EMail Doodlings - how about a definition for "Free Market"? - Granite Grok

EMail Doodlings – how about a definition for “Free Market”?

Free MarketsI think that both Steve’s and Mike’s posts on the ills of Socialism at spot on and as a counter point to what some feel are the overriding positives of Socialism, one of the email lists I’m on, a request came in to define “Free Market”:

I’m trying to write a short description of why the free market is good, why we should encourage it.
My problem is that I don’t have the skills of Friedman, Hayek, Rothbard, Hazlitt, Bastiat, Smith, etc. to be able to convincingly describe its virtues. What I hope is that through crowdsourcing, we can come up with a good description.

So please, everybody, give me a sentence or a paragraph explaining why a free market is a good thing that we should “cherish”.

To get things started I will start with a paraphrase of Milton Friedman [Nobel Prize winner]:

The record of history is crystal-clear. The free market is the best way so far discovered of improving the lot of ordinary people.”

Now, it could be said that what Mitterand did (and rejected, as well as China, and the Soviet Union, and the rest of the Iron Curtain countries, plus Viet Nam and what even Sweden is moving away from and….well, you get the idea), and what Hollande is about to do,  just do the opposite.  So, a number of folks responded including moi:

 The Definition:

The free market (the TRUE free market) is the simplest of systems: you have something I would like to have, and visa versa.  For this transaction to happen, I am estimating the value of what I have versus the value *I* place on what you have to transact.  I will make the trade if it is in my self-interest and my perception is that I will become “richer” in value by giving you what I have, and you give me what I would like of yours.  This is a win-win situation as the other person is ALSO making the same calculation.  My self-interest is satisfied – and the other person’s is as well.  I want your dozen ears of corn more than the $3.00 in my pocket; you would rather have my $3.00 and we agree to swap.  That is the essence of free market capitalism – a price point is reached where the transaction happens, or not.  That price signal says my want is sufficient to pay the price that affords you to cover your costs, and a bit of extra (profit) to start your process all over again and is credited as possible “wealth to you”.

Note this – one ONLY succeeds when you offer something of value to ME.  It means that your good or service PLEASES me sufficiently to give you something for it.  You win ONLY by pleasing and serving others.  Yes, it is in your self-interest to serve others for when you do so, and do it well, you will “profit” by having more transactions come your way.

The Freedom:

In a true free market (as compared to one where distortions from coercive elements such Government mandates or overbearing regulations), one is free to make any transaction – true economic Liberty.  Each transaction is voluntary – no one has to participate unless it is in their self-interest.  Also, in a free market, only those that participate receive value – and can accumulate wealth (the “richer” in value).  It rewards participation and gives each player an incentive to continue to participate.

It also allows each person to bring to the fore their own talents, work ethics, and creativity and have the opportunity to be rewarded for it.  All can prosper compared to all other systems that have been tried (and failed).  The opportunity to succeed is open to all; no, success is not guaranteed even with hard work and education and there will be some that will be upset with the lack of success that they believe that they should deserve.  However, that does not mean that the system is unfair, as there will be those that will not gain or earn “the brass ring”.

The Synergy and Complexity

Capitalism, as described in The Definition, can be simplistic (as the example is above).  It can also be billions of similar decisions made everyday as hundreds of millions of people (just in the US) as each person makes transactions that benefit them and their families.  In essence, they are crowdsourcing the economy with supply chains to “please and serve” their customers and suppliers.

The bottom line is “who has the control – do I, or some far away technocrat that truly BELIEVES that they know what I need or want”?

Grokster Tim also chimed in:

“The free market is free people working together. Any other type of economic system involves top-down government control. There is a reason that people in America are guaranteed the inalienable individual right to ‘liberty and pursuit of happiness.’ That’s what made our country was made great in the past.”

 And a few others also contributed:

  • The free market respects the dignity of the individual by respecting their worth and the worth of their labor, by allowing them to be creative and industrious, and by allowing them to serve others. It does not seek to control, but to cooperate. The most successful entrepreneurs are those who really listen to people, and who seek to serve them by creating the product that others need and want.
  • In a free market, nature takes its course.  Everybody is at least vaguely familiar with the law of supply and demand, which could be called a law of nature: when more people want something, more of it is produced to meet that demand, and vice versa.  Prices adjust similarly: people are willing to pay more for something scarce than for something common, and vice versa.  In any natural system, things find their own balance, like water flowing downhill until its levels are balanced everywhere it’s allowed to flow freely.  In a non-free market, government interferes with supply and prices, like someone putting up barriers to the flow of water.  That creates a non-stable system, a stressful, unbalanced, and unnatural state of affairs which eventually breaks down – like the economy of the former Soviet Union and every other place where government has interfered with nature.
  • This is a bit long, but it is a very worthy read, and will give you ideas around the NECESSITY of freedom for innovation and progress. It is a short story titled “I, pencil” which illustrates how the simplest of things is actually complex and dependent on the expertise of many people working together without even knowing they are working together.

(The story is preceded by a forward and an afterward on the same web page, so it isn’t quite as long as it looks.)

OK readers, you’re a bright bunch – send them your definitions!

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