Will the free market solve everything?

John K Clark (johnkc@well.com)
Sat, 22 Feb 1997 21:00:13 -0800 (PST)


On Fri, 21 Feb 1997 J. de Lyser <gd33463@glo.be> wrote:

>i get the feeling that some people here view spending time on non
>profit intended production or consumption as a waste of resources.

I very definitely do NOT believe that is true.

>What about problems where no market solution fits ?

It's true, the market can not find a solution to a problem if nobody wants
a solution to that problem, but problems that don't need fixing are not

>if a majority views something as a problem, and a minority views it
>as a good thing, the free market will rule against it ? in this
>case a minority with more money can decide for a majority with
>fewer money...

I manufacture 99% of the worlds widgets, you make 1% . I want to drive you
out of business, so I figure I'll lower my price until you go broke and then
I can jack them up to anything I want. So now you louse money on each widget
you sell, the trouble is I do too. I have 99 times as much money as you do,
but I'm lousing it 99 times faster. Even worse, because the price is very low
the demand for widgets is huge, and if prices are to remain low I must build
more factories and increase production. I'm lousing money faster and faster,
meanwhile you just temporally halt production in your small factory and wait
for me to go broke. It won't be a long wait.

>[profit is not good when] 1) when that profit is not re-inserted
>into society by spending/consuming.

How could that be? If I don't spend it but put the profit in the bank then
the money will be loaned out for other profitable ventures.

>2) profit can be made by ways that undermine the free market system.
>monopoly positions, patents, etc...

The only monopoly that is dangerous is government, the very biggest one,
because the only successful cartels in history are the ones that have
government support.

Your company and mine produce all the steel made in the world. We make a good
profit now, but we want more, so we get together and triple our prices.
Now we each make a huge profit on each ton of steel we sell, so we would both
want to make lots and lots of steel. However, because the price of steel is
now very high demand is down, so part of our sinister plot must be an
agreement to limit production. The higher the price gets, the greater is the
temptation to secretly cheat on the agreement and produce more steel than was
agreed to and that would kill the cartel.

There are even more problems for our poor cartel. Now that the price of steel
is sky high and the profits are huge, other companies will want to get in on
the act and start making steel. Also, consumers of steel will not want to
shell out all that money for steel and will start looking for replacement
materials like wood or plastic or aluminum or composite fiber.

OK I will admit that one type of monopoly, called a "natural monopoly" would
work in a free market, but they don't bother me. In a few, very rare
instances, the most efficient size of a factory is so big that there is only
room for one, the best example is aluminum production. A larger steel mill is
not more efficient than a smaller one, it's just bigger, but for physical
reasons that's not true for an aluminum plant, the bigger the better.

However even a natural monopoly is limited to what it can do. If they raise
prices too high a competitor with a smaller factory will step in. The small
factory is not as efficient as the big one, but by accepting a smaller profit
margin they can still charge less for aluminum than the big company. And of
course, there is always the competition from other materials.

This logic did not phase the US government when in it's infinite wisdom it
decided to break up Alcoa Aluminum. What dreadful crime had Alcoa committed?
The government said it had kept competitors out. What dastardly method did
Alcoa use to do this? The government said Alcoa used the most advanced
technology available to produce Aluminum that was just too cheap for
competitors to match. How very dreadful! I wish I was joking about this, but
I am not. If you can't beat them in the market place, lobby the government to
send in their goons to destroy your competition.

>I see a need for a big institution (not necessarily a state) to
>supply education, maybe even invest in individuals, for profit

Yes, I like big institutions too, civilization could not exist without them,
I just don't like government.

>humans don't see things long term (due to their limited life span)

There is some truth in that, but all proposed societies are composed of
humans, so that's a problem we'll just have to live with.

>I think it was Eric who pointed out a protection system against
>asteroids, how do you see a free market system taking care of
>problems of this scope ?

I don't think that's a very good example, government has not come up with a
solution to that problem either. If individuals will not voluntarily
contribute to a project to save their lives, then why would they vote for
a politician who would force them to?

>Think about it, what place do mentally disordered people have in an
>anarcho capitalist society ? They can't provide for themselves, and
>i don't believe in peoples altruism (at least not anymore).

People can be altruistic, each year they voluntarily contribute hundreds of
billions of dollars to charity, if government was not stealing half their
income they would contribute even more.

>An uncoordinated society is throwing away resources by the truckloads.

Who said anything about an uncoordinated society?

>Would you do everything given the price is high enough ?


>Most people value something higher than profit, im truly sorry for
>you if you don't.

Making money is one form of profit but most certainly not the only form, or
the most important. If I learn something new about the world then I have
profited, if I do something that makes me happy then I have profited from it.
The Free Market maximizes all forms of profit.

>a free market system relies heavily on chance: the chance that
>problems in society will be tackled by making them profitable.

People do not like problems, they will pay money to have them solved.
Of course the market can not solve a problem if it is not recognized as such,
but no other system can do that either.

>a chance which in my opinion offers no guarantees

You only find guarantees in Mathematics, in the world of human affairs all
you can do is make your best bet, and the best bet is the market.

>the profit principle will result in individuals and companies not
>directing their efforts to simply activities that are profitable,
>but instead will focus mainly on those that are THE MOST PROFITABLE.

In other words the most effort will be diverted to solving those problems
that most people judge to be most serious. As it is not reasonable to expect
to solve all of the worlds problems at the same time, that seem like an
efficient use of limited resources to me.

John K Clark johnkc@well.com

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