The Free Market: What it is - What it Implies
JULY 01, 1969 by TOM ROSE
Mr. Rose is Head of the Business Department of Bryan College in Tennessee.
The attracting power of right ideas never ceases to amaze me! Recently a student approached me after a particularly stimulating class discussion in Economics. "Sir," he said, "this thing you call the ‘free market,’ will you please explain it for me in more detail?"
The person standing before me was a young man from Lebanon. He had recently enrolled in our small college. He said he had never before heard the term "free market" and it interested him.
I chatted with him as I gathered up my lecture materials, quickly outlining in broad sketches the essential ideas behind the philosophy of individual freedom and responsibility. And as I did, something unforeseen happened!
The young man’s eyes lit up, his face literally shone, and he exclaimed, "Why, it’s beautiful! This is exactly what I am looking for!" Then he went on to share with me the dream that brought him to America. He and his compatriots back home hope to develop his nation into a land of "milk and honey" that will shine as a beacon of moral and economic success to the whole world, that other nations might follow.
Needless to say, what started out as a casual explanation on my part quickly developed into something much more exciting. Two hours passed almost unnoticed, and our conference had to terminate because of another engagement. But it did not end until the searching scholar was given some tools that would enable him to pursue his beckoning star. He left with some carefully selected books and suggested readings with ideas that might help light the way for him and his countrymen toward personal and national greatness.
History has proven, with America as her most shining example, that right ideas held by men of vision and integrity can quickly build underdeveloped nations into economic giants that richly bless the world. Thus is the attracting and motivating power of right ideas! When sowed at an opportune time in a friendly climate, they germinate very quickly.
The Free Market Defined
The concept of the free market is not difficult to understand. Like all good things in life, it is simple and basic if approached in the right way. The free market is simply the voluntary exchange of goods and services between free individuals. It is as simple and as basic as that!
Why, then, all the confusion and contention as to the relative merits of free market voluntarism versus the compulsory exchange of the welfare state, socialism, fascism, and communism?’ In my opinion, the confusion arises because of a failure to understand the basic concepts and relationships that are involved. For instance, we should recognize that the free market, in essence, is not really a system at all. The word "system" connotes an a priori planned scheme or method of doing things, and the free market is not a planned system in this sense. Rather, the free method of facilitating exchange is a natural aggregation of human interactions which result from a process of growth due to the nature of man. It was not, and could not, be planned by any finite being. It is too big, too all-encompassing, and too perfect to be the handiwork of mere man. In short, the free market is what it is because man is what he is.
Man is Free by Nature
The Founding Fathers of America recognized that man is free by nature, and they stated this fact in the Declaration of Independence. In so doing they uncovered once again the moral base of cooperative society which had largely been obscured for thousands of years. Their declaration reiterated man’s inherent right to be free and self-responsible before God and in relation to his fellow men. Their declaration re-echoed the cry of Moses some 3,000 years earlier when he stood before the Egyptian Pharaoh and said, "Thus saith the Lord, let my people go that they may serve me!" (Exodus 8:1)
The essence of man’s free nature can be ascertained in two ways. First, it can be seen in the Bible, and this is sufficient for those who accept the Bible as the inspired word of God. The signers of the Declaration of Independence understood and accepted the revealed truth that man was created a free moral agent and thus, by nature, is and has a right to remain free and self-responsible. The above verse from Exodus is just one of a number that can be cited to verify man’s right to and responsibility for self-direction.
A second way of ascertaining the same truth is through empirical evidence. It should not take an alert person very long to observe that man is free by his very nature.
The discovery by Carl Menger that value is an imputed quality rather than an inherent quality of a good served as an important milestone in the accurate understanding of man’s thought processes and, thus, to an understanding of his free nature. As a result of Menger’s work, we are now able to see that value cannot be measured objectively. We cannot determine the value of a pie, for instance, by how many man-hours went into producing it. If we could, then mud pies might be worth more than cherry pies!
If such objective measurements could be used to determine value, then the produce of a group of inefficient workers would certainly be more valuable than that of an efficient group because it took longer to make. If you had the pleasant task of choosing between two seemingly identical new automobiles, would you pay more for one because it had more labor costs in it than the other? Not by a long shot! Studebaker got out of the automobile manufacturing business because consumers do not measure value objectively by the amount of labor costs invested in products.
The objectively measured labor theory of value was one of many false concepts that Karl Marx accepted. And his mistaken concept naturally leads to the denial of an important facet of man’s free nature: that each person can and does establish value according to his own unique and wholly subjective scale of measurement.2 And exactly what this scale of measurement is, no one knows for sure —perhaps not even the person who applies it—because his scale is constantly changing from moment to moment.
Totalitarian societies develop when those in political power insist upon overruling the individual value judgments of the very citizens they are supposed to serve. It is upon this denial of man’s basic nature—of his right to hold his own subjective opinion—that all forms of socialism/communism rest. And this is why socialism/ communism cannot possibly succeed in the long run, even in the mild form currently known as the "welfare state."
Necessary Elements of Free Exchange
If man is free and self-responsible by nature, what then is needed for the free market to exist?
