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Can You Help Me Find My Market?

Politics / Economic Theory Mar 23, 2010 - 03:46 AM GMT

By: LewRockwell

Politics

Best Financial Markets Analysis ArticleSocialists believe in two things which are absolutely different and perhaps even contradictory: freedom and organization. ~ Élie Halévy


My friend Stef Molyneux is fond of talking about "the conversation" within which all of us who spout off about liberty are engaged. The quote above sparked an interesting conversation on one of the several (thousand?) networking sites of which I am a member, and that discussion led to this posting. Nearing the end of that discussion, one of the posters said, "I am not one of those who thinks the private sector is necessarily better at everything." He followed that statement up with, "That's why building codes are mandatory – if they weren't you wouldn't want to go in a structure taller than three stories." These simple sentences contain essential nuggets of what puzzles me so greatly whenever I find myself in a discussion of philosophy. (Aside: Whenever one thinks he's discussing government policy or health care or immigration or gun control or supposedly-illegal drugs, he is really discussing philosophy.)

Defining Terms While Hiding People

First of all, what the heck is "the private sector"? To my way of thinking, the terms private sector and public sector were created by statists in an attempt to obscure the facts. Similar confusion can also occur when one uses terms like "the government" or "the State." (For those scoring at home, yes, I've used both those terms before and will very likely use them again, sooner rather than later.) I've also tried to communicate at least once or twice, that those terms, while helpful, are abstractions, not legitimate moral entities. An overly strong belief in or reliance upon any group – be it a group created by biology or a group created by ideology – is absolutely bound to lead to improper conclusions and actions, particularly if one forgets to employ evidence, logic, and reason.

How does all this relate to the term "private sector"? We don't have any such thing. We don't have a public sector either. As a matter of fact, the market is an abstraction as well. We've only got people – people who may be accurately described by this apodictic and praxeological truth: When given a voluntary choice, they act to better their situations using ways and means at their disposal. Rules and regulations, imposed by ostensibly noble leaders, cannot alter this truth.  This does not mean that rules are bad.  It means that the most effective rules of human interaction do not emanate from the top down.  In fact, the existence of a monopoly of force to impose rules and regulations guarantees that those very constructs – rules and regulations – will be used by the few to take advantage of the many. Those statist rules will, unavoidably, become additional ways and means by which people seek to gain advantage.

The aggregate decisions of a group of actors purchasing goods and services – actions reflective of ways and means – is what we refer to as the market. The existence of those decisions, taken individually or in aggregate, also cannot be altered. That is, not only do we only have people, but we also always have people. Rules and regulations, be they divinely-inspired or beamed directly from Beelzebub's electronic organizer, cannot eradicate this necessary component of a market response – people. Although he was speaking about the overarching rules and regulations of a society, the late Per Christian Malloch, in a currently-unpublished masterpiece, may have summarized this concept best when he said:

Constitutions, bills of rights, statements of principle, party platforms, and all other Guarantees can never be more than self-imposed restrictions which cease to affect the people who run a government the instant they cease to believe in their rightness, or as soon as it is clear that the people will not punish the government for ignoring them.

Celebrating the Folly of Regulation

Consider the second portion of my discussion partner's statement, that if building codes weren't mandatory, entering any building over 3 stories would be dangerous. To illustrate the folly of this assertion, let us consider two cases; one where there are no statist rules and another where we have the current situation of government-sanctioned mandates for the construction of, well, everything. Let us set a baseline to our discussion by asking a few questions. Why is the building being constructed? For what purpose? For whom?

As a further baseline for both scenarios, let us accept, without debate, that everyone who constructs buildings does so with the goal of spending as little money on safety as possible. Let us further assume that below some lower limit – call it a "construction index" for lack of better term – copious amounts of death and destruction will befall anyone unlucky enough to enter a building so constructed.

What if said building is constructed for you? Would you accept it without having it checked out first? Would you hire an expert or require that the builder provide an independent opinion?  (Think: "Show me the CarFax.") Even if you planned to rent the building out, would the prospective occupants move in without assurances that the construction index was met? Would they absolve the firm who built the building of any liability? Do you know anyone who would not take similar steps and/or require similar assurances? I do – people who think that a government mandate protects them. In fact, that is the main difference between the answers to these questions in the 2 cases.

In case 1, the people who plan to occupy the building would (or should) hold the builder to whatever standard they require, be it higher or lower than the accepted construction index. In case 2, they will, if they respond to the inappropriate sense of security, A.K.A. detrimental reliance, expressed by my discussion partner, expect that since the building had to "pass" code, that it is, in fact, safe. (Adding insult to injury, if the building proves to not be safe, the builder may still be liable but not the organization that coercively imposed the standards and supposedly inspected for them! Nice racket.)

What incentive-based assurance can be had that the building inspector – a person who will not occupy the building and with no on-going moral or legal culpability – will be a better judge of its safety than those persons who will occupy it? If he's on your payroll, or under contract that you require from the builder, both he and the builder are liable. If he works for the State, well, crap happens. Further, what is to prevent the building industry from seeking to set the standards for construction indexes as low as possible, via lobbying and/or outright bribery? Actually, after further review, there is not much difference between lobbying and bribery.  (Recall that we've only got people, and when presented with a choice, they act to better their situations using the ways and means at their disposal.) The setting of coercively-enforced building codes becomes but another means for a builder to obtain profit and/or market share. Worse yet, it takes attention away from that means of generating profit and market share, i.e., happy (and safe) customers, upon which he should most urgently focus.

Conclusion

Given that people and incentives always exist, the primary outcomes which government regulation can produce are negative. Among them: rent seeking, artificially-high barriers to entry, and outright fraud. The existence of these tendencies cannot be eradicated by regulation. Instead, two of the three mentioned here – rent seeking and higher-than-expected barriers to entry – are direct results of regulation. We (some of us, anyway) tend to ascribe powers and majesty to the government that it simply does not possess, particularly since it is, in Molyneux’s words, "a bubbling ecosystem of competing self-interest." Worse, we accept the mutilation of markets to which coercive monopoly power leads, falsely and ignorantly assuming that this mutilated market – still composed of only people – will somehow be better than a free one.

The results of a recent scientific study found that markets make people act more fairly.  Covering the study for Reason Magazine, Ronald Bailey notes, "The upshot is that efforts to extract people from markets (e.g., communism, socialism, fascism) encourage them to revert to the innate savagery of dealing fairly only with kin and fellow tribespeople."  We’ve only got people, People!  If one set of people can use a monopoly of coercion, as a means to further their ends, they will inevitably do so – at the detriment to another set, or as is our current case, everyone else. Returning to Bailey, "Successful societies are those that adopt market norms and they tend over time to outcompete societies organized in more primitive top-down ways."  Primitive is an excellent descriptor for the gun-wielding cesspool of self-interest that is the coercive state.

Wilt Alston [send him mail] lives in Rochester, NY, with his wife and three children. When he’s not training for a marathon or furthering his part-time study of libertarian philosophy, he works as a principal research scientist in transportation safety, focusing primarily on the safety of subway and freight train control systems.

http://www.lewrockwell.com

    © 2010 Copyright Wilt Alston / LewRockwell.com - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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