Free market economy is a buzz word - or phrase. It's one of those terms that when most people hear it they think they know what it means.
There is a kind of built in self deception to such thinking. Indeed, in the case of "free market economy," a reflex of understanding doesn't turn out to predict the ability to provide a reliably coherent and consistent definition.
And, of course, definition as a matter of course is fraught with uncertainty. As confident as any of us may feel about ours, nobody is obliged to share it.
Semantics or historical precedent, the resort of many, in reality solves little. Precedents are simply too abundant when sought by determined and clever partisans. There is no science of definition. It is an unfailingly subjective enterprise.
This is prologue to acknowledging the limits of offering my own definition. It is not offered under the delusional burden of finality or conclusiveness, but only because I believe it is useful to do so. It is a definition that I believe provides useful distinctions about the nature of our world. This is why I find it useful and insist upon its use.
Additionally, my definition is not piecemeal or makeshift. Rather, it is principled and lends itself to precise analysis. I believe there's value in that. If anyone thinks differently, there's nothing I can do about that.
What is irrefutable here though is that this is what I mean by a free market economy. If anyone wants to criticize my attitude to, or conception of, a free market economy, it is this that must be criticized. Otherwise they would quite literally not know what they're talking about.
With those caveats in mind, I offer my definition, building as it were, back-to-front. An economy is defined as the dimension of a society addressing the employment of resources: material, human or otherwise. Exactly how those resources are employed exceed the definition.
Markets are nexuses for the trading of resources by economic actors. (Use of the term "resources" should not mislead the reader into assuming "natural resources" - e.g., stuff dug out of the ground. "Resources" rather refer to anything which an actor might put to some use. The term could be treated as interchangeable with "goods.") It is worth mentioning that "market" does not assume the operation of money. A barter economy is no less a market economy.
While it may not have money, that does not prevent a market economy from having prices. Indeed, they are essential to it. Prices then are not inherently understood in relationship to money, but rather as the consensual evaluation of resources compared to that of other resources. Where money is part of the market, it is traded as simply another resource. Its value is determined by supply-and-demand just like that of any other resource. (For more on this, see my article on the Meaning of Money at the Fiat Currency Review.)
So a market economy is one in which value is determined by the relative supply of and demand for resources in the process of trading them. If a given resource is widely available and/or very few people want it, it will be valued less: it would take relatively more of it for most people to trade something they valued higher (i.e., it would have a lower price), than another resource less available and/or more widely in demand. Though, demand is always subjective .
Up to now, then, we've defined a market economy. Defining a specifically free market economy requires a step further. For these purposes, we can regard "free" as interchangeable with "voluntary." A free market economy is characterized by an economy in which all actors are free to trade any resource with exchange partner willing to mutually engage in the transaction.
These distinctions are illustrated by the marijuana market. Most of the world has prohibitions against selling and buying (not to mention growing and consuming) marijuana. The police of such jurisdictions mobilize their monopoly of legitimized violence to hinder such market exchanges.
Despite police efforts, though, buying and selling marijuana remains a lucrative business. In many parts of the world the trade remains a central part of the economy.
The threat of violence by the police (being physically abducted and caged, surely qualifies as violence, whether you consider it legitimate or not) of course eliminates a free market in marijuana trading. Due to the high demand, though, nonetheless markets emerge to serve the needs of the prospective consumers.
If demand is sufficient, suppression of a resource, even by violence, will not eliminate the market for it. Threats of police violence do diminish the number of buyers and sellers in that market. And, since "trafficking" or "dealing" or otherwise holding large quantities is usually dealt with more severely, selling in particular is very dangerous. Dealing with this danger incurs elevated business costs. Those costs, combined with the violence-induced supply reduction, result in prices higher than the market would otherwise provide.
Government suppression of markets, thus, increases prices by reducing freedom to trade. This is not only true in the case of demonized (though victimless) crimes. All government tariffs, zoning, subsidies, bailouts, and most taxation and regulation, has the effect - and very often the intent - of reducing freedom to trade.
Virtually all the well documented corruption is a direct result of this dynamic. Politically well connected sellers influence government policy-making, curbing police powers in directions beneficial to their economic interests. Such crony mercantilism is the antithesis of a free market economy.
