The Freedom of Free Markets
TheChuckS
PART IIIA of my reply to: wa...@connected.com (Donald Edwards)
1 Jul 1994 02:36:13 -0700
<2v0o2d$f...@goshen.connected.com>
Continued from:<301bt5$g...@search01.news.aol.com>
13 Jul 1994 14:31:01 -0400
We present a brief summary of the instabilities of markets
from a more or less abstract point of view. We will
roughly describe the dynamics of a model economy,
drawing a distinction between a market valuation and what we will
call real, or economic ( and which elsewhere I have called
intrinsic ) valuation of a good or service, and having just
enough parts to show up the problems. We will use this model
( which I'm afraid is kind of implicitly presented, since
I'm sort of winging it )
as a framework to:
PART IIIB
Present in a general way certain ways the US government, ( as
an extension of the market ) has pursued policies that
have exaggerated these instabilities. We will look at some of
the dysfunctional consequences.
This is definitely a "Let's Ignore the Details and Stand Back and
See if We can Get the Big Picture." sort of approach.
one slightly different from the approach we used in
previous sections to this response, or what I originally
said, and thought, this was going to be.
( I'm not blowing off the other responses to my previous postings
on this thread. I'm just trying to get on with it. Thanks. )
So some may legitimately argue. First because simplification
should always be regarded with suspicion, but also
because the waters we are trying to shine light into are
very muddy indeed. Perhaps unnecessarily muddy, which
it may be seen, may be regarded itself as evidence for the
basic propositions.
The general goal we are working toward is sufficient
understanding of the process of real markets so that
we can more or less efficiently remedy their failings.
Thus to understand what is necessary to create a market as
free as possible, and meeting what are generally considered
to be socially desireable objectives, which I claim a purely
free market cannot meet. I have argued that real markets
have certain characteristics
that generally preclude them from being free, in the sense
hoped for by the phrase 'free markets.'
While the benefits of 'free markets' are clear,
being the most efficient way to meet the material
desires of a society
they have tendencies, instabilities which,
if left unchecked, tend toward social harm
and destruction of the market itself.
Thus they need to be regulated, and historically,
markets have tended to be regulated,
by members of the market itself, either through
direct manipulation, e.g. monopoly or cartel,
or through manipulation of some 'governing' agency, (which we
will just call government.)
Just by the way, sifting through the previous correspondence on
this thread, the only examples of successsful free markets I have
found are Standard Oil and the ( heavily subsidized, I might mention )
free market in ideas. Maybe whale oil and the modern
music industry, although the claim is not made explicit.
Banking before l912? Refrigerators?
Somebody please repost any if I missed them.
Or give us some new ones.
We have argued that this government is,
practically, an outgrowth of the market.
While ideally, it should be independent and
impartial, government and its impartiality
represents 'shared' resources. Thus,
while it is in everyone's general intrest
that this government be impartial,
it is *more* in each factor's particular intrest
that this government be partial *to them.*
( Impartiality is thus an unstable equilibrium.)
Thus each party will seek to use
their power with government to influence the market.
( The characteristic of 'shared resource'
and the resulting divergence of common
and particular intrest is also held
by the market itself. ) Producers will
seek to avoid the plague of strict competition
and resultant minimal profits, consumers
will seek to retain their purchasing power.
Participants will bid for influence, each
individual seeking from government a distortion of the
market which he believes will be beneficial to him.
Government therefore *cannot* be considered
separate from the market.
We have argued that force, or the threat of force,
is implicated in distortions of the market. While often
force is a monopoly of government, because the government
is necessarily *in* the market, force, even where a
monopoly, is inevitably a biddable commodity.
Thus, even under circumstances of government monopoly,
force is in the market.
Under anarchy, or totalitarian government,
it would be a much more intrusive factor.
In fact under no circumstance, can implications of force
be removed from the real marketplace.
Indeed, where ever a government has
been influenced to distort a market, these distortions
will be imposed by force or the threat of its use,
under the instrumentality of law.
Now. For a market to sustain itself, the flow of goods and services
must be maintained, which implies the opposite
flow of demand must be maintained.
Now Demand in a modern market economy is measured in currency.
No currency, no demand.
Currency describes demand on a share of the total production.
This 'share of production' or percent of the whole,
is a quantity whose total ( 100% ) is neither created or destroyed.
( i.e. is always 100% )
An important distinction between a currency and a resource
must be made clear. If I set fire to a gallon of gasoline,
a resource, society is made poorer by that wasted gallon
of gasoline. If I set fire to a dollar bill, currency,
society is neither richer or poorer. The distribution
of demand has merely been altered. I can no longer
make demand on the production of the economy by the value of
that dollar. Yet in the market, the value of a dollar
and a gallon of gasoline is ( roughly,
at the time of this writing ) the same.
I can trade one for the other.
The dollar has *monetary* value, but little *real* value,
and it is the flow of *real* resources,
food, fuel, building materials, farm labor, to pick some of the
more basic, is really what an economy is all about,
and which any economy distributes more or less efficiently.
