Freeman

ARTICLE

Dynamics of the Free Market

MARCH 01, 1969 by ROBERT H. EAGLE

Dr. Eagle is a free-lance writer and manage­ment scientist in Chapel Hill, North Carolina.

Social and economic changes, changes in tastes and technology, appear inevitable. Many of yester­day’s products and processes have passed from the scene, replaced today by countless goods and ser­vices unheard of a few years ago.

Recognizing this fact, entrepre­neurs attempt to anticipate or in­itiate change in order to secure a profit. In an active, relatively free market, they are constantly search­ing for new products and services which they hope will have wide­spread appeal and consequently produce the profit which success­ful innovations bring. Some of these attempts succeed; others fail. But the public as a whole is satisfied with the result of the free market mechanism, powered by the profit motive.

The conditions of supply and demand which pace economic changes are simply the expressed desires of willing buyers and sel­lers. The resources for production thus are attracted into business ventures that are potentially prof­itable.

However, when the source of in­vestment is heavy taxation, the criterion of profit potentiality is lacking; and the size and impact of projects, thus financed, must inevitably bring about undesired changes. Had the general public’s desire for such undertakings been at all discernible, entrepreneurs would have banded together to take advantage of the obvious profit potential.

Many economists have long rec­ognized the role of profit (posi­tive and negative) in directing economic activity out of certain lines and into others, but the fact that the profit motive paces change, bringing it about but at the same time keeping it within manageable and tolerable limits, has seldom, if ever, been recog­nized.

Yet the second role of profit—causing tolerable, relatively grad­ual change, in contrast to the so­cial and economic upheavals which are apparently becoming more drastic and frequent—may be as important as the role of directing economic activity.

The movement into or out of certain economic activities is di­rected by the consuming public which by its voluntary purchases or nonpurchases bestows positive or negative profits on the entre­preneurs involved. Similarly, the public, in a free market society in which government plays only a minor economic role, would con­trol the pace of change.

A Sense of Stability Midst the Winds of Change

Both a desire for change and a resistance to change are built into human nature, in different pro­portions among different human beings. Very few people enjoy liv­ing in a society of constant and drastic changes. Human nature de­mands some sense of stability, some assurance that life is not going to be drastically different every day. It is widely believed that the pace of modern industrial society is having deleterious ef­fects on the population, socially and psychologically. On the other hand, not many people wish to live out their lives without any pros­pect for change. The great mass of Americans fall into the middle ground, desiring change leavened with a certain amount of stability. And this is the kind and pace of change generally afforded as en­trepreneurs cater to the general public in open competition.

However, when the government becomes the single largest cus­tomer in the economy, dwarfing the world’ s largest corporation, matters are far from the ideal described above. With its virtu­ally unlimited access to resources (gained with the use of compul­sion via its taxing powers), cater­ing to powerful special interests (all of whom want the public treas­ure spent on their own behalf), the government is in a position to bring about vast and widespread changes that are undesirable so far as the general public is concerned.

An example of the disruptions brought about by coercive govern­ment intervention is the "diverted-acres program." Under this pro­gram, the Federal government pays large landowners handsomely to retire land from production.

Senator Abraham Ribicoff re­ports in the September, 1968, Reader’s Digest that the average corn acreage has been cut by 15 per cent since 1961, but the corn harvest went up by 376 million bushels. The large operators re­tired their poorest land and "spent their government checks on more fertilizer and high-yield technol­ogy for their remaining acres." Such a program adversely affected "the small farmer who did not have enough land to participate in the diverted acres program." The report continues, "to collect Washington’s cash for diverting acres into growing pulpwood, for example, many landowners have dispossessed tenants and laborers by the thousands…. The net ef­fect… has been to eject 100,000 more farm people per year."

Shifting Populations

The population movement from farms to industrialized centers goes on in any economy as it changes from predominantly agri­cultural to predominantly indus­trial. In the absence of govern­ment intervention, this movement tends to be spread out over time rather than to occur in sudden spurts. When farm workers, un­prepared by skill or background for city life, move gradually into urban centers, they can be more readily absorbed into the new en­vironment than when they abrupt­ly arrive in large numbers.

The farm program, as Senator Ribicoff explains, is one of "the forces moving poor farm people into urban ghettos." Such environ­mental wrenchings add to the over­all problem of crime and delin­quency.

The letting of large government contracts, giant public works, space and national defense pro­grams (as when military bases are located, opened, and shut down for political considerations) such ac­tions, based on compulsion, have a monumental impact on the econ­omy and the disposition of men, money, and materials. In addition, fiscal and monetary policies, usu­ally involving the expansion of money and credit, overstimulate the economy and bring about dras­tic coerced changes that no com­bination of entrepreneurs, big and small, could ever accomplish.

If these intolerable dislocations of people and resources are to be avoided, the responsibility must be withdrawn from government and re-assumed by the private sector of the economy.

ASSOCIATED ISSUE

March 1969

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