Why The Market Economy Worksby Doug Mataconis
John Stossel, who very well may be the best advocate for free markets since Adam Smith, has a great column at RealClearPolitics explaining just why the free market may be the greatest invention in human history:
How many times have you paid $1 for a cup of coffee and after the clerk said, “thank you,” you responded, “thank you“? There’s a wealth of economics wisdom in the weird double thank-you moment. Why does it happen? Because you want the coffee more than the buck, and the store wants the buck more than the coffee. Both of you win.
Economists have long understood that two people trade because each wants what the other has more than what he already has. In their respective eyes, the things traded are unequal in value. But this means each comes out ahead, having given up something he wants less for something he wants more. It’s just not true that one gains and the other loses. If that were the case, the loser wouldn’t have traded. It’s win-win, or as economists would say, positive-sum.
We experience this every time we have that double thank-you moment in a store or restaurant.
And the reason we experience moments like that is because of the simple fact that in a free market each side benefits from a transaction. You have something I want. I offer you a price and, after a little negotiation, you accept. And you give that something to me.
I don’t force you to buy what I’m selling. And you don’t use some outside authority (the government) to dictate to me the terms on which I have to sell it to you.
It’s worked for hundreds of years and, outside of the regulatory state, it works the same way on an everyday basis. If you happen to be lucky enough to live in an area where farmer’s markets are a common occurrence, you know what I mean. The posted price for produce is just the starting point most of the time. Depending on the time of day and the season, you can usually negotiate a much better deal.
And that’s what the free market is all about. Yes, it doesn’t work like a farmer’s market all the time. You can’t go into Crate & Barrel or Pottery Barn and negotiate the price of a high-end piece of furniture, but, then again, you don’t have to buy your furniture at a high-end store to begin with.
What matters is that you have a choice.