Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“Left-wing politicians take away your liberty in the name of children and of fighting poverty, while right-wing politicians do it in the name of family values and fighting drugs. Either way, government gets bigger and you become less free.”     Harry Browne

February 1, 2010

Is The Free Market Democratic?

by Brad Warbiany

In my post on whether America is ungovernable, one comment from CJS stuck out. It illustrates what I think is a common misconception of the average consumer, who sees a Starbucks on every corner, chooses between Microsoft and Apple for their operating system, and chooses whether to shop at the Super Wal-Mart or Costco each weekend.

A free market seems to have its own form of democratic majority rule. It may be a majority of money, but your small sum may be as ineffective at changing the actions of a business as it is at changing the actions of a government.

This view looks at the free market as a lowest-common-denominator, winner-take-all system, when it is the exact opposite. When it comes down to it, any need will be met if the conditions are right.

As I’ve mentioned before, I’m an engineer, and I work in the electronics industry. I’ve worked at big companies, I’ve worked at small companies, and most recently I worked [and continue to work] for a small company that was acquired by a much larger company. In my role (customer-facing), I’ve seen the ins and outs of business at all levels.

One thing that you see about many small companies is that they work hard to define a niche that they can fill and compete in. At the same time, larger companies tend to use their size, economies of scale, and greater resources to find very large market segments where their advantages allow them to overwhelm their smaller competitors.

I think of that small niche company as a military special forces unit. They’re the SEAL unit. They can deploy quickly, they can accomplish jobs that nobody else can get done, and what they do well, they do better than anyone. But they have very limited capacities. You’re not going to ask them to project force across an entire theatre of battle. The large company, however, is a carrier battle group. When they decide where they’re going, you join them or you get out of the way. They have the power to change the game. But they’re not as nimble. They can’t go in 15 different directions at once. They have enormous power, but they must make strategy in broad strokes, not in fine lines. The SEAL unit won’t defeat a carrier battle group in open combat, yet nobody in their right mind will claim that they’re not a formidable fighting force to accomplish the right-sized objective.

To push it back to the original point, if you have a need and a budget, you have two options. If the big company has something that fits your need, you’re in luck. And as CJS says, if the big company doesn’t have something that fits your need, you’re probably not going to get them to change their mind without a compelling story. But it doesn’t end there. There are entire industries devoted to picking up “the scraps” not serviced by the big companies. They might be a bit more expensive, but they’re there.

Leaving electronics, this is a common refrain all through the business world. If business were democratic, like our government, all restaurants would be McDonald’s, all beer would be Budweiser, all cars would be GM, and all computers would run Windows and use Internet Explorer. In democracy, everyone votes on what everyone else will have access to.

But the free market isn’t democratic. There is no single entity from which you are voting to have your needs met. You have competing entities trying to earn your custom. If I want something cheap, known, and tasty, I’ll stop at McDonald’s. But McDonald’s doesn’t make a burger like St. John’s does. I may drink Miller Lite out of nostalgia for my college days, but The Bruery is a bit more my speed. I love my Ford truck, but I like the fact that I could buy (at varying prices) all sorts of small-production automobiles — and someday hope to buy or build a Shelby Cobra. And while I use Windows for most of my computing, I browse with [free] Firefox and do quite a bit with [also free] ubuntu Linux — not to mention all the options out there that I’ve encountered in business (QNX, VxWorks, Solaris, etc etc).

How powerful is the free market? Well, in a free market, even if what you want is illegal someone will supply it to you. Whether it’s drugs, or sex, or just a bacon-wrapped hot dog, the market will supply what is in demand.

Democracy is a method to work together to make joint decisions. The free market is a place to trade value you’ve created (often money, the proxy for such value) for value others have created. In both, a lot of people choose the same thing. The difference is that in a market, people only choose for themselves. In a democratic government, people choose for themselves, their neighbors, and a whole host of people they’ve never even met. In a market, choosing differently than the majority limits options somewhat, but you can still get your needs met. In a democracy, choosing differently than the majority means that you get what the majority wants you to have.

TrackBack URI: http://www.thelibertypapers.org/2010/02/01/is-the-free-market-democratic/trackback/
Read more posts from
• • •

11 Comments

  1. Excellent post. You would make Milton Friedman proud.

    Comment by Let's Be Free — February 2, 2010 @ 8:08 am
  2. Originally I proposed a thought experiment in which a private police force was used by its customers to enforce mandates on others – such as drug prohibition – that not everyone would agree upon. Even though you may not be required to pay for it, you would still be negatively impacted by it.

