The Free market is a summary term for an array of exchanges that take place in society. Each exchange is undertaken as a voluntary agreement between two people or between groups of people represented by agents. These two individuals (or agents) exchange two economic goods, either tangible commodities or nontangible services. Thus, when I buy a newspaper from a news dealer for fifty cents, the news dealer and I exchange two commodities: I give up fifty cents, and the news dealer gives up the newspaper. Or if I work for a corporation, I exchange my labor services, in a mutually agreed way, for a monetary salary; here the corporation is represented by a manager (an agent) with the authority to hire.
Both parties undertake the exchange because each expects to gain from it. Also, each will repeat the exchange next time (or refuse to) because his expectation has proved correct (or incorrect) in the recent past. Trade, or exchange, is engaged in precisely because both parties benefit; if they did not expect to gain, they would not agree to the exchange.
This definition creates a very friendly concept. Here every participant is thoughtful, honest and a responsible participant in the free market society. Where is this place? As I continue to research the information I need for this article, it is becoming more political. I apologize. That is not what I want out this blog. However, I am the primary beneficiary of the writing here and so please consider this article as a message to myself and you are free to read.
Rothbard continues in his essay to describe in more depth how he envisions a free market society.
This means that the key to the existence and flourishing of the free market is a society in which the rights and titles of private property are respected, defended, and kept secure. The key to socialism, on the other hand, is government ownership of the means of production, land, and capital goods. Thus, there can be no market in land or capital goods worthy of the name.
Some critics of the free-market argue that property rights are in conflict with "human" rights. But the critics fail to realize that in a free-market system, every person has a property right over his own person and his own labor, and that he can make free contracts for those services. Slavery violates the basic property right of the slave over his own body and person, a right that is the groundwork for any person's property rights over nonhuman material objects. What's more, all rights are human rights, whether it is everyone's right to free speech or one individual's property rights in his own home.
A common charge against the free-market society is that it institutes "the law of the jungle," of "dog eat dog," that it spurns human cooperation for competition, and that it exalts material success as opposed to spiritual values, philosophy, or leisure activities. On the contrary, the jungle is precisely a society of coercion, theft, and parasitism, a society that demolishes lives and living standards. The peaceful market competition of producers and suppliers is a profoundly cooperative process in which everyone benefits, and where everyone's living standard flourishes (compared to what it would be in an unfree society). And the undoubted material success of free societies provides the general affluence that permits us to enjoy an enormous amount of leisure as compared to other societies, and to pursue matters of the spirit. It is the coercive countries with little or no market activity, notably under communism, where the grind of daily existence not only impoverishes people materially, but deadens their spirit.
This essay was first published in 1993. Rothbard describes the free market society as one where material success leads to enormous leisure. I can only speculate about what his meaning for leisure in this context might be. Let's speculate that it could be the use of time in ways not related to productivity, such as time spent vacationing. The number of hours worked in the U.S. could be an indication of how a free market society is functioning, if it is. The following chart is found at Federal Reserve Economic Data, from the Federal Reserve Bank of St. Louis. The title of the chart is Average Weekly Hours: Total Private Industries. On face value, which may be misleading, this chart would support the idea of a functioning free market, based on the decrease of hours worked, or what I consider leisure time.
Back to the topic... free markets. It seems to me that the issue is being raised by Mish because he observes a very reckless meandering of government policymakers risking the integrity of the free market society which I believe does occur at most levels in our society. The meandering is occurring for the sole purpose of selectively saving the too big to fail financial institutions and manufacturing companies. Noble purposes all, however the alternatives that were never discussed publicly could have served a similar purpose. For example, the lurking bankruptcy of certain big banks could have been given a different treatment, such as immediately changing the accounting rule to allow booking the value of worthless securities to reflect some value, as is now the situation, rather than maintaining the mark to market requirement for too long. That issue was forcing banks to consider bankruptcy, based on a rule that could be changed, and as I mentioned, has been changed. Let's pretend the crisis is still exists, and we also have the advantage of hindsight now, in mid crisis. It occurs to me that as I begin to understand the risk to free markets being replaced by a socialist society, the crisis should have been managed differently at the outset, and in the future. The banks get resized to less complicated and more transparent businesses, which they might resist now. The process occurs under the rules already in place that were (intentionally?) overlooked. The cash they received is withdrawn and the consequences that they created for themselves are realized, the free market way.
Milton Friedman, noted author, economist and proponent of Monetarist economic theory wrote on this subject in 1992. Here is an excerpt from his article titled Fair versus Free.
Yet, scrutinize word for word the Declaration of Independence, the Constitution, and the Bill of Rights, and you will not find the word "fair." The First Amendment does not protect the "fair" exercise of religion, but the "free" exercise thereof; it does not restrain Congress from abridging the "fairness" of speech or of the press, but the "freedom" of speech or of the press.
The modern tendency to substitute "fair" for "free" reveals how far we have moved from the initial conception of the Founding Fathers. They viewed government as policeman and umpire. They sought to establish a framework within which individuals could pursue their own objectives in their own way, separately or through voluntary cooperation, provided only that they did not interfere with the freedom of others to do likewise.
It seems Mish has offered to carry the torch that has been lit for a long time. The writing is on the wall if the power in our government remains where it is today, on Wall Street. Scanner