Free-Market Regulation

[namaan]

DISCLAIMER: I am not a socialist, communist, or fascist, and don't prefer to be a capitalist (can't really be helped though this day and age). But I'm all for 'free'-markets! Anyway, here you go, and thanks in advance

There is an argument by hard-line capitalists that bastardizes the 'free' in a free-market system. It seems to suggest that this free should mean free of regulation; as if a regulated free-market system were an oxymoron. A regulated free-market system is not an oxymoron! It's merely a form of qualification. It's similar to how you might say that something is west of east; it isn't an oxymoron, you are qualifying that something is just west of a certain eastern reference point. Now, a free-market system is, inherently, a system. And any worldly system is regulated in some form. Even if a free-market system isn't regulated by humans, it is still bound by natural thermodynamic regulations. In fact, there is no worldly system that isn't bound thermodynamically.

So it's meaningless to ask whether a particular worldly system is regulated or not; it's more accurate to ask about the degree of regulation. We don't live in caves, we don't drink from streams, and we don't take dumps out in the open. That would be the daily state of affairs had we accepted the natural regulatory system as enough for us. And no, we didn't think it to be enough, and rightfully so. What we did do was to regulate and control our activities a bit more than this natural state of affairs. And soon enough we found ourselves living in these marvelous civilizations that we so often boast about, and for good reason of course.

But how ironic is it that it's the economists of our very own great civilizations that tell us that a free-market system that has regulations that even cave men may find lacking is good for us! So let's be clear about a few things then 1) a free-market system without regulation is a non-entity 2) to complement the advances of modern civilizations, a free-market system would ideally have a complementary level of regulatory systems in place.

To those who have gradiophobia (fear of gradations and uncertainty i.e. reality; finding black/white perceptions appealing), it's all too easy to argue that any piece promoting regulations of 'individual freedom' is a propaganda piece for economic collectivists. Well, truth be told, the moment cave men decided to give up their natural dwellings and build some dwellings with their own hands, they took the first steps towards the adoption of the social contract. What is the social contract you might ask? Well, put simply, it's when individuals as citizens give up their rights to the state, and in return expect rights from the collective citizenry of that state. So yes, unless you do live in a cave and drink from streams and take dumps out in the open, you are a collectivist. Of sorts; the caveat of course being that a discussion of the free-market system specifically brings into focus economic collectivism. Never-the-less, the over-arching point here is that all us have already submitted to this social contract that binds us to collectivist terms of interactions with our fellow man.

So the question is, what but the most arbitrary of reasons can one have to extend this collectivist approach to human interactions but not to human economics? Albeit, the point of this piece isn't to go into the specifics of appropriate economic regulation. Rather it's to wholly extinguish the notion that a free-market system is one best served unregulated. I will take my house and my plumbing thank you very much. Actually, there is one more important, though unrelated, point here; the free-market system isn't the birthright of capitalism. Rather, more poignantly, the free-market system does not belong to capitalism; it is merely borrowing it. If the capitalist ideological state can't get its act together and come to the unavoidable conclusions reached above soon, than it's curtains indeed to an anachronistic and static ideology.

P.S. I'm no expert on economics and took no classes. So I hope to learn more than anything. BTW...this was originally written for a different audience, so please don't mind the perhaps aggressive tone?

 

[2Parties]

Well, put simply, it's when individuals as citizens give up their rights to the state, and in return expect rights from the collective citizenry of that state.

"The State" is not some god-like entity in which we need to serve, who can create something out of nothing, and who can better the world. "The State" is a collection of individuals who rule over others, nothing more, nothing less. If we accept the idea of rights (in their traditional sense) as valid than rights can not be granted, given up, and they are innate to every person.

So yes, unless you do live in a cave and drink from streams and take dumps out in the open, you are a collectivist.

The statement that would actually follow would be as follows: If you support a single group (a few people) taking over a stream, regulating among everyone else who has access, regulating how much you can take from that stream, and how much each person has to pay for access to stream, and using guns to threaten or kill people who disagree with your takeover, you are a collectivist.

Never-the-less, the over-arching point here is that all us have already submitted to this social contract that binds us to collectivist terms of interactions with our fellow man.

Please explain the specifics of the contract, and how any person can enter into said contract without agreeing to it or even knowing what it is, and how this can meet the definition of what a contract is according to a dictionary.

 

[Oddball]

I always love that phony "social contract" argument.

 

[Toro]

Capitalism works best when it has rules to guide it and laws which give more information to people to make better economic decisions.

I didn't read the OP otherwise. I'm too tired right now. Maybe tomorrow.

