2011-01-14

"Unfettered Free Markets"

Without pointing to any specific example from the blogosphere, I'd like to briefly discuss the concept of "unfettered" or "unrestricted" free markets.

Typically such phrases are invoked to spook readers into believing that in absence of strong regulatory policy, free markets have no restrictions; anything goes; people might do whatever they want against you and you'd be up the creek.

My belief is that free markets are always "fettered" or restricted, even without government interference. What restricts markets in absence of government regulation is market forces themselves. I know others disagree, but humor me.

What incentive does an employer have on paying workers pennies when the company down the street is willing to pay them dollars? What incentive does a seller have to charge dollars for a product that the company down the street can sell for pennies? The very nature of economic relationships is that one's market behavior is restricted by the norms and demands of other market participants. Every economic act you might consider, from buying bread to going to work is contingent on what society demands of you via the open, free, and unfettered marketplace. If you cannot produce something at a low enough cost to be valuable to the other market participants, then you are restricted from participating at all. You will attempt to sell your produce, and fail.

What happens when government gets involved is that the demands of the marketplace no longer act as potent stimuli on market participants. An employer who might hire dozens at $5 per hour now only hires a few at $10 per hour. A farmer who is able to work hard and produce hundreds of bushels of apples works 25% less hard and enjoys a production subsidy. Society experiences less production.

Here, it's not the market that's being restricted, but rather the people.

At any rate, I think the concept of "unfettered free markets" is a bit of a ruse. The market is a relentless and hard-driving restrictive force. Such restrictions necessarily keep us honest and productive.