What “Free Markets” Really Look Like
Filed under: Advertising & Lobbying, Proposed Legislation
Garden of Death, Hugo Simberg (1896)
In health reform, as so many continue to extol the virtues of an unfettered private market– a “free market” if you will–it may be of some help to consider just what a free market is. What that calculus entails. Considered by many as the theoretical underpinning of the modern market (though, as Professor Frank Pasquale has noted, the economics of Health Care are decidedly “unconventional”) the work of Adam Smith is worth considering. Smith championed self-interest as the best means to societal benefit. “Self-interested competition in the free market, he argued, would tend to benefit society as a whole by keeping prices low, while still building in an incentive for a wide variety of goods and services.” In Robert L. Heilbroner’s, “The Worldly Philosophers: The Lives, Times, and Ideas of the Great Economic Thinkers, we may find the following:
To Adam Smith, laborers, like any other commodity, could be produced according to the demand. If wages were high, the number of workpeople could multiply; if wages fell, the numbers of the working class would decrease. Smith put it bluntly: “…the demand for men, like that for any other commodity, necessarily regulates the production of men.”
Nor is this quite so naïve a conception as it appears at first blush. In Smith’s day infant mortality among the lower classes was shockingly high. “It is not uncommon,” says Smith, “… in the Highlands of Scotland for a mother who has borne twenty children not to have two alive.” In many places in England, half the children died before they were four, and almost everywhere half the children lived only to the age of nine or ten. Malnutrition, evil living conditions, cold, and disease took a horrendous toll among the poorer element. Hence, although higher wages might have affected the birth rate only slightly, they could be expected to have a considerable influence on the number of children who would grow to working age.
Hence, if the first effect of accumulation would be to raise the wages of the working class, this in turn would bring about an increase in the number of workers. And now the market mechanism takes over. Just as higher prices on the market will bring about a larger production of gloves and the larger number of gloves in turn press down the higher prices of gloves, so higher wages will bring about a larger number of workers, and the increase in their numbers will set up a reverse pressure on the level of their wages. Population, like glove production, is a self-curing disease-as far as wages is concerned.
And that is the free market calculus with regard to working people. Higher wages equals more food, better shelter and medical care and more babies living which in turn will produce more workers which in turn will force that greater number of living workers to compete for jobs which will then lower wages. Those lower wages will then produce less food, worse shelter, and less medical care which will produce less babies living– which in turn will produce less workers. A cycle of sweat, blood and tears unencumbered by the “distortions” of regulation. That is the “human element” of a sheer free market calculus for workers. No regulation, no aid to dependent children or social security, no FDA–just the invisible hand of the market– that most efficient of instruments– “correcting itself” through infant mortality.
So as pundits, tea bag protesters and blog commenters across the nation call out in favor of “private markets,” “free markets” and the like, let us realize that few have the stomache for an actual pure free market. As is as it should be. So when we talk about governmental intervention in the market– let us be clear: we speak only of extent and degree– not principle.
This passage from Dickens, remembering life as a 12 year old boy working ten hours per day, 6 days per week in early 1800’s industrial England gives some view of life under a veritable Laissez-Faire free market, as do many of his books:
As told to John Forster (from The Life of Charles Dickens):
Dickens at the Blacking Warehouse
The blacking-warehouse was the last house on the left-hand side of the way, at old Hungerford Stairs. It was a crazy, tumble-down old house, abutting of course on the river, and literally overrun with rats. Its wainscoted rooms, and its rotten floors and staircase, and the old grey rats swarming down in the cellars, and the sound of their squeaking and scuffling coming up the stairs at all times, and the dirt and decay of the place, rise up visibly before me, as if I were there again. The counting-house was on the first floor, looking over the coal-barges and the river. There was a recess in it, in which I was to sit and work. My work was to cover the pots of paste-blacking; first with a piece of oil-paper, and then with a piece of blue paper; to tie them round with a string; and then to clip the paper close and neat, all round, until it looked as smart as a pot of ointment from an apothecary’s shop. When a certain number of grosses of pots had attained this pitch of perfection, I was to paste on each a printed label, and then go on again with more pots. Two or three other boys were kept at similar duty down-stairs on similar wages. One of them came up, in a ragged apron and a paper cap, on the first Monday morning, to show me the trick of using the string and tying the knot. His name was Bob Fagin; and I took the liberty of using his name, long afterwards, in Oliver Twist.
