Free Market: How would it work

Great Debates
1

This is the second part in my series of threads to address ‘what if’s’ of economics and perhaps define everyone’s understanding of the economic/political system under review. I started off with a thread on Communism, which I think went rather well. Next up…Free Market Capitalism.

Lets say that the Libertarians get their way and the free market capitalism takes over, pushing the sliding scale of socialism to the far end. Almost everything becomes privatized, government subsidies and all trade tarrifs disappear, most government programs are discontinued (but which ones? Thats the question), etc etc. In other words pure free market capitalism, or as close as humanly possible.

How would the system work? What would it be like? I want the nuts and bolts here, as well as the big picture…how would national economy’s function both internally and externally? Would everyone have a job? More people working or less than today? What would the standard of living be like…in America? World wide? How would things like wage scales be set? What products would be available without government interference? What media would be available without government regulation? What new services would be available?

Unlike Communism, unbridled free market capitalism has never (really) been tried and I’d like some thoughts on what such a world would look like. Feel free to discuss YOUR interperatation of free market capitalism, to speculate on what a nation or the world would be like under such a system, what problems you forsee, etc. Please leave the retoric and flowery language at the door…I want open discussion without retoric if possible.

(sorry in advance for all the spelling and grammar errors in this OP…I’m out of town this weekend without access to either my wife or a word processor :)).

-XT

2

Are you asking about libertarianism (a political philsophy) or capitalism (an economic philosophy)? Capitalism can exist side by side with government programs like welfare.

3

Really I’m asking about a complete free market system without (or with very limited) government controls. I’m making several assumptions in shaping my OP which can be discarded by anyone wishing to participate but disagreeing with my core assumptions. I guess what I’m getting at here is a ‘pure’ form of capitalism/free market system…sort of translating an idealized idea into real world terms…sort of like what I wanted with the Communism thread. How would the theory be put into practice? What would it be like? How would it work?

-XT

4

It wouldn’t be much different than it is today. The vast bulk of our western economies operate in a free market.

Let’s take some specifics: Let’s say drugs are completely legalized. No more prescriptions, no FDA ensuring that drugs are safe. What would happen?

Well, this is speculation because the market finds its own ways to adapt, but I think you’d see a rise in 3rd party evaluation and certification agencies. With a strong influence by insurance companies. A good example of this is underwriter’s labs. UL approval is not required legally, and yet most electric devices in the home have UL approval. The reason is insurance - many insurance policies won’t pay out if non-UL devices are found in the home. Therefore, it becomes a competitive advantage to offer UL approval on your equipment.

The key issue is choice - for the vast majority of people with typical ailments, doctors will learn to trust certain certification agencies. They’ll prescribe drug A, because it has “DSA” approval. But for people with special needs or extreme cases, the doctor can step out of the “DSA” regime and use one of the uncertified drugs. Of course, his liability insurance may not cover him if something goes awry, so he’ll have the patient sign a waiver. And he’ll have to make sure that the patient fully understands the risks, lest the waiver get thrown out of court on those grounds.

If you look around today, you’ll see hundreds or thousands of private certifications which businesses spend billions to comply with. THX certification. UL approval. Dolby Digital. Computer bus standards. ISO 9001.

My company makes software for automation. For some industries, we have to meet exacting certification requirements. They require audits of our processes, audits of our quality control system, you name it. Almost none of them are government certifications.

So expect to see more of that, plus review websites, etc.

I would expect the average quality and safety of drugs to go UP, not down. An organization that does safety standards has a hell of a lot to lose if its reputation gets tarnished by a mistake. It also has a lot to lose from liability suits. The FDA, on the other hand, operates under no such restrictions. It can screw up and still force peopel to obey it, because it’s the law. Its reputation is irrelevant.

However, certification organizations would also have a strong incentive to certify truly valuable drugs - something the FDA also lacks. Important, lifesaving drugs get withheld from the market because the FDA is overly risk-averse. If a bureaucrat approves a drug that kills people, it’s his neck. But if he forbids a drug that would have saved people, no one will know. So the FDA has a culture that is biased towards saying ‘no’.

But in a competitive, free market system, certification agencies must find the proper balance. Certification agencies that spend a lot of a client’s money and refuse a drug that another agency approves properly will start to lose market share.

5

Phillip-Morris would sell crack cocaine in parallel with their tobacco products. The lethality of said products would be limited only in how many people can die from using them before the survivors begin to notice.

Joe Camel would be joined by a new mascot, Joe Jr., to peddle cigarettes and crack to the under-five market. Parents complaining about such blatant targeting of children will be branded as communists.

6

I forgot to add something else - When you have one government regulatory agency, products tend to enter widescale use immediately after being certified. If there is a problem with that certification, the results can be catastrophic. Therefore, the FDA approval process has gotten extremely risk-averse to the point where it costs hundreds of millions of dollars and over a decade to certify drugs. Another reason for the extreme length of time is that the FDA is the only game in town, so drugs don’t even get long-term trials unless they are under the FDA umbrella.

