What Free Market Really Means

Free market doesn't mean I am free to do whatever I want. It doesn't mean that companies can spew pollution everywhere. It doesn't mean a business can sell a flawed and dangerous product and get away with.

The freedom is in the market transaction. Each party freely chooses to purchase or sell a product.  There is no coercion or manipulation. All the terms of the transaction and products are fully disclosed before it's agreed upon. Both parties are better off after the transaction than they previously were. We call this gains from trade. You would only be willing to make the trade if it was economically beneficial to you. Most of the time, we just trade money in the form of a purchase because money makes it easier for everyone involved. There are real gains to be made from every purchase. However, it's important to remember that just making more purchases, doesn't actually produce any new goods or services. If you gave 10 kids 10 different toys, most or all of them would want to trade the toy they were given for a different toy. Each child who trades would be happier with the new toy, but there are still only 10 toys.

The next aspect of the market is how it rewards people. In a functioning free market, people and business are can innovate for the good of others. In a perfect world, honesty and quality would be rewarded by the free market. In many ways, I believe that the market does motivate this sort of wholesome behavior. However, there are limits to how much we should trust the market to provide society with what it values most.

Adam Smith said that an "Invisible Hand" guides the market. The market does this by determining prices for goods and services. The market is efficient at assigning prices and we need it to do that to represent the real labor and resource costs that go into everything. But a market is very bad measure of the worth, value, and dignity of humans. When it comes to humans, the market is basically random. Some people are born rich and some born poor. If we let the market rule, it only tells us who can buy something based on how much money they have. The market is of little help when a society is trying to determine who needs the resources. The invisible hand is true, but I'd argue that it is also a blind hand. The blind hand is busy determining prices, but it doesn't see that one family can't afford to pay for the electric bill, groceries, and diapers while a billionaire is buying a private island. To me that's a problem.

I think we need a more wholistic way of looking at the economy and what we value as a society. Earlier, I talked about how a free market has no coercion. It seems to me that with greater economic inequality you have a greater chance of coercion. People who have little or no money are not able to provide signals to the market about what they really need. As more wealth accumulates in the hands of a few, they have more power to exert over the poor. The poor are pushed out of the system. In order for the market to function, people must have at least some money.

To summarize, the market is good at somethings and bad at others. We shouldn't blame the market for all our ills, nor should we look to the market to solve all our problems. All of this is just one reason that I support Universal Basic Income.