 

[Toronado3800]

If something vague for an answer will work:

Human failings make pure socialism not work.

Human failings make pure capitalism not work.

Our founding fathers were aware of these failings and put into place a system of checks and balances.

Regulations (laws) for businesses are one of these checks and they must be modified from time to time. We can argue about to what extent. Good regulation...I'll say if not for the FDIC and their regulations banks would be a very risky place to put money. Poor regulation....the multiple copies of paperwork required to prove the product you bought meets the new flame resistance standards in the mattress industry.

 

[namaan]

"The State" is not some god-like entity in which we need to serve, who can create something out of nothing, and who can better the world. "The State" is a collection of individuals who rule over others, nothing more, nothing less.

I agree? Hence why I'm confused about what your point is. In fact the semantics of what a state is isn't too relevant to the point of this piece.

If we accept the idea of rights (in their traditional sense) as valid than rights can not be granted, given up, and they are innate to every person.

Again, I don't get the point of this statement. You're basically saying that everyone should have a right to do whatever (s)he pleases. Not to be rude, but while that may work in a fairy tail, in the real world, not every citizen of a nation is informed enough or even cares enough to impart authority for the good of all. This isn't a pessimistic view; it's only reality that some centralized institution has to be given authority over the state. The degree of authority is up for debate of course, but there's no credible nation without such an institution.

Now, we could argue about whether the word state should be used to represent the citizenry or the institution. But again, it isn't really relevant to this piece. And depending on the form that the governing institution takes, they could be nearly one in the same thing.

The statement that would actually follow would be as follows: If you support a single group (a few people) taking over a stream, regulating among everyone else who has access, regulating how much you can take from that stream, and how much each person has to pay for access to stream, and using guns to threaten or kill people who disagree with your takeover, you are a collectivist.

Again, as far as the point of the piece is concerned, I don't understand how this is relevant (also read: what's your point? ). That sentence you quoted was only meant to point out the existence of collectivism, not its quality (good or bad).

Please explain the specifics of the contract, and how any person can enter into said contract without agreeing to it or even knowing what it is, and how this can meet the definition of what a contract is according to a dictionary.

Well, it's good that you ask this, since part of the reason I posted this was to get some idea of how many people even think about this stuff. Now granted, this is an economics forum, but I got zero responses by posting it in another forum (and gave up eventually). I mean it only concerns the central driving force behind all economic activity around the globe, and economics only happens to be the predominant human activity on this planet (I'm liberally dropping my personal understanding in this statement of course).

Anyway, whether or not you decide to enter into or agree to this contract doesn't matter and isn't an excuse. Consider the (simplified) story about Socrates; he was jailed and his friends offered to help him escape. But he decided against it. He understood that by the mere fact that he had lived in the city state all those years, he implicitly agreed with the social contract binding him to his state. After all, it's the state that had been providing him with security & stability, infrastructure, institutions, access to knowledge and resources, etc.

For example, if a person had to physically agree to some written form of the social contract, than, strictly speaking, what's to stop someone from not signing it and saying that they didn't know they were obligated in anyway to serve their nation in a time of war? On what basis would you implement a draft? This is an extreme example to make the point, but there are many other such examples.

Well, that's it for now, thanks for your feedback.

 

[KittenKoder]

If something vague for an answer will work:

Human failings make pure socialism not work.

Human failings make pure capitalism not work.

Our founding fathers were aware of these failings and put into place a system of checks and balances.

Regulations (laws) for businesses are one of these checks and they must be modified from time to time. We can argue about to what extent. Good regulation...I'll say if not for the FDIC and their regulations banks would be a very risky place to put money. Poor regulation....the multiple copies of paperwork required to prove the product you bought meets the new flame resistance standards in the mattress industry.

Actually, "pure" capitalism, if there was such a thing, would work in spite of human "failings" ... with only one simple law: Politicians can never own stock or any business ever.

 

[namaan]

I always love that phony "social contract" argument.

Care to elaborate? You must have a pretty solid understanding about this subject for you to so nonchalantly call the centerpiece of the whole argument phony. Well, do let me know if you have anything else to add

 

[Limey]

Actually, "pure" capitalism, if there was such a thing, would work in spite of human "failings" ...

Ther e isn't. People confuse the economic spectrum (from command to laissez faire) with political economy. Capitalism is prone to crisis. This is encouraged by human failings that generate market concentration problems. Government regulations then becomes a vital aspect of the reproduction of profit. The US, for example, has been largely reliant on her military sector to maintain stability: from the generation of innovation (describing basic market failure in technological progress) to demand managment.

