The people who talk about markets like too often use the word "free". What they
seem to mean, when they thought about it or explain themselves, is it's a market
that isn't regulated by some political authority. A market with no rules, no
regulations, where buyers and sellers confront one another and bargain and
reach a mutually agreeable rate of exchange, each for whatever it is they
have and each for whatever it is they want. I get that idea. But here I'm going
to be an economic historian, something I have taught all my adult life as a
professor in the United States and something I share with other professors
of economic history. The free market that I just described has never existed. It is
a figment of the imagination of people, It is also a wildly utopian image. We
don't have that. Every market that I have ever studied whether it's ancient Greece
right up to the present is full of regulations. The notion that we can have
a market without regulations is refuted by the fact that every time a market has
been created as the way to distribute goods it has immediately had so many bad
effects that regulations had to be brought in to counter them. For example
(and it's really important to understand this), in a free-market wages can be very
low. A capitalist pays as little as he can get away with and if there are desperate
people who need to survive they will work for next to nothing.
This creates a vast population of very poor people often in capitalism. And
guess what, we bring in a regulation, it's called the minimum wage, so you can't do
that. There's another example. Some companies get into a position where
they're the only company producing something and they can jack up the
prices because you got nowhere else to go. Think of your local utility. You don't
have six utility companies to choose from. You don't have
six etc etc. So those companies jack up the prices. You know what we have as a
result? The Anti-trust Division of the Justice Department to break up the
monopolies because if you let the market go the competition among many becomes a
few and then they do what they always do, and income the regulations. There's a
good reason why we have regulations because markets have undesirable effects.
So let's talk a little bit about them. First, let's remember what a market is. A
market says that there are goods that people want, let's suppose ice cream
cones for lack of a better example. Ice cream cones. Let's suppose there are 20
ice cream cones that are available for sale and let's suppose that there are 50
people who want an ice cream cone. So the supply of ice cream cones [is] 20 and the
demand for ice cream cones [is] 50. What happens? Very easy to understand. Let's
suppose the sellers of ice cream cones are ready to sell them at 20 cents a pop.
Well, the richest people out of the 50 immediately realize "There's only 20
cones and there's 50 of us. But I've got a lot of money so I'm gonna offer 25
cents." "Oh no" says another rich person "I'm not gonna stand by while he gets it for
25. I can afford 30." And another rich one says "Well, I can afford 50." You see what
happens? The price gets bid up. As we teach in economics the demand being
greater than the supply the price goes up.
The idea being those with the most money can keep raising the price because they
can afford to pay. But as the price goes up the poorer people have to drop out of
the race because they can't afford two dollars and 18 cents for a cone. Guess
what happens? When the dust settles the 20 cones go to the people willing to
spend the most money. To bid up the price, because they don't
care because they're rich, they'll pay five dollars a cone. In other
words what markets do is distribute whatever is scarce to the people with
the money. The most money wins. Well if the market is a game in which those with
the most money win then it's a game that favors the people with the most money.
This is not rocket science, friends. The market is a system that
favors the rich which is why the rich love markets.