Similarly, nobody understands the free market. (This is likely why there's so much interest in socialism, as the mind yearns for order and predictability.)
Yet the free market works well despite this lack of understanding, and even contempt, of it.
Yet the free market works well despite this lack of understanding, and even contempt, of it.
Unless there is too much inflation like in Weimar Republic, too much corruption like in Russia, too much monopoly like with Standard Oil, too many shenanigans leading to 2008-style meltdown (imagine that without central bank support), given working police and the justice system which is missing in many developing countries, given basic infrastructure like roads and electricity etc, etc.
The government money printing press is not free market.
> too much corruption like in Russia
The government's role in a free market is to prevent corruption.
> too much monopoly like with Standard Oil
Standard Oil was very good for consumers, as SO brought about something like a 70% reduction in kerosene prices. Besides, SO never was a monopoly. It was accused of attempting to create one.
> imagine that without central bank support
Don't need to imagine it. It happened several times in the 1800s. Recovery tended to be as quick.
> given working police and the justice system
Free markets require a working police and justice system
Oh no, not again this 'No True Scottman'-'Free market' myth.
Let's go down this path - what does 'free market' theory say, how much money should be in the economy? How should it be created or destroyed? There is no natural process for it, whoever has lisense to print money can rule the world or collapse the economy. 'Free market theory' provides no answer, just like it provides no answer to most important economic questions.
Is using a physical valuable substance as money, let's say gold, free market? That's Mercantilism and it brought national economies to a standstill due to lack of liquidity. People couldn't trade goods, take loans, nations went to wars over silver.
Do you want to have gold standard and fractional reserve banking? Is it freely floating currency and a system where banks create money out of thin air? (governments don't print money any more by the way). Which one of these three totally different systems is the mythical true 'free market'?
Are private currencies owned by banks free market? That's what we used to have, they used to collapse all the time. That's why we invented central banks.
Great questions.
Money is created when money is loaned out against collateral. Money is destroyed when the loan is repaid and the collateral returned. It's a natural process. The pressure on it is to have the supply of money match the value in the collateral.
> whoever has lisense to print money
Under a free banking system, anyone can print money. Of course, anyone printing money has to convince others that it has value. Did you know that anyone can print money today? We call them "IOUs", "checks", and more recently, "credit cards". We're all familiar with having to convince others that our IOUs, checks, and credit cards will be honored.
I'm not aware of any that managed to rule the world or collapse the economy.
> no answer
I just gave you one! I can only surmise you've been talking to the wrong people. May I suggest Milton Friedman's "Monetary History of the United States". It's tough sledding, but worth it if you really want to know.
> Is using a physical valuable substance as money, let's say gold, free market?
Of course. Are you familiar with the commodities marketplace? It's the same thing, but would you call that mercantilism? Shipping gold around to settle debts, however, is clumsy, expensive, and dangerous, hence the rise of trading receipts for the gold instead, and later those receipts turning into bank notes, and even later became electronic entries in a ledger.
> Do you want to have gold standard and fractional reserve banking?
That's how free banking worked in the United States. It's free market.
> they used to collapse all the time.
Not all the time, but banks did fail from time to time.
> That's why we invented central banks.
That was the public reason. The real reason was to inflate the money. As for collapse, now we have fewer bank failures, but when they do fail, it's a doozy (Great Depression, 2008, etc.). Also, did you notice that as of this month 9% of the money you had last year disappeared? You can thank our fiat money system for that.
I grew up in the Carter stagflation years, and learned to never keep more than pocket money around. It's all in things that aren't inflated into worthlessness by the central bank.
P.S. How do I know all this stuff? My dad spent the last years of his career as head of the finance department at a college. We had many long and happy conversations about how banks worked. It isn't an easy subject, but I wish more people could have such an experience.
But there is nothing natural about it - the limit on money supply is how easy it is to get a loan. Bank could give out mortgages with 0% deposit, they could give out loans equal to 120% of the house value, and they indeed have done so.
What regulates the money supply is not 'natural process' but the rules set by the regylator on minimum reguirements. Is having no rules free market? But then it will be creating 2008 style event every tuesday.
Furthermore, this whole thing only creates money in our current floating-money system, right?
If you have medieval-style economy where you count literal gold coins, you can not create money, you would just be loaning out other people's deposits. The amount of money in the system would stay fixed, right?
So then the only 'natural' money supply is your ability to mine gold?
The natural pressures are the law of supply and demand. If the bank creates too much money relative to the collateral, it risks a run on the bank. Too little, and the bank goes out of business because it isn't making money.
> Is having no rules free market?
Yes (other than you cannot force people to do business with you nor can you defraud them).
> The amount of money in the system would stay fixed, right?
