Freeman

ARTICLE

It Takes a Market

The Market Provides Countless Needed and Wanted Goods and Services

FEBRUARY 01, 1997 by BETTINA BIEN GREAVES

To drink coffee I do not need to own a coffee plantation in Brazil, an ocean steamer, and a coffee roasting plant, though all these means of production must be used to bring a cup of coffee to my table. Sufficient that others own these means of production and employ them for me.1 –Ludwig von Mises

None of us has the means or the technological know-how to do all that is necessary to place a cup of coffee on the breakfast table. Nor, for that matter, to provide us with all the many other things we use and consume every day. For this, we need a market. We need exchanges and property owners–savers, investors, entrepreneurs–who are willing to devote their resources to production.

In today’s global market economy, countless interrelated exchanges must take place to provide us with our morning coffee. The many persons involved in these exchanges are widely scattered and do not necessarily know one another. Most of the participants are probably unaware of how they contribute to the larger scheme of things. (Some who have contributed their expertise to the process may not even be alive today.) Yet each of them, by carrying out relatively minor specialized tasks, helps to bring coffee to our breakfast table. At every step in the complicated production process from plantation to coffee cup, entrepreneurs coordinate the activities of the many participants. For this it takes a market.

Private Property in a Contract Society

Today we live in a contract society. Property is controlled by neither king nor dictator. For the most part, it is privately owned and has been acquired through voluntary exchange.2 The law defines and–theoretically at least–protects to the best of its ability the rights of private property owners. The most important right of a property owner is the right of disposal, the right to control the use of his or her property. Once property owners gain the right of disposal, they may exchange property with one another, by contract, purchase, sale, deed, or bequest. Thus, there are exchanges and markets, and people are relatively well supplied with food, clothing, and shelter.

In a market society, the owner of consumption goods is free to decide how they will be used. Owners may consume them, give them away, bequeath them, or even willfully destroy them, so long as there is no interference with the equal rights of others.

However, the owners of production goods are not as free as the owners of consumption goods to use them precisely as they wish. The owners may be entitled to dispose of their factors of production legally, but they are not completely free to do so economically, that is, through the market, without considering the wishes of others. In this sense, the legal owners are not the exclusive owners of their factors of production, including their own personal labor. As legal owners they may retain economic control only if they are willing to devote their factors to the production of goods consumers want. If they produce goods consumers don’t want, they will suffer financial losses and lose their production goods–through bankruptcy, or by transfer to competitors who buy them out. The legal owners of production goods hold them only at the sufferance of consumers.

Thus in the market, there is a twofold having of the factors of production. On the one hand there is the owner’s direct, physical, legal having. And on the other hand there is the indirect, social, economic having of those who consume the goods and services produced. This forces owners to share the control of their factors of production with consumers, whose natural or economic having guides production.3

Production in the Contract Society

The process of producing almost any single consumer good–even fairly simple items like coffee or a loaf of bread, a suit, a dress, a house–is so complicated that no single person could possibly know enough to assemble all the raw materials needed, transport them from wherever they are found, manufacture the tools and machines required, and do everything else that is necessary to channel them into the service of consumers.4 Yet millions of consumer goods are offered on the market every day, many of them very complex–automobiles, planes, textiles, computers, electric and electronic household appliances, and so on. How are the factors of production–the land, labor, and capital–needed for the production of any one of these consumer goods, let alone all of them, assembled from all over the world and channeled into their production without the dictates of an overall planner? Just how in the world, for instance, does our morning coffee really reach our breakfast tables? For that it takes a market.

In a market society with the division of labor, coffee is grown and transported to breakfast tables in response to consumer wishes. Though consumers do not legally or directly own coffee plantations, coffee bean roasting plants, and oceangoing steamers, their purchases and refusals to purchase tell property owners how to use these various factors of production. Many factors must be brought into play and a complex network of market transactions developed. Some plantation owners are induced to grow coffee, some investors to construct coffee bean roasting plants, and others to build oceangoing steamers to carry the roasted coffee beans to market. Entrepreneurs are the arrangers, the expediters. Thus, in a market society, the legal owners of the factors of production do not have the final say. Rather it is the consumers who actually buy and drink coffee who determine through their natural or economic having how the factors of production will be used.

The ownership of property is in a continual state of flux, as a result of what Adam Smith called the propensity in human nature . . . to truck, barter, and exchange.5 The configuration of property ownership worldwide is changing from day to day, minute to minute. The owners of production goods are always adjusting and readjusting production in the attempt to better serve consumers. And because of their sensitivity to the control of production by consumers, through their natural or economic having of the factors, a trend prevails in a contract society for consumers to be increasingly well provided for. Not only will they have more food, clothing, and shelter, but also countless other wanted goods and services. And for this it takes a market.


1. Ludwig von Mises, Socialism (Indianapolis: Liberty Fund, 1981 edition), p. 31.

2. Property acquired by force or fraud is not considered legally owned; in the eyes of the law, the thief can never acquire ownership.

3. Mises, Socialism, pp. 30-31.

4. See Leonard E. Read’s “I, Pencil,” The Freeman, December 1958, for an illustration of the fact that it takes a market to cope with the complexity of producing such a simple thing as a pencil.

5. Adam Smith, The Wealth of Nations, Edwin Cannan, ed. (New York: Modern Library, 1977), p. 130.


Filed Under : Division of Labor, Capitalism, Free Market, Private Property

ASSOCIATED ISSUE

February 1997

ABOUT

BETTINA BIEN GREAVES

Contributing editor Bettina Bien Greaves was a longtime FEE staff member, resident scholar, and trustee. She attended Ludwig von Mises’s New York University seminar for many years and is a translator, editor, and bibliographer of his works.

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