The Free Enterprise Philosophy In a 12-Cell Matrix

Dale M. Haywood served on the board of scholars for the Mackinac Center for Public Policy from near its founding until his death in 2006.

Haywood taught economics and philosophy at Northwood University and delivered a speech that properly "describes why private property, a free market, a profit and loss system and limited government are necessary components for allowing people to prosper."

His lecture, which he gave countless times to college students, uses a 12-cell matrix to explain the free enterprise philosophy. Below are the 12 cells with four points each discussing components, meaning and purpose. Each point has a short excerpt from the full speech, but we encourage you to read the whole thing by clicking here.

1. Private property
2. Free markets
3. Profit and loss system
4. Limited government
5. Control what you earn

"I think that if you earn a dollar, that's your dollar," he said. "In other words, if you labor and you accumulate some fruit from your labor, I think you should be the person who controls the fruit. It’s that simple."

6.  Flexible wages and prices creates competition and consumers rule

"I essentially mean a situation where prices and wages are not fixed by force or decree, but are arrived at through voluntary contract and are allowed to adjust to changing conditions in the marketplace — supply and demand in particular. Why, when there are flexible wages and prices, do people tend to be more prosperous than in those places where governments impose prices and wages or otherwise forbid them from adjusting to changing market conditions?"

7.  Adding value wins

"All businesses require inputs. Exactly what inputs depends on the nature of the business. If the output is pizza, you'll need input like tomato sauce, onions, maybe ground beef, and so on. You'll need ovens, pans, employees, etc. The whole purpose is to try to combine them into a product or service that adds value. You add value to the inputs as you apply your talents and direction to the process and generate a final output — a finished pizza or a new Honda Civic or whatever. You hope to have a lot of happy customers who voluntarily buy these goods and services. If they buy them in sufficient quantity and at a price that pays for your inputs and then some, you've earned a profit. If you combine inputs worth x but the most that customers will pay you later for the output is something less than x, then you've subtracted from value in society and you've earned a loss. Fortunately, the market will make sure you don't do that with much frequency."

8.  Defensive function

"I believe that we human beings have a right to defend ourselves. And if we have rights, I think we can delegate them to other people. We can say to some people (government), 'We'll give you the guns, police, army, and so on, and you use those guns to defend us from aggressors.' If someone threatens us, then the people to whom we've delegated our individual right to self-defense can legitimately employ defensive force on our behalf."

9.  Incentive to produce

"If you earn a dollar, and 65 cents are taken from you so you net 35 cents, how does that affect your incentive? Are you more or less inclined to work if someone takes some of the fruits of your labor? How is your incentive to work, save, invest and take risks affected? Isn't it obvious? All of the earthlings that I know have more incentive to produce when they get to keep the fruits of their labor."

10.  Most efficient use of scarce resources

"Competition makes us more prosperous because it pressures us to shape up, to be alert, to keep costs down, and to listen to consumers. Can you think of any good or service that would improve in price or quality if we prohibited competition?"

11.  Rewards efficiency and limits waste

"It rewards producers for being considerate of consumers, and it causes producers to be extra-conscious of their expenses. It makes them conservation-minded. What seem like exceptions to that rule — examples of wasteful spending — are indeed precisely that. They are exceptions. And they are minimal in a free economy because of the built-in penalties incurred by their perpetrators. Those who waste resources eventually are not 're-elected' by consumers; they can't rely on taxpayer subsidies."

12.  Individual responsibility

"When government is limited, you and I must assume responsibility. We must be adults. When government is unlimited, when it does everything for everybody, it not only ends up doing very little very well, but more importantly, you and I descend into infancy."