Nope. You don't actually loan out the coins. You loan out a receipt for the coins. As long as people don't redeem the receipts, you can loan out a multiple of the coins in the vault. This is called "fractional reserve banking". After a while, instead of trading coins, people trade the receipts. The receipts evolved into bank notes.
It's a fascinating history.
> So then the only 'natural' money supply is your ability to mine gold?
Lots of commodities would work. People in colonial America used tobacco leaves. Today people "mine" bitcoins.
I dont fully understand the system, and its clear neither do you, or most people commenting here
We have not been using fractional reserve banking for at least 60 years now, as you sibling comment and this paper by the bank of England Explains. The only thing limiting hiw much bank can loan are capital requirements in the rules passed by parliament.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
It's still a fractional reserve system, at least in the US. The "capital requirements" sound like fractional reserve, too.
Where did the thousand bucks come from? Where was it moved from?
Nowhere!
The bank just changed the amount in the electronic ledger from 300 to 1300.
Crazy, right?
My mind was actually blown recently learning that fractional reserve banking has turned into a widely believed myth. Banks are still making low-interest loans and there's no reserve requirement!
Using gold as your currency also isn't mercantilism. Mercantilism is about increasing exports while reducing imports. e.g. China today is quite mercantilist, despite not using gold.
If we're going for perfect scenario, communism is absolutely a great idea. Unfortunately, the real world is a bit different, and it turns out that capitalism and free markets can survive reality and bad actors just a bit better. And that's what counts in the end. Still, we shouldn't dismiss the failures of the system, since this is what shows misaligned incentives.
People will still look for a planner though…
Are you sure about that? Or have people just not discovered the cause yet?
Pick one, let's explore it.
I do, wonder, given that all the extinctions happened before humans existed, what possible alternative to 'natural' could there be, aliens?
Asteroids, vulcanism are the usual culprits. There also could be cosmic ray bursts from exploding stars.
> the Oxygen Catastrophe
There seem to be many hypotheses about that:
https://en.wikipedia.org/wiki/Great_Oxidation_Event
and it isn't clear to me there was a collapse, but a gradual replacement.
That is nature, thats my point - it is brutal and murderous.
If you don't want to die from them you don't rely on Darwinism and if you don't want economic collapse and famine every time a new strain of flue evolves you dont wait for 'muh free market' to save you.
BTW, are you enjoying the 9% haircut we all got in the last year courtesy of central banking?
Which type of spherical cow free-market economy should i compare it too? No matter what system i pick, from medieval gold based systems to modern floating currency, someone goes "ThaTs NoT Real Free MaRKet!" It's like communism, not real life system was ever the real deal.
https://en.m.wikipedia.org/wiki/Horseshoe_theory#:~:text=In%....
The US system of free banking before 1914.
Darwinism means adaptation. In markets, when people are free and allowed to keep their (majority of) gains, they will struggle to learn, change and adapt. Planners are neither motivated nor able to do either. They are the ones bringing the economic collapse. Look at the ham-fisted way they "avoided" last year's crash: not only we all paid a 9% tax, but we are now in a more fragile position than ever, dependent on a monetary policy we know is completely unsustainable at best.
Erm, no, its the briliant free market optimised supply chains that have failed and gave us this inflation.
The free-market has ensured that the entire continent of North America produced Zero medical masks in the first year of the pandemic because there is no meltblown production on the entire continent. There was zero stock because everyone is 'just in time manufacturing'
It is also free market that controls the velocity of money, and when people can't get the goods they need because they are all stuck on the other side of the olanet, they start outbudding each-other and yiu get inflation. Eve all central bankers stopped existing before this crisis, the inflation of consumer economy would be exactly the same
In other, less-regulated countries, KN95 masks where missing for just a brief period of time in March then they were readily available again for the rest of the pandemic, of course at a higher price reflecting the demand.
> briliant free market optimised supply chains that have failed and gave us this inflation
Such a statement is quite funny in the context of the FED printing a fifth of all USD supply just in 2020.
Even funnier is to comply about disrupted supply chains in the context of countless heavy restrictions imposed by... you know... governments.
"heavy restrictions imposed by... you know... governments."
I don't think we live on the same planet, UK government was trowing tens of billions at anyone who could supply masks, it took almost a year to fix supply while frontline doctors and nurses were dying. You could literally sell them masks that didn't actually work and they would take em.
I am not getting the feeling we are having reasonable discourse, it doesnt matter what happens, you always blame 'regulation', did regulation get millions of containers stuck in US, causing shortage of containers in China? Did regulation make it so you only have 2 ports that can unload giant container ships?
> Did regulation...
