4/07/2012

Free Markets for Everyone



The other day on Twitter I saw a comment which unfortunately I did not bookmark and so I do not remember who to attribute it to. It was in the context of a discussion and the comment was in response to something someone else had said and again I can not recall either party, though I do believe it was between to conservative columnist. But the comment was so perceptive that it has stuck with me, it was this:

If liberals really understood markets they could not remain liberals

Mostly people think of markets in the economic aspect, which is its predominate useage in society. However the market has a much wider context as well, best defined in the first sentence of its Wikipedia's definition:

A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange.

Markets, in essence, are about exchanges between individuals or other institutions or entities comprising people. This is we come to have such expressions as the "the marketplace of ideas." Also from Wikipedia

The "marketplace of ideas" belief holds that the truth or the best policy arises out of the competition of widely various ideas in free, transparent public discourse, an important part of liberal democracy.

The idea of free markets whether it be in ideas or commerce is that ultimately "the best wins out". Some, particularly on the left, would have you believe that free markets which is the essence of capitalism is nothing more than "survival of the fittest" and that the ultimate outcome is that the weak are "put upon" by the strong. This is not only a perverted view, it is not even close to how markets work because for markets to work they depend on individuals making choices not choices being made for individuals. Once choices are made for individuals then it ceases to be a "free" market and the only entity with the power to "game" markets is the government. Governments are the only player in commerce than can compel individuals or corporations to operate outside of true free market principles. This is why subsidies and mandates are so egregious, they distort the marketplace.

Here is a more accurate description of how free markets work.  People left with only their own self interest as a compass will inevitably choose the product, service or idea which is most beneficial to their circumstances. The cumulative decisions of individual choices will ultimately determine the degree of success or failure of any product, service or idea. So in the end it is not the survival of the fittest than wins, but the success of the best that survives.

A free market allows individual choices to determine what becomes popular and successful. It is not perfect but what is? I might love a particular brand of cereal but for whatever reason it does not catch on with the rest of the the cereal eating public, so it is discontinued. It may have nothing to do with the cereal itself, perhaps the manufacturer did not have sufficient resources to "market" the product so it never received the notice I think it deserved, that's Life, which by the way is one of my favorite cereals.

People may not like free markets in commerce or in ideas, but what is the alternative? And more importantly why wouldn't they? There is really only one alternative to free markets, that is allowing someone else to determine for us what is best for us. And there is really only one reason for someone to oppose the free market concept, they believe they know what is best for the rest of us.

Can you think of any other reason or any other motive in not allowing free people exercising their own choices to determine what is best?  Only the extremely arrogant or the weakest among us would want to create a system where a select few would determine what is best for the rest of society. Do we wish the narcissistic colluding with those of limited ability or motivation to be the guiding forces in societal evolution?

When free markets are allowed to work they create amazing benefits to the greatest number of people simply because the greatest number of people are allowed to determine what is best. Despite a leftist narrative that sees capitalism as a system of exploitation for the most part the opposite is true, it has worked to the benefit of the greatest number of people. True visionaries have always recognized that what is best for the most, is also what is best for themselves. This is in line with the simple truth that if you put the individuals rights above all else you protect the rights of everyone including yourself.

Here are a couple examples to understanding the importance of how free markets actually work rather than how the left would have you believe they work.

One of the most innovative examples of ingenuity (American or otherwise) that I have ever heard of has to do whith one of the most ingenious men that ever lived, Henry Ford. This particular example of Ford's ingenuity has to do with the early manufacture of the Model T. which revolutionized transportation. It is reported that Ford specified that shipping crates of certain suppliers use wood cut to a certain thickness. He did this so that the packing crate material could be reused in certain components of the Model T.