Let’s remember that the free market, by definition, is the voluntary exchange of goods or services between free individuals. Thus, to be more accurate, we should ask what is needed for a free market to exist rather than the free market, because the free market is simply an aggregation of many independent voluntary exchanges.
Physically, all that is needed for voluntary exchange to take place are:
But metaphysically, much more is needed! In addition to two people and two goods, there must also be:
A recognition of and respect for the concept of private property. A difference in opinion as to the relative worth of each good.
Mutual willingness to engage in exchange negotiations.
Joint freedom to engage in exchange negotiations.
Respect for the other person’s right to be guided by and to act upon his own personal value judgment.
In summary, then, at least seven ingredients are basic to voluntary exchange. If any one is missing, exchange either will not take place or, if it does, then the exchange will not be voluntary:
If property is to be exchanged, the owner and trader must be able to give clear title.
If both parties value each good equally (i.e., if they fail to disagree as to what each good being traded is worth), neither one would be motivated to engage in the necessary barter that must precede agreement to exchange. The lack of profit would not warrant the effort involved.
If either party lacked the willingness of freedom to trade, free exchange, obviously, would not take place.
If each party did not respect the other’s right to be self-guiding, there would be a tendency for one to impose his will upon the other. (This could take place by overt direct coercion, which is generally illegal; or by a more insidious form of indirect coercion, which often is legal but just as immoral as legal coercion.)
The only difference between the two types of coercion is that one is "honest illegality" while the other is "dishonest legality." For instance:
· In case #1, A wants B’s money. Being a believer in direct action, A risks public censure by robbing B at the point of a gun. Everyone recognizes the wrongness of his act, even A. This is "honest illegality."
· In case #2, C wants D’s money, but he is unwilling to risk public censure in the event he gets caught in the overt act of robbing, so he turns to a more devious method. He turns to "dishonest legality." C persuades government legislators of his need, and they pass a tax law that legally transfers money from D’s pocket to C’s pocket. If D refuses to pay the tax collector, another agent of government (a policeman) will knock on D’s door and force him to pay or put him in jail.
There is no doubt at all that D’s "dishonest legality" is less risky and more effective than A’s "honest illegality." The only unanswered question is the effect, if any, that the breaking of the moral law might cause. But parties to "dishonest legality" are generally blissfully unaware that they have done anything immoral (or at least they think that immoral ends achieved through the agency of group action can escape punishment.) Thus, we see that any exchange that does take place through coercive action (either direct, or indirect) benefits one party at the expense of the other.
Can the Free Market Disappear?
Some lovers of freedom become apprehensive about the rising tide of socialist/communist ideology throughout the world (including our country). They see the trend of encroaching government intervention and they imagine the day when what is left of the free market system will be gone.
In the short run, this rising encroachment on liberty is worthy of concern, but in the long run it is not. By saying this, I do not mean that we should give up natural liberties willingly or without resistance. I personally do not give ground without contesting each step of the way where the principle of individual liberty and responsibility is concerned. I, too, can visualize Orwell’s 1984, but I worry not one moment about the possible loss of the free market, because it cannot happen!
The free market may be restricted and encroached upon by all who will stoop to the "honest illegality" of direct coercion or to the "dishonest legality" of indirect coercion, but the free market cannot be eradicated. The free market cannot be eradicated because it exists in the heart of man; it is in his nature. Wherever two men are, the free market exists potentially if not actually. It may be dormant, but it will bloom into mutual profitability upon the slightest recession of coercion.
Does this mean that we need not concern ourselves with continuing to expose and resist the ideas of those who are ever-ready to inhibit voluntary exchange? Indeed not! Neither does it mean that we should relent in sharing the good news of the free market philosophy with any who might be attracted to it. Rather, it means that we should view the challenging prospects for individual freedom and responsibility with courage and assurance. The free market comes into being naturally because man by nature is free. In the long run, the nature of man assures success in our attempt to foster voluntary exchange because that is the way God made him. In the short run, let us roll up our sleeves and apply ourselves conscientiously and creatively to the stimulating avocation of helping others find and understand the motivating power of freedom.
1 Many scholars differentiate between the welfare state, socialism, fascism, and communism. In essence, they are all the same. They all depend on coercion rather than voluntary persuasion to induce exchange. A resisting citizen in any of these totalitarian states will end up either dead or in jail.
2 This truth is well stated in a different way by Leonard E. Read in his book, The Coming Aristocracy, page 62. "The extent of one’s orbit is not self- but other-determined. Others, not I, decide whether they are in my libertarian orbit. I have nothing whatsoever to do about the matter except to strive for and attain some measure of excellence."
Get Out or Get in Line
If you work for a man, in Heaven’s name work for him. If he pays you wages which supply you bread and butter, work for him; speak well of him; stand by him and stand by the institution he represents. If put to a pinch, an ounce of loyalty is worth a pound of cleverness. If you must vilify, condemn and eternally disparage—resign your position, and when you are outside, damn to your heart’s content, but as long as you are part of the institution do not condemn it. If you do that, you are loosening the tendrils that are holding you to the institution, and at the first high wind that comes along, you will be uprooted and blown away, and probably will never know the reason why.