The Fourth Revolt / Dennis McCarthy's literature resume

The Fourth Revolt / Free Market

This web page just provides a relatively brief explanation for why free market systems
have always ended up helping the poor by lowering prices and creating plenty while all big
government schemes have always hurt the poor. It is written in hopes of reaching some
of those who remain skeptical about the beneficence of voluntary trade.

"Read this one, a great
pleasure, and...at the end
of the book you will be
someone different."
--Dan Agin, "Here Be Dragons/
Book Review," Huffington Post

[For more information on my new book,
please check out my home page.]

  First, let us all agree that the most important measure of a society is how it treats its less fortunate citizens. We have a moral
responsibility to relieve suffering. People, beyond all question, must receive food and medical supplies and shelter, regardless of
their ability to pay. Unfortunately, many kind and well meaning people who agree with me about this have remained somewhat
skeptical of markets in delivering services to the poor. And prior to my discovery of Austrian economics, I did too. The common
perception about the free market is that it is a callous, cannibalistic, dog-eat-dog system which favors greedy go-getters and leaves
the poor and unfortunate fending for themselves, picking up scraps left over from a rigged system. I used to have a similar
impression about the dangers of unrestrained market forces and certainly could not think of an intelligible reason why central
planning couldn't work. Certainly, it would seem, there was no physical principle preventing governments from effectively distributing
goods and services to the poor or preventing them from effectively regulating commerce so that distribution would be more plentiful,
fair and kindly. What is more, the idea of central planning and mixed economies has the support of the majority of most intelligent
and well-educated people. Meanwhile, by and large, it seemed that those who opposed such systems are in the pockets of Big
Business and always trying to implement a callous political philosophy that appeals to all the darker sides of human nature -- greed,
racism, selfishness, xenophobia, paranoia, etc -- at least that is how they are portrayed publicly. Judas, Mr. Potter, Gordon Gecko,
and Scrooge-the-night-before are all capitalists; Jesus, George Bailey, Carl Fox, and Scrooge-the-next-morning are all socialists,
right? Finally, many believe that history proves the effectiveness of big government plans. We had tried the abominable and vicious
practices of the free market -- like in the nineteenth century US with the Robber Barons and the greedy capitalists Jay Gould and
James Fisk. That's what you get from the "free market," many believe. You get Dickensian London or Sinclair's The Jungle or
Stone's Wall Street.
  Still, even before I had been persuaded by Austrian economics, I always sensed that there were some problems with government
control -- problems I didn't think about too carefully, but I couldn't quite explain. And they sort of pestered me. There were some
rather obvious examples of a number of governments trying to control domestic trade and deliver services to the masses -- China,
Cuba, Russia, etc -- and failing miserably. But certainly that must have been because they were corrupt and weren't really the
friends of the poor, right? They were greedy totalitarians. They could have effectively regulated commerce and redistributed goods
to the poor if they had really wanted to, but they just were selfish and lacked compassion. But as one's knowledge of 20the century
history continues to expand, you begin to see failure after failure, decade after decade, no matter what the leadership: Albania,
Algeria, Angola, Armenia, Azerbaijan, Benin, Bulgaria, Belorussia, China, Chile, Congo, Cuba, Czechoslovakia, East Germany,
Estonia, Ethiopia, Georgia, Hungary, Kampuchea, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Mongolia, Mozambique,
Nicaragua, North Korea, Poland, Russia, Romania, Senegal, Somalia, Tuva, Tajikistan, Turkmenistan, Ukraine, Uzbekistan,
Venezuela, Vietnam, Yemen, Yugoslavia. All were economic disasters. All hurt the poor. Were all the leaders of all these nations
always evil and unconcerned about the poor ? Or was there something else at work?
  What I eventually discovered through reading on the issue was the extraordinary, indeed near-miraculous advantages that the
free market bestows upon its citizens. Indeed, I eventually realized that, due to a number of sophisticated reasons, it is the free
market and only the free market that can provide plenty and effectively distribute goods to the masses -- and, in fact, it has been
successful in every case. And all efforts to regulate and, in essence, govern the market are doomed to failure, always leading to
ineffective distributions, shortages, and eventually, unnecessary suffering of the poor.   The following are the three main reasons as
to why big government schemes *always* fail, regardless of whether the government is trying to distribute goods itself or just use
laws and regulations to "help" the market set prices and distribute items more effectively:

1) The Miracle of the Pricing Mechanism (or "No one knows how to make a pencil")
Government planners lack the near miraculous, humanitarian, impossible-to-duplicate omniscience of the pricing mechanism, which
instantly communicates information that is crucial to preventing shortages and gluts -- and necessarily foments widespread
cooperation among many different peoples to always ensure that the precise and ever changing demands of the masses are met,
everywhere and at all times. In contrast, when a small number of government planners, working without any rational price
mechanism, try to anticipate the true needs of millions of people -- all living in a wide variety of cultures, climates and ever-shifting
circumstances -- and then try to manage prices or coordinate production or distribution according to those inordinately variegated
and always-changing desires, they simply have no chance of success. And certainly couldn't be efficient. As the great economist, F.
A. Hayek wrote: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they
can design.”
Friedman gives an idea of the impossibility of central planners effectively governing production and prices in his famous example:
"No one knows how to make a pencil".   The point is that it takes thousands and thousands of people, all with extremely different
specialties, all operating in different parts of the world, in order to create everything that is needed to build a pencil. Yet all of this
labor and all of these businesses all coordinate, via the pricing mechanism and without a central planner, in order to produce
precisely the amount of the various materials needed to produce all the needed pencils, which can be sold for profit at an extremely
low cost. There is no way a government agency could anticipate and coordinate this process in such an economically efficient
manner. How many people should be working to produce graphite -- and what's the best way to do it?   How much yellow paint
should you make? How much iron ore and steel do you need to make the saws and the tools of the lumber industry?   How many
lumberjacks should be hired? Are we making too much rubber for the erasers? Or do we need more? And how many pencils do
you need and where? How many is too many pencils -- and how many is not enough? How about in Topeka? How about in Boise?
How about in Miami? Does every community need the same amount?
The pricing mechanism answers all these questions instantaneously. When demand starts out-pacing supply in a particular region
-- when a lot of people want something -- prices (and profits) rise and this not only sends an important signal to consumers, helping
curb demand, it also sends a much more important signal to potential producers. Potential producers, observing the high prices and
profits, then enter the industry to help create that item. Supply increases, prices drop, no shortages occur, and resources have
been effectively reallocated. The exact opposite occurs when supplies start exceeding demand. When prices drop, business
people stop producing things that aren't much in demand (e.g., buggy whips and ice boxes), helping reduce gluts. They then
reinvest their time and resources into what people need more (e.g., cars and computers). The more people need a certain item, the
more producers start entering that industry. All of this is communicated via prices. In the case of the pencil, the price system
ensures that there are just enough competing businesses and workers (relative to their production capacity) in the graphite industry,
the yellow paint industry, the lumber industry, etc., so that they are producing just the right amount of materials necessary to
produce pencils and the myriad other things that use their products.   The pricing mechanism ensures that at all times all of the
potential labor and resources of a nation are continually being shifted into vocations that most effectively produce all those things
the people most need in a particular place at a particular time. And as the needs of the people vary from region to region and
change over time, this immediately results, through the pricing mechanism, a corresponding change in production and distribution.
This is why there are no famines in free market countries. This is why the economies of free market countries soar -- while the
people in nations gripped by governmental schemes suffer.
Once we understand the millions of interacting causes and bits of information that occur all across the planet in setting the
particular price of a good or service, we then understand why no one can effectively anticipate it or control it. And eventually, we
realize that blaming a particular industry for its prices is quite as primitive as blaming a weatherman for the weather.