This story may or may not be true but what is true is that Henry Ford used every trick he could think of to drive down the cost of manufacturing his cars. The reason for this was not so that he could "pocket" the savings as some people might have you believe of "evil capitalist" but on the contrary his purpose in saving money in the manufacturing process was so that he could sell his product cheaper to the public. Henry Ford famously said "I will build a motor car for the great multitude." This business model,now popularly employed across many industries, Of driving down prices to increase market, was not all that popular at the time particularly in the automobile industry where owning an auto was considered a status symbol. Another example of this cost cutting mania was the reason Ford changed the paint color on Model T's to black only, they originally came in other colors, he did this because black paint dried faster and this sped up production time, thus saving costs which were passed on the the consumer. In 1913 the base price of a Model T was $850 by 1925 the price was $300!

Henry Ford was not alone nor the first in understanding that the key to success was to provide products efficiently which resulted in lower prices for everyone. Consider that "Robber Barron", John D Rockefeller who not only made the second stage of the industrial revolution possible, he saved the whales.

In 1865, when Rockefeller’s market share was still minuscule, a gallon of kerosene cost 58 cents. In 1870, Standard’s market share was 4%, and a gallon cost 26 cents. By 1880, when Standard’s market share had skyrocketed to 90%, a gallon cost only 9 cents — and a decade later, with Standard’s market share still at 90%, the price was 7 cents. These data point to the real cause of Standard Oil’s success — its ability to charge the lowest prices by producing kerosene with unparalleled efficiency.

John D. Rockefeller had a rare business mind. He was at once a visionary, foreseeing a world in which his kerosene illuminated millions of homes, and an accountant obsessed with day-to-day penny-pinching. Upon buying his first refinery in 1863 at the age of 23, Rockefeller started optimizing every part of his business, from his storage facilities to his refining methods to the number of non-kerosene-refined products (waxes, lubricants, etc.) that could be squeezed from every barrel.

In pursuit of efficiency, Rockefeller employed then-rare business strategies such as vertical integration and economies of scale. For example, by purchasing his own forest and producing his own barrels, Rockefeller lowered per-barrel costs from $3 to $1 while increasing reliability and quality. To transport oil, Rockefeller obtained large rebates from railroads, not through corrupt conspiracies (the typical explanation) but by dramatically lowering the railroads’ costs. Where others offered railroads unreliable, highly variable traffic, Rockefeller offered guaranteed daily fleets of Standard-owned tank cars, loaded and unloaded by Standard-provided facilities, for straight-line trips from Cleveland to New York. The Lake Shore Railroad’s James Devereux testified that Standard Oil lowered transport costs from $900,000 to $300,000 a trip.

Despite leftist lore, these are but two examples of how free markets actually work for the befit of all. Yes Ford and Rockefeller became rich beyond most of our wildest dreams, but their contribution to society on so many levels is incalculable. They helped create the source of America's strength the "middle class". They along with countless other "capitalist" expanded the economy creating an every growing economic pie for American's and the rest of mankind to eat from.

This is the great misunderstanding, With free market capitalism there is no reason to "redistribute" wealth to create equity, growing wealth is the natural bi product from which everyone ultimately benefits. A rising tide does indeed raise all boats and a growing economy naturally increases everyone's well being.

Again what is the alternative? Put limits on success? Promote the unworthy at the expense of the industrious? Then who will seek to be industrious? Like most arguments from the left, the idea that you can tweak imperfection to make it perfect by compulsion is not only wrongheaded it is by it's very nature a restriction on growth. You can not put chains on men and call them free any more than you can  design societal structures to equalize outcomes and expect growth either economic or in ingenuity and inventiveness.

 The free market is a  dynamic system of wealth creation and is the single greatest source for the elimination of poverty in the history of mankind yet to listen to some on the left they would classify it as evil. The shallowness of their understanding is only matched by the arrogance of their belief that they somehow promote benevolence when in fact their ideology is and has always been the source of tyranny and the enslavement of mankind both in  body and spirit.

If this is not true, if I have somehow misrepresented the obvious, then meet me in the marketplace of ideas and show me your wares. Explain to me the better system, not with theories but with proof, with actual examples of how any system yet tried is superior to the well being and the greater good of mankind than free market capitalism.

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