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Hi mike. I see that your still wasting your considerable talents writing drivel for stooges of communists. “Pure free markets”? C’mon, why bother to write a hit piece like this at all? Did ayers ghost write this for you too?
I would refer you to some interesting reading you might enjoy. Or not.
http://www.americanthinker.com/2009/09/an_unwelcome_message_for_obama.html
snip
A September 6, 2009 Telegraph article entitled “Barack Obama accused of making ‘Depression’ mistakes,” noted that Dr. Charles K. Rowley, Duncan Black Professor of Economics, George Mason University, has written and published a monograph titled Economic Contractions in the United States: A Failure of Government. (George Mason Univ. doctoral student Nathanael Smith is a co-author.)
At 124 pages, the work is shorter than Animal Spirits but thicker with historical documentation and scholarly analysis. Here’s an overview of its thesis.
“[W]e suggest that the current economic recession, like the extended Great Depression of 1929-1939, represents a failure of government, and of state capitalism [defined as a "heavily-regulated, mixed economy, with governments at national, state and local levels that engage in production, distribution, regulation and coercive wealth transfers, as well as serving as an often uneven-handed referee." P. 56.] that is its creation, certainly not a failure of laissez-faire capitalism.” (p. 2)
“The American national myth that FDR and the New Deal ‘pulled the US out of the Great Depression’ does not stand up to an examination of the facts.” (p. 20)
“The market chaos that ensued [in 2008] can be regarded as the outcome of rational behavior in a dysfunctional state capitalist environment.” (p. 60)
“State capitalism rather than laissez-faire capitalism is the primary source of the moral failings which are now the object of populist anger that is being fueled, ironically, by the very politicians who were the chief culprits in stoking the house-price bubble that caused the financial crisis.” (p. 61)
“The financial crisis of 2008 in the United States was primarily a failure of government: poor monetary policy, poor fiscal policy, and poor microeconomic policies.” (p. 87)
As to the current intervention in the economy driven by Congress and the Obama administration,
“In our judgment, the current recession is by no means as deep as President Obama and his administration would have us believe. By exaggerating the seriousness of the economic contraction, the President has opened up avenues for a full-blooded pursuit of a much more far-ranging, left-leaning economic agenda than the majority of Americans would normally endorse.” (p. 96)
In short, in trying to fix what it broke, the federal government is only making matters worse as “plans seem to be underway to introduce still more policies that impede market recovery.” (p. 95)
As to what the future holds,
“The November 2008 elections placed into the Oval Office a liberal-democrat with the most left-wing voting record in the US Senate. The voting record was down-played throughout the electoral campaign. Since his election, however, President Obama has displayed his true colors through a policy program designed to shift the US economy sharply leftwards. Once this shift in economic policy is fully achieved, Anglo-Saxon laissez-faire political economy will give way to continental European social market political economy as reflected in current French and German economic stagnation.” (p. 53)
“It may be necessary to help (or wait for) people to learn the right lessons from the crisis before solving the problems of the US economy will become politically feasible.” (p. 63)
snip
Government will only screw up heathcare, mike. Government regulations prevent a free market from functioning now and are directly responsible for high medical costs. Lets look at some examples of your favorite government run entities/programs. The U.S.Postal Service was established in 1775 - gov had 234 years to get it right; it is broke. Social Security was established in 1935 - gov had 74 years to get it right; it is broke. Fannie Mae was established in 1938 - gov had 71 years to get it right; it is broke. The “War on Poverty” started in 1964 - gov had 45 years to get it right; $1 trillion of our money is confiscated each year and transferred to “the poor”; it hasn’t worked and our entire country is broke. Medicare and Medicaid were established in 1965 - gov had 44 years to get it right; they are broke. Freddie Mac was established in 1970 - gov have had 39 years to get it right; it is broke. Trillions of dollars were stolen in the massive political payoffs called TARP, the “Stimulus,” the Omnibus Appropriations Act of 2009. And finally, to set a new record:
“Cash for Clunkers” was established in 2009 and went broke in 2009! It took good dependable cars (that were the best some people could afford) and replaced them with high-priced and less-affordable cars, mostly Japanese. A good percentage of the profits went out of the country. And the American taxpayers take the hit for Congress’ generosity in burning three billion more of our dollars on failed experiments.
