THE MYSTERIES OF THE MARKET: Keywords: Freedom and Greed, American communism, Mamdani, market ethics, empathy, justice, market economy,  Adam Smith and the Invisible Hand, free to choose, a school of morality, good intentions and the economy, the spontaneous orders.

Going to school, going to market. Learning for life

IV

THE MYSTERIES OF THE MARKET

A meditation about forgotten lessons of American Exceptionalism

By Xuan Quen Santos

THE FOURTH MYSTERY

A SCHOOL OF MORALITY

 

THE MARKET IS THE HEART OF THE COMMUNITY

We learn by experience and participating in the market is like a school. Success produces rewards and satisfaction. Failures send the signals for correction. Merchants may start thinking about their self-interest when they go to market, but if they want to succeed, they turn their attentions to what their customers need or want. If the merchant wants to stay in business, he has to be consistent in his behavior of serving the best interest of his clients. That is also the best way to satisfy his self-interest in a lasting way. The experiences of all the participants in the market after a period of time develop into rules that are universally accepted. They are reciprocal, they are neutral, and they justify the appearance of one of the first  functions to be recognized of what we call government. Judges solve disputes following the rules that have been accepted as laws.

Pharaoh's heart is weighed by his merits
Current politicians should be judged too

One of the rules of the market is to use exact units of measure. Honesty prevents the problems that may arise when the merchant has not used the right unit of weights, or when the buyer uses adulterated money to pay. When disputes arise, justice is served.

Lady Justice learned in the market

THE SCALES OF JUSTICE

Do you recognize the symbol most commonly used for justice? Lady Justice? Although she has even older antecedents in Egyptian and Greek mythologies, we recognize the Roman goddess of Iustitia. She is represented as a blindfolded woman (Justice is blind, equal for everyone), with sword in hand (Justice is ready to punish the guilty), and with a pair of scales (Justice is fair) to pass judgment. Have you ever thought what the scales are doing in a court of justice? In the not distant past, and still in many parts of the world, the scales would be instantly recognized by anyone that has been to market. They are an instrument that measures units of weight. It could determine by using a standard of measure previously accepted in the market to measure the weight of what was being sold, like five pounds of sugar. After the weight is determined, it could be used to weigh, with another unit, how many  grains or ounces of silver or gold the customer would have to pay. The concept of justice as a community’s mechanism to solve disputes did not come from the mind of a great judge, lawyer or governor. It came from the market. Are you familiar with the origin of the numbering systems that emerged in different cultures? It is very likely they were not invented by a great mathematician. They emerged out the practical needs of the participants in the market.

Balance weight scale and weight unit standards

When cities developed, the place called market always occupied an important place in the layout, if not at the very center. Downtown used to mean the marketplace. We have recently rediscovered the concept with the “Town Centers” that aim at bringing back to a single destination as many commercial and civic activities as possible. The markets were the center of communication. Notice the common root with the word community.

Urban renewal, the market returns to Omaha's Downtown

There is also one important lesson people learned in the market. Commerce works better if we are free to choose, or not to choose. If you buy anything it means you thought its value was more to you that the money you let go. If you did not buy what you were considering, it means you valued more the money in your pocket. Either way you are happy. The merchant’s calculations are similar. The key concept that comes from the market’s activities is freedom of choice.

FREE TO TRADE IS THE AMERICAN WAY

To avoid confusion, I am using the word “free” as related to freedom and liberty, not as “gratis” or without cost. In this context, free means without coercion or compulsion. It means that in a free market the transactions are voluntary. It means that people can decide about what they do with their property without anybody else forcing their decision. In fact, that is the definition of a “property right”, which is different from the property itself. The first veil that covers the mysterious market is partially revealed. People go to the market to trade their property, exercising their property rights, meaning free and without coercion.

