Market Economies – a short lesson in Economics

The paragraph below, defining the concept of the free market, is taken from the book The War on Success, de Tom Newberry, p. 27. I picked it up because it is an excellent definition of the free market. Here is what he says:

“The concept of the free market is quite simple. It does not involve compulsion or coercion. Each individual has the right to enter  the market and sell his goods or services for whatever amount other people are willing to pay. No one is forced to buy, and no one is forced to sell. To get the things we want in life, we create something that others want and then sell it to them at a price that makes them want to buy it.”

When I quoted this passage on FaceBook, someone (Howard Gold) replied:

“Eduardo, do you know of anywhere in the world where free market economics govern? Surely there must be somewhere???”

Below, my answer…

A totally free market economy? I don’t think there is, Howard.

But with the exception of North Korea, Cuba, etc., all other economies of the world are market economies today (after the sad communist interlude ended in 1989). They are not "perfect cases" ("totally free"), because governments will not easily relinquish the hold they’ve got on the economy (once they get it).

Do we not, as individuals, go to the market and sell our goods or services, and do this in a relatively unrestrained way?

We sell our goods or services for whatever money other people are willing to pay for them, because the price of our goods or services is determined by the market.

If we are not happy with the price we are getting, we can improve our goods or services or change business altogether, because nobody is forced to buy our goods or services at any price — and certainly not at the price we’d like to receive for them.

With the money we receive for our goods or services, we buy other goods and services which we need or want more than the money we have.

The market economy is not mysterious. As Newberry says, it is quite simple (as most important things in life). But it is not easy to achieve a market economy, or, once we achieve it to some extent, to maintain it, because governments are always there to try and limit it or even extirpate it altogether.

Why do governments do that? Because governments are made of people – people who live out of what other people produce (that is the definition of a parasite, isn’t it?). And people who are in government seem to think that riches are there for them to dispose of them as they see fit. They seem to think that some people have more riches than they need (which is true), and that therefore they have the right to redistribute these riches to those who need it, but haven’t produced it (which is absolutely wrong). John Locke said that an action that is morally wrong for an individual to perform does not become right if performed by a government. If you see that one neighbor of yours has much more than the other, it don’t conclude (unless you are Robin Hood) that you have a moral right (much less the duty) to expropriate the riches of one to give to the other, making their riches more equal. This kind of action is not made right when performed by governments. It is morally wrong and it is evil.

Something important to realize is that markets and governments are made of people. The market is us — as the government is us (or them, as the case may be). All, us and them, are people. The market and the government are made by our choices.

In sum: sure, there are lots of market economies around. Market economies existed even before capitalism. The novelty of capitalism (classical liberalism) was to say that that the market is good, needs no improvement, and that therefore the most that governments ought to do is stay out of the market – the more they stay out, the best.

That is the thesis of the minimum state.

In São Paulo, May 10, 2010

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