Sunday, December 18, 2011

In Defense of the Free Market

Having read enough books at this point to understand Free Market economics quite well, I think it's time to dismiss many of the criticisms that run about "Capitalism" and how it is necessary for government to intervene in them though this has been done by many, far greater people than I. At the end I'll give a couple links for anyone who wants some extra info about the ideas expressed. However, before going on I have to make one thing clear, when I speak of Capitalism and the Free Market, I'm not talking about our current system. Our current system is a mixed economy that becomes more and more totalitarian with each year, and closer to collapse with it. It'll be easier to just address separate topics than to ramble on and on about a ton of misconceptions in one giant paragraph so I'm going to list out the fallacy first then address why it's wrong.
1. Without government saying what a business can do you would have a ton of Monopolies.
I hear this one a LOT and usually they site the oil companies back in the 1800's who were the reason we have Antitrust laws now. To kill this one, we have to identify that there are two types of Monopolies; Coercive monopolies and simple (for lack of a better term) monopolies. Simple monopolies are like the Food Lion in Seven Lakes. The fact is that Food Lion keeps its prices low enough and the population there is so small that there would be no use for another business, like a Winn-Dixie to come in. Now say Food Lion tripled its prices tomorrow. Then a business man may look at that and say, "I could make a good amount of money if I went in there and had my prices as low as they did yesterday." And with that you would destroy the monopoly. These monopolies are often only held because of the smart decisions of the business owners.
A Coercive Monopoly is a monopoly where a business raises its prices above the market value arbitrarily and is not challenged. This is only, ONLY possible if entrance into a certain market is RESTRICTED. And this can only be done by, wait for it......... Government. Only with the banner of the "Greater Good" can these monopolies be created and that is carried by money hungry beuracrats.
Often you will hear someone say, "But the trusts in the 1800's were immune to competition." That would have once been understandable given the scares of that time, however we have come far in the last 100 years in economic thought and it is now ridiculous. They often site Rockefeller's Standard Oil Trust and such as proof of Coercive monopolies in the Free Market. They would be wrong. What is never mentioned is that the Petroleum Industry at that time was less than 1% of the Gross National Product at the time. It was barely one-third the side of the national Shoe Industry! The fact is there wasn't as much a need for oil. It was much like the Food Lion in Seven Lakes, simply not enough money to be made. The companies that joined the trust did so because they would have been fighting for very little profit and would have all suffered greatly.
The simple fact is that Monopolies are the boogey men in the closet, something feared but not really there. They are only an issue when the government gets involved and decides who wins and who loses.
2. Without Government Regulations companies would go crazy and millions of people would die!
If you watch enough t.v., you know that this one is wrong. How many times have you seen lawyer ads asking if you have been a victim of a bad drug or been hurt using a certain product? With the above argument, this shouldn't happen. The FDA would supposibly be able to stop this from happening. And even if they admitted that it wasn't always efficient, they claim it would be better than not having such an agency. How so? The fact is that a bad drug may go through the line and the FDA doesn't take it out of production. A hundred people have heart attacks and what happens? "Oh, it happens. The Company should have done more tests." No one is fired, except maybe in the company, but everyone in the FDA is safe. There is no incentive to be absolutely precise! There is no profit to be won or loss in this situation. They have nothing to lose.
The same goes for the TSA. When the underwear bomber got through security, no one got fired! Now we have tons of groping agents working for the government who can't be fired whether they catch a terrorist or not. The fact is the airlines have no choice in what they want to do for security. Even if the agents don't do a good job, it won't be the TSA that is blamed, it will be the the airlines.
Why not let the company that has something to lose take control of these issues? Who is more likely to do better at security? The Government agent who can't be fired, or the company payed employee who will lose his job and benefits if he screws up? The same goes for the drug companies to a point. Why not allow private companies to test drugs and give labels to certain drugs that they find as safe? The fact is that these companies would only last as long as they did a good job! Also the drug companies would need these private companies approval or people would feel less inclined to buy their product, therefore the drug industry would also have to get better.
Some would say, "Well the drug companies could pay off the other company!". Why would a company that makes a living off of approving only good products risk its own profit for a possibly lethal drug? They have no need to do it! It would steal away their credibility and their profits.
3. The Industrial Revolution was the Golden Age of the Free Market and it was horrible.
If I had a nickel everytime. First off, the Industrial Revolution, primarily in England wasn't a Free Market. A Free Market can not exist in an Aristocracy where Kings, Princes, Dukes, Duchesses, Lords and such get an annual income for their blood line. Though it was extremely close to a Free Market, it wasn't one. Secondly, life wasn't that horrible. Yes, many worked long hours for very little pay however that was what their labor was worth to a large degree. The people back then had very little education and the work was relatively simple.
Child labor is often abhorred as a great evil. The fact is that because of the Capitalist system, thousands of children were living longer. In England from 1730-49, 74.5 % of children born in London died before age 5. In 1810-29, the number had dropped to 31.8%. The fact is that many of the families were growing vastly bigger and there was a need for more income. If the children didn't work, their siblings might starve. Also the work the children were often given were simple and usually they recieved food while doing the work. Is it picturesque? No, quite far from it. However this was far better a life than those given to the children who were born into the world of the serfs, or those who didn't work in the factory. What is never mentioned is that the worse off children were those who were under the clergy run (governmentbody) orphanages who were virtually sold into slavery by the authorities.
Many would say that the reason the children left the factories was because the government stepped in. This is another fallacy. The fact is when the labor of the adults became more valuable, the need for child labor disappeared. Most of the first acts in England against Child Labor were against chimney sweeps, somethin obscenely unclean and not related to the factories, and then the government run orphanages. When they went after the newer factories (which were cleaner and far safer), the fact is the business men who had just invested a good supply of capital in a new factory would rather pay adults then go through the regulation process of the children. The inspectors of the factories however were known for going to the new ones more often than the older buildings which were far more hazardous and out of the way. This led the owners of more downtrodden factories to hire children and more children being susceptible to injury. Those who didn't get jobs were more likely to starve and couldn't contribute to the family anymore.
These are all the ones I can address right now, but if I think of anymore I will get them down or add them. Just so everyone knows, most of these arguments are based on those presented in Ayn Rand's Capitalism: The unknown Ideal. It's a great read and I suggest it to everyone, it's the most beaten up book in my possession right now.
Here are some great links to for more info:

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