What is the free market? By definition it is simply a system of voluntary exchanges, nothing more really. If you have a hat and I have ten dollars and we agree to exchange them, absent coercion we have both obtained something we prefer. I prefer the hat to the ten bucks and you prefer the cash. This simple system of voluntary exchanges has been vilified throughout our country’s history and has been blamed for everything from recessions and depressions to the business cycle, to low wages, to income inequality. We are told it is inherently flawed and predatory and a breeding ground for corruption, greed, fraud, scandal, etc. The pope recently told us the free market is evil basically… awesome! We hear this in the media. It is taught in the schools. The result of this perpetuation of the evil free market has been massive regulation, and controls placed on free exchange in an attempt to fix these perceived flaws. In a democracy, if most people believe the free market is to blame for a weak or volatile economy, they will elect those who will place more controls on the economy. Mysteriously these controls never fix the business cycle so we pass more rules, and round and round we go… at some point to gotta ask, “Is this really a free market?”

So, free people making voluntary exchanges is not only immoral, but also causes all the maladies that beset our economy? Interesting.

Lets first talk about the morality of two people exchanging goods or services. A voluntry exchange cannot be immoral unless of course someone’s person or property is stolen or violated (in which case this is illegal and the guilty party should suffer the consequences). The only thing immoral is the government interfering in transactions. If they implement wage or price controls example, they are taking away your freedom. Quite literally you are less free in this scenario. You are no longer allowed to sell your good or hire someone at the price you wish. The free market is a peaceful system, but the government introduces force into it. Participants are forced to comply or suffer the consequences. The entire premise of this blog is to show that peace, freedom and non aggression are always morally just and breed the most efficient, prosperous system possible. So the more laws we have, the fewer choices we have, the less free we are, and the less prosperous we are. So the institution of these laws as I see it are immoral. The most highly regulated area in this country is the financial sector. It is my contention that this is the reason for the volatility in it, the reason we have collapses, the reason we have a “business cycle.” We’ll take a look at this and prove it in another blog soon but the point is that these laws and regulations give us fewer choices and cause millions of people to suffer when the economy collapses… again, immoral.

Next, lets look at some evidence. Throughout most of the world’s history man lived in severe poverty. People under rule of kings lived in squalor and spent every waking hour of their miserable lives toiling just to feed their families. It was only after the liberalization of societies and then the industrial revolution that the average person could flourish and live a decent life. When man was freed to pursue ideas and invent things and profit, life for everyone began to improve. Rulers who confiscated the productive yields of their people stifled innovation and incentive and prosperity. When man broke free of this things began to change.

The United States at its inception was the freest country in history. Our founding documents had one central intent: to ensure maximum freedom for its citizens while keeping the government in check. It is not coincidence that we eventually became the wealthiest country in the history of mankind. It’s also no coincidence that communism and fascism fail or that China only began to flourish when they liberalized their markets and largely abandoned communism. It is no coincidence that the freest states in America are the most prosperous and those with the biggest government, least freedom are in trouble. Look at the most prosperous countries today. They are also the freest. Look at Hong Kong. Look at Singapore. Then take a look at socialistic Europe and all the economic chaos. Look at Detroit. In a previous post I told you freedom equals prosperity. This is a law like gravity or supply and demand. Do some research or just use your eyes.

Next lets look at a few problems the free market gets blamed for. Take the business cycle. Austrian economics clearly shows that interference in the free market causes the business cycle: booms and busts. Austrian economists like Mises, Hayek, and Rothbard explain that most booms or bubbles arise from manipulation of interest rates (the manipulation typically comes from the government or central bank). Our all knowing leaders do not seem to realize that prices (interest rates) should arise organically and are signals to consumers and investors. They feel that they somehow know best what the price of money (or labor, or corn) should be. “F*ck supply and demand, we declare the interest rate to be x!!!” This is the definition of hubris (but I digress). When interest rates are set artificially (and mistakenly) low people make misinformed decisions, i.e. they buy houses they can’t afford, businessmen start projects they cannot complete, investors speculate unnecessarily, people buy stock in unprofitable companies (90’s dot com bubble or twitter, etc. today), firms use the cheap money to engineer leveraged buyout and stock buybacks, the list goes on. People are discouraged from saving as savings accounts offer no return or negative return. So they take risks. You get the idea. People make the wrong decisions because the fake interest rate faked them out (I’m picturing a wicked Kurt Rambis 1982 fake out move). This is how we get bubbles. They don’t come from the free market. They come from interference into the free market. So we have basically the opposite of a free market yet the the free market gets blamed for bubbles and crashes (I just said free market a bunch, sorry). Government usually is the actual cause. The crash comes when market forces override the false signals and bring us back to reality. Is it actually a healthy process. It is painful but necessary like a drug addict quitting cold turkey. Many believe this bubble we’re in will come to a very painful end soon… Gobble, gobble mother f*cker.

