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Foundations of a Free Market

Posted by Chance on June 7, 2006

What separates us from a communist nation? I always talk about the importance of a free market, but what does that really mean? Does a free market mean a society with a flat tax and less regulation, or does it simply mean a society in which people are free to buy and sell?

I am relatively young, and I highly doubt I can give the same detailed and logical explanation that someone from say, the Cato Institute or Foundation for Economic Education could give. However, I wanted to give a stab at it and give what, in my opinion, are important features of a free market.

Now, there are (at least) two categories of issues when it comes to the economy. The first is 1) taxes/regulation (safety or moral), and the second is 2) the freedom of the market itself, that is, the role of government in actually operating or controlling different businesses. Now, the second category is what separates the socialists/communists from the capitalists. It can also separate the American right and left when it comes to certain issues such as health care and higher education.

Now, many confuse category 1) with category 2), but one can believe in high taxes and more regulation but believe in a primarily free market. Yes, as any libertarian and most conservatives would argue, high taxes and regulation make the market less free, but in my view, those who believe in high taxes and regulation may not believe in deficiencies in the free market within itself, but rather, deficiencies of the free market in addressing other areas of life. For instance, I do not think the Left primarily believe that taxes make the free market operate better, but they believe they are necessary to remedy income inequalities, and that regulation is there to keep people safe.

I may not be completely correct, my point is that one can believe in high taxes and regulation, but these are somewhat separate from control of the market itself.

So what makes a truly free market?

1) The right of people to sell a product for whatever price they want. I suppose I would provide exceptions for state education, since it is already controlled by the government anyway. I am talking about the right of an oil company to sell gas for whatever price they want. People naming their price whether it be movie tickets or an essential need. For the most part, in America, people can do this. However, as anyone knows, there has been a big backlash against oil companies because the market is not working they way they want. This is what is so disturbing about that backlash: If people are complaining now, it seems that they have no faith in the free market in the first place.

2) The right of people to negotiate wages. Let me talk about the less controversial part first. If someone wants to pay a CEO a million bajillion dollars, that is the business of the company and their stockholders, if any. Who am I to tell someone else what to pay their CEO based on my own subjective opinions? Now for the most controversial part; the other side of this coin is the abolition of the minimum wage. Now, I know this is an unpopular belief, and I am definitely not saying that those who disagree with me are socialists. Most capitalist red-blooded Americans have no problem with the minimum wage. I think our market is still primarily free, because the minimum wage affects a small amount of people. I just believe that someone should be able to negotiate their wage, in case their work is not worth $5.15 an hour.

3) Freedom in choosing what products to sell. Now, this does not refer to issues of products banned by the government for social or moral reasons; that has to do more with the social issues axis, rather than that of the economy. The best way to explain it is through examples. The idea is that if someone sells a certain product, they are not required to sell another product. Here’s an example. A person runs a pharmacy. If they have moral issues with birth control pills, they should not be required to sell them. Even though I personally have no problems with birth control pills, I don’t feel like I have the claim on the pharmacist, demanding that he provide me with that product. (There are exceptions, I’m sure, such as a doctor denying someone life-saving care in an emergency situation). Another example is that of insurance companies. Many states, probably most, dictate what kind of coverage insurance companies can offer. Many have to offer insurance for certain things such as alcohol counseling or certain types of cancer. Such things limit consumer choice.

4) People having the freedom to start their own business. Now, this probably seems obvious to many, and probably a non-issue. However, many local governments simply say no to someone starting a business, for their own good. Now, this goes back into the 2 different categories. Many states or local governments require people to be licensed, or to go through some kind of training. These issues make the market less free, but they address issues of safety or consumer protection. What I am primarily referring to is government control for the sake of the economy itself. What I mean is the People’s Republic of Austin giving a definite yes or no to someone wanting to start a cab company, based on the amount of cab companies already in town. I am talking about someone giving a presentation to the city council in order to determine if such a business is marketable. Yes, licensing and regulations limit freedom, but that is more of a balancing issue and makes it more difficult for someone to start a business; it does not completely stop them. I am addressing the issue of the local or state government replacing the free market in determining a worthwhile product or business.

In summary, government affects the economy through taxes, safety regulation, and moral regulation. While these issues are important in determining the freedom of the market, the most important issues involve regulation and control of the economy for the sake of controlling the economy. As government gets more involved in pricing and wages, in what is actually sold, and who can participate in the marketplace, government gets more involved in the means of production. The free market economy gradually, or quickly, becomes a government-controlled economy.

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