Misunderstanding Markets

Often in the economics classes I teach, as well as in the other discussions I have on economics and government, I face an array of misunderstandings of what free markets mean. Let’s look quickly at two:

First, there is the idea that “economic power” is in the same category as “government power.” Equating the two is an effort to turn around a common complaint of market advocates and use it to support the the expansion of government. Jim Wallis, CEO of the left-wing Christian “Sojourners” ministry, writes:

The radically anti-government ideology of the current right wing Tea Party ideology is simply contrary to a more biblical view of government, the need for checks and balances, the sinfulness of too much concentrated power in either the government or the market, the responsibilities we have for our neighbor and the God-ordained purposes of government — in addition to the churches — in serving the common good and, in particular, to protect the poor.

Although the initial language about a biblical view of government sounds convincing, it is fraught with misunderstanding. One mistake is this: “serving the common good” and “protecting the poor” in the sense of invasive government regulation and redistribution of wealth [something Wallis and others are quick to advocate] are not “the God-ordained purposes of government.” They are the province of churches, organizations, and individuals. Such government expansion just concentrates more power in government hands.

And we all know what “concentrated power” looks like in the hands of government. There is a long history of dictatorships, autocracies, oligarchies, and expansive, smothering socialist bureaucracies in this world. Ultimately, that power is a power of the sword: threatening, coercive, and violent.

But what is “concentrated power” in the market? Is it amassed wealth?

In a free market, wealth is gained through voluntary exchange, or from a gift or inheritance from those who so gained it. For instance, I make an offer to give you A in exchange for B, which you have. If you’re better off with A than with B, and I’m better off with B than with A, we both walk away wealthier through our exchange.

To take that further, if I come up with a great idea and produce what people want, I may end up with a lot of wealth from providing people with something that makes their lives better. Think about Bill Gates or Steve Jobs. They grew wealthy by selling you something you wanted. In fact, I’ll bet you’re reading this post on something one of them somehow had a hand in creating. And no one coerced you to buy it–you voluntarily gave your money in exchange for it.

Wealth is not “power” in the sense of being able to coerce people to do what I want. I may entice others or make offers, but no amount of wealth allows me to use force to compel. Market “power,” therefore, is of a completely different nature than government power. Many people who complain about “concentrated market power” are advocating the use of coercive force to combat something that is by definition not coercive force. And when the government gets involved in the market, it’s ultimately the consumer–you–who lose out. This applies to everything from healthcare to light bulbs.

Second, market-friendly ideas are sometimes regarded as putting “profits before people” or business interests before other legitimate social concerns. But this, too, is a misunderstanding of markets.

Free markets allow for the pursuit of widely different goals, only two of which are increasing the size of one’s bank account or the size of corporate profits. Mother Teresa’s efforts to help the lepers of Calcutta are no less consistent with the free market than the notorious “greed is good” mantra of Wall Street’s Gordon Gekko. Free markets are just that: free.

A person in a free market has exceptionally broad (but not limitless) freedom to pursue his or her own particular goals, goals which may be laudable or distasteful. For those goals to be successful, however, that person must seek to meet specific needs within the market by serving specific consumers (who don’t respond well to coercion–do you?)

Yet what is even most important is that Christians must not only serve the desires of the market, but also the desires of God. Christians refer to this use of those things under our managerial control stewardship. It is only in a free market that Christians are able freely to follow their consciences as they serve the Creator.

Furthermore, Christians would quite properly invoke the Bible as imposing moral constraints on the conduct of individuals in the marketplace, just as it constrains the behavior of people as family members, governing officials, or church members. More specifically, there is nothing about market freedom that legitimizes theft, cheating, lying, corruption, or other injustice. As history shows us, these sins are common across all economies. In fact, it is in fully socialist economies like the former Union of Soviet Socialist Republic or National Socialist Germany, that such sins go unchecked at the highest levels and lead to murder, theft, and corruption on a national scale.

In closing, when we hear objections to market freedom, it pays to listen carefully and seek to understand exactly what is being criticized. Often, problems blamed on free markets really should be blamed on immoral goals being carried out through markets, or blamed on blatant government injustice injecting itself in a market process. Muddling terms like “power” or “justice” moves us further away from individual freedom and closer toward governmental tyranny.