Free Markets Advance Economy, Government Intervention Stalls It

The word Capitalism has been successfully branded by the left as a negative thing: evil, greedy, undesirable. Many people think that money is the root of all evil, and that after a persons’ needs are fulfilled, the excess is immoral. But it is difficult to define a person’s needs, and figure out whether every product and service has contributed to a higher standard of living. In this day and age it would be hard to consider tobacco as raising the standard of living, and likewise if the mass production of food has made it less healthy, there seems to have been a decline in the benefits that economic advance has offered. But whichever companies have substandard products and are still successful generally have something behind the scenes in common: they have rigged the market through state intervention. Almost always, when someone references the negatives a company contributes, these negatives would have been avoided had the market been free, allowing dollars (and the individuals spending them) to regulate the quality and price of a product.

The capitalistic social order, therefore, is an economic democracy in the strictest sense of the word. In the last analysis, all decisions are dependent on the will of the people as consumers. Thus, whenever there is a conflict between the consumers views and those of the business managers, market pressures assure that the views of the consumers win out eventually. -Ludwig Von Mises

Businesses in a free market must convince people to spend dollars on their products, and the only way to do this is to offer a product or service which benefits the consumer. In a free market when businesses cannot attract customers, or compete with others offering similar products, they would go out of business. Sometimes this means a better, but more expensive product goes off the market because the people voted with their dollars and said in that particular case that the trade off to have a lower price and lower quality was worth it, or the makers of the better product compromise on the quality in order to compromise on the price and remain competitive. The problem arises when one company can use the government to escape the free market. In our economy, the more expensive company could use the government to say his competitors are not allowed to undercut his prices, through anti-trust laws. Now both prices are high, but the quality of only one product is high. Likewise the less expensive company could use the government to give the pubic the false impression that the higher priced and better quality product is not in fact better quality, by having a government agency declare it unsafe.

The development of capitalism consists in everyone having the right to serve the consumer better and/or more cheaply. -Ludwig Von Mises

In these instances the market was subverted by the government. People no longer were able to choose a product on a cost/ benefit analysis, but instead had less choice because the government had decided for them. The right of the business to better serve the consumer was taken away by the government.

So when we look at a big company with what seems like negative consequences coming from their product, we have to ask if that company was chosen by individuals, or chosen by government intervention. Do consumers still think fossil fuels are the best way to get energy, or could billions of dollars a year in subsidies to oil companies be deciding for us? We cannot do a proper cost benefit analysis because part of the cost is hidden from us– we pay taxes and the taxes are given to the oil companies. We also cannot just decide to use those tax dollars for something else, so oil becomes our best choice for energy, under the circumstances. In a free market the oil subsidy money would be left in the private sector to be spent on alternative fuel, furthering its development and bringing the price down as new technologies are discovered.

Did consumers think that GM made the best cars for the cost? Apparently not, otherwise the company would not have had to be bailed out. Again, the choice was made by government to put tax dollars into a company, meaning individuals cannot decide between car A and car B, the government decided. So GM cars which were lacking in a way as to make consumers not want to buy them, are still around, and no new car company was able to break into the market, because GM appealed to government intervention to make it remain a viable company. Now instead of advancing in the economy, the same old product is still available. The government decided that GM cars needed to be built, instead of allowing the consumer to inject cash into a market for a new type of transportation, or a better quality car in terms of gas mileage, or even one that runs on alternative fuel.

How has our food been allowed to decline in quality while the companies growing it continue to get bigger? Because we are not operating in a free market, and larger farms can appeal to the government to intervene. The FDA and USDA make rules which the big company can easily comply with, and put the smaller farms out of business. The choice has been made for us, mass produced food will be available, and local farms will fail. This was not a market choice of individuals deciding between quality and price, it was the government making one product artificially more expensive through intervention, in order to benefit their competitors.

Capitalism will be engaged in as long as people are free, because it is simply mutually beneficial transactions fulfilled without force. When these transactions are allowed to take place, and people are allowed to vote with their dollars using a cost/ benefit and cost/ quality analysis, then better products more fit for the needs of the consumers will be made. These advancements are not currently being entirely decided by the consumer however, which means that our economy will have to meander through the advancements, instead of staying on a straight forward path to supplying consumers with what they need for the lowest price possible. Money that could be spent on effective cancer treatment will be harder to place in the proper channels if the government is obscuring the choices of the consumer by requiring the FDA (controlled by interested drug companies) to allow or deny clinical trials of a drug. Because government intervention is allowed in the economy, crucial product advancements will take a backseat to the interests who are able to buy government favor. This is why force, including government force, must be eliminated from our economy.

3 thoughts on “Free Markets Advance Economy, Government Intervention Stalls It

  1. Really interesting post. While I would have strong reservations about removing the safety net for individuals in the free market, I would argue that if taxation is theft, then corporate welfare is the perfect “two man job”.

    • Thanks, and I think corporate welfare is the perfect “two man job” which is why, when arguing about how to deal with lobbyists, I often focus on stopping tax money from going to corporations in any form, because without the subsidies, grants, easy loans, and bailouts, the companies would have much less to gain from lobbying (another key part to limiting the bad aspects of lobbying is not allowing government to intervene in competitors business with uneven or excessive regulation).

  2. Pingback: Must a New System be Perfect to Replace an Imperfect Reality? | Joe Jarvis

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