck down legal restrictions on the working hours of bakers because under the facts of the case the court found the hours "not dangerous in any degree to morals or in any real and substantial degree to the health of the employees." Instead, the court stated that "other motives" underlay the law, by which it seemed to mean protectionism against small bakeries and their non-unionized employees. Critics of the classical view of freedom of contract argue that this freedom is illusory when the bargaining power of the parties is highly unequal, most notably in the case of contracts between employers and workers. The argument is that workers as a group may benefit from legal protections that prevent individuals agreeing to contracts that require long working hours. In its
West Coast Hotel Co. v. Parrish decision in 1937, the Supreme Court retrenched on some of its previous caselaw protecting the freedom of contract. Since then, the U.S. Supreme Court has been extremely hesitant to protect economic freedom under the due process clauses of the U.S. Constitution, as it did in
Lochner. It has, however, sometimes protected economic freedom in other ways, including through the dormant Commerce Clause doctrine and the First Amendment through protection of commercial speech. And lower courts, including state courts, have protected economic freedom at times through due process clauses and similar constitutional provisions. For example, in 2023 the Georgia Supreme Court found that a law requiring lactation consultants to have a state-mandated license violated the state constitution.
Economic and political freedom Some free market advocates argue that political and
civil liberties have simultaneously expanded with market-based economies, and present empirical evidence to support the claim that economic and
political freedoms are linked. In
Capitalism and Freedom (1962), Friedman further developed Friedrich Hayek's argument that economic freedom, while itself an extremely important component of total freedom, is also a necessary condition for political freedom. He commented that
centralized control of economic activities was always accompanied with political repression. In his view, voluntary character of all transactions in a free market economy and wide diversity that it permits are fundamental threats to repressive political leaders and greatly diminish power to coerce. Through elimination of centralized control of economic activities, economic power is separated from political power, and the one can serve as counterbalance to the other. Friedman feels that competitive capitalism is especially important to minority groups, since impersonal market forces protect people from discrimination in their economic activities for reasons unrelated to their productivity.
Austrian School economist
Ludwig von Mises argued that economic and political freedom were mutually dependent: "The idea that political freedom can be preserved in the absence of economic freedom, and vice versa, is an illusion. Political freedom is the corollary of economic freedom. It is no accident that the age of capitalism became also the age of government by the people." In
The Road to Serfdom, Hayek argued that "Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends." Hayek criticized
socialist policies as the slippery slope that can lead to totalitarianism.
Gordon Tullock has argued that "the Hayek-Friedman argument" predicted totalitarian governments in much of Western Europe in the late 20th century – which did not occur. He uses the example of Sweden, in which the government at that time controlled 63 percent of
GNP, as an example to support his argument that the basic problem with
The Road to Serfdom is "that it offered predictions which turned out to be false. The steady advance of government in places such as Sweden has not led to any loss of non-economic freedoms." While criticizing Hayek, Tullock still praises the classical liberal notion of economic freedom, saying, "Arguments for political freedom are strong, as are the arguments for economic freedom. We needn't make one set of arguments depend on the other."
Indices of economic freedom The annual surveys
Economic Freedom of the World (EFW) and
Index of Economic Freedom (IEF) are two indices which attempt to measure the degree of economic freedom in the world's nations. The EFW index, originally developed by Gwartney, Lawson and Block at the
Fraser Institute was likely the most used in empirical studies as of 2000. The
Economic Freedom of the World score for the entire world has grown considerably in recent decades. The average score has increased from 5.17 in 1985 to 6.4 in 2005. Of the nations in 1985, 95 nations increased their score, seven saw a decline, and six were unchanged. Using the 2008 Index of Economic Freedom methodology world economic freedom has increased 2.6 points since 1995. Members of the
World Bank Group also use
Index of Economic Freedom as the indicator of investment climate, because it covers more aspects relevant to the private sector in wide number of countries.
Criticism The nature of economic freedom is often in dispute.
Robert Lawson, the co-author of
EFW, even acknowledges the potential shortcomings of freedom indices: "The purpose of the EFW index is to measure, no doubt imprecisely, the degree of economic freedom that exists." He likens the recent attempts of economists to measure economic freedom to the initial attempts of economists to measure GDP: "They [macroeconomists] were scientists who sat down to design, as best they could with the tools at hand, a measure of the current economic activity of the nation. Economic activity exists and their job was to measure it. Likewise economic freedom exists. It is a thing. We can define and measure it." Thus, it follows that some
economists,
socialists and
anarchists contend that the existing indicators of economic freedom are too narrowly defined and should take into account a broader conception of economic freedoms. Critics of the indices (e.g.
Thom Hartmann) also oppose the inclusion of business-related measures like corporate charters and
intellectual property protection. John Miller in
Dollars & Sense has stated that the indices are "a poor barometer of either freedom more broadly construed or of prosperity." He argues that the high correlation between living standards and economic freedom as measured by IEF is the result of choices made in the construction of the index that guarantee this result. For example, the treatment of a large informal sector (common in poor countries) as an indicator of restrictive government policy, and the use of the change in the ratio of government spending to national income, rather than the level of this ratio. Hartmann argues that these choices cause the
social democratic European countries to rank higher than countries where the government share of the economy is small but growing. Economists
Dani Rodrik and
Jeffrey Sachs have separately noted that there appears to be little correlation between measured economic freedom and economic growth when the least free countries are disregarded, as indicated by the strong growth of the Chinese economy in recent years. Morris Altman found that there is a relatively large correlation between economic freedom and both per capita income and per capita growth. He argues that this is especially true when it comes to sub-indices relating to property rights and sound money, while he calls into question the importance of sub-indices relating to labor regulation and government size once certain threshold values are passed. John Miller further observes that
Hong Kong and
Singapore, both only "partially free" according to
Freedom House, are leading countries on both economic freedom indices and casts doubt on the claim that measured economic freedom is associated with political freedom. == Socialist viewpoints ==