In Defense of The Free Market
The crucial debate over our current economy in the United States is that of whether the free market works or do we need more socialistic measures to regulate the market. Many critics have proclaimed the death of the free market in major publications. They have also cried out for the federal government to play a much larger part in regulating and controlling the market, especially in the financial sector. However, these critics are misguided and do not understand the benefits that the free market offers in place of central control.
Private property is one example of where the free market has clear advantages over central control and public works. When property is owned by the public is falls into disrepair the vast majority of the time. Anyone who has been to a public park has observed this first hand. This is simply because no one has the incentive to take care of it. The property doesn’t belong to them personally, so they assume that other people will take care of it. It is basic human nature to be lazy in that respect. However, when the care and ownership of property is entrusted to private citizens it will most probably be taken much better care of. When a person, or a limited group of people, have the responsibility for the well being of property entrusted to them it behoves them to care for it. Not only will it increase the value of the property, but it will make it more useful to the owner. Private property is much better than public property.
The area where the free market probably has the most advantage over centralized control is in the realm of information. The pamphlet I Pencil illustrates the point perfectly. No one person or organization knows how to make something so simple as a pencil. The market is astonishingly complex and attempting to centralize control over it is a recipe for disaster. This central controller cannot account for all the incentives in the market and it cannot meet all the needs either. It will bog the whole market down because it doesn’t have — and cannot have, all the information that is required to run the market well. But, the market will do a good job in organizing itself. Adam Smith called this principle the Invisible Hand. It seems that an invisible entity is controlling the market and sending resources to where they are most needed. Instead of relying on a central figure or office to control the economy, we should allow the market to control the market. History is clear that the market is invariably better than anything else to regulate the market.
The problem of incentives is another where the market has a non-disputable advantage over any kind of control. Central control or any kind of redistribution of wealth only serves to distort the incentives that drive the market. Meeting the needs of government quota are vastly different from meeting the needs of the consumers. A shoe factory for instance, that is focused on meeting the needs of customers needs to put out a wide range of high quality shoes to satisfy its customers. If they don’t, then the customers can choose another manufacturer that does meet their needs. When the factory must meet the quota they receive from the government it has other incentives at work. The factory will have the incentive to minimize costs and cut corners because they have a guaranteed market that they don’t have to satisfy in that regard. The people then end up with poor quality shoes. Incentives are accounted for and respected only when society employs the free market to run the economy.
Lastly, specialization is another issue which the market understands far better than any central controller could. When there is a gap in the market some actor in the market will have the incentive to fill the gap. The market self organizes and allows people to specialize in just one area where they can become an expert in. A central controller cannot account for all the needs or gaps in the market as I outlined earlier in the information problem. They can’t structure organizations and industries nearly as efficiently as they could be by the people that make these organizations up. Only they can properly specialize for maximum efficiency.
To conclude, the free market has vast advantages over any other system in the realm of basic economic principles that cannot be overcome. The only way for information, incentives, and specialization to aline is under a free market with private property.
