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This section was my workspace for philosophy essays between July 2006 and April 2008. I call this "Prehistoric Kilroy" because it gave me practice for more disciplined essays in Kilroy Cafe. Also see my philophical blog and Twitter feed.

Issue #101, 2/7/2008

The Economics of Freedom

By Glenn Campbell
Family Court Philosopher

What is freedom? It is the ability to change your life to respond to new circumstances. Someone who is locked in prison has very little freedom, while someone who has just graduated from high school has quite a lot of it. When the circumstances of the world change or your own personal development goes in an unexpected direction, freedom is the latitude you have to adapt to those changes and not be held back by the past.

In the real world, freedom is strongly related to money. In general, the more money you have in your pocket, the more freedom you have to adapt to the unexpected, but it is not a simple formula. Some rich people are essentially imprisoned and can't adapt easily to a changing world, while some people who are relatively poor are rich in practical freedom.

To begin with, the relationship of money to freedom is not a linear one. More money does not always result in more freedom. Sometimes, it is less!

If you won a million dollars in a lottery, that could go a long way toward securing your freedom for the rest of your life. If you invested the money wisely, you could obtain a perpetual annuity that would free you of the burdens of "work." Thereafter, you would do things solely for their personal satisfaction and not because you needed the money.

If you won twenty million dollars instead of one million would you gain twenty times the freedom? Not necessarily. At a certain point, you have enough money to secure your basic ability to do what you want, and anything you add above that is not really improving your status. There might be some freedom gained by that extra $19 million, but it is nowhere near the benefit of the first million.

Having insufficient money is certainly a crimp on your freedom. Lack of it can force people to do jobs they don't like and put their dreams on hold indefinitely. While trapped in this state, people tend to assume that the relationship of money to happiness is simple. The more money you have, they figure, the happier you will become, so they throw themselves into making money.

At some point, however, a threshold is passed where more money does not create more happiness. This is when you should use your freedom to change gears, maybe by moving into some activity that is more self-justifying and less mercenary. Unfortunately, most people, having struggled most of their lives against poverty, fail to detect when the line has been crossed. They keep making money even when they don't really need it.

It is tragic to not have enough money and therefore be forced to do things that aren't meaningful. It is an equal tragedy, however, when you have enough money but continue to do those meaningless things. In both cases, you are wasting your precious personal resources.

Another thing that messes up the simple "money = freedom" formula is contractual obligation. Assets are only half of the economic equation; liabilities are the other. Liabilities can take the form of debt or futures contracts. Debt is money you owe to someone else for some past purchase, and a futures contract is an agreement to do something in the future.

Debt is a burden on your freedom because servicing it increases the income you need just to keep your head above water. You also know that the debt is going to be with you for a certain period of time, so you may be disinclined to make changes in your life during that period. If you know you have debt payments of $2000 a month, this is certainly going to limit your movement options versus having $0 in debt per month.

Debt can seem like a useful tool, as it lets you reap the benefits of years of hard work right away. Debt can buy you a house or car you wouldn't be able to afford if paying cash, but this service comes at enormous risk. If the house falls in value—either in market terms or in its personal value to you—you will still be paying for it at its original cost. There are also the finance charges to think about, which may end up doubling or tripling the cost of the product over the life of the loan.

In terms of the freedom obtained for the money spent, one may find that renting a room or buying a cheap used car may be a better deal. If your life changes in unexpected ways, you are free to abandon both with no lingering obligations.

A futures contract, loosely defined, is when you agree today to do something in the future. In financial markets, a futures contract is when you agree to buy or sell a certain commodity at a specified price on a certain date in the future. When that data comes, you could in theory take delivery of the 10,000 pork bellies you agreed to buy in the contract, or you can simply pay or receive the monetary difference between the contract price and the current market price.

In ones personal life, a futures contract could be seen as something much broader, as any sort of future obligation, agreed upon today but paid for tomorrow.

Marriage is a futures contract of sorts, as is parenthood. In both cases, you are agreeing to be there for another person at a future date, even though you don't know exactly what the circumstances will be. It's a nice concept but not always a healthy one, since the conditions you predicted at the beginning, based on current market trends, may not be the same ones you encounter five, fifteen or twenty-five years out.

But there are many other kinds of futures contracts, many of them quite subtle. They often sneak up on you, seeming to be small and innocuous at first but eventually accumulating to become a great anchor holding you down.

For example, nearly every physical product you buy carries with it some obligation for future storage or maintenance. This is the hidden cost of the item—the "futures contract" component. Houses and vehicles are notorious sinks for maintenance services, and in general the more unnecessarily luxurious they are, the more it costs to maintain them. Thus, for every dollar you spend beyond your practical need, you are taking on greater future obligations.

If you buy a boat, you are probably going to feel an obligation to take it out on the water every weekend just to justify the investment. This may be exciting for the first few weekends, but on Weekend 24, does the boat seem more like an asset or a liability? Products like this not only need to be physically maintained; they are also going to make demands on your lifestyle that ultimately restrict your ability to change. Owning a boat, for example, might lure you away from other activities that might ultimately be more meaningful.

Cute little puppies and adorable kittens also end up as futures contracts, usually with a final market price much higher than you ever anticipated. Soon, you are rearranging your life so the dog isn't left too long at home and starts tearing up the furniture. One little kitten, curled up in your hand, doesn't seem all that much bother, but it is amazing how quickly such maintenance obligations accumulate and soon come to dominate your life.

Money can contribute to freedom, but it isn't freedom itself. Freedom is simply the condition of having a lot of options, even if you don't end up using most of them. Money can often contribute to this blissful state, but it doesn't guarantee it. In particular, when ones obligations expand to absorb ones extra income, one can be very wealthy in objective terms and still be trapped in an unsatisfying and unproductive way of life.

The destitute college student is probably in the most enviable state. He has no money but also no obligations and nothing in his life to prevent inspired changes of course. He certainly faces his own challenges, namely how to define himself and what to do with all his freedom, but lack of money itself is not a huge barrier. As long as he has a couch to sleep on and enough money for a dollar burger, he has the means to learn about the world and move ahead.

Such freedom is the envy of many a millionaire.




Reader Comments

“As always.” —Joe in NY 2/8/08 (rating=4)

“I believe that freedom is more directly tied to the availability of desirable choices. Slaves and inmates, although fed and cared for had no choices and thus no freedom. The college student in your example epitomizes the example of desirable choices and hence freedom. Often, we equate money with desirable choices but not always. Those who are enslaved by the notion they are victims or have no choices or options for change are on occasion those millionaires you referenced.” — 3/12/08 (rating=4)

Ratings so far: 4 3 2 4 5 3 3 (Average=3.4)

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