Discerning the free market: the core of human understanding

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 by Priscilla Guinovart (for the Austrian Economics Center)

Go into the London Stock Exchange – a more respectable place than many a court – and you will see representatives from all nations gathered together for the utility of men. Here Jew, Mohammedan and Christian deal with each other as though they were all of the same faith, and only apply the word infidel to people who go bankrupt. Here the Presbyterian trusts the Anabaptist and the Anglican accepts a promise from the Quaker. On leaving these peaceful and free assemblies some go to the Synagogue and others for a drink, this one goes to be baptized in a great bath in the name of Father, Son and Holy Ghost, that one has his son’s foreskin cut and has some Hebrew words he doesn’t understand mumbled over the child, others go to their church and await the inspiration of God with their hats on, and everybody is happy. – Voltaire, Letters on England, Letter 6

Of the many benefits that free commerce has, one clearly deserved to be highlighted by Voltaire: trade brings people together and makes them interact with one another. When people are left alone, when they are able to negotiate freely, they are communicating, and communication means understanding. And this communication is not generated only by the act of negotiating on its own; when X sells and Y buys, prices are set, and prices carry information, hence, prices are also a way to communicate something.

Therefore, when people are left alone, they get into voluntary agreements. Voluntary agreements are the basis for a peaceful society where win-win situations are an everyday happening, and as a result, everybody is happy, as Voltaire noticed.

Some would argue that the previously described scenario is a chimera, and that the free-market only serves to broaden the gap between the haves and the have-nots. It is quite likely that they also defend governmental price control – which basically implies a lie, since the truth behind supply and demand (the price itself) has now been intervened.

Times have changed since Voltaire wrote his Letters on England. The modern reality is quite different: the truth is that few activities are as regulated as commerce, and the virtues of a real free market are rarely found, perhaps only with Hong Kong as an exception – although it is slowly becoming a more regulated place.

What could have possibly gone so wrong? As Murray N. Rothbard explains “This simple reasoning refutes the argument against free trade typical of the ‘mercantilist’ period of sixteenth to eighteenth-century Europe and classically expounded by the famed sixteenth-century French essayist Montaigne. The mercantilists argued that in any trade, one party can benefit only at the expense of the other—that in every transaction there is a winner and a loser, an ‘exploiter’ and an ‘exploited’. We can immediately see the fallacy in this still-popular viewpoint: the willingness and even eagerness to trade means that both parties benefit. In modern game-theory jargon, trade is a win-win situation, a ‘positive-sum’ rather than a ‘zero-sum’ or ‘negative-sum’ game.”

The argument of the ‘exploited’ has haunted the world as the frustrated phantom it is since then. The belief that the existence of two winning parties is impossible gained devotees quickly, facilitating the birth of ‘ideologies of victimization’, such as socialism and communism.

The free market, the ability to trade freely, is the freedom to create wealth – and wealth seems to be a quite good solution for poverty, doesn’t it? Once regulations and restrictions came in – because the idea of ‘exploiters’ versus ‘exploited’ succeeded – the society split. Hatred and envy were the new substitutes for cooperation, supply and demand. Intervention replaced freedom. Communication was violently broken.

It is important to remember that a free market takes peace not only to individuals, but to nations as well: if countries are linked through trade, and therefore have profitable relations among them, the possibilities of war will be drastically reduced.

But a peaceful world is not the only positive outcome of a free market. Innovation can only take place in a free context. When businessmen are free to create, produce and trade, new technologies blossom. And the more people innovate, the more people compete. Competition is a key aspect in a free market economy. Companies, entrepreneurs and businessmen benefit (by creating and selling better products or services) and so do customers (by buying those better products or services at a better price – another consequence of competition).

The free market is a manifestation of how we associate with others, through voluntary contracts and agreements. We could conclude, then, that the free market is the foundation of a civil society.

Freedom is radical: where there is no free market, there is no freedom. At all. Freedom cannot be divided into smaller, more convenient pieces. There aren’t ‘good’ or ‘bad’ freedoms: freedom is a whole, and freedom works every single time.

When individuals are left alone, they build bridges. They communicate. They trade. They function in peace and understanding. Fear to let things take their own course leads to intervention and regulation, and the latter does nothing but minimize the individual. When an individual is diminished, he hates, envies and destructs.

Let us do, and the highest and most noble ideals will be reached.
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