So with a perfect 100% failure rate and a record that proves that “services” gov shoves down our throats are failing faster and faster, you want Americans to believe criminals and thieves currently in office can be trusted with a government-run health care system?
We need new government mike! The change did not happen, it was more of the same, about ten times more. Corruption and theft on a scale never before seen in history. This is not a government that should be in charge of anyone’s health care.
The “free market” is superior to any government(criminal) run effort.
take care mike,
regards,
dave
Been rather busy Dave so didn’t really have a chance to respond– but I assure you I deserve all the credit (or the blame) for my posts–but thank you once again for recognizing my “talents.” But First things first, let me thank you for your restraint– and for culling the vitriol from your comment. I appreciate that, despite your anger, you have been civil– which actually makes it quite a bit easier to appreciate the weight of your thought.
By the way, the Federalist Society just had Professor Walter Block from Loyola in to speak here at the law school. My guess is that you would appreciate his work– fierce laissez faire market guy. Read a little of his work, but I was only able to catch the last half hour of his presentation–he’s interesting and thought provoking (though horribly wrong) and I’ve invited him to submit a guest blog. We’ll see.
As for your descriptions of federal programs as failures– I disagree. These programs have “gotten it right” throughout their history. To say that any of them might be experiencing difficulty at the moment is not to say that they have not brought great benefit over time–and continue to do so.
The U.S.Postal Service has, for 234 years delivered the mail– I got some yesterday–no small thing.
Social Security is not broke, and my Mother– and a lot of other people’s Mothers– just received a check. It makes a considerable difference in her life.
Fannie Mae put a lot of people over the course of time into their very first homes–a good thing. An ownership stake is, I think you would agree, a good thing.
The “War on Poverty” has actually made a difference– the level of poverty in this country in the late sixties and early seventies was abysmal– abject poverty and seniors eating dog food to survive was fairly commonplace; the major redistribution of wealth in this country as of late has been from the poor and middle class to the super rich–the accumulation of wealth among the top quintile– and in particular, the top 1%, is downright disturbing (see below).
Medicare and Medicaid are successful programs bringing health care to those in need. Seniors are, by all accounts, very pleased with their coverage.
About wealth distribution:
The paper, which covers data through 2007, points to a staggering, unprecedented disparity in American incomes. On his blog, Nobel prize-winning economist and New York Times columnist Paul Krugman called the numbers “truly amazing.”
Though income inequality has been growing for some time, the paper paints a stark, disturbing portrait of wealth distribution in America. Saez calculates that in 2007 the top .01 percent of American earners took home 6 percent of total U.S. wages, a figure that has nearly doubled since 2000.
As of 2007, the top decile of American earners, Saez writes, pulled in 49.7 percent of total wages, a level that’s “higher than any other year since 1917 and even surpasses 1928, the peak of stock market bubble in the ‘roaring” 1920s.’”
Beginning in the economic expansion of the early 1990s, Saez argues, the economy began to favor the top tiers American earners, but much of the country missed was left behind. “The top 1 percent incomes captured half of the overall economic growth over the period 1993-2007,” Saes writes.
Read more at: http://www.huffingtonpost.com/2009/08/14/income-inequality-is-at-a_n_259516.html