The Journey series
This week’s Mustard Seed considers free market principles. A free market requires freedom of ownership and of association.
People must be allowed to own the fruits of their labour, ingenuity, creativeness, and innovation. They must be free to keep, use, or trade what they own.
People must be allowed free association for purposes of trade and production.
The value of each product and service is set by agreement between those who need or want the products or services and those who provide them. If the vendor set their price too high the purchaser will select an alternate supplier, find an alternate product, or simply forego the transaction. If the price is too low the vendor’s business will fail.
When the market is in equilibrium production will match consumption and vendors will receive a fair return on their investment and efforts.
Production rates are set by competition. If supply is tight prices will rise which increases returns and encourages more competitors to enter the market. If supply is too great returns will fall and producers will leave the market.
In a true market economy the value of all commodities and services as well as production levels are set by all members of the community. A true market economy, however, is unattainable. There will always be members unable to participate due to age, injury, infirmity, or various other impediments. There will always be people who abuse the system.
Each community has a duty to regulate the activities within it, provide for those unable to manage on their own, and protect its citizens. To afford these services the community levies taxes. Production is taxed through personal and corporate income taxes; value added taxes; and, for foreign production, tariffs. Fees are levied on some services to recover some costs directly from the beneficiaries. Transaction taxes are also applied to some exchanges.
Taxes are necessary but they are determined by bureaucrats and, as such, interfere with a true market economy. Those governing our society also intrude deliberately to shape social policy. These interferences may be outright bans, quotas, licenses, surcharges, or subsidies. Examples are residential pesticide bans, egg and milk marketing boards, professional registration, carbon taxes, and subsidized daycare.
Another barrier to the free market is cost of production. While in theory all members of a community are free to compete in production few have access to the capital required to start an enterprise. As production becomes more complex this barrier increases. I started my contracting business with a few hand tools, a strong back, a little experience, and a great deal of hope. Today that would barely get me a job interview. This skews valuation to the benefit of big corporations.
Another impediment to the free market is society’s need to protect the many from the few. Most people are capable and honourable but a few are not. Laws enacted to protect the many from those few impede the efforts of the honourable. Extra paperwork, licensing, permits, certification, audits, and quality control inspections all add to production costs.
The more complex our products become and the more responsibilities we cede to government the further we stray from a true market economy. Most people who complain about the free market are actually complaining of where the free market is overridden. They propose to fix the problem by intruding even further.
We won’t fix our economy by blaming others. We can't and expect others to fix it. We must accept that our responsibilities, obligations, and limits are indeed ours. Until we accept them with as much fervor as we demand our rights, our decline will continue to accelerate. We must accept that our rights are not absolute; they are subject to the rights of others. We must learn than liberty is far different from and far superior to freedom. Autonomy without responsibility, obligation, limit, and compromise is anarchy.
Next week: Wealth.
Peter T Elliott