The Miracle of the Free Market

By Richard M. Ebeling

One of the great fallacies arrogantly believed in by those in political power is the notion that they can know enough to manage and command the lives of everyone in society with better results than if people are left to live their own lives as they freely choose.

The fact is, there is far more in the world that successfully manages and “regulates” itself without the controlling hand of the government than many of us pause to reflect on or understand.

Have you ever stopped to think about how much of the world around us we take for granted? How often do any of us reflect on the law of gravity that keeps the moon revolving around the earth or on the chemical workings of our internal organs after we have eaten a meal?

The Physical and Biological Worlds Don’t Need Government

Yet whether we think about or even understand the law of gravity or the processes of chemical reactions, the moon continues to travel around the earth and the food we normally eat continues to be digested. These physical and biological processes operate whether or not we think about or understand them.

If the wonders of the physical world and the complexities of our own biology often seem miraculous to us, we should be no less awestruck at the miracle of the marketplace.

Just as the forces of gravity and the internal chemistry of our bodies operate without conscious human intervention and control to direct or regulate them, so too the market brings together the actions of multitudes of producers with the desires and demands of an equivalent multitude of buyers with no central directing and commanding hand overseeing the processes at work. Just as most of nature and much of human biology are “self-regulating,” so too is the greater part of our economic activities in society.

Markets Use More Knowledge Than a Mind Can Master

Day in and day out we give little thought to the vast and complex array of economic processes, which if they were to stop or severely malfunction would mean hardship or even disaster for many of us. The supermarkets are daily replenished with wide varieties of fruits, vegetables, meats, canned and packaged goods, dairy products, and many other items.

We crowd the shopping centers and find them filled with practically every conceivable commodity we can imagine, with each of them offered in attractive and diverse varieties. Just think of the wide spectrum of shoes and clothes placed at our disposal by the market as an example of this.

And if we do not want the inconveniences and irritations of crowded shopping areas, especially at holiday time, a growing number of us now do an increasing amount of our shopping over the Internet with the mere click of the “mouse,.” or with our phones. In fact, in 2018, an estimated 40 percent of all shopping was done online. And 76 percent of all shoppers did some of their shopping over the internet in 2018.

Even if we wanted to fully understand how all those goods are actually brought to the marketplace for our various wants and desires, virtually none of us would be able to trace through all the intricate ways by which our demands are satisfied. How many of us really know, technically, how the internet and online shopping is made possible in any detail, other than turning on the computer (or phone), browsing for a website, and making the final “click” when it’s time to complete our purchase? Some of us, no doubt,  do understand, but really not very many.

Back in 1958, free market advocate, Leonard Read, wrote a famous essay titled “I, Pencil”. He outlined a history of manufacturing a simple old-fashioned wooden pencil, from a tree being cut down in a forest and the mining of the graphite in a faraway country to its assembly into its finished form so that it might be readily available for purchase by any of us in some neighborhood store. Read’s central insight was to remind us that no one individual or even wise and informed group of us possesses all the knowledge or information that has gone into that pencil’s manufacture.

Furthermore, it is not necessary for anyone to fully understand the processes involved in making that pencil for it to be available to us as a writing instrument. Indeed, if it were required for some mastermind to know all that is needed to know to make all of the goods offered to us every day on the market, the variety of goods available to us would be both fewer in number and much poorer in quality.

Market Competition and the Price System

How are the activities of an increasingly larger group of individuals successfully coordinated, so that all the multitudes of demands and supplies are brought into balance and harmony? The Austrian economist and Nobel Laureate Friedrich Hayek (1899-1992) showed how all of the knowledge and information in society is encapsulated in the price system of the free-market economy. In our roles as both consumers and producers we communicate to one another what we think goods, resources, capital, and labor services are worth to us in their various and competing uses through the prices we are willing to pay for them. These “price signals” serve as the means for all of us to decide and coordinate what we want and are willing to do together with other members of society.

Thus, and indeed quite miraculously, it is not necessary for an “economic czar” to rule over and command us in our everyday market activities to assure that a vast quantity of food gets to the supermarkets or that thousands of different varieties of goods are constantly available in the shopping areas or other stores and businesses throughout the land.

Each individual finds his own corner of specialization — guided by those opportunities, expressed in market prices, that seem to offer the greatest likelihood of earning an income that will enable him to buy from others all of the goods he himself desires.

Competition in these voluntary interactions of the market helps us to discover where each of us can best interact with our fellow human beings for mutual betterment within the system of division of labor while pursuing our own personal interests.

The competitive process tests us through the reward of profits and the penalties of losses. Profits lure us into those production activities that our neighbors, as consumers, want us to do more of. Losses warn us that we have undertaken production actions that those same neighbors think are not worth the costs of our continuing to do them in the same way.

No overseer’s whip is needed to prod people to do more of some things and less of others. No paternalistic planner is needed to assure that everything that is wanted is produced and in the direction of the most economically cost-efficient way. No restraining regulations and controls are needed to hamper the free choices and actions of the multitudes of millions, now billions, of people in the increasingly global society – other than the crucial and general legal rules against murder, theft, and fraud in our dealings with one another.

