Those of us who are mature, sophisticated, and all grown up know that without government regulation we would all live in slums and be poisoned by the food we eat. Or so Huffington Post writer Carl Gibson would like you to think in his hit piece on Ron Paul’s free market ideas. In this article, Gibson exposes his profound misunderstanding of the free market economy. According to him, only naïve children could ever believe that individuals can voluntarily organize society in an agreeable way. The free market is, after all, nothing more than the nexus of mutually advantageous voluntary exchanges made between individuals.
Gibson writes that “Employers would save money by paying workers as little as they wish, since Ron Paul would abolish the Davis-Bacon Act.” This statement represents a complete misunderstanding of nature voluntary exchange in the labor market. The fact that people go to work voluntarily, and are not forced to do so indicates that the act of exchanging their labor services for money is mutually beneficial. Any exchange made between two or more parties that takes place by their own volition benefits both parties. If they did not perceive a benefit, or advancement in their well-being, they would not act. Economist Ludwig von Mises writes,
“Action is an attempt to substitute a more satisfactory state of affairs for a less satisfactory one. We call such a willfully induced alteration an exchange.” (Human Action, 1949, p. 97)
Workers have the ability to search for the highest paying job they can find. If they can’t find an employer to pay them the price they desire, it is an indication they have over-appraised how society values their labor. The resources of the world are scarce and no decree of the state (as Gibson, likely unknowingly, implies) can raise wage rates without the negative effect of unemployment. Gibson seems to think that private employers somehow have the ability to force workers to work for whatever wage the employer decides. In fact, the only entity with the ability to force a person to pay or take a certain wage is the government. Ironically, it is this institution to which Gibson appeals. Private institutions must compete for labor because labor is scarce just like all other resources. They compete by offering higher and higher wages and better working conditions (more on OSHA and working conditions here.)
Gibson also believes that without safety regulations imposed by OSHA and the EPA, products would be unsafe, food would be poisonous, and working conditions hazardous. This failure to understand the dynamic nature of the market economy is similar to his mistake on wages. Let me ask you a set of simple questions: do you know anyone who would buy food that is poisonous? Do you know anyone who would buy a product that was dangerous and didn’t work? Do you know anyone who would work at a job with dangerous working conditions? The answer to all of these questions is without doubt “no.” You may object and say that people don’t know ahead of time if a product will hurt them or if their food is poisonous. But that would be erroneous and shallow analysis. The minute word gets out that a company is selling poisonous food or a dangerous product nobody will buy their product and they will be put out of business. This is because private companies need to earn a profit in order to stay in operation. This means they have to satisfy consumer preferences. If they don’t, they will go under. Once again, Gibson makes an ironic appeal to the only institution that does not have to earn a profit to stay in operation (the government).
In a moment of immense ignorance of the free market’s “invisible hand,” Gibson claims that companies would be able to pollute at will without bureaucrats there to save the day. The fallacy here is that pollution constitutes a violation of property rights. Gibson appeals to the state to solve a problem of mis-defined property rights – ironic because the government can only exist by systematically violating property rights. In a real free market, those who pollute would be legally bound to compensate the damage they do to the property of others. Read more about this issue from Rothbard here.
Gibson writes that without anti-trust legislation, “Corporate giants would be free to monopolize markets.” This statement is shallow and misleading. I assume Gibson dislikes monopolies because he thinks they will exploit people by charging super high prices. In reality the monopolist cannot do this forever unless he has a government privilege to do so. Without the government forcing competing entrepreneurs out of the market, the monopolist will have the price of whatever good he is selling bid down. Entrepreneurs on the free market are hungry for profits and that is a good thing. The desire to earn profits attracts entrepreneurs to the monopolist who is supposedly earning huge profits in this scenario. Therefore, the result of competition on the free market is to lower prices and increase the quality of the good provided.
Consumers cannot be exploited by monopolies as Gibson would have you think. They cannot infinitely raise the price and force you to pay it. On the free market you always have the option of choosing a substitute good. If a monopolist tries to charge high prices, and you as the consumer stop buying from them, they will either be forced to shut down from lack of revenue or to lower the price. This is how the market naturally corrects whatever evil Gibson believes monopolies inflict on society (more on monopolies here.)
Thanks for reading. The Only Supporters of a Free Market are Children! is a post from Hans Economics
