What's so great about a free market?

The theology surrounding free markets is treated as self-evident. I'm curious what exactly the term means; why is it beneficial, and what proof can we point to showing its effectiveness.

To a layman, it's a pretty metaphysical catchword.

I'm a skeptical squirrel

The market has the freedom (see another thread about that word) to do whatever it wants, more or less?

That's what pops into my head when I hear the term, so it's probably not accurate.

Happiness is zero-gee with a sinus cold.

Let us ask, is your question concerning market economy, or the idea of it being non-regulated?

"Atheism is the religion whose followers are easiest to troll"

Well, look for example at mercantilistic or planned economies. Those only have a limited effectiveness and normally aren't that satisfying for the citizens.

Programming and surgery have a lot of things in common: Don't start removing colons until you know what you're doing.

^ And historically they got their teeth kicked in by the adaptive free market economies.

Perfect example, Spain vs the US in the 1800s. Spain still clung to the old mercantilism mantle while the US fully embraced the Industrial Revolution and the free market. In 1800 the US was a backwater and Spain the superpower, by 1900 it was the other way around.

"Allah may guide their bullets, but Jesus helps those who aim down the sights."

The free market, IE one unrestrained by regulations or government influence, is what I believe the OP means.

Personally, I think that a completely free market is a very bad idea. It gives companies carte-blanche to market viciously, undercut other companies, jack up prices, form cartels, form monopolies, while giving them no reason at all to do anything of social good and every reason to continue social ills.

Very big Daydream Believer. "That's not knowledge, that's a crapshoot!" -Al Murray "Welcome to QI" -Stephen Fry

Tomu can probably explain this better than I can, but there's a lot of evidence that shows that markets are generally the most efficient way of allocating capital, goods, and services.

Now, the problem is that while markets are very good at getting capital where it can be most useful, they are not very good at creating equitable distributions of wealth. The more wealth you already have in a market system, the better your ability to create more wealth for yourself. And markets are absolutely horrible at accounting for externalities ("external effects" of a transaction, positive or negative).

The question, then, is not whether the positives outweigh the negatives, but to what degree the government can and should act to mitigate them.

People believe markets and consumers reach an ideal.

That is rarely the case.

The problem with this kind of evidence is that all it proves is that free markets are relatively successful when in the presence of other, mercantile markets. Neither country was ever a closed system, and indeed import and export are a huge part of the economy. Ultimately, the market is always global and needs to be thought of as such. The same policies that put the US in power are equally likely to keep a modern third world country in poverty forever, simply because the global situation has changed. And of course the situation has changed for the US too, so what got us here isn't necessarily going to keep us here.

This isn't a problem unless the state makes economic equality a goal.

This is the core problem, with certain externalities like pollution having potentially disastrous effects.

“Love is the eternal law whereby the universe was created and is ruled.” — St. Bernard

What, if anything, are our goals then?

Equality (In economics terms it's called equity) always has to be, to some degree a political goal, as without some semblance of equity, it often leads into instability. And yes, the huge problem in terms of dealing with a free market is mostly dealing with externalities, both positive and negative.

The core idea of why the free market works is that it is composed of rational, ethical, marginally interested individuals who act in their own short AND long-term best interests. The problem is that what happens when those things are not present? What when people don't act in a rational manner? What about when people are more concerned with competitive gain than marginal gain? What about when people throw ethics to the side?

To put it shortly, I don't think that the old assumptions work in terms of the modern corporate business structure. I'm still mostly a free market person. I just think the reins need to be put on quite a bit tighter in this day and age, in terms of corporations. (I'm actually much more ok with sole proprietorships/partnerships than I am with corporate structures, and I think that existing laws could even be relaxed in terms of these.)

Democracy is the process in which we determine the government that we deserve

Re: Spanish-American War

There is also the issue of imperial overextension. During the 1800's, Spain lost most of its colonial holdings due to revolutions, thus denying it resources that it used to maintain its fleet. It was also intentionally kept weak by the other big players of Europe, such as the United Kingdom and France - both of whom had heavy collusion between their governments and certain super-businesses (such as the East India Trade Company).

In the lead-up to the Spanish-American war, the economic policies of the United States were actually quite protectionist with high tariffs and strong encouragement of using local goods. This was one of the big controversies (although not as big as slavery) that drove a wedge between 1800's Republicans and 1800's Democrats: the 1800's Republicans were pro-tariffs. The 1800's Republicans were also far more in favor of government spending than the 1800's Democrats, having ambitious projects such as telegraph cables, transcontinental railroads, a big canal through Panama, and the like.

It also usually takes a large number of examples before a trend can be drawn. The examples of asian economic "tigers" are simply recent examples of government intervention leading to permanent positive changes in economy. In the late 1800's and early 1900's, and again in the late 1900's, Japan achieved a meteoric rise in industrialization thanks to strong government collusion with super-large businesses. China, likewise, achieved a near-takeover of low-quality and mid-quality American industry thanks to strong government involvement in the economy. Then there are certain micro-dictatorships which you don't hear a whole lot of rhetoric about invading, such as Singapore and Dubai, which are far more wealthy (even after the big crash of 2008-present) than their resources or means of production suggest.

