Mr. Richman is a journalist and free-lance writer from Newark, Delaware.
How many times has a detailed defense of the free market ended with a show of incredulity on the part of the advocate of interventionism?
A typical case might go like this: You have just argued that the market process and the principles of human action make it impossible for there to be long-term, mass, involuntary unemployment or inflation or depression or any of the evil attributed to capitalism, but actually caused by government tinkering.
The astonished defender of socialism inevitably will smile and say something like this: “Do you expect me to believe that all of these problems are caused by the government? That none of them is the result of capitalism; and that if we just got the government out of the market these problems wouldn’t exist? Come on! It’s too simple, too pat. Life isn’t that easy. Wake up to the real world.”
To a young libertarian just beginning to study the workings of a free society, a criticism like that can be devastating. After all, isn’t it too pat? Isn’t it too easy to blame the government for all these problems? Isn’t it simplistic?
A brief reflection on the subject reveals that while it may be simple, it is far from simplistic. Simplicity, a forgotten rhetorical virtue, is hardly an indictment of an argument.
When faced with such criticism, the defender of the market would do well to remind his opponent of what’s being discussed. The market, absent of force and fraud, is a shorthand term for a group of individuals cooperating in the pursuit of various goals. Striving after different values, working to realize divergent plans, possessed of diverse stores of knowledge, these individuals go their chosen ways, trading only when it is to mutual advantage.
Without intending it, such actions by individuals—their acceptance and non-acceptance of goods and services at market prices—generate a complex system in which all the diverse knowledge of the separate individuals is put into a form that is usable by all the market’s participants. It is a system in which all people are left free to pursue their plans without constraint; where the wealth of information contained in market prices offers all the opportunity to rationally adjust those plans when appropriate. In short, the system that spins out of the actions of free human beings offers them the only peaceful, efficient way to deal with an uncertain future. (In this regard, see F. A. Hayek’s Law, Legislation and Liberty, Vols. 1 and 2.)
Now, what is government intervention and what does it do to this process? Government intervention, when it comes down to it, is the power of the gun. It is brute force, pure and simple. Motives here are irrelevant. Whether the government is full of benevolent bureaucrats or pernicious politicians is of no consequence. If a seller charges more than the government-imposed price ceiling allows, he will be jailed or deprived of his property. The same fate befalls anyone who violates government edicts.
The opportunities of the market participants to make and attempt to realize their plans have been stymied. The system that makes the harmonizing of divergent plans possible has been distorted into one of inevitable clash due to government distribution.
Hayek writes, “The spontaneous order arises from each element balancing all the various factors operating on it and by adjusting all its various actions to each other, a balance that will be destroyed if some of the actions are determined by another agency on the basis of different knowledge and in the service of different ends.”
Hayek here points out the interesting and crucial fact that the market is resilient and flexible regarding forces generated from within, but is easily thrown out of whack by forces from without, that is, political forces.
Is it any wonder that government intervention (read force) creates undesired consequences? Hardly. In fact, to argue that the free market is the only road to peace, prosperity and freedom ought to be a recognized truism. What could be a more obvious statement? It’s like saying peace is peaceful or free people are free. That this is not grasped by most people illustrates how far our culture has departed from the liberal thought that characterized the late 18th and 19th centuries.
But the interventionist doesn’t see it that way. Granting, for the sake of argument, that his motives are pure, he will insist that freedom, peace and prosperity can only be obtained by regulation. We must prevail upon him to explain this apparent contradiction.
He will usually fall back on the “economic power” argument. In essence, he will say, “Okay, it is true I am advocating the use of government power. But only because in the free market some people will wield excessive economic power. Therefore, it is a choice of who should wield power for which purpose: economic power for private purposes or government power for public purposes.”
A subtle—and hopelessly confused—argument. First, the distinction between public and private purposes is an illusion. The public is simply a group of private persons. So, all purposes are private. Similarly, all interests are “special.”
And what is this “economic power” to which it refers? It can only be the power to produce things consumers desire. How can this be excessive? Our earnest interventionist is likely to reply that it becomes excessive when the provider is able to sell at an “excessive price.” He becomes less earnest when reminded that (a) no one is forced to buy a good if he thinks the price is too high and (b) no one has ever bothered to define “excessive price.” Perhaps an excessive price is one that consumers wish were lower. In that case, is there any price that is not excessive? (Incidentally, every day of the week people decide prices are excessive for them in their special circumstances. And they turn down the products in question.)
Backed up against the wall of reality, the interventionist reveals his confusion about two other items: consumer demand and the pricing system.
If a consumer cannot afford a product, it is argued, his rights have been violated. But it cannot be true that a consumer has a right to another’s product, for that would make the producer his slave. There would be an inequality of freedom. Our interventionist may then take the “created needs” tack. This is the argument, popularized by J. K. Galbraith, that producers use advertising to create consumer need for their products. Is it fair to create needs, then make the product too expensive for the consumer to afford?
This, too, is an illusion. No one can create a need. A person may learn to desire something and may expect to continue having it. But that is the result of his choice. All a producer can do is to inform a potential consumer about a product. He cannot create a need. This would be obvious if the interventionist would think of all the things he doesn’t buy, despite frequent advertisements. Or is he the only one immune to Madison Avenue brainwashing?
“But people have to eat!” says the interventionist. “The seller is wielding power over us by charging us too much for food.”
It is true that people have to eat and use other goods to live. But this is not the fault of producers. It is a condition of nature that mortal men need to produce certain values to maintain their lives. Does it make sense to blame this condition on those who produce those values? Does it make sense to criticize them for not doing more than they have done? Does it make sense to attack them for not offering to become serfs? This is an ill-considered position for sure.
It also ignores the fact that no one has ever controlled or could ever control all the food production resources and the further fact that all products have substitutes. The upshot is that no one, not even the alleged monopolist, is immune from market competition.
The ignorance of the pricing mechanism is even more profound. The interventionist believes that prices are arbitrary. To be more precise, he thinks that prices begin at some point above “costs,” and that any particular price is arbitrarily set by the seller.
“He can charge any price he wants,” sums up the attitude. Well, it’s true that a seller can ask any price he wants. But that doesn’t mean he can get it.
Prices are not arbitrary and they are not determined by “costs.” They are set by the intensity of consumer demand for the existing supply. If an apple pie that costs $3 to produce can command a price of only $1 on the market, no seller is going to hold out for $3 or more if his interest is profits. The fact that it costs $3 to produce is of no interest to consumers. Their concern is whether the satisfaction the pie will render is greater than what they are being asked to give up for it. The seller’s costs are irrelevant.
According to the subjective theory of value, the value of an item exists in the mind of the person who would use it. Far from costs determining prices, it is really the other way around. The costs of factors of production will be determined by the price producers expect the final good to command in the market.
What all this means is that consumers have as much control over prices as do producers. Each has the ability to say “no.”
The foregoing demonstrates that the interventionist prefers the power of government to impose its arbitrary will to the power of people to produce for the satisfaction of consumer desires.
Well, that’s his choice to make. But please let’s make certain he knows what he’s advocating. One cannot make claims to rationality by advocating force to achieve peace, restraints on production to achieve prosperity, and slavery to achieve freedom.