So what happened back in the days before the FDA? Well, drugs entered the marketplace gradually rather than all-at-once. Patients and doctors with a higher tolerance of risk would become early adopters. Doctors would write up their experiences in medical journals, and other doctors would read them and make choices. Drugs would trickle into the pipeline gradually and carefully. That meant that the people with extreme needs such as terminal cancer patients or people with extreme pain could choose to accept more risk, and people with less extreme needs could leverage their experience.

7

Right. Just like Sony sells stereos that burn down your house, Raleigh makes bicycles that collapse and puncture your lungs, and Ikea sells chairs that collapse and break legs.

These are unregulated products that work safely and well and are of high quality. The market has its own regulatory mechanisms, and they work better than the government’s in about 99% of all cases.

8

Yeah, unlike today where no one dies from illegal drug abuse…

Actually, involuntary branding would be illegal in the system we’re discussing.

Got anything more to contribute? :slight_smile:

9

Just out of curiosity, you think that pure Communism has been tried where exactly? I would argue that eutopian philosophies never get tried in pure form anywhere because they are unworkable. This is what libertarians seem to fail to comprehend. To the extent that we got close to trying it (e.g., in the late 1800s), it was quite disastrous and that’s why we moved away from it.

Another way of putting it is to say that those of us who are not believers in unfettered free market capitalism / libertarianism would say it has been tried or something close enough to it has been tried to know it is a disaster. But, true-believers will always come up with a reason why that trial wasn’t good or pure enough. And, of course, exactly the same thing holds true for Communism. I doubt any Communist would believe that pure Communism has been tried, although you and I probably think it was close enough to decide that it is a disaster.

To put it a third way, Inoone has tried throwing themselves into the sun. But, it might be safe to conclude from people who have, say, ended up getting incinerated in a burning house that it is something not worth trying.

10

Correct on the first paragraph, and wrong on the second. Libertarian philosophy is based on freedom of contract. Any sane legal system would recognize that the under-five market would be too immature to contract, as they could not understand risks. Thus if Phillip-Morris were to market crack and cigarettes to kids, they could be sued for unlawful death.

However, libertarians would argue that adults do have the ability to assume risks. Thus, the could market crack to adults. I will point out to you that before the early 20th century, there were no laws prohibiting the sale of drugs. Cocaine was widely marketed.

http://hypertextbook.com/facts/2003/JoshSchaikowitz.shtml

“During the last 19th century and early 20th century, cocaine was legal and hailed as a miracle drug by names such as Sigmund Freud, Pope Leo XIII, Jules Verne and Thomas Edison. It was sold in drug stores to cure headaches, toothaches and to relieve stress.”

Thomas Edison was quite a fan of cocaine laced wines. These sure didn’t ruin his life. You grossly exagerate the dangers of cocaine, and the intelligence of people to recognize them. And the US sure managed to do OK in all those years when cocaine was legally available. Prohibition of drugs does more harm than good. Alcohol prohibition in the US was abandoned when this was realized. Hopefully some day the same will be true for cocaine, opiates, etc., and they once again become available to adults.

11

I’d expect unions would become a major force in most large industries. Unions, a strong court system, and a lot of information should in principle help keep the market’s less positive tendencies in check, but generally speaking it seems to me that most of the time the markets have been really free it isn’t a very pretty picture. As some have been quick to point out to me in the past, there are plenty of places in the world that have very little regulation. You just don’t want to go there.

12

Not to mention that street gangs running the illegal drug trade today seem to cause problems in some areas.

13

The United States had a pretty unbridled free-market capitalist system until the Teddy Roosevelt Administration. Before that the only significant government involvements in the economy were in the protective tariffs and public subsidies for “internal improvements” such as canals and railroads. There was the Sherman Antitrust Act, but it was not really enforced until Roosevelt took office.

The period I’m describing was one of massive economic expansion and development – and also a great deal of human suffering among the lower classes, as the old society of self-sufficient farmers, craftsmen and tradesmen was replaced by one of industrial workers employed on the factory owners’ terms, and liable to be laid off whenever business was slow. Not a good bargain, IMO.

14

Just for the record, this is not exactly true. There were certainly aspects of the free market existant at that time, but there were just as certainly aspects of the country counter to free market principles. State governments exercised a greate deal of power over businesses within thier borders. There were tales of State legislators introducing measures only to exthort monies from business interests.

Additionally, in fairness, I would say that some of the things that people thought were supporting free markets at the time were, in fact, not. Many court decisions held that businesses had special freedoms to pollute, or use resources which private individuals would not have had. If communists can say that Stalin perverted the ideals of Marx, then I can certainly say that some of these sorts of court decisions and legislative acts were a perversion of free markets in a similar vein.

Forgive me, but this seems like an over idealized view of “self sufficient farmers”. They were self sufficient because anyone who could not survive by his own works died. Industrialization lead to the magnification of cooperation and the survival, literally, of far more people. Not a bad trade at all, IMHO.

