Someone named Omar brought up a very good point in comments section on my last post. Here’s the question:
“If a planned economy through the control of the money supply and interest rates results in an unfair allocation of resources, then what should the government do to regulate the markets? Human behaviour requires regulation otherwise greed will surface and the market will not be trusted. Trade is indeed a civilizing process but the role of government in civilized countries is instrumental to ensuring adherence to civil codes.”
Here’s my answer:
Quite simply: the government shouldn’t regulate the market. While I agree that human behaviour can bring out the worst in greed (among other things), I ask that you extend this logic to government. Can we really trust a territorial monopoly of ultimate decision-making that forces wealth from people?
Before getting into that, allow me to clarify some aspects of a free market that would ensure “greed” is kept at bay.
1) Money is one-side of every transaction. In a free market, money is a commodity that arises naturally from exchange. Gold, silver and cowry are historic examples of money and to this day still hold value. In the modern era, however, money has been monopolized by the state. This money, called a fiat currency, can be created out of thin air thus destroying the inherent checks and balances of the free market. Whereas one must exert energy to mine gold, it takes little to no effort to enter numbers into a computer or turn on the printing press. It’s important to emphasize that market inefficiencies and corruption come from the fact that we are using a non-market money. One could say that the entire world (particularly Western civilization) are operating under a pseudo-market, since the basic element of the market has been corrupted by government bureaucrats and crony capitalists. In order to experience a genuine free market, we must allow a choice in currency.
2) The market regulates itself. Government regulation has been a tool used by crony-capitalists to diminish competition and secure profits. Without this regulation, corporate giants would have to compete with entrepreneurs on a level playing field. For more information on this, I suggest Butler Shaffer’s In Restraint of Trade. Now some regulation may appear necessary. After all, we don’t want poison in our foods or the furnaces in our homes to explode. Entrepreneurs have to abide by this or face bankruptcy. Nobody will buy a furnace from a business with a bad reputation. For more detailed regulations, third-party arbitrators will naturally arise to serve consumer needs. There’s no reason why entrepreneurs can’t make a living ensuring consumer safety in the areas now monopolized by the state. And since entrepreneurs must follow price signals (unlike governments) markets will result in more efficient and effective regulation.
3) Adherence to civil codes, or law and order. Obviously, the market can’t operate in a society without law and order. But law and order can be provided by market means alone; society needs governance but it doesn’t need governments. Governments don’t use price signals, they forcibly extract wealth from the people. As I alluded to in my last post, this results in an economic calculation problem. Without prices arising from exchange, governments have no rational way of allocating resources. The “law and order” they provide is completely arbitrary and in a lot of cases, corrupt. A society based on voluntary association can govern itself through market means. Think of food: we use market means to feed ourselves, and surely eating is more important than law and order (even if just marginally). But what if one farmer or one grocery store decided to monopolize the business and force people to pay? The quality would go down and the price would go up. Likewise with the state, every year we get poorer means of conflict resolution (and in some cases, governments initiate the conflict) but our mandatory payments for them increase while the purchasing power of our money dwindles.
A stateless society is the best means of regulating the market. To some, it may sound counter-intuitive or even frightening. But I assure you, once you’ve taken the time to learn “Austrian” economics, a stateless society not only looks appealing, it becomes a logical necessity.
For more information here are some great sources:
The Market for Liberty by Morris and Linda Tannehill
The Ethics of Liberty by Murray Rothbard
The Production of Security by Gustave de Molinari
Chaos Theory by Robert P. Murphy
Boundaries of Order: Private Property as a Social System by Butler Shaffer