 

[editec]

DISCLAIMER: I am not a socialist, communist, or fascist, and don't prefer to be a capitalist (can't really be helped though this day and age). But I'm all for 'free'-markets! Anyway, here you go, and thanks in advance

Of course the folks who have an 8th grade POV about marcoeconomics will presume you're a socialist.

Not your fault, they're ignorant.

There is an argument by hard-line capitalists that bastardizes the 'free' in a free-market system. It seems to suggest that this free should mean free of regulation; as if a regulated free-market system were an oxymoron. A regulated free-market system is not an oxymoron! It's merely a form of qualification. It's similar to how you might say that something is west of east; it isn't an oxymoron, you are qualifying that something is just west of a certain eastern reference point.

Astute thinking. Markets cannot exist in a state of anarchy. In fact marekts ONLY exist in places where there is some regulation.

So the only question we need to ask ourselves is how much regulation and what kind of regulation does our market really need?

Now, a free-market system is, inherently, a system. And any worldly system is regulated in some form. Even if a free-market system isn't regulated by humans, it is still bound by natural thermodynamic regulations. In fact, there is no worldly system that isn't bound thermodynamically.

Yup.

You've just lost more than half your audience, but what you're saying is spot on accurate

So it's meaningless to ask whether a particular worldly system is regulated or not; it's more accurate to ask about the degree of regulation.

Yup!

We don't live in caves, we don't drink from streams, and we don't take dumps out in the open. That would be the daily state of affairs had we accepted the natural regulatory system as enough for us.

That's right.

And no, we didn't think it to be enough, and rightfully so. What we did do was to regulate and control our activities a bit more than this natural state of affairs. And soon enough we found ourselves living in these marvelous civilizations that we so often boast about, and for good reason of course.

In order to have a civilization, we create a SYSTEM with a division of labor.

That demands order. and order demands some kind of regulation.

We all wish that were not so, but that is the way it is.

Pure freedom of the individual = anarchy.

Aanrchy is the kind of freedom only brutes long for.

But how ironic is it that it's the economists of our very own great civilizations that tell us that a free-market system that has regulations that even cave men may find lacking is good for us!

Not ALL economists say this.

Apologist economists for the system we have NOW, are saying this.

They take their marching orders from the people who pay their salaries.

So let's be clear about a few things then 1) a free-market system without regulation is a non-entity 2) to complement the advances of modern civilizations, a free-market system would ideally have a complementary level of regulatory systems in place.

Exactly

To those who have gradiophobia (fear of gradations and uncertainty i.e. reality; finding black/white perceptions appealing), it's all too easy to argue that any piece promoting regulations of 'individual freedom' is a propaganda piece for economic collectivists.

Great word.

Yes, the black/white thinkers are basically people incapable of thinking very deeply about things. Another less polite way of describing these people is to say they are freakin' idiots.

Well, truth be told, the moment cave men decided to give up their natural dwellings and build some dwellings with their own hands, they took the first steps towards the adoption of the social contract. What is the social contract you might ask?

The original social cotract was the family. Mankind has never been the FREEDOM ANIMAL some of these idiots seem to think it was.

Well, put simply, it's when individuals as citizens give up their rights to the state, and in return expect rights from the collective citizenry of that state. So yes, unless you do live in a cave and drink from streams and take dumps out in the open, you are a collectivist. Of sorts; the caveat of course being that a discussion of the free-market system specifically brings into focus economic collectivism. Never-the-less, the over-arching point here is that all us have already submitted to this social contract that binds us to collectivist terms of interactions with our fellow man.

We're born into this social contract. Some of us are big winners because of that contract, most of us are not so kucky.

So the question is, what but the most arbitrary of reasons can one have to extend this collectivist approach to human interactions but not to human economics?

The reason people on top of the heap claim that they want FREEEDOM is because they want THEIR FREEDOM from regulation

They want everbody else to be HIGHLY REGULATED.

Dont you think it somewhat ironic that the land of the free has more prisoners per cpaita than any other nation on earth?

That's because we are not REMOTELY the land of the free.

Somalia is the land of the free, folks.

Do any of you libertarians really want that kind of freedom from regulation?

Of course not.

You are NOT the people you think you are, you know.

You don't love freedom although I do't doubt you think you do.

What you really love is AFFLUENCE, an affluence brought to you by a society that is highly regulated and anything but FREE.

Albeit, the point of this piece isn't to go into the specifics of appropriate economic regulation. Rather it's to wholly extinguish the notion that a free-market system is one best served unregulated.

You've done a good job.

Pearls (mostly) before swine, though.

I will take my house and my plumbing thank you very much. Actually, there is one more important, though unrelated, point here; the free-market system isn't the birthright of capitalism.

