What does it mean to have faith in the free market?
For some, it means faith in big business, in big pollution, in swindling the masses from their hard-earned savings. I sympathize with this perspective, as we face problems in these areas today. But it is not my attempt here to explain the relationship between the free market and each of these problems. Someday, perhaps, but not today.
It is my attempt to explain why I have simple faith in the free market. First of all, what is the free market? There are two components: individuals’ economizing and individuals’ exchanging. Individuals like to economize, because some resources are scarce. For instance, we only have 24 hours in a day. We also only have a limited amount of ice cream in the freezer, a limited amount of money in the checking account, and only so much gas in the car. We tend to watch our resources relatively carefully.
Why do we economize? If we didn’t we’d run out of something.
To what end do we economize? We economize to maximize our happiness or satisfaction. For some, this means saving lots of money. For others, this means investing a lot of time in some venture or other (like window shopping). In any case, we economize to maximize our happiness. This, of course, is very subjective. There is not an objectively right or wrong way to economize. That is up to each individual to decide. The free market involves such individuals economizing, who also engage in exchange or trade.
A word now about trade. Many view this as a zero-sum game, where in any exchange, there are winners and losers. But if I am to exchange with someone, I am doing so because I believe it will be beneficial to me. The other person I am exchanging with believes it will be beneficial to him or her. And so we engage in exchanges when we believe they are mutually beneficial. Some turn out not to be. But if no exchanges were mutually beneficial, then what would be our incentive to exchange? Wouldn’t we just stop exchanging?
An example of a mutually beneficial exchange would be grocery shopping. Green pieces of paper (cash) aren’t terribly tasty or nutritious. But I can exchange them for something that is tasty and nutritious. And so my grocery cart fills up, and I give the cashier pieces of paper I am perfectly willing to part with, because to me, I want to food more than the green pieces of paper. The food is more valuable to me than the pieces of paper. To the grocery store, however, the green pieces of paper represent much-needed cash flow. And so a mutually beneficial exchange has taken place. Was I taken advantage off? Was the store? As long as there was no foul play going on, then we both benefitted. You can imagine similar scenarios taking place in many different places: banks, car dealers, clothing stores, movie theaters, etc.
And so we have individuals like you and me economizing our resources and exchanging those economized resources with someone else when we think we will be benefitted by the exchange.
What is to prevent a business from “ripping me off?” Put simply, I don’t think the business (and the people running it) would intentionally want to hurt me. Isn’t he possible the business owner hates my guts? Sure. Let’s suppose he does. Even if he doesn’t like me, or wants to harm me, for his own selfish interest, he shouldn’t. If he wanted to maximize his profit, he would put effort into pleasing and expanding his customer base. Ripping off a customer neither pleases nor expands the customer base, and so it would end up having detrimental effects on his business. People that try to rip off customers do not have good business models, have a hard time getting investors to start their company, and have a hard time maintaining it. Ripping off customers drives those customers (and other potential customers) to the competition. Of course, in serious cases, there is the risk of fraud or litigation to also be concerned about when “ripping me off.”
For me, the free market is about individual choices and liberty, where individuals are empowered to live their lives and spend their resources as they desire. Put simply, I have faith in my ability to economize resources to my advantage and satisfaction, and I have faith in our ability to trade so that we both will be better off as a result.