JBeukema
Rookie
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There is no such thing as a free market
What they tell you
Markets need to be free. When the government interferes to dictate what market participants can or cannot do, resources cannot flow to their most efficient use. If people cannot do the things that they find most profitable, they lose the incentive to invest and innovate. Thus, if the government puts a cap on house rents, landlords lose the incentive to maintain their properties or build new ones. Or, if the government restricts the kinds of financial products that can be sold, two contracting parties that may both have benefited from innovative transactions that fulfill their idiosyncratic needs cannot reap the potential gains of free contract. People must be left "free to choose," as the title of free-market visionary Milton Friedmans famous book goes.
What they dont tell you
The free market doesnt exist. Every market has some rules and boundaries that restrict freedom of choice. A market looks free only because we so unconditionally accept its underlying restrictions that we fail to see them. How "free" a market is cannot be objectively defined. It is a political definition. The usual claim by free-market economists that they are trying to defend the market from politically motivated interference by the government is false. Government is always involved and those free-marketeers are as politically motivated as anyone. Overcoming the myth that there is such a thing as an objectively defined "free market" is the first step towards understanding capitalism.
Labor ought to be free
In 1819 new legislation to regulate child labor, the Cotton Factories Regulation Act, was tabled in the British Parliament. The proposed regulation was incredibly "light touch" by modern standards. It would ban the employment of young children that is, those under the age of nine. Older children (aged between ten and sixteen) would still be allowed to work, but with their working hours restricted to twelve per day (yes, they were really going soft on those kids). The new rules applied only to cotton factories, which were recognized to be exceptionally hazardous to workers health.
The proposal caused huge controversy. Opponents saw it as undermining the sanctity of freedom of contract and thus destroying the very foundation of the free market. In debating this legislation, some members of the House of Lords objected to it on the grounds that "labor ought to be free." Their argument said: the children want (and need) to work, and the factory owners want to employ them; what is the problem?
Today, even the most ardent free-market proponents in Britain or other rich countries would not think of bringing child labor back as part of the market liberalization package that they so want. However, until the late 19th or the early 20th century, when the first serious child labor regulations were introduced in Europe and North America, many respectable people judged child labour regulation to be against the principles of the free market.
Thus seen, the "freedom" of a market is, like beauty, in the eyes of the beholder. If you believe that the right of children not to have to work is more important than the right of factory owners to be able to hire whoever they find most profitable, you will not see a ban on child labor as an infringement on the freedom of the labor market. If you believe the opposite, you will see an "unfree" market, shackled by a misguided government regulation.
We dont have to go back two centuries to see regulations we take for granted (and accept as the "ambient noise" within the free market) that were seriously challenged as undermining the free market, when first introduced. When environmental regulations (e.g., regulations on car and factory emissions) appeared a few decades ago, they were opposed by many as serious infringements on our freedom to choose. Their opponents asked: if people want to drive in more polluting cars or if factories find more polluting production methods more profitable, why should the government prevent them from making such choices? Today, most people accept these regulations as "natural." They believe that actions that harm others, however unintentionally (such as pollution), need to be restricted.
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