There is a kind of built in self deception to such thinking. Indeed, in the case of "free market economy," a reflex of understanding doesn't turn out to predict the ability to provide a reliably coherent and consistent definition.
And, of course, definition as a matter of course is fraught with uncertainty. As confident as any of us may feel about ours, nobody is obliged to share it.
Semantics or historical precedent, the resort of many, in reality solves little. Precedents are simply too abundant when sought by determined and clever partisans. There is no science of definition. It is an unfailingly subjective enterprise.
This is prologue to acknowledging the limits of offering my own definition. It is not offered under the delusional burden of finality or conclusiveness, but only because I believe it is useful to do so. It is a definition that I believe provides useful distinctions about the nature of our world. This is why I find it useful and insist upon its use.
Additionally, my definition is not piecemeal or makeshift. Rather, it is principled and lends itself to precise analysis. I believe there's value in that. If anyone thinks differently, there's nothing I can do about that.
What is irrefutable here though is that this is what I mean by a free market economy. If anyone wants to criticize my attitude to, or conception of, a free market economy, it is this that must be criticized. Otherwise they would quite literally not know what they're talking about.
With those caveats in mind, I offer my definition, building as it were, back-to-front. An economy is defined as the dimension of a society addressing the employment of resources: material, human or otherwise. Exactly how those resources are employed exceed the definition.
Markets are nexuses for the trading of resources by economic actors. (Use of the term "resources" should not mislead the reader into assuming "natural resources" - e.g., stuff dug out of the ground. "Resources" rather refer to anything which an actor might put to some use. The term could be treated as interchangeable with "goods.") It is worth mentioning that "market" does not assume the operation of money. A barter economy is no less a market economy.
While it may not have money, that does not prevent a market economy from having prices. Indeed, they are essential to it. Prices then are not inherently understood in relationship to money, but rather as the consensual evaluation of resources compared to that of other resources. Where money is part of the market, it is traded as simply another resource. Its value is determined by supply-and-demand just like that of any other resource. (For more on this, see my article on the Meaning of Money at the Fiat Currency Review.)
So a market economy is one in which value is determined by the relative supply of and demand for resources in the process of trading them. If a given resource is widely available and/or very few people want it, it will be valued less: it would take relatively more of it for most people to trade something they valued higher (i.e., it would have a lower price), than another resource less available and/or more widely in demand. Though, demand is always subjective .
Up to now, then, we've defined a market economy. Defining a specifically free market economy requires a step further. For these purposes, we can regard "free" as interchangeable with "voluntary." A free market economy is characterized by an economy in which all actors are free to trade any resource with exchange partner willing to mutually engage in the transaction.
These distinctions are illustrated by the marijuana market. Most of the world has prohibitions against selling and buying (not to mention growing and consuming) marijuana. The police of such jurisdictions mobilize their monopoly of legitimized violence to hinder such market exchanges.
Despite police efforts, though, buying and selling marijuana remains a lucrative business. In many parts of the world the trade remains a central part of the economy.
The threat of violence by the police (being physically abducted and caged, surely qualifies as violence, whether you consider it legitimate or not) of course eliminates a free market in marijuana trading. Due to the high demand, though, nonetheless markets emerge to serve the needs of the prospective consumers.
If demand is sufficient, suppression of a resource, even by violence, will not eliminate the market for it. Threats of police violence do diminish the number of buyers and sellers in that market. And, since "trafficking" or "dealing" or otherwise holding large quantities is usually dealt with more severely, selling in particular is very dangerous. Dealing with this danger incurs elevated business costs. Those costs, combined with the violence-induced supply reduction, result in prices higher than the market would otherwise provide.
Government suppression of markets, thus, increases prices by reducing freedom to trade. This is not only true in the case of demonized (though victimless) crimes. All government tariffs, zoning, subsidies, bailouts, and most taxation and regulation, has the effect - and very often the intent - of reducing freedom to trade.
Virtually all the well documented corruption is a direct result of this dynamic. Politically well connected sellers influence government policy-making, curbing police powers in directions beneficial to their economic interests. Such crony mercantilism is the antithesis of a free market economy.
About the Author:
If you're interested in protecting you and your family's wealth, keeping tabs on what's happening in the economic world and understanding free markets, you have to follow the latest scoops and analysis on the Free Market Economy blog.
No comments:
Post a Comment