If are using the outcomes of war as indicators of the strengths of economic theories, then during World War 2, the United States, the United Kingdom, and the Soviet Union all chose to use extreme government intervention in their economies to support the war effort, resulting in rationing, encouragement of women to work in factories, and in propaganda posters relating to rationing and deep government spending such as "When you drive alone you drive with Hitler!" and "Buy war bonds and slap a Jap!" Nazi Germany, on the other hand, did not adopt similar policies until later in the war, under the direction of Albert Speer. Again during the Cold War, the United States spent heavily on the Marshall Plan and on weapons development in order to stay ahead of the Soviets.

I will admit that the 5-year plans of Stalin and Mao Zedong are examples of government intervention having negative effects, but it takes a lot of examples before a trend can truly be drawn.

And now for the original topic: what's so great about a free market is prices. The perfect theoretical free market, with a number of built-in assumptions, always achieves a price equilibrium that is appropriate to supply and demand.

The "creation of wealth" part is not necessarily a part of a free-market economy, although it is a possible result of trade if all of the economic actors choose to save up goods.

I think the idea that "free market is teh shit!!1!!1" is wrong. I think it's more like democracy, to shamelessly steal an idea from Churchill: it's the worst... except for everything else that's been tried. Plainly, nothing else vibes with human nature very well. The argument, among people who are sane, is never "free market or something else?" it's "what level of control in the free market?" Because we never really use true "free market," just something that is superficially similar but called that because economic terms are so muddled—partially because economics is an eldritch subject on its own—that nobody cares to call it what it is.

I am now known as Flyboy.

That's the part I'm vague about. Free markets are obviously great for raining down profits, but they're also supposed to wither monopolies. Which obviously isn't the case of late. If you have trusts, the whole free market hypothesis drops dead.

Well, nothing's perfect.

I'm a skeptical squirrel

There is the risk of actors whose gain is to make the market less free which is why a position of indifference is probably not going to work out.

Well the main reason for having a free market as was previously stated was prices. More to the point, it is that prices set themselves cheaply without an overhead cost from state administration trying to manage them.

If we had a super AI that could manage the markets, then it would actually be far more efficient.

Think about it like a computer game. When YOU manage everything (and are capable of doing so), it's a lot better than if you let random stuff happen, because you make it perfect whereas if you let free market run its course, then it's only somewhat okay. For instance, when you cheapen the cost of manufacturing a product, in a game, you would shift the labour to do something else but otherwise everyone becomes richer because people can have more stuff. In a free market situation, if that labour force displaced by the increased efficiency, they might not be able to get new jobs and thus negatively benefit from the better technology (which is of course the opposite effect that you want).

I hate to be 'that guy', but I think we have to first agree on the definition of a 'free' market and a 'controlled' market before we can kick off a debate.

hashtagsarestupid

The problem with a completely free market is that it makes sure that those who are on top have the power to stay on top, and that everyone on the bottom gets f*cked over forever. This applies to businesses, individuals, and even nations.

For the latter, I'd like to point at Haiti. The fact that this nation is absolutely piss-poor is hardly a secret, despite having a free market. Now why would this be?

Because they can not compete with those who already are on top. Because they simply don't have the resources to produce as cheaply as the larger nations, their native products will never be able to compete with imports. No one can start a business, pretty much everyone is unemployed. They can not even grow their own rice, as american-grown rice is simply cheaper. And because the money-flow will forever be a one-way street away from Haiti, they will always be piss poor, thanks to the beautyful system of the free global market.

This could only be counteracted by raising tariffs (I believe that is the word) on imported goods. The question is: will those on top allow them to?

A free market is not always fair market.

hashtagsarestupid

That is why a "free" market needs to be looked at consistently. Otherwise it ceases to be a free market and instead becomes a monopoly basket.

In theory, a Free market always moves towards market equilibrium with the most fair prices at the most competitive demand and supply levels. This is the good point to a free market, as opposed to command economies where you can set the prices and forget it. The problem is this assumes a number of things are true.

1: The public is well educated on all products

2: The public is entirely rational about how they spend their money

3: there are no outside factors like advertising and marketing influencing their decisions.

4: Companies will never attempt to subvert Capitalism by authoring or supporting laws that allow them to take advantage of loopholes and laws that subvert capitalism in their favor

In reality, none of those 4 are ever completely true, and this is one of the major reasons (the other being wanting to achieve specific market goals that influence aggregate demand), that government sometimes HAS to interfere in the market. A completely free market doesnt work simply because it assumes everyone will play fair. Humans NEVER play fair.

edited 28th Jul '11 5:19:56 AM by Midgetsnowman

A largely deregulated, free market, guided by the action of an educated, moral public, is ideal. The problem is educating the public, and the moral issues regarding how to make sure they are moral.

edited 28th Jul '11 8:07:39 AM by ekuseruekuseru

Well you also forget that free markets fail to consider external costs and also it only tries to find a price efficiently. Free markets have no concern about public well being.