    Brad countered by saying: “It’s easy to state “I want marijuana off the streets and to be impossible to obtain.”…What’s harder is to say “I’m willing to spend $100 out of my own pocket every month to pay for the forces that will stop other people from using marijuana.” … A lot of people want to impose their values on others, but how many of those people will pay big money to do so?

    I found this convincing at first, but there’s a big counter example – campaign contributions. There are clearly a large number of people who are willing to pay large sums of their own money to politicians to impose their values on other people (see the large amount of money that is being poured into ads both for and against California’s legalization effort). In the absence of politicians, why would these same people not use private institutions for the same purpose?

    So the first problem that I see is that simply because you not forced to pay for a given “service”, it doesn’t mean that you won’t be negatively affected by it.

    The second problem is the fact that (in the absence of any rules against it) private organizations could very easily use coercion and force to extort money from others or to force people to behave a certain way – for example mafia protection rackets. Coercion and force is often attributed to governments, but I don’t see anything metaphysically special about the institution of government that makes it unique in this regard. It could be argued that the only reason that more private organizations aren’t using force and coercion to extort money or affect behavior is because it is illegal. Of course that brings us to the dilemma that the only way to prevent corrupt institutions is to put in place corrupt institutions to stop the other corrupt institutions. Of course that will never solve anything, but perhaps this cannot be solved.

    Comment by CJS — February 2, 2010 @ 1:11 pm
  3. CJS, perhaps I misunderstood your thought experiment, but if the police force you were talking about were private, wouldn’t it follow that they would only have authority on the premises of their customers? It seems they could effectively prohibit or promote whatever they want on their own property, and hire adequate security to enforce it without interfering with my rights at all. Now if they send their goons over to my place and attempt to force me to do/not do something, I will defend myself and my rights as necessary. This may include hiring my own private security, perhaps I could form a coop with other like minded individuals in my vicinity.

    You mentioned cleaning up the streets, but whose streets are they if there is no government? I would guess that the people who use them would pay to build, maintain, and enforce any rules they thought necessary via tolls or a monthly payment or somesuch. If they want to prohibit something and I don’t want to comply, I won’t use their street.

    Comment by John222 — February 2, 2010 @ 5:03 pm
  4. BTW, a truly free market has only two rules: supply and demand.

    Comment by John222 — February 2, 2010 @ 5:08 pm
  5. This is based on certain assertions about human beings that may or may no be true. The original post which brought up this experiment expressed the opinion that “no one has the right to impose their values on me”, an idea that I generally agree with. However I suspect that there are strong human tenancies towards imposing ones values on others that will be hard to reverse. This seems to be an expression of a will to power I’m not a Nietzschean – I don’t think that the will to power is the dominant force of human civilization, but I do think that it is a contributing factor, along with the rational actor concept, the utilitarian desire for happiness and tenancies towards altruism.

    Just as free market ideas succeed by acknowledging the selfishness of human nature, any idea must acknowledge the tendency of many (most?) human beings to be (for lack of a better word) busybodies.

    So, if what I state is true (and you are free to dispute this), then I’m asking the question “why would a free market do a better job of protecting you from the busybody tendencies of others than democracy?”

    So back to your example. Where does the authority of the private police force end? Well in reality it ends wherever their customers tell them it ends. So if their customers believe that their authority encompasses your place, then what is to stop them from enforcing mandates from their customers on you? Now of course if they do so you can attempt to defend your rights as you see fit, and even form your own group to do so. However now we have a situation where disputes over values are handled by violent conflict rather than by civil discourse. I understand that democracy doesn’t do a particularly great job of defending rights, but if I have to choose between using democratic processes to defend my rights rather than a state of constant warfare, I’ll chose the former.

    The comment about “cleaning up the streets” wasn’t necessary literal. The point being that a private security force could very well be employed by its customers to enforce rules on non-customers.

    As far as the rules of the free market being only supply and demand – what if there is a demand for additional rules?

    Comment by CJS — February 3, 2010 @ 9:34 am
  6. To be more concise, in a free market you are only restricted by the availability of various resources and the demand for those resources. Any other rules, regulations or artificial restrictions would change the market to something other than “free”.

    As Brad said, the free market isn’t Democratic at all. It may seem that way sometimes if you count dollars as votes, but there isn’t any force involved. Democracy is about 51% forcing their will on the other 49%. Democracy can be downright oppressive if you are in the minority.

    As far as “busybodies” go, I would love to see competitive government as a part of a free market. If a group of people want to go off and form a commune or whatever, that’s fine with me as long as they don’t force me to go along. Yes, there will always be someone who wants to tell other people what to do or how to live, but it’s not until they start imposing their opinions and morals at gunpoint that I have a problem.