If you pay attention to the arguments of those that denigrate the free market economy, you will notice that most of them accept some basic facts. The market is efficient, is generates wealth, it generates jobs, it raises the standard of living, it is innovative, and many other real positive attributes. Their criticism is about lacking moral integrity, as they define it. It is moved by the greed of the business people, it generates inequality in wealth, it produces services and goods that are not needed, it harms the environment, it increases social injustice…etc. Marxism even went as far as accusing capitalists of stealing the worth of the labor of their employees to have profits. All these arguments are like demanding that an apple tree produce pineapples. They sound somewhat related, but in reality they are totally different things. With the exception of the moral and greed arguments, all other points can’t be met by the market unless it loses its freedom, and then, it is no longer the market. It would be under coercion to produce results that normally it would not produce. We have already answered to the mistaken accusation of the greed motive. What about moral integrity?

THE FREE MARKET IS ETHICAL

Back in 1978, Professor of Economics Fred E. Foldvary, then at San Jose State University in California, wrote “Is the Free Market Ethical?”, an article for FEE, The Foundation for Economic Education. His answer is better that what I would have written: “Since a free market is, by definition, one that is free from coercion, it follows that the free market is ethical; without coercion there is no moral wrong, from society’s viewpoint. If some people do not like the allocation of goods in a particular free market, they are entitled to their opinion and personal ethical beliefs, but not entitled to impose their values on others by force.”  Referring to political interventions in the free market, he added:  “Even if they are in the majority, opponents of the free market who feel that profits are nasty or that inequalities of wealth are wrong have no right to inflict these personal opinions on others, just as they have no right to force others to adhere to their religious beliefs. So, not only is a free market ethical, but any other economic arrangement is inherently unethical, since it must involve coercion!”

It is a paradox that those that denigrate the market for lack of moral integrity are the same groups that claim “freedom” to be the most important moral achievement that any community can aspire to. Whenever a formal reference to the market economy is made, it is always a reference to the “free market”. If it is not free, it is not a market. We also call it “free enterprise” that if not free, is not entrepreneurial. We could call it “free economy”, but that is likely to lead to confusion with the other meaning of free. Just because the free market economy is the result of the freedom to choose it can be declared “ethical”.

The accusers point to the market failures for not following “higher priorities” established in the corrupt political system. A market is unfree if the participants are influenced beyond their control to produce or buy anything that they did not intend; like having to buy an electric vehicle when what they needed was a truck to haul a trailer with hay, or a toilet that does not flush, or having to buy electricity from a state owned monopoly. The examples are endless, so many, they have become indistinguishable. Our decisions are less free if the information about the products in the market is distorted arbitrarily by taxes, concealed or transparent, or by regulations that are designed to interfere with the free transactions to serve a political purpose. The prices of gasoline and diesel at the pump have very high concealed taxes, some of them arbitrarily imposed with the intent of reducing your consumption. If all the price distortions introduced by arbitrary policies were transparent, most people would choose to liberate the market rather than ask for more government intervention. That is why politicians hide the taxes, so they go unnoticed. Price distortions lead to errors in the economic calculations made by everyone. Resources are not assigned to the most valued purposes, resources are wasted.

The high distortions caused by “political management” of their markets has kept the developing countries “under-developed” as a result. Just liberating the markets in order that real prices are allowed to appear would increase their GDP by 2% per year, according to the IMF. Poverty would be reduced if not eliminated without the use of any additional resources by just letting the market operate freely. Not only people are NOT free to choose, they are also kept poor.

 By using the power of governments, markets can be perverted by cronyism, privilege, self-dealing, and the capture of regulators through bribery. When the failures become evident, they point to the market ignoring that the political intervention destroyed the “free” part of the economic system.

Thomas Paine, Founding Father
Sparked the American Revolution, Revised Jefferson's draft of the Declaration of Independence, early abolitionist, participated in the French Revolution, persecuted by the English King, promoted the name of the new country as United States of America, one of the first Americans by choice.

A NATION OF COMMERCE

The American economic system was clearly identified by Adam Smith (1776) before the birth of the federal republic. Adam Smith described free markets as "an obvious and simple system of natural liberty." He publicly defended the attitude of the “colonials” and predicted their bright future as a loss to the English monarchy. His defense was of the system: Ease of entry into an open competition for the favor of consumers, eradication of privileges and monopolies, limited power of the government to interfere in the market process, low taxes.

