In schools and universities, and in classic works written by legendary economists, there exists a notion that free markets will govern themselves. I find this to be a contradiction, and I would like your input.
At the heart of the free market ideology, we find the requirement that all items and services will be subject to competition, and that eventually prices will reflect production costs exactly. It follows from this that economic inequality will disappear, and that a sort of Utopia would follow. The contradiction though, hinges on the fact that free markets cannot represent all costs. Suppose I drive to the centre of town. On the way, I pollute, cause congestion, annoy office workers and have a small chance of hurting or even killing someone else. In a free market economy, ALL the costs of an action should be paid. Yet the driver will never contribute to my health bill. He will not compensate me for the reduced efficiency that follows from my lack of fresh air when I close my window to avoid his noise. He will never pay an amount of money and distribute it evenly between every person on the planet who is affected by pollution. None of this can ever occur in a free market economy.
Now you may claim that these concerns are not part of the economy, but that is completely false. Every day, businessmen, politicians and indeed every single person makes judgements regarding the value of their health and the value of fresh air. Did you pay more at the store with good service? You have applied value to being treated nicely. Did the politician spend more on military than healthcare? He has assigned a relative value to your health. Did you decide to cross the road in a place with more traffic? You have just accepted an increased chance of dying to save a couple of minutes.
The direct consequence of this particular example is that there are more cars on the road than what is defensible from a free market perspective. If all the real costs had to be paid, more would choose alternative transportation. Because the ones who were left driving on the road after such costs were paid valued their driving higher than the ones offended valued whatever was being offended(since he was willing to pay the extra amount of money that accurately represented the suffering of the offended), it is reasonable that he drives. The ones that would fall out, who are on the road today, are kept there artificially because they value driving less than offended values what is being offended.
So, from all this it seems apparent that an uninterrupted free market capitalism can never be what it claims to be, because it can never represent the actual costs of things. The only way of doing so would be a third party agency such as a state, taking the exact value from the offender and redistributing it to the offended. Free market capitalism seems possible then, but only with a redistributing state.
I’m not sure if there is any “free market”.
Markets are directly and indirectly controlled in different ways by different people.
So, I think the most of “theology” and “marketing scheme” around the idea of “free market” are just tools for getting more money (from you).
And then, evaluating the cost isn’t exact science, either.
I guess economists are talking in the wonder land in which things are super simplified.
Capitalism, communism, ecology, humanism, etc, etc.
All ideologies seem to be marketing tool (for whatever the reason depending on which sales person you are listening to).
Source? I know of no such theory within the free market. Where does this “requirement that all items and services will be subject to comptetition” come from? You’ve completely missed the point. If, in my town, community, etc. I recognize the possibility for a new means of transportation - or servicing a hitherto unsatisfied demand - there will be no competitors - at least in the short run. What the “theories” you’ve alluded to do say - and the larger philosophy that underpins it all requires - is the absence of physical force from restricting other individuals from choosing to compete with me should they feel the service/product can be provided at a cheaper price (or if demand isn’t being met). If I’m doing a great job - and no one thinks they can do it better - competition is unnecessary and probably economically infeasible.
There are no delusions of some "utopian’ society emerging - such grand social dreams are the business of social engineers - who believe they know better than the individuals… how those same individuals “ought” behave.
The basic foundation that you haven’t addressed - is the idea that only each of us, exercising our own individual minds, can properly choose how best to live our lives. The free market is designed for free minds to meet - and engage in mutually beneficial contracts - to advance their own individual desires. Nothing more.
As information systems become better (thanks to directed investment in a free market) - these currently unquantifiable costs will inevitably be incorporated into future prices. How do you propose the cost of your lost biological efficiency from closing a window in a polluted city be quantified? Do you propose in some alternate socio-economic system – all pollution be outlawed? Is that really a solution?
Yes and no. You correctly identify that once better information systems incorporate the currently unquantifiable costs into their prices, fewer people will drive polluting vehicles - which in turn will contribute to the directing of investment into alternative, clean vehicle sources. This is the free market - as more and more information becomes available - better choices enable individuals to direct the economy (their demand). Which is why “fraud” is as serious an offense in a free society as murder (though, or societies today don’t recognize it as such… to its detriment).
