June 13, 1991

Who Wants a Market Economy?

Let us be happy and live within our means, even if we have to borrer the money to do it with.

Artemus Ward 1866

I am going to answer the question in the title first, so those of you who are sick of hearing about market economy don't have to read the rest of the essay. Except for a bunch of capitalists who want a market economy for the communist countries, the answer is "nobody."

What a market economy means is that prices and wages are regulated by the Law of Supply and Demand. This law is not really a law in the sense that gravity is a law. It is a law in the sense that 55 miles per hour is a law and it is more honored in the breach than the observance. It is actually based on "Pilgrim's Law of Aboriginal Greed" which says that someone selling something will try to get as much as he can for it, while someone buying something will try to get it as cheaply as possible. The assumption is that, if allowed to operate unfettered, there will be some natural level at which prices will stabilize. The problem is that everyone involved in the process wants to control it. Every time that someone buys something from a merchant for any reason other than price, he is circumventing the Law of Supply and Demand.

If no one was willing to pay more than a buck for a loaf of bread, bread would sell for a buck, or less. If bread sold for a buck, the gas or electricity that is used to bake it would have to be cheap enough to bake a dollar loaf or the utility companies would not be able to sell their product to the bakery. The baker himself would have to be paid an amount commensurate with that dollar loaf. The retail store would have to make less money. The price of wheat would also have to be low enough to permit it. If all of these conditions aren't met, stores will not be able to sell a dollar loaf of bread and all of us would just have to eat cake.

As a consequence, the only person who wants a $1 loaf of bread is the consumer. Everybody else doesn't want it because everyone believes that he is worth more than everybody else. There are ways of dealing with some of the conflicts. Mass production is one way. The use of machines allows a single baker to bake a lot of bread, but then you have to pay the people who make the machines.

One big hooker in the whole deal is that you have to pay economists and politicians to make and enforce the Law of Supply and Demand, and all of them believe that their time and skill is worth much more than the baker who bakes the bread, or the miller who makes the flour, or the farmer who grows the wheat.

To complicate matters still further, there are merchants and doctors and dentists and musicians and policemen and firemen and tax collectors and and teachers and scientists and writers and road builders and car builders and on and on, all of whom have to earn the dough to buy the bread. Every one of these people believes that he is really not being paid as much as he is worth.

The working axiom is that the less actual work a person does, the more money he should be paid. Everyone has to eat and people who keep their hands clean eat better food than the rest and drive fancier cars so, obviously, they need more money than the person who works for a living.

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