I’m a pragmatist. In evaluating ideas about how our social and economic life might be structured, I do my best to be guided by the results — either observed results, or the results that seem, in my judgment, to be most likely. People who believe in the free market are not pragmatists; they’re ideologues. Their belief in personal freedom leads them to enshrine the notion of the free market without examining or understanding its practical consequences in the lives of real people.
If a free market leads to the greatest happiness for the greatest number of people, then I’m for it. If it leads to human suffering (as all too often it does), I’m against it. Simple.
I’ve written about the basics of market mechanisms before. Today I’m going to reiterate those observations briefly and then take a look at a couple of other factors.
First, in order to function effectively, a free market requires the participation of several sellers and several buyers for any particular good or service. If there is only one seller, or only one buyer, the market mechanism becomes distorted. Human suffering is the result.
Consider: If there is only one seller and many buyers, the seller can set however high a price he or she likes. Buyers who can’t afford to pay the price will have to do without the good or service, no matter how essential to life (food, for instance, or water) it might be.
Conversely, if there is only one buyer and many sellers, the buyer can set the price artificially low. Those who want to sell are compelled to accept that price, even if it drives them into bankruptcy. A farmer might lose his farm, for instance, because the buyer refuses to pay a price for a crop that reflects the cost of producing the crop. Again, human suffering is the result.
Collusion among buyers or sellers leads to substantially the same outcome. Embarrassingly, this is an argument against labor unions. The argument in favor of unions, which counterbalances the danger of this type of collusion, is that in a free labor market there is an enormous disparity in power between the buyer of labor (the capitalist) and the seller of labor (the worker). A union increases the power of the sellers as a group, thereby balancing their power with the power of the buyer. Where there is no such imbalance, or where the imbalance is tilted in the other direction, collusion is always bad news for the market.
Second, a free market can only function effectively if the buyer and seller have equal access to information. If either has information that the other lacks, the market mechanism will be distorted, perhaps disastrously. For example, if I know that the product I’m selling is defective, but you don’t know it, I can offer it at a lower price than my competitors, driving them out of business. Having bought my product, you may be injured, or simply robbed of money because you’ll have to go out and buy another, similar item from someone else when the one I sold you breaks. I will get rich and you will be impoverished, because of the imbalance of information.
Then there’s the accountability factor. In a business landscape dominated by giant corporations, decisions about manufacturing and distribution are made entirely by people whose identities are not known to the customer and who are not accountable for any bad results that may be caused by their actions. Let’s suppose, for instance, that in an effort to boost profits, a producer fails to use stringent enough safety measures. As a result, there’s a disaster — perhaps an enormous oil spill. The people who made the bad decisions are well insulated from any repercussions. The most likely outcome is that the cost of any lawsuits over their negligence will be passed on to future customers in the form of higher prices. When the seller of a product (such as petroleum) cannot be held personally accountable, the mechanisms of the free market cannot possibly correct abuses.
Now let’s talk about advertising. Advertising is not simply informational in nature. It creates artificial demand through appeals to our emotions. Again, this distorts the mechanism of the free market. Let’s suppose, for instance, that I would like to feed my children a healthy diet. Unfortunately, in today’s media culture they will be barraged with ads for unhealthy food — food that promotes obesity, food that leads to diabetes and to malnutrition in various subtle and not-so-subtle forms. It’s not enough that I vow to buy healthy food for my kids: I will also have to fight with them to overcome the damaging cognitive distortion created by advertising. If I don’t have the energy, the psychological wiles, or the understanding of nutrition to accomplish this, my children will suffer. And they will suffer specifically because of the operation of the free market, a market that places no barrier in the path of companies that sell and advertise unhealthy foods.
The gentle hand of the free market can all too easily ruin ordinary people by leaving them bankrupt. In 1637, quite a lot of Hollanders found themselves destitute when the mania for tulip bulbs collapsed. This was an early example of what today we call a “bubble.” The rise and fall in house prices in the United States over the past decade are also a bubble. Here again, people lost their life savings. Tens of thousands were driven into poverty.
It’s tempting to blame individual investors for being taken in by a bubble. (Free market ideologues love to take this position.) We need to remember that in a free market, each individual forms the best judgment he or she can of what action to take, based on the available information. As a bubble inflates, the information is, “Prices keep going up!” Investors who sell at the right time rake in millions. Those who hold on a little too long see their investment wiped out. This would be the case even if the market weren’t distorted by heavy-duty propaganda from those who stand to gain the most from the bubble.
When it comes to advertising, and again when it comes to bubbles, buyers are not always motivated by rational considerations. They’re quite often swayed by emotions. The emotion factor is not always taken into account by advocates of a free market. In simple terms, people don’t always know what’s good for them.
The most prevalent emotion affecting the operation of a market is greed. The question for today is this: Can greed ever promote greater human happiness across the breadth of society? Or will greed always and inevitably lead to human suffering?
I have an opinion about this. My opinion is, if you favor greed, please don’t vote. You’re not helping.