If you want to look at the truly indenfisble parts of this economy - look at the history of why we have so many cars and roads instead of trains. You’ll find a perverted economic history - made possible by governments intervening in what used to be a free market - subsidizing road growth, car technologies, etc. This is where you should be looking for problems - not the free market.
Again, I ask - quantify the impact of car pollution. Moreover, quantify the impact of one specific vehicle over any given time period - within the larger chaotic ecosystem and its “impact” on human beings (as we obviously can’t compensate the amoeba’s) - and then we’ll talk. Until the information catches up with the observed effects - there is no rational, and therefore no reasonable or justifiable basis on which to redistribute anything. Anything else is simply arbitrary and a veiled attempt to social control and forced intervention.
It’s not excellent, it misses the point completely. I wasn’t even going to respond to it, but here we go.
If no one prevents you from competing with me, but you choose not to because you’re incapable of doing better than me, my items are still subject to competition. You are, without having actually established a business, competing with me by your ability to do so if I am not performing at a certain level. So in a sense, every item and service ARE subject to competition, because the moment a business is not performing at a certain level, businesses that didn’t exist up until that point will emerge.
Let’s look at what I wrote one more time:
“At the heart of the free market ideology, we find the requirement that all items and services will be subject to competition, and that eventually prices will reflect production costs exactly. It follows from this that economic inequality will disappear, and that a sort of Utopia would follow.”
You seem to have missed the word ideology. Ideologies will always have theories for the ultimate results of said ideology. In the case of the free market ideology, this ultimate result is seen as a kind of Utopia. Of course there are no delusions that this society will emerge, and I never said anything of the sort. But, this percieved utopian result of the ideology taken to its extreme consequence, if carried out perfectly, is used as an argument for making decisions that lead us in that direction since it is assumed that if the extreme, utopian result leads to equality, a step in that direction will at least lead to -more- equality.
The basic foundation that I haven’t addressed, was left unaddressed because, even if that was true, is perfectly irrelevant to the point I am making. My original post is a criticism of the utopian results economists percieve a ‘world of truth’ to result in, which they use as an argument that we should at least head in that direction. The claim in my original post is that their version of the extreme consequence of their ideology is wrong, and that all of it needs to be re-examined in light of all these unpaid costs.
Incorporated into future prices? Nonsense. Whose prices will that be? Who is going to sell you the right to harrass me with your pollution? Which price exactly are we going to increase here? The only ones who could reasonably sell such a right is me, and a democratic state by extension, which underlines my point: a true free market cannot exist without an agency representing everyone who can make sure these costs are paid, which then makes a self-governed free market a contradiction. As for outlawing pollution, even suggesting that reveals your ignorance of the topic. It goes to show that you don’t understand what it is I am saying. Outlawing it would be highly inefficient. The point here is that only people who are willing to pay the costs of driving should be driving. Currently, there are externality-costs not being paid, resulting in an artificially high number of drivers. What is actually happening is that these extra drivers are, in a sense, can be said to be subsidized to drive.
Again, without a state there are no one who can include those currently QUANTIFIABLE costs into prices. I say quantifiable because, as I wrote, they are being quantified every day by ordinary people, businessmen and politicians. Sure, they don’t tell you that there’s a price tag on your life, and they probably don’t even tell themselves, but their actions show that there is. The problem with not acknowledging this is that these currently quantifiable costs are not being quantified, because the problem isn’t being recognized. This allows special interest groups to decide on what these valus might be, and all of this suppresses one of the basic requirements of a free market: free flow of information.
Unreasonable actions by the government does not in any way undermine my point. An agency representing ‘everyone’ are the only ones who can include these externality costs in the market system. Does it need to be the government? In theory, no, but it needs to be an agency that represents the people, and that has the power to redistribute appropriately. What you need to understand is that I am not attacking the free market, I am saying that a government redistributing PROPERLY(to represent very real costs that are left unpaid), is a REQUIREMENT for a free market. An ungoverned free market will always have unpaid externality costs, resulting in inefficiency.