15

How would a Free Market Capitalist society like the OP described deal with a private monopoly gaining effective control of a sector of the economy (think Rockefeller with oil or Gates with computer operating systems)? At some point a single company can become big enough that it controls the market rather than the reverse. Historically, this problem has been balanced by the power of the government to intervene. Would the OP society have some other balancing factor or would it accept this possibility?

16

I thread like this can’t be complete without mention of that classic epic, Sarah’s Gold… :slight_smile:

17

Good responses so far. Only have time for a drive by tonight…I HOPE to get more into this thread tomorrow.

Thinking of Rockefeller and the old gang…they gained their monopolies through GOVERNMENT intervention, not because of market forces. Certainly monopolies are a bad thing for a free market, but I’m doubtful they would materialize in a true free market without the government ‘helping’ them along. As to Gates I’d challenge that Microsoft is NOT a monopoly. Hopefully I’ll be able to amplify on this tomorrow (or the next day)…or maybe someone will come along and help me out here.

pervert pretty much addressed this with most of the points I would have made. I don’t see that period of US history as even close to a true free market…more like crony capitalism than anything else, with a hefty amount of government interference (and ‘help’…lots of corruption and such). Protective tarriffs alone, which you mention, say it was NOT a free market situation.

As I answered above, I don’t think the late 1800’s America was anything close to a true free market economy, so I don’t think its valid…while I think Communism has had ample oppurtunities to make it work and has invariably fucked it up. Its debatable though (in both aspects), so lets shelve it and discuss the topic of the OP here, ok? Why do you think a completely free market economy wouldn’t work? What would such a society be like?

Thanks for the posts so far guys. This series of ideas are something that has always facinated me. I can’t wait for the Socialism/social-capitalism al la Europe thread. :slight_smile:

-XT

18

You don’t go for details, only for the idea, so I shall only follow your overall idea without going into detail.

You should first of all think about the question who would be able to afford to buy all that.
If you must only rely on those who have the capital and hence make all the rules, I think you shall come to a very small market for your “free” market, with as result that those with the capital come to loose quite a bit of it.

It can not work.

** What would it be like?
[/quote]

The Wild West in combination with the situations of the working class reminding the effects and impact of the Industrial revolution as it was begin 19the century.

It would not work, things would only get worse. The system is already disfunctioning. The Capital rules. Which is why you can’t even “choose” a president. You can only “choose” the best selling product of the Capital, which is the one who manages to use the Capital behind his candidacy best to influence the masses.

Only those who can be used and exploited by the Capital would have a job.

Less people would work more hourse for less wages, as the Capitalists can decide about everything.

Good for the Capitalists, less good for the workers (= those who survive in the mercyless competition race) utterly miserable for all the rest.

See above. Even worse in poor nations then it is now and where exploitation and clientelism is already a real obstacle for economic development.

By those who have the Capital and hence control both the industries and the power.

Since the Capital would rule the government as it rules everything, it would be the Capital behind the government who dictates everything.

See above. (You already have media ruled by the Capital with the visible effect on how they picture the government).

I wouldn’t know. You tell me what would be wanted by those with the capital to purchase it? Burial In Space for those who starve to death, in order to get rid of them where they are as invisible as they were at the bottom of the merciless competition society you created?

I can also envision an increase of the wildgrow of religions, and of that the US has already more then its share (and I fully agree that religion is opium for impoverished masses).
The final result of all these factors would lead to the death of democracy (every single form of it). It would open the door to every form of dictatorship you can think of on every level you can think of. This then would lead to revolutions of the impoverished masses.
Salaam. A

19

The word “free” in free market capitalism is tricky here. Does “free” mean no government intervention? If so, how do we hold onto property? If it means “government intervention only insofar as to guarantee beyance of property privilege”, is that really as “free” as a privatised but non-universal police and justice sysem?

Capitalism works very well in many aspects, but it is not perfect by any means. Its main flaw arises from its simplicity. In a simple near-zero sum game like capitalism, a position of advantage facilitates consolidation of that advantage towards eventual monopoly. The bigger a fish you are, the easier it becomes to engineer weaknesses in the bargaining power of the smaller fish, this allowing you to become bigger still. And when a fish is so big that the smaller fish simply cannot compete on anything like what a reasonable person would call a level playing…err…pond, the entire scenario reduces to the simple law-of-the-jungle anarcho-capitalism that would arise without government at all.

20

As I’ve said before, unbridled free market capitalism has in fact been tried. It was called Victorian Era Britain.

Minimal taxation, private infrastructure, no social welfare provision except by philanthropy, no health care, no education.

While there was a hell of a lot of innovation, there was an astonishing amount of exploitation, disease, breathtaking poverty and depravation.

Indeed it was as a result of the chaos and horrors of this time that government started getting involved in provision of things like sanitation and policing, and ultimately that socialism and socialistic practices arose.