Monday, September 1, 2008

the free market

libertarians generally accept that the free market is the foundation of human prosperity. though the free market is generally considered capitalistic, it doesn't rule out the voluntary collectivism (usually on a smaller scale) of ideologies such as communism or syndicalism.

the free market is generally misunderstood by those lacking in economic education and is often confused by those with political agendas as regulated or managed markets. the market is nothing more than the sum of transactions between individuals. all transactions of which are perceived by the participants as beneficial, otherwise they wouldn't happen. for example: when we go to the grocery store to buy bread, we voluntarily exchange money for bread. this occurs because we value the bread more than we value the money it took to buy it - typically because we have much more money than bread. on the other hand, the grocery store has more bread than money and values your money more than the bread. the exchange occurs and everyone benefits. are mistakes made? of course, but this is an unavoidable consequence of human nature. with freedom comes the inevitable burden of responsibility.

when the market encounters regulation (the initiation of force to alter the trade habits of individuals) it is distorted. the efficiency of the market is reduced by the regulator inhibiting two or more parties from engaging in mutually beneficial trade, for whatever reason. one might protest: "don't we need regulation in order to protect individuals from fraud?" in short, "no". there are numerous problems with this idea -

1) because it is a fact of economics that value is subjective, meaning that different people are willing to pay different prices for the same items for various reasons, regulation can never be consistent. it will always overprotect some and underprotect others, because it can never know the subjective valuations of market participants.

2) the idea of regulation assumes that market participants are unable to decide for themselves what they should or shouldn't be doing or who they should or shouldn't be trading with. the market is a self-regulating entity. participants must be honest and strive for value, or risk losing their ability to prosper by having their reputations ruined or being undercut by competitors. because risk tolerance is different among market participants, no regulation can ever determine what is the correct amount of risk one can assume in any given transaction.

3) in order to establish such compulsory regulations, one must assume the right to subject the person and property of others to the ideals of the regulator which is contrary to the functioning of civilized society. because all humans have the same rights, if it is acceptable to subject one to the whims of another, then it must also be acceptable for all to subject all to whim and ideology, creating the hobbesian "war of all against all" with the strongest parties becoming de facto "governments".

because of the inherent benefit of transactions on the market to all participants, the free market is a virtually unlimited machine of growth and prosperity, bridging the gap between classes and lifting all participants to higher qualities of life. not only does the free market, in practice, create greater standards of living for all participants, but it also is inherently anti-authoritarian. freedom is not only a great luxury, but is also the best way for individuals to prosper.

2 comments:

Daniel said...

The problem with the free market is the same as the problem with nature. Nature is ideal, but left alone it will harm humans. Bacteria are natural. Virii are natural.

It's also natural to drill for oil until it runs out, and only then look for alternatives. It's also natural to sell harmful products to the masses as long as they're stupid enough to buy them.

These are natural, but they are not good for society. This is where the necessary evil of government comes into place. The issue at hand is how to keep that government small, transparent, and wielded by the people. We have to keep it from becoming its own purpose.

And in this task we have failed--hence the problems we have now.

So yes, libertarianism is good. But not to an extreme. Something like the FDA will always have to exist because the NATURAL way of doing things is to allow the rich and powerful to stomp on and take advantage of the poor and weak.

If that's not the world you want to live in then you have to deal in the world of gray and subtle.

zrated said...

i would dispute that the claims you make, daniel, can be accurately labeled as "natural". it is not natural in any way for one to drill for oil until it's gone, only then to look for alternatives. if one owns a company based on oil production, only the most incompetent of management would have the lack of foresight to keep their businesses alive after their oil reserves had dried up. the market, as a self-regulating entity, creates strong incentives to avoid this type of behavior. although their are certainly those who might sell "harmful" products to the masses, it is the right of individuals to make the choices they see fit regardless of our opinions of those choices. i personally consider drug use to be "bad" whether it be alcohol or heroin, but i recognize the right of individuals to consume such products if they so choose. asserting that some have the right to force their opinions of such subjective ideas as "good" and "bad" on others is a rejection of equal rights theory and an endorsement of the hobbesian situation with all forcing opinions on all until the strongest and most brutal arises as the de facto government. there are also great incentives in the market to sell products to consumers at a high level of safety. it's hard to maintain a business with a reputation for killing its customers because of negligence, not to mention that each one killed will no longer be patronizing the business. because, when dealing with humanity, things are going to sometimes be done unethically or immorally, does not mean that such behavior should be institutionalized in government. because government requires the violation of person and property, it defeats itself in purpose if the point is to protect person and property. widespread rights violation through government is never the answer to the problem of occasional rights violation on the free market.
it is the height of utopianism to suggest that centralized power be given to the power-mad elite of society (make no mistake these people will have control of government) and trust that they will restrict themselves from corruption and growth of government power. in the market, however, these people can only get and maintain what they have by providing the public with the products and services they desire at reasonable prices and safety levels. remember that there is always a hungry competitor waiting in the wings to poach the unsatisfied customers of "business a" when they begin to let standards slide.
government is the institutionalization and legalization of crime ( http://anarcholife.blogspot.com/2008/08/why-only-libertarians-consistently.html ). that is not, never has been or ever will be beneficial to a society.