It is also the flow of designer dresses, paintings, Tulips,
arcane banking services, and so forth, which may be regarded
as less essential, having less *real* value, perhaps even less
real value than their *monetary* value. That is we could all
(well, most ) live just as well without them.
The more basic resources, on the other hand,
have a real value greater than their monetary value. We can all
live without designer dresses, but we
might have trouble adjusting to life without food, for instance.
For example, about 1/10 of the *real* value of a barrel
of oil is returned to the oil industry, in order to
maintain that industry. The other 9/10'ths goes toward
driving the rest of the economy. So the exchange value, the
monetary value, of oil is about 1/10 the real,
or economic value.
This difference in values is necessary. If the
exchange rate of oil ( ie the amount of demand
traded for the oil, were equal to its real value
there would be no point in the trade. Similarly,
the manufacture of designer dresses provides an outlet
for more basic commodities. So in equilibrium,
the two valuations, economic and market, are
skewed to each other.
Now producers are interested in gaining a monetary profit, where
consumers are interested in gaining real resources. This results
in the tendency for producers to accumulate currency, to
increase their share of the total demand. But since
total shares in demand is conserved, the result eventually
is a depletion of demand for their products. ( Even in a
growing economy, this continuing increase in share would
eventually outstrip total growth. )
This would result in a contraction of the effective market,
i. e. that part of the market with currency.
If this were the only instability, producers would
end up with all the currency, But superposed on this process
is an other instability of markets: That of concentration
of ownership. There seem to be ( at least ) two causes for this:
First, the percentage of
income availiable for investment tends to increase with increasing
wealth. Thus, someone with more wealth tends to get richer faster than
someone with less wealth, or their share of the total demand increases
relative to someone less weathy. This is just 'on the average,'
of course, but it does establish the trend. A trend augmented by
the typically greater ability of the powerful to manipulate
the market, thus further enhancing their margins.
Indeed, since under strict competition, prices commanded by
producers are driven down to costs, one could argue that
manipulation of the market is in the long run the only
profit making activity.
That, and in 'progressing' markets, innovation.
A side light is that since manipulation
requires less capitalization than production,
it is more responsive to, and thus better positioned
to take advantage of, changing market conditions.
This includes innovation in manufacturing techniques
or product, which often entail considerable capitalization.
The net effect is that demand, currency,
and eventually assets, tend to become concentrated
in the hands of wealthy non-producers.
However, survival of productive assets is dependent
on survival of demand. And as demand, as measured
in currency, becomes concentrated, the market
is effectively contracted to a minimum.
Not because the market isn't there. It is.
But because the economy becomes insolvent.
thec...@aol.com ( Charles St. Pierre )
TheChuckS
My reply to:
jam...@netcom.com (James A. Donald)
who in: <jamesdCt...@netcom.com>
( Sun, 17 Jul 1994 17:38:00 GMT) wrote:
>TheChuckS (thec...@aol.com) wrote:
>> How much simpler to lay
>> off workers, striving for greater efficieny. But this transfers the
>> the social and economic costs of the support of these workers
>> on the rest of society ( including its competitors! ).
>Typical logic of a slave owner or would be slave owner.
First I was insulted. But then I thought: You're right.
I would't mind having one, or two, ah.. maybe three
lovely, young, *intelligent* females at my beck and call.
That's the kind of animal that I am.
>The workers do not belong to society, but to themselves.
First I thought: You're right.
But then I thought: No, society belongs to them. And to you.
To the people.
That's what it says: We The People....
That's what it says America is all about.
>The burden of supporting these workers rests where it always
>rested, and always should rest, on their own shoulders.
>o
First I thought: You're right.
Then I thought: But they *were* supporting themselves.
*And* their employer. *And* society.
And you propose that not only should their employer
experss small thanks,
but also that society which is indebted to them.
I suppose you might say they were already paid their coin.
I'm sure some of them will agree.
>But it is very kind of you to seek to relieve them of the
>intolerable burden of freedom.
Well, right now those freedoms are mortgaged to the tune
of $5 trillion. I must conclude either that they do
indeed find those freedoms intolerable. Or that
they are being defrauded. Perhaps you would agree.
By the way, here's the entire paragaph
from which the excerpt was taken:
( <2vmd1m$k...@search01.news.aol.com>
9 Jul 1994 10:43:02 -0400> ) -----
:I think you mean less efficient producers are encouraged to switch
:products. An ideal solution to a real problem, as anyone who
:has tried to retool a factory can tell you. How much simpler to lay
:off workers, striving for greater efficieny. But this transfers the
:the social and economic costs of the support of these workers
:on the rest of society ( including its competitors! ). And also, if
these
:workers are to return to production, the cost of recapitalizing them.
:If one or a few follow this policy, they may profit, at small
:cost to society. But if many or all do ( and those who don't
:will suffer penalty ) it is disasterous for a nation.
I should perhaps have added that it is disasterous for the
businessman. It is *his* rights that are also being mortgaged.
And *his* currency that is also being debased.
>--
> ---------------------------------------------------------------------
>We have the right to defend ourselves and our
>property, because of the kind of animals that we James A. Donald
>are. True law derives from this right, not from
>the arbitrary power of the omnipotent state. jam...@netcom.com