Capitalism cannot exist in a FREE MARKET. It was['t born in afree market. It has never existed as a free market, either.

The phrase FREE MARKET really makes no sense at all.

Rather, more poignantly, the free-market system does not belong to capitalism; it is merely borrowing it. If the capitalist ideological state can't get its act together and come to the unavoidable conclusions reached above soon, than it's curtains indeed to an anachronistic and static ideology.

P.S. I'm no expert on economics and took no classes. So I hope to learn more than anything. BTW...this was originally written for a different audience, so please don't mind the perhaps aggressive tone?

However you arrived at you conclusions, they are, I thik, essentially correct.

Markets ONLY exist in places that have some order.

Order demands regulation.

Regulation is the opposite of FREEDOM.

Markets which can find the happy clance between regulation and freedom thrive.

Thjose with too much regulation stifle creativity ad productivty.

Those with too little regulation typically fail to thrive for the society as a while, even though they might make some individuals very well off until that society falls apart entirely.

Much as it appears ours is doing, right now.

 

[Limey]

Capitalism cannot exist in a FREE MARKET. It wasn't born in afree market. It has never existed as a free market, either.

The phrase FREE MARKET really makes no sense at all.

Whilst I fully support the "born" remark, this part of your post isn't quite right and might encourage deliberate misinterpretation by the free marketeers. Capitalism cannot exist in a 'laissez faire environment'. Free markets (i.e. markets free from direct intervention and only regulated to protect property rights) can exist. They're just not common and often do not behave according to neoclassical theory (e.g. a 'free labour market' wouldn't lead to wages that reflect supply & demand criteria)

 

[namaan]

First off, thanks editec! I appreciate you rewording my paper to make it easier to understand

You've just lost more than half your audience, but what you're saying is spot on accurate

All good. That's just a part of gauging limits. Besides I came here to have an engaging dialogue, not to proselytize.

But how ironic is it that it's the economists of our very own great civilizations that tell us that a free-market system that has regulations that even cave men may find lacking is good for us!

Not ALL economists say this.

Apologist economists for the system we have NOW, are saying this.

That may be so, but it's these very apologists that seem to be the top brass of modern economic thinking. Well, maybe things might change a bit now due to the economic crisis, we'll see.

The original social cotract was the family

Interesting point. I'll have to keep that in mind.

Now, both you and Limey made points that hinge on the definition of free markets. Of course, the official definition is as Limey pointed out:

Free markets (i.e. markets free from direct intervention and only regulated to protect property rights) can exist.

But, being the host of this thread, I should make clear a few definitions. While it may not have been clear, I partly wrote the last part on free markets not being the birthright of capitalism specifically to make a point on the usage of the term free markets. I find the Wikipedia definition of this to be highly flawed:

A free market is a market without economic intervention and regulation by government except to regulate against force or fraud. The terminology is used by economists and in popular culture. A free market requires protection of property rights, but no regulation, no subsidization, no single monetary system, and no governmental monopolies. It is the opposite of a controlled market, where the government regulates prices or how property is used.

The flaw with this definition stems from several of my points from the main paper (namely how free markets need to be regulated in complementary style to modern societies). The problem is with the extremes in usage; there is no middle ground. Almost as though it were written by someone with gradiophobia. In other words, it essentially says that either you are a socialist or you are a free-marketeer.

I believe in regulated free markets (hence I'm not a libertarian), but I most definitely am not a socialist. In my understanding, free markets are markets that are free from arbitrary and/or politically motivated regulation; regulation that is economically unwarranted and not towards the benefit of the state and its citizenry as a whole (since everyone has put their confidence into the social contract, not just the rich). What free markets should not mean is free of regulation all together. This is, as a start, entirely meaningless.

So again, the point of the last few sentences of the paper was to point out that the definition of free markets is one that is forged from its implementation in a capitalism state, not because that is the exclusive definition of free markets. What free markets means depends on the ideology of the state under which it is implemented (i.e. capitalism in our case). It is correct as stated in Wikipedia, only if we assume capitalism to be some type of default ideology for a state, which I argue it isn't.

 

[Oddball]

Actually, "pure" capitalism, if there was such a thing, would work in spite of human "failings" ...

Ther e isn't. People confuse the economic spectrum (from command to laissez faire) with political economy. Capitalism is prone to crisis. This is encouraged by human failings that generate market concentration problems. Government regulations then becomes a vital aspect of the reproduction of profit. The US, for example, has been largely reliant on her military sector to maintain stability: from the generation of innovation (describing basic market failure in technological progress) to demand managment.

There's no such thing as demand management.