2) The Surprising Dangers of Artificially Inflating Demand or Subsidizing Certain Industries:   The unanticipated
consequences of artificially inflating demand (e.g. when a government forces the lowering of prices or offers something for free) are
often quite dire, for it negates one of the most important forces in the pricing mechanism: the personal cost-benefit analyses
conducted by millions of individuals, which helps communicate relative needs. More, it also negates price signals to potential
producers who would have helped relieve shortages. Instead, producers start leaving the industry -- which is why Canada through
the '90's and '00's had so many hospital-closings and doctors leaving the country, producing cruel health care shortages. This is
also part of the reason why health care in Massachusetts had started to collapse within three short years after implementing
universal health insurance.
Let me be clear, the government can, of course, always go against the pricing mechanism to direct resources to help the poor in a
certain region (and the poor in that regions will be helped for a while), but, as always, the resulting inequities always lead to more
suffering for more people in the long run. The same problems always arise when you go against the pricing mechanism, yet more
humane and efficient options to help the poor are still available. Let us take as an example Medicare. Excepting Miami, the town
that has the extraordinary distinction of paying more per person on health care in the entire U.S. is not the Hamptons or the West
Side of Manhattan or San Francisco or Boston -- but McAllen, Texas – which is in the county of Hidalgo, which has the lowest
household income in the country. To be clear, a town in the poorest county in the US spends more per capita on medical care than
essentially every other town in the nation. Medicare, in fact, actually spends 15 thousand per year on enrollee there – which is
actually 3 thousand more than its income per capita. Why? According to this extraordinary Atlantic Monthly article, since the
residents aren't spending their own money, they have become walking ATM's for hospitals -- and are over-tested, over medicated,
and over-operated upon. This perversion of the pricing mechanism has led to an extreme funneling of resources -- newest
hospitals, newest medical centers, an excess of surgeons, doctors, nurses -- into McAllen.
All of these medical resources would have been distributed much more effectively had the pricing mechanism been allowed to
operate, necessarily lowering medical prices in other areas of the country. There is simply no way to beat the pricing mechanism.
Worse, due to the extraordinary increase in prices for medical care in the US caused by such governmental schemes and the
continuing economic collapse of Medicare, services continue to be cut for the elderly -- and incredibly, the elderly on Medicare have
so many additional out-of-pocket expenses are now paying a higher percentage of their income for health services than the elderly
did before Medicare! And this is true despite the fact that the elderly have paid extra taxes into the Medicare system their entire life.
In other words, Medicare has not only increased the costs of medical services for everyone else in the nation; it has also increased
the costs of services for the elderly! It is not unreasonable to say that Medicare, with its tens of trillions of dollars in unfunded
liabilities, as a program that sacrifices the future care of the young for the inefficient care of the elderly today.
Likewise, the subsidizing of certain industries or the creation of certain jobs programs are problematic because these investments of
resources are no longer driven by the needs of the people but by the whims of those in charge. Valuable resources are thus wasted
in the propping up of inefficient industries (usually those that are politically connected, e.g., with a lot of union workers) or in the
creating of unnecessary goods and services at the urgings of the government leaders rather than due to the demands of the people
as communicated through the pricing mechanism. (Imagine if the government decided to save the buggy-whip or ice-box industry!)
If left alone, these resources would have been reallocated into secure businesses that are successfully producing goods and
services that people want and need. Such governmental practices necessarily results in a misallocation of resources, resulting
either in skyrocketing prices or shortages or both.

3) The Unrelenting Motivation to Help the Masses and Improve their Lot: Free market systems ignite and fuel this
motivation, harnessing the full potential of all of its citizens who are enticed to anticipate the needs of the people around them and to
meet those needs in the most efficient manner possible. Big government schemes necessarily suppress this urge and even preempt
it altogether. Another way of saying this: The driving force of the free market are the needs of the people -- as communicated
through the pricing mechanism. The driving force of government systems are the orders of a small group of people in charge.
For example, food is so accessible in the US that a 17 year old high school dropout can work for one hour at McDonald's and buy a
gallon of milk, a dozen eggs and a loaf of bread, which is to say, he can feed a family of four. After a single day of work, that same
teenager could feed that family for a week. Indeed, while a significant fraction of the world suffers from hunger, people in the US right
now live in a food paradise. At practically every corner of every town, in every plaza, gas station, and every series of storefronts,
someone is providing low-cost sustenance -- milk, cheese, meat, pasta, eggs, bread, fruit, vegetables. And American children are
continuously surrounded by what, in other centuries, would be considered a fabulously bountiful harvest -- so fabulous that one of
the major problems for the poor in the US is actually obesity. Why is this? What is the cause of this food superfluousness? Quite
simply, the predominant reason why the US has so much food in this mostly hungry world is because it profits people to feed us.
That's it. That's the seminal reason.
  It is often said that the market system is a cruel Darwinian process, where only the fittest can survive. And to a certain extent that
is true, but the actual battlers are the businesses and corporations. It is the weakest corporations that perish, while only the fittest
businesses triumph -- and victory can only be achieved by meeting the needs of the masses in the most efficient manner possible.
Thus, corporations and businesses compete against each other to bring food to us in the most efficient manner possible. So
countless people work overtime or spend hours of their day thinking about how to feed us even more efficiently. It profits people to
feed us. And this is why everyday of our lives we move through a veritable food utopia -- through an always available feast that
would have been unimaginable even to the very rich just a century ago. Unfortunately, it doesn't profit anyone to feed people in
Uganda or Ethiopia, so they face hunger. And hunger will continue to be a problem in the world until leaders at the UN realize this
simple fact and try to bring, protected free markets to the rest of the planet.