    Comment by John222 — February 3, 2010 @ 9:40 pm
  7. One of the beauties of the US Constitution is the set of checks and balances that were built in that slow down and thwart the majority (which is usually shifting in any event) should it be tempted to clamp down and enforce its will against the minority. In my view, if the inflamed passions of populism in the House of Representatives had been permitted inilaterally to rattle and throttle the minority from pillar to post, if the Congress’ exercise of power was unchecked by an independently elected executive and if a Supreme Court insulated from day-to-day political pressures did not check both the legislature and the executive, the republic long ago would have collapsed into disunity and perhaps outright rebellion.

    The consitution itself and the views of our founding fathers framed therein is a direct contradiction of the notion that human tendencies to impose one’s will on others will always prevail. It certainly didn’t work that way along this seaboard, on this continent, late in the 18th century when the Constitution was adopted with bold protections of individual rights and infused with carefully crafted anti-majoritarian mechanisms that protect individual libery and personal choice.

    Comment by Let's Be Free — February 4, 2010 @ 9:56 am
  8. I found this convincing at first, but there’s a big counter example – campaign contributions. There are clearly a large number of people who are willing to pay large sums of their own money to politicians to impose their values on other people (see the large amount of money that is being poured into ads both for and against California’s legalization effort). In the absence of politicians, why would these same people not use private institutions for the same purpose?

    The difference is the state. Campaign contributions look to influence the already-existing, already-recognized-as-legitimate entity of government. A small contribution can have a massive effect.

    For example, presidential candidates raised more than a billion dollars to run for President in 2008. That sounds like a lot, but that’s less than one-tenth of one-percent of one year’s economy, roughly akin to what we spent on potato chips last year. And that’s to hold the most powerful political office in the most powerful nation on Earth. That sort of power and influence should command much more of a price, no?

    Without the state, no institution enjoys the reputation of legitimate ultimate authority. For all the folks who voted for Obama, and all of the excitement surrounding him, the amount of money freely given to him was far, far less than the power of the office. Take away that office, that aura of legitimacy, and it becomes a lot harder to get people to spend to enforce their legal views, because there is less likelihood of success.

    The second problem is the fact that (in the absence of any rules against it) private organizations could very easily use coercion and force to extort money from others or to force people to behave a certain way – for example mafia protection rackets.

    This is true. Of course, the mafia have often been ignored, encouraged, or actively recruited by the government, as well. Creating a legal authority of last resort doesn’t always solve the problem. A society that has the will and ability to fight the mafia probably doesn’t a need a state for protection anyway.

    Comment by Joshua Holmes — February 6, 2010 @ 11:43 am
  9. Democracy is about 51% forcing their will on the other 49%. Democracy can be downright oppressive if you are in the minority.

    It can be, but in practice this is rare. Democracy usually encompasses a lot more than just simple majoritarianism, as a quick survey of democratic countries will show.

    Comment by Joshua Holmes — February 6, 2010 @ 11:47 am
  10. [...] Joshua Holmes: Democracy is about 51% forcing their will on the other 49%. Democracy can be downright oppressive if… [...]

    Pingback by The Liberty Papers »Blog Archive » Quote Of The Day — February 6, 2010 @ 9:08 pm
  11. When humans interact, we have many tools available to facilitate the process. A democracy is one tool. A market is another. Can we describe classes of human interaction which are more appropriately addressed by one tool than the other?

    What is the nature of each of these two tools? Markets allow multiple people to choose individually and end up with multiple answers. Democracies allow multiple people to choose individually and end up with a single solution.

    Markets offer the fewest infringements of natural rights. I can choose based on my values, another can choose based on his. No conflict of values occurs as long as the values are considered personally (I choose for me, not you).

    Democracies offer the advantage of a single result. When a single result is required (e.g.: What individual will hold the post of President for this term?), a democratic election offers the fewest infringements of natural rights. Having every participant vote infringes fewer rights than having a single person make the appointment. Better than a single appointer would be a committee. Better still, would be a vote of the entire membership.

    Because I value natural rights, I prefer to see them abrogated as little as possible. Where the market tool will address a need (the vast majority of human interaction), I support its use. Where a single answer is proven to be required, I will choose a democracy tool over other tools which violate natural rights more.

    The trick is defining classes of interaction where a single answer is required.

    Comment by Akston — February 7, 2010 @ 10:26 am

Comments RSS

Subscribe without commenting

Sorry, the comment form is closed at this time.

Powered by: WordPress • Template by: Eric • Banner #1, #3, #4 by Stephen Macklin • Banner #2 by Mark RaynerXML