If the "war" on (some) drugs doesn't prove that, nothing does.

 

[namaan]

To try and frame my argument a bit more, here are a few more definitions. Capitalism is a state ideology, whereas democracy is a form of government. The state can be a nation, but there is no such thing today, as far as my understanding goes, as a nation state (maybe Cuba). More appropriately, the state is all the geographical territory that implements a particular ideology (that would be the vast majority of the world in the case of capitalism). Whereas a form of government (i.e. democracy) is necessarily specific to a particular nation, and reflects the specific rules and regulations (the constitution) of that nation. In fact, building on my point about how the definition of free-markets is dependent on the ideology of the state, the definition that Limey gave of free markets:

Free markets (i.e. markets free from direct intervention and only regulated to protect property rights) can exist

is, I would say, a fairly close definition of capitalism itself. Hence, you can see my point about the cascading of definitions.

One interesting side effect of this type of definition of a state arises when you consider China. They call them selves communist. And I laugh . The irony being that they are more capitalistic in their endeavor (little regulation, little worker safety, child labor, excessive working hours, no unions, extreme differences in wealth, etc.) than most of their western counterparts including the United States. They just happen to use communism as an excuse (rather a tool) to enforce the little regulation, worker safety, etc. This is why there is essentially no such thing as a nation state today, and why the capitalist state is, without out most people realizing it, a world phenomenon, not a western phenomenon.

Let me give another example about what it means to be a part of the state. If all those conspiracy theories about how GWB was trying to create a North American Union actually happened, much like the EU, then you would have seen a prime example of this. While both the US and Mexico are, of course, part of the same capitalist state, this isn't readily apparent because we are part of separate governing institutions (even if they are both democracies). But the forming of a NAU (North American Union) would mean we are much more a part of the same governing institution also. The point being that if the US and Mexico shared the same currency, you would end up competing with the poorest Mexican just to make a buck.

Even if this hasn't happened outright, you can understand why then large corporations are so 'lenient' with employing Mexican laborers. If they can lower the standards for minimum wage (well, with rising inflation, they only have to maintain it to lower it ) then everyone has to compete on these lower standards. In other words, ironically enough, it's our democracy that has been preventing the take over of capitalism. But with these big corporate lobbies in place, and the ensuing bastardization of the constitution, we might just end up living in a more capitalist nation than anyone bargained for.

 

[Oddball]

Real laissez-faire capitalism transcends nation states.

No better evidence for that exists than black markets.

 

[mascale]

The abomination Presbytyr, to whom so little is owed, did set up a price model which prevails to this time: The use of supply and demand. Even the old Soviet Union understood that markets existed.

What nobody does do, and so fails to consider, is that the price model requires arithmetic, and that this is called currency. Currency gets distributed in incomes. Incomes themselves are greater and lesser, and so there is automatically a price distortion in the basis model--which is "control" of the demand-side.

No one says, however, that people with no money, make no demands. The price model fails when the arithmetic doesn't exist.

The price model is every bit about the market, and a "free" doesn't exist in pricing, nor is it free from "control."

"Crow, James Crow: Shaken, Not Stirred!"
(By which the United States is about to learn, apparently, that the greatest threat to its national security, now upon the earth, is a bunch of wandering, Moslem shepherds, armed with poppies. Mendocino County, California, itself is probably not in on the alert, however! Washington, D. C. represents a learning curve in these matters!)

 

[Oddball]

You just flip blindly through a dictionary and type the words you randomly point at, don't you?

 

[namaan]

@Dude, I assume you're talking about mascale's post, 'cause yeah, I didn't really understand what (s)he was trying to say. But if I have it right, are you (mascale) actually saying that we shouldn't have money/currency? Well, I guess we could always revert to a barter system -_-

IMHO, the problem isn't money, but its distribution system (speaking very generally). Money/profit is like a hammer. You can use a hammer to bludgeon someone to death, or you can use it to build a house. It's a tool, nothing more, nothing less.

 

[mascale]

You can't have the market without the arithmetic, even if you call it "barter." Quantity involves arithmetic. A market model requires arithmetic. The usual arithmetic used is on a currency, and that is in the income scale.

No Market is free, especially with national currencies involved!

"Crow, James Crow: Shaken, Not Stirred!"
(How can there be a socialist market: Without the arithmetic--which goes to the subject of other kinds of markets!)

 

[Paulie]

Oh look, agnapostate came back again.

You always know it's him when market socialism is being contrasted to Marxism in a post, with a passing mention of Austrian.

He never passes up on an opportunity to call out oft-cited comparisons made by people between Marxism and market socialism.