Mutual agreement and voluntary consent are the bases of these market relationships. It is not the police power of the government with its use or the threat of violence and force that needs to compel the cooperation and collaboration of humanity. It is self-interest, the profit motive, and the potential for gains from trade.

The Morality of Market Relationships

There is also an important moral element in this functioning free-market economy. There are none who are only masters and others who are simply servants. In the market society we are all both servants and masters, but without either force or its threat.

In our roles as producers — be it as those of us who hire out our labor for wages, or as resource owners who rent out or sell our property for a price, or as entrepreneurs who direct production for anticipated profits — we serve our fellow men in attempting to make the products and provide the services we think they may be willing and interested in buying from us.

“Service with a smile” and “the customer is always right” are hallmarks of the seller’s deference to those to whom they offer their supplies. What motivates such attitudes is the fact that in an open, competitive market no one can compel us to buy from a seller who offers something less attractive or more costly than what some rival of his is presenting to us for our consideration.

And why are we interested, as sellers, in not offending or driving away some potential customer into the arms of our rival suppliers? Because only by successfully making the better and less expensive product can we hope to earn the income that then enables us to re-enter the market, now in the role of consumer and demander of what our neighbors are offering to sell to us.

As consumers, we become the “masters” who those same neighbors attempt to satisfy with newer, better, and cheaper products. Now those whom we have served defer to us. We “command” them, not through the use of force but through the attraction of our demand and the money we offer for the goods they bring to the market.

By how much we can “command” the services of others in the market in our role as consumer is directly related to the extent to which we have been successful in our service to our neighbors as reflected in the money income we have earned from satisfying their wants and desires.

There is an ethical reciprocity in this aspect of the free marketplace. Each of us is able to demand the products of others as a reflection of our respective prior abilities to supply what our trading partners wanted and valued as expressed in the prices they paid us for what we have sold to them.

We are also free as earners of income to charitably assist those whose own earning circumstances and abilities seem too limited to fulfill what we consider to be a better standard of living and opportunity for future betterment of some of our fellow creatures. But here, too, the ethical premise and practical consideration is that individuals rightly should have the respected liberty to determine how and in what form such benevolent and philanthropic giving should take on.

No One May Be Compelled to Do Work He Disapproves Of

In a free society, no man is required to do work or supply any good he considers morally wrong and ethically questionable. He may earn less from choosing to supply something that is valued less highly in the market, but he cannot be forced to produce anything that his conscience may dictate to be wrong.

On the other hand, we cannot prevent others from supplying a good or service we find morally objectionable. The ethics of liberty and the free market require that we use only morally justifiable means to stop our neighbors from demanding and supplying something that offends us. We must use reason, persuasion, and example of a better and more right way to live.

Unfortunately, too many of our fellow men want to preserve or extend a return to a form of a slave society — regardless of the name under which it is presented. Too many want to dictate how others may make a living, or at what price and under what terms they may peacefully and voluntarily interact with their fellow human beings for purposes of mutual material, cultural, and spiritual betterment.

Moral Courage for Winning Freedom

Our task, for those of us who understand and care deeply about human liberty, is to reawaken in our fellow men an awareness of the morality and the miracle of the free market. The task, I know, seems daunting. But it must have seemed that way to our American Founding Fathers when they heralded the truth of the inalienable individual rights of man to life, liberty and honestly acquired property for which they fought and then won a revolution, or when advocates of economic freedom first made the case for the free market against government control.

The world was transformed by these ideals of the morality of free men in free markets. What is most important is that each of us understands as best we can that morality and miracle in a competitive, self-coordinating market economy that does not need the designing, planning and directing hand of governments.

Too often the friends of freedom allow the advocates of various forms of government regulation, control, and redistribution to set the terms of the debate. Freedom will not win if we do not put those proponents of political paternalism on the defensive.

By what moral right do they claim to tell other men how to peacefully go about their private and market affairs — as long as those men do not use murder, theft, or fraud in their dealings with others? By what ethical norm do those political paternalists declare their right to take that which others have honestly acquired through production and trade, and redistribute it without the voluntary consent of those from whom it has been taken? By what assertion of superior wisdom and knowledge do they presume to know more than the individual minds of all the members of society about how the market should go about the business of manufacturing all the things we want, and matching the demands with the supplies?

Defenders of individual freedom and the market economy have nothing to be ashamed or fearful of in advocating the free society. The American system of limited government, personal liberty, and free enterprise liberated the individual creativity and energies of many hundreds of millions of people. It provided the greatest opportunity for individual betterment and the highest standard of living ever experienced in human history. It also generated the most benevolent and philanthropic society in the world. Therefore, it should be the critics and opponents of this system of individual rights and human freedom that should have to justify their continuing calls for reducing our liberty.

It was clear thinking and moral courage that won men liberty in the past. Liberty can triumph again, if each of us is willing but to try. We need to take to heart the words of the free-market Austrian economist, Ludwig von Mises (1881-1973):

Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping towards destruction…. What is needed to stop the trend toward socialism and despotism is common sense and moral courage.

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Richard M. Ebeling, an AIER Senior Fellow, is the BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel, in Charleston, South Carolina. Ebeling lived on AIER’s campus from 2008 to 2009.

This article was sourced from AIER.org