do you free market bro?
For the past few years we have been told repeatedly by politicians and the media that the Free Market has caused the economic recession. Giving the markets, or banks to be more precise, too much freedom to do business resulting in them mismanaging money and going broke, so we’re told. That they were bailed out by governments is another days discussion, the question today is: were the banks operating in a Free Market in the first place? Do We live in a Free Market?
A completely free market is a form of a market economy where buyers and sellers are allowed to transact freely (i.e. buy/sell/trade) based on a mutual agreement on price without state intervention in the form of taxes, subsidies or regulation.
Do you free market bro? – what is a free market?
A free market means zero regulation, absolutely no influence by the state. Whether you think the state should influence business or not is beside the point right now. You have to admit that the state is and has been involved in almost all areas of business in some form or another for decades. Certainly the most important areas of our lives, in my opinion, finance and healthcare are very highly regulated – we all agree on this, whether we think there should be more or less regulation we can leave until later. Read my breakdown on how government regulation of healthcare is creating bad service and high prices for us all.
To find out if there is a free market in any area simply ask yourself: Can I start a business in X field today?
- Can you open a doctors clinic today? No, you need licensing and all manner of clearances from the state. So not a free market.
- Can I start a dog walking business? Depends where you are in the world, many US states require licences, whereas in the UK not only is a licence required but also dog walkers can be fined £300 for walking more than four dogs at a time. Is it a free market? No.
- Say you win €1,000,000 on the lottery and you decide to rent a small office, times are tough, the banks are not lending money in many places, so you decide to set up your own bank. You decide to place an advert in the local paper and offer loans to people starting a business, a very helpful and necessary service! You decide to interview these people yourself and make a decision yourself as to whether you consider them a trustworthy risk to loan them your money. You write up a contract and set a percentage rate to charge for the loan. You take the risk yourself, the borrower voluntarily enters your office and happily receives a loan from you to start his business. Can you start this business today? Is it a free market? Of course not, again there is all sorts of licensing and regulation requirements for anyone to start any kind of bank or money lending business.
Again, whether you consider the licence a good or bad idea is irrelevant here, the point is if the state gets to decide who can enter the market, then it is not a free market.
Do You Free Market Bro? – The F@*king Farmers do!
The closest thing to a free market today is a farmers market or a local pop-up craft market. These are for the most part unregulated, local people grow food and make home-made products and crafts and sell direct to customers. Of course the state demands sellers abide by regulations, or hold licences or insurance. The State wants its pound of flesh from every transaction. Whether every seller present abides by these requirements generally depends on the organiser of the market. Some expect all to be legally compliant, others, mainly if this is a one off or market held from time to time usually do not care about legal compliance. A local fund-raiser or church fair for example would normally ignore regulations on taxation or trade, but would usually be covered for insurance.
Free market” is a summary term for an array of exchanges that take place in society. Each exchange is undertaken as a voluntary agreement between two parties.
The aim is to have a mix of sellers and serve consumers first, with fresh food or home-made items not usually found in the stores. The benefit is the producer gets paid directly for his labour rather than any middleman such as a super market and the tax man is cut out of the equation, also as a result the buyer might get a better price, although not always the case.
A free market is based on voluntary exchange. Like the farmers market, people make the choice to turn up and perhaps buy some produce, or choose to stay away. Many government programs are not voluntary. In many cases we are forced to pay for services we may never need or use, and we may find the quality of service to be dreadful. For more on this see my post on Irish Water, a crony state company pumping dirty water to Irish people without giving them any choice to take their business elsewhere.
So when you hear others blame the Free Market in future keep in mind that if there is any interference by the State at all, then the market is not free. It is only a Free Market when you or I, or anyone can freely enter and set up a business.
Next week I will continue with this subject, addressing the fears of a Free Market and what happens when some economies are freer (less regulated) than others. Sign up to the newsletter to be sure to not miss the follow up.
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