Love and the Free Market

http://peacelegacy.org/articles/love-and-free-market :

Unfortunately we live in a world where some of the necessities of life 
are disparaged and sometimes even criminalised. Carbon is perhaps the 
life-giving "villain" highest in the public eye right now, but the free 
market, without which most of us would be living in squalor and misery, 
or even be dead, cannot be far behind.

In a nutshell, the free market is one of the necessities for wealth and 
happiness, but in the popular perception two things go very badly wrong:

    1. The free market is confused with laissez-faire economics, 
deregulation, untrammelled capitalism, and so on;
    2. Admirable ideas about equality, cooperation, friendship, 
generosity, concern for the weak and powerless, and so on, make the idea 
of trading—buying and selling, spending one's time making sordid money 
instead of selflessly giving—seem incompatible with 'being a nice person'.

The former problem means that free markets can be, and perhaps always 
have been, implemented badly so that a range of corruptions can be 
indulged in, often perfectly legally but without a shred of morals. The 
latter problem means that many or most who concern themselves with these 
issues, and who have the best and finest intentions, turn against the 
free market and trading in their entirety, and therefore never take part 
in any discussion to fix the problems with how free markets are actually 
implemented.

Hayek was one of the key advocates for free markets. His central 
explanation of why they work is this: for an entire complex society to 
take, on the whole, the best and most profitable actions (such as to use 
less resources, create better products, transport goods most 
efficiently, and so on), the knowledge of millions of individuals is 
needed. For example, I might know the cheapest way to move things from X 
to Y; you might know how to make something cheaply at X. Our knowledge 
combined might make a better product available to a purchaser at Y. So 
should someone at Y hire me to do shipment, you to make the product, and 
so on? Maybe other people have a way to make the product at Z and ship 
it to Y. Which plan optimises the Earth's resources? The answer is that 
in a free market, prices tell the buyer at Y whose product to buy. If 
one or the other group of suppliers cannot match the best price, they 
will get no buyers. If the prices reflect true costs, and if all inputs 
(including damage to the environment) are costed, then a free market 
results in the least damaging and most efficient way to obtain the product.

I recall stories on television around the time of the Soviet breakup 
showing horrifying environmental damage throughout the former Soviet 
Union, due to badly planned industrial activities in the era of central 
planning. Hayek's point is that central planners, no matter how clever, 
how well supplied with supercomputers or you-name-it, cannot compete in 
making decisions with millions of decision makers informed by prices set 
in a free market. The point is that prices convey to us information in a 
distilled form that came from the knowledge of hundreds or thousands (or 
millions) of other people. Choosing the best price automatically chooses 
the best set of actions by all those people whose individual knowledge 
we could never hope to digest and make sense of. Central planners will 
always fail in comparison to a free market.

So what goes wrong? Why are so many people opposed to free market 
economies? Are they simply stupid?

Read more:
http://peacelegacy.org/articles/love-and-free-market

-- 
Ron House
Building Peace: http://peacelegacy.org
Australian Birds: http://wingedhearts.org
Principle of Goodness academic site: http://principleofgoodness.net

Ron House wrote:

> So what goes wrong? Why are so many people opposed to free market 
> economies? Are they simply stupid?

What goes wrong is that information isn't free. You have to *know* that 
supplier X is cheaper than Y, even though X trades in a different state 
and transportation costs are trivial. So you get market distortion by 
advertising, and so on. There are too many factors affecting pricing, so 
although a consumer might see a single decision point, suppliers don't.

And in any case, there aren't very many free markets. Any complex 
economy cannot provide comparable products to a single point of 
consumption, partly because no supplier wants to compete on price alone. 
Product differentiation is the key to price differentiation and thus 
price variation in what might otherwise be competitive products. Your 
price comparison then becomes complicated, which is what a supplier 
needs in order to avoid strict price competition.

Talk to any manufacturer and ask if he's happy to compete on price 
alone. Then see what he does, instead of what he says.

-- 

Doug