Another problem the free market unfairly takes the blame for is income inequality. The truth is that the relatively free market we experienced for much of our history made everybody richer, not just the wealthy class. Just look at absolute poverty rates over the course of our history. As our nation innovated and produced we all became better off. Entrepreneurs motivated by profit sought to mass produce products to sell to the public at large. Successful companies provided the highest quality products at the lowest price. They knew the best way to capture the market was not by producing a low quantity and charging a lot. They instead realized that producing vast quantities allowed them to offer their product more cheaply and include more of the population in the marketplace. As a result families with less income on the lower rungs were able to afford items that previously only the rich could afford. Also, consider that many who are considered poor by today’s standards live better than kings did a few centuries ago. They have more gadgets and luxuries than most people did even a decade or so ago. Most, not all, of our poor have air conditioning, a refrigerator, many have a car, washer/dryer, dishwasher, cell phone, cable TV, etc. If you ever travel to countries where people are actually living in real, legitimate poverty you will see what I mean. Go to Guatemala for example where in many parts people have no hope of ever living in a home without dirt floors or having indoor plumbing. This is the case in numerous countries around the world but not here. Our poor have it made compared to other countries thanks to the massive widespread productivity made possible because at one time we were the freest country in the history of the world. If the rich get richer, the poor typically also get richer. A gap is inevitable. But is a gap necessarily a bad thing? In the end we are all better off.

The income gap that we do have is largely created by our government and its partner in crime the Federal Reserve. Not only does the government create unemployment through its policies like the minimum wage and stifling taxation, but the Fed prints trillions of dollars that go directly to Wall Street and the fat cats get richer while average Joe sees none of it. Some argue that the resulting booms in the stock market and housing creates wealth for many. But artificial booms are temporary and the inevitable bust punishes people who were duped into participating in the illusion. Besides most people can’t afford to invest in stocks. They just want to earn a decent return on their savings account, but they can’t because the Fed has decided 0% interest rates for their buddies at the big banks are more important than a frugal saver earning a return on the few extra bucks he’s able to put away because he shut off his land line or didn’t eat out that month. Again, the fed and our government encourage risk taking and discourage responsible behavior… and the gap gets wider. In a free market the opposite happens. Savers earn and irresponsible risk takers get burned. But this is not a free market. We live in a country where big banks who act recklessly get bailed out and the executives still get their multi million dollar bonuses while you and I get punished when, for example the housing market tanks and we are suddenly underwater on our mortgage. That sh*t ain’t cool.

One last point that I want to make is that profits are a good thing when they happen organically (absent government/Fed manipulation). They so often get blamed for our economic struggles but as I mentioned above profits are the reason our great entrepreneurs gave us so many wonderful products that made our lives better. Our lives would suck without this stuff. We should be thankful for profits. Conversely, the reason government bungles everything it tries to run (I will blog a lot about this but you name it, they eff it up) is the lack of profit motive. If a program loses money the politicians are not on the hook financially. They just tax us, or borrow from China, or print the money to fund it. They make decisions based on political expediency not on profit. The incentive to make a buck and the fear of losing your shirt is what creates ingenuity and efficiency. Absent this you get waste, excess, abuse, and a bunch of failed programs that don’t go away, they just get bigger. In government, if it’s broken it doesn’t go away. They just throw more money into it.

So, next time you hear or read how terrible the free market is and how it is to blame for all our woes, remember what we have is not a free market.. far from it. Peace.

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