If the Market Works, The Market Works

During the peak of the financial crisis, on September 16, 2008, former President Barack Obama said,

“But the American economy has worked in large part because we have guided the market’s invisible hand with a higher principle – that America prospers when all Americans can prosper. That is why we have put in place rules of the road to make competition fair, and open, and honest” (emphasis added).

We live in a world where rulers are expected to make and enforce the rules. Yet, nobody has stopped to asked the crucial question: Why?

If these rulers have any kind of agenda, they will act in a way that best suits their interests at the expense of all the players. It’s high time to denounce the monopoly the rulers have on creating the rules.

I’ve been in countless debates with my friends. Most of them already believe in the free market, yet they aren’t fully sold on it.

 

They understand that the market is more efficient than government, yet they are scared by the idea of anarchy. They correctly believe the market is run by rules, but they think that rulers must make those rules.

Yet, markets provide better rules than any bureaucrat could.

In the market, there is only one thing that matters – providing value to others. That is the basis for all the rules (e.g. not breaching a contract) coordinating the market. If you don’t provide value, whether to employees or consumers, you go bankrupt.

In government, there is only one thing that matters – getting reelected. That is the basis for all the rules (e.g. no term limits) coordinating government. If you don’t get reelected, it’s akin to going bankrupt for the politician.

The government does create the rules today, but one of the most important lessons of economics is Frederic Bastiat’s idea of what is seen and what is not seen. For example, it is seen that when a window is broken, that person will pay for a new window. What is not seen is that he would’ve raised his standard of living higher if the window was never broken, and he could use that money to buy a new leather jacket. This same principle applies to the creator of the rules.

On the surface level, it is seen that the government creates the rules. Yet, if you dig deeper, you realize what is not seen is that the market creates the rules of business.

Consider breaching a contract. It is against the law, and the state will punish the breacher. Yet, on a deeper level, the state’s enforcement of the rules are arbitrary and unnecessary.

When someone breaches a contract, they are telling other entrepreneurs that they are not to be trusted. They will lose precious social capital and will have more difficulty forming contracts in the future.

This form of punishment is more civil, encourages more responsibility, and serves as a better example not to breach contracts than the government’s form of punishment.

That is what is not seen, even though the government has tried to take credit for it.

The important aspect is to not conflate the two. Government will always try to take credit for the rules of the market, but the market actually inspired the rules. The market will even perform a more satisfactory job at enforcing the rules.

Anarchy is not no rules, just no rulers. If the market works, the market works, which is to say, if the market can provide the rules of the road, enforcing said rules in a more efficient way, leading to more general wealth and prosperity, then we shouldn’t sacrifice that to the deceptions spewed by the government in hopes of achieving more power.

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