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I believe i’ve already made it clear that many of these externality costs are quantifiable. It simply isn’t being done because it’s politically incorrect and unpleasant to do so, which means they ARE being quantified, just not PROPERLY. Sure, there are many costs that are really difficult to quantify, but that doesn’t mean the costs aren’t there. When the extreme consequence of the free market ideology is being discussed(and I must stress that all ideologies rely on such extreme versions to some extent), these costs must be taken into account.
I agree in practice, in the real world, that until information catches up with the observed effects, redistribution should not occur. But many externality costs are possible to determine. The information has caught up with the observed effects on many points. These costs are still not being paid, and they should be. This is largely irrelevant to my original post though, since all I am doing is criticize the extreme ideological version used to justify moves in a free market direction. If it is to be used, it needs to be accurate, and today, it isn’t.
Well the purpose of free markets is not to maximize the quantification of all possible values to any and everyone - it is to establish the individual right to economic liberty; the result of this is that prices tend to gravitate to the most accurate real-cost value insofar as the general populace is willing to pay for something - it guages in the best possible way the true market value of a commodity, better than any sort of imposition of price based on central control or government edict or planning can do. The considerations about “values” such as “I lost 3 seconds of productivity because I had to close a window because there was some air pollution outside” is something that is, by definition, irrelevant economically-speaking until the point at which this “work” becomes financially significant to the company and/or individual. At which point it does becomes so significant a market incentive is created which will, over time, tend to open up a niche market that capitalizes on this potential profitability. But all such considerations are secondary - what you are doing here is putting the cart before the horse, and misunderstanding the meaning of an economic system, nothing more.
Economics is about who gets what and why. Finances are just a small part of that. If I buy a coffee, I pay for the experience of drinking it. That fact alone tells us that desires and emotion is very much part of the economy. You pay X amount of money for X amount of pleasure. This makes pleasure part of the economy. If pleasure is part of the economy, then so is displeasure. If I pay money for the pleasure you give me(in a coffee kind of way), you should pay me for the displeasure you cause me. Limiting economics to what is financially significant to a company or individual is narrowminded.
Yes, a good part of the reason for free market is economic liberty, but if the right to purchase a cup of coffee for the amount of money it is worth is considered part of that liberty, then its opposite, being paid if someone throws the coffee in your face, should also be a part of it. In this particular case, it IS a part of it, in the sense that the judicial system will redistribute money as they deem appropriate. How exactly is this, undeniably a compensation for displeasure caused to you, any different from the displeasure caused to you by traffic? The only difference is quantity.
No you pay for the tangible liquid and the tangible cup that it is in, as well as, by association, the labor that went into assembling that product for you.
This is precisely how you are confusing simple economics with after-the-fact value judgments upon experiences, that are not based in economics themselves at all but rather in human psychology. The free market in terms of its economic functioning, principles and intentions is prior to this experiencing.
Only to the extent that they play a part in pretty much everything about human life.
That makes no sense at all, sorry.
No, in free market economics you dont ever have the right to purchase anything for what it is worth, you have the right to purchase it for what you can pay for it, assuming the seller agrees with this price. Thats it. But technically you do not have a “right” to purchase anything under a properly free market economic system - the seller can always and for any or no reason at all refuse to sell to you, with no violation of any right of yours. You have no claim upon him that he does not consent to, just like he has no claim upon you that you do not consent to.
That is not part of the free market economic system - that is judicial politics, a branch of government which, according to free market economic principle, will remain as separate from economic matters as possible. The function of the judicial branch is to provide recompense for violations of the law, ie. violations of one’s rights. Fraud is an example of this, theft and bribery are others. If you throw coffee in someone’s face and they sue you, the justice system will reward that other person (perhaps) monetary compensation, but not because of any economic issue. It would do so because it is an issue of your right to not be physically harmed and assaulted by another, which is a political and not economic right.
You’re just mudding the waters here, throwing everything together into a big pot and just stirring and stirring, grabbing here and there as you see fit and with no real logical or meaningful relation between what you suppose you are relating. That is, unfortunately for you, a highly irrational and unrealistic way to try and understand something like economics, or anything else for that matter.
You do not have a right to not be inconvenienced in traffic because traffic is slow.
And once again the coffee example you gave has nothing to do with economics.