Coda:
   Most people today who have become free marketers have followed a similar journey, only coming to their view after having first
followed some other political philosophy. Indeed, I know of no one over the age of 30 who was actually raised a libertarian/free-
marketer -- I mean an actual market-forces, price-mechanism, Hayek-understanding libertarian -- or who was even taught it as a
young person in schools. So most current libertarians, like myself, must come to their views through a self-educating trek --typically
occurring in their late twenties or thirties. They must actually be exposed to and persuaded by the ideas of Friedman, von Mises,
Hayek -- and then they must make the lonely decision of abandoning their old sociopolitical ideas, which is to say, the ideas of their
parents, peers, professors, and political icons. This is true of even all the famous libertarians: Friedman had been a FDR/New-Deal
supporter; Stossel a radically pro-regulation, consumer-advocate; Hayek a socialist. Naturally, this doesn't mean we're right, but it
does mean that most people have come to accept the power of the free market through intellectual persuasion rather than emotional
indoctrination. In fact I am of the opinion today that libertarianism is to popular political beliefs what atheism is to popular religious
beliefs -- a rationally concluded antithesis to the dominant, local, traditional, emotionally soothing ideas that we've all been taught to
believe.
  After learning about the humanitarian nature of the free market, I finally understood why socialism has collapsed everywhere it has
been tried and why the free market has always flourished. I finally understood the problems behind European-style socialism, for the
wait lines in Canada, for similar problems in Great Britain, for the recent economic crises facing Greece, Portugal, Italy and Spain,
for the incredible collapse of France. I also understood why, as other nations started to founder, other regions like Hong Kong and
Singapore have soared. It was also nice to watch as the economic system of Hong Kong ended up fomenting free market changes
in China, helping end their problem with poverty and hunger. As Paul Romer correctly said on "TED," "In a sense Britain
inadvertently, through its actions [implementing the free market model] in Hong Kong has done more to reduce poverty in the world
than all the aid programs we have undertaken in the last century."
   It is the free market that ends poverty and produces plenty. The free market is what has reduced the suffering of the poor on this
planet. So as one starts to analyze this socio-political philosophical fortress built up by Smith, Mises, Hayek, Friedman; as you start
to understand Say's Law and the humanitarian consequences of the pricing mechanism; as you consider all the colossal and horrific
failures of socialism and discover why they occur; as you learn about the disastrous misallocation of resources caused by the
artificial inflation of demand; as you realize the impossibility of central planners adequately managing prices or matching supplies
with the varied needs of a nation; as you reflect upon the inescapable sociobiological impulses that fuel free markets and realize that
the poor today are fed, clothed, housed, heated exclusively by the consequences of inventions and mass production and distribution
schemes developed within market systems; as you discover that government planners have, at best, only offered the poor a number
of half-delivered and ultimately hurtful promises-- as you find with the government housing and schools of Detroit -- or, at worst, has
provided the poor with a lot of shallow graves, as you find littered across Eastern Europe and East Asia -- you begin to realize that
the current fashionable view of the best way to help the poor is completely misguided and will only increase suffering. The only way
to achieve abundance and distribute goods effectively is to allow the free market -- this extraordinary prosperity-machine -- to
operate with as few hindrances as possible. Then, and only then, are you best able to help the poor with a luxurious and silken
safety net woven from the extraordinary plenty that only free societies can produce.