The Free Market as a Conduit for Exosomatic Problem Solving
This is a re-post from an old blog of mine, dating several years back. The purpose of this article was to compare the effectiveness of competing ideas on a free market, versus one set of ideas being forced upon everyone by a coercive system of government. Excuse the perhaps overly-complicated way I’ve written this.
After reading this blog post on Karl Poppers work, I was particularly interested in the way in which human beings adapt to circumstances, or solve problems using exosomatic means.
Now at first this may not seem necessarily new. I think most people will have realised that the key difference between humans and other animals is the use of tools as opposed to purely biological adaptations. However, what sparked my interest was that “when tentative solutions fail it is not man that dies with it, but the idea.”
This led me to think of an analogy that can be drawn up between free markets and state monopolies. Even if man is fallible, stupid, and corrupt – through the evolutionary idiosyncrasy of the market, the bad entrepreneurs are weeded out, just like bad ideas.
Indeed, just like man has overcome the need to die in order to adapt, so has the market overcome the need to impose upon everyone a false solution before it can be improved. Just as man has created an exosomatic exposé of ideas that compete between each other, so is the market a conduit for the competition and comparison of ideas and methods of organisation.
If a government, and in the extreme case a world government, imposes one single solution on people, and it fails, people suffer, and eventually die.
If however there are free alternatives between which people can choose and flee to should some ideas fail, the organisational system or idea will die much quicker, than if one single form is imposed by force. As Laurence Peter said, “Bureaucracy defends the status quo, long past the time when the quo has lost its status.”
An example from competitive free markets
For example, if several different products or services exist on a free market, when one of the firms raises its price by an exorbitant amount, people will quickly switch to alternatives. If however there is a monopoly in a certain industry, the time it takes for a new firm to enter the free market and provide a competitive product is much greater. But what if, yet worse, there is no freedom of entry?
Society ought to lower barriers to entry for ideas and their implementations. If as neoclassical economists contend, barriers to entry are a serious inhibition to the functioning of a free market in a competitive manner, then certainly the government’s imposition of one ideology, set of laws, etc., to a society is the greatest barrier to entry possible, and an unnecessary one at that.
It is patently obvious that not everyone wants this imposition. The consumers of the good known as democracy are dissatisfied. Even in the case when elections are won by a majority, there is most often a large minority that disagrees with the government, and if we take into account voter turnouts, almost all democratically elected governments represent a minority of citizens – a minority of ideas. Yet for some reason policies are imposed in a geographically monopolistic manner.
Free markets are infinitely more competitive than any government system
Free markets allow differing consumer tastes and niches to be satisfied simultaneously, state programs and policies do not.
Historical examples of competitive free markets exist for every single good and service that the state has ever sought to provide, and in every case that I have encountered so far, the free markets fair better – as is obvious when we take into account the virtues of competing ideas that can be voluntarily chosen or abandoned, versus a coercive imposition of one set of ideas and policies.
A free market for law
To take the example of law, the state’s provision of law does not prove that law cannot be provided by a competitive market process.
If we were to look at medieval Iceland, the chieftaincies acted as dispute resolution organisations that could be subscribed to or left voluntarily if one was dissatisfied with their services, and they did so without maintaining any geographical borders.
Just as it is unthinkable today that market provided goods such as PCs and Macs require monopolistic borders in order for the free market to function, so was a monopolistic and involuntary imposition of law upon an arbitrarily defined geographical area unthinkable to the denizens of medieval Iceland.
The automatic sorting system provided by the free market is far superior than the forced system of the government, to reform which requires lobbying, protests, revolutions, or civil wars.
The free market system not only takes into account human nature by exploiting the profit-motive; but it also restricts avarice and intellectual sloth through competition – to the extent that even if humans had absolutely no intelligence, pursued no defined ends, and acted entirely randomly, the free market would still yield beneficial results.
This is comparable to many individuals within one specie behaving differently, or having different DNA so that the best survive and the worst die out.
Yet we restrict the “DNA pool” of ideas to one large organism, without allowing comparative analysis to help us. And so when the system dies, human civilisation is liable to die with it – at least for a time.
Only free markets can allow us to compare and make rational choices
The importance of correct comparative analysis cannot be overstated. The failure of economists and governments to accurately mathematically model and s(t)imulate an economy is partly because of the impossibility of simultaneously taking into account an array of changing variables.
However, if we were to look at two firms competing in the same market at the same time, we can adequately compare them because many factors are kept constant by reality, e.g. the system of laws in place, market conditions for both the goods demanded and the materials required, the labour market, the culture, etc., Whereas differing government systems of monopoly become practically impossible to compare.
That is to say that under the present conditions, only one government system in a society can ever be tried at any one time, and to compare different governments requires to account for, compensate, and hold constant a multitude of exogenous factors – which is at best extremely difficult, and at worst impossible.
Many people with anti free market sentiments argue that free markets destroy livelihoods when businesses fail. Yet this is not true. It is precisely this exosomatic free market system that allows failing business models to be abandoned, for firms to look to their more successful competitors, and subsequently emulate their ideas and methods without going bankrupt. Indeed, they have every incentive to do so, a sort of second chance if you will.
It is only when firms fail to both come up with a viable idea, and also to emulate successful methods of business conduct and organisation by other firms, that they go bankrupt – yet even then there is no loss of life.
Besides, under what conditions is welfare diminished? When one business fails, or when a multitude of customers are forced to continue to consume lower quality or over-priced goods because of government subsidies and bailouts?
The state not only maintains a monopoly on many sectors directly, but it also maintains and in so doing perpetuates bad ideas for business management and investment in many markets. Such activity is unquestionably harmful and devastatingly myopic.