The five major areas are:
•Size of government. To get high ratings in this area, governments must tax and spend modestly, and marginal tax rates must be relatively low. While governments are important in protecting property rights, enforcing contracts, and providing some services, as governments grow they inevitably infringe on people’s economic freedom to engage in trade and enjoy the fruits of their labor.
•Sound money. It might not be clear at first why this is a measure of freedom rather than just a measure of good economic policy. But money would likely be sound if the government did not have a legal monopoly over the money supply (see competing money supplies and gold standard). Therefore sound money is a measure of how much the government refrains from abusing its monopoly power. To get high ratings here, a country’s inflation must be low and stable, and the government must permit people to own currencies of other nations.
•Property rights and rule of law. This area measures the consistency of a country’s legal system with the protection of property, enforcement of contracts, and evenhanded application of the law. This is perhaps the most important area of economic freedom, as economic freedom requires that people be secure in their persons and physical property; it also requires a judicial system that enforces contractual agreements fairly.
•International trade. Countries that refrain from enacting protectionist tariffs, quotas, and capital controls get higher ratings in this area (see international trade). Economic freedom means that people can engage in trade with any person of their choosing. If the government taxes or otherwise prevents people from buying or selling with people in other countries, it reduces their freedom.
•Regulation. Regulations such as interest-rate controls (usury laws), restrictions on bank ownership by foreigners, minimum wages, military conscription, business licensing, and price controls are included. Such controls and regulations violate the principles of economic freedom. To get high ratings, countries must refrain from such regulations, leaving people free to set prices, open businesses, and trade.