Thomas Paine, an overlooked Founding Father, wrote “Common Sense” that sparked the American Revolution (1776), and the “Rights of Man” (1791) to start another one in England and a third one in France where it actually happened.  He maintained that "In all  my publications ...I have been an advocate for commerce, because I am a friend to its effects. It is a pacific system, operating to unite mankind by rendering nations, as well as individuals, useful to each other...If commerce were permitted to act to the universal extent it is capable of, it would extirpate the system of war, and produce a revolution in the uncivilized state of governments”.

Commerce in the old days, even in the large cities divided by firm boundaries of boroughs, settlements and ethnic neighborhoods, as it still is today in small towns and villages, it was a transactional activity that was somewhere closer to “us” than to “the outsiders ”. Everyone was likely to have personal relations with the merchants that supplied goods and services to the community, even familial relations or tribal bonds.

What Smith discovered, much to the displeasure of moralists of the time, was that for commerce to work for the benefit of all, it was not necessary for everyone to be an “all-around” good moral citizen. It was enough that what they offered was of good quality and at a good price. He also noticed that success in the market tended to bring along fundamental personal qualities such as honesty in dealing, trustworthiness, truthfulness, responsibility, reliability… Of course, if the baker was friendly, generous and went to church, those were added pluses, but not necessary conditions for the system to work well.

Online markets, huge, low cost, everywhere, instant with just a click
 

A MARKET OF IMPERSONAL RELATIONSHIPS

Those observations should now be obvious as the transactions of the market became increasingly impersonal and distant. Now deals are just a click away, to the other side of the world, with merchants we know nothing personal about. And the system works.

The American economic system has been an experiment of impersonal transactions allowing the voluntary cooperation of participants that would otherwise have little or nothing in common. It is not necessary for everyone to be one of “us”. The distance to “the others” has been erased and rendered meaningless in the economy. After an employee clocks out, he can return to being what his private and personal side may be, and so can the boss when he goes home. The smaller companies and family businesses may still reflect the old rules to the inside of the company, but they would be foolish to do so by rejecting customers. This familiarity with the un-familiar has the un-intended consequence that all barriers between “us” and “the others” gradually disappear. The initial rivalry and even animosity among some of the colonies were erased when the borders for free trade were opened. It was commerce, internal free-trade that created one nation, and diversity has remained.

THE POLITICAL SYSTEM MUST BE NEUTRAL

President Calvin Coolidge is often quoted for his declaration in 1925 that “The chief business of the American people is business.”  His observation has the limitation that it leans towards the business side, ignoring the consumer side. The economic activity of the American people is commerce, including the business interests and the consumer interests. The role of government is not to take one side or the other; it is the preservation of the integrity of the system as such. The current two major political associations seem to ignore this, and each one has become identified with one opposing side. Anything that is peaceful does not require the intervention of the powers invested by the people on those temporarily in public office. The economic system should be immune to the temporal vagaries of political leaders. The political system should not be able to whimsically change the rules that affect commerce from one day to the next, nor from one election to the next.

The rise of socialism within the Democratic Party

Perhaps with the increase in visibility and success just observed with the politicians that advocate for socialist policies inspired by the Marxist economic doctrines, the real democrats will recover some sanity and recognize how un-American their latest economic policies have been. Perhaps the Republicans will recognize that their job in government is to remain a neutral force in the economy once freedom of choice is recovered, and not to be the “correct” managers of the peoples’ lives. Turning government power into a source of private privilege and opportunities of enrichment is precisely what the socialists accuse “capitalists” of being guilty of.

New York City elects communist mayor for the Democratic Party

Before it is too late, what the United States needs now is to return to basics. Just as 250 years ago the Founding Fathers gave us a better political system  than all the others known, with our deteriorating political system that is the biggest threat to our economic system – the free activities of the people - we face a historic opportunity.  The federal constitution can be amended to harmonize the original political system with what we now know its economic system should be. Let’s embrace the market economy – the free enterprise system – by cleaning the barnacles of interventionism that have grown back and threaten to sink the ship.

If our political system is an extension of our natural liberty, it needs its other half, the economic system known for millennia as the market.