Well I am no expert in those specific cases and I agree that there may be other forces at work as well, but I am betting there are tons of regulations about opening and operating ports unloading ships and tons of politics like unions and local administration to appease. So I do not know if regulation did it, but it sure isn't free market's fault.
I feel like that's a bit of a charitable description considering the whole monopoly problem (and various other regulations in place to make the system actually work). Perhaps we just disagree on what "working just fine" means though :)
In reality most monopolies we encountered were actually created or sustained by governments, through their dear friends patents and regulations which raise the barrier of entry and compliance costs, create unintended second-order effects and generally dampen competition.
vs.
"Markets require" <-- some kind of logical construction
I'll give you a different suggestion - what you're saying may work fine on a small scale, but not on a scale where consumers can no longer realistically have any idea how something was produced. Consumers can't select against things they don't know about or don't understand.
"Evolution may work fine for a small organism like bacteria, but it would never evolve something as complex as the human eye"
> consumers can no longer realistically [...] Consumers can't select
Your lack of trust in consumers is only surpassed by your lack of imagination. Repeat after me: "If consumers actually need something, a free market will provide".
Too much choice and quality too hard to check? Consumer Reports, Wirecutter, Trip Advisor and any other aggregator with reviews like Booking.com or even Amazon will help. Food not killing me instantly (thanks, regulation!) but sickening me slowly with production-boosting chemicals (for nothing...)? We now have organically grown, local co-ops and various near-sourced grass-fed ethically slaughtered meats.
No regulation to thank to, just the good old free markets.
Socialism can be enacted with markets or it can be enacted with central planners. Capitalism can be enacted with markets or it can be enacted with central planners.
The point I'm making is that the mechanisms by which an economy chooses what to produce are distinct by the mechanisms which determine who is in control of those choices are distinct from who the proceeds from the production accrues to.
That's Marx's explanation, all right.
What free markets are, is when people freely decide to make transactions with each other, without using force or fraud.
The simplest case is you have an apple tree, I have an orange tree. You have too many apples, and no oranges. I have the reverse problem. We trade. We are both better off. I exploit you for apples, you exploit me for oranges.
Saying a transaction is without force or fraud is only begging the question. If it is legal, and someone thinks it is illegitimate, then it logically involves both fraud and force from their perspective. It was fraud to write the rules down, and it is force to use guns to make people comply.
It's too easy to defend "free markets" while ignoring that the usual description is circular.
You and I both know what the terms mean.
You absolutely have hidden assumptions about what the words mean. We all do.
Be open minded towards other interpretations you may take for granted.
'"He that is nourished by the Acorns he pickt up under an Oak, or the Apples he gathered from the Trees in the Wood, has certainly appropriated them to himself. No Body can deny but the nourishment is his. I ask then, When did they begin to be his? When he digested? Or when he eat? Or when he boiled? Or when he brought them home? Or when he pickt them up?"
Locke answered these questions by selecting the last of these options. The acorns became the private property of the owner when he picked them up, for it was in the gathering that labor was first expended. "That labour put a distinction between them and common. That added something to them more than Nature, the common Mother of all, had done, and so they became his private right."'
I'm not endorsing or dismissing this, but notice how it conflicts with ownership of the tree.
EDIT: Also, I wouldn't use the word "exploit" in such a simple descriptor of commerce.
The people who benefit most from the rules control the system, making sure rules don't change.
The benefit they receive from the rules is to be in a parasitic, extractive, predatory relationship to most of humanity.
Why not use "force or fraud" to liberate yourself from predatory relations?
You can make up your own definitions of things as you like. It's a common rhetorical device to divert a conversation into a swamp. Me, I'll stick to commonly understood meanings.
> Free markets require a working police and justice system
Complete fantasy.
how can there be capitalism when central planners tell the owners of the capital what to do with their capital? that sounds like authoritarianism to me (which is basically why all communist countries must be authoritarian, since without it, the natural tendency of humans is to be capitalistic).
"Commerce" and "capitalism" are not synonyms. The former has existed for ages. The latter is comparatively recent.
This naive conflation of commerce with capitalism is certainly one manifestation of this conceptual confusion.
You can't declare who will "own" what in the long term. The people who own it decide whether they will continue to own it - not you. They will decide not to.
If you say the workers can't sell the shares of their workplace, then they don't really own those shares. In fact, it's more like the shares own them. They are forced to continue "owning" part of their workplace, which someone decided should be their workplace. Variations of this are how authoritarian communism work.
(This is ignoring lots of other such issues with worker ownership, e.g. it becomes very complicated or impossible to bring new people on even if desperately needed since existing workers/owners don't want to dilute their shares. Also how can a new worker join if he cannot afford the shares to do so?)