As you open your gifts this festive season, or tuck into your dinner, take a moment to think about the extent to which free markets have made this possible. Probably, people from all over the globe have been involved in helping you enjoy your day; people you don’t know and don’t need to know, all because of the marvellous workings of free markets.
There is a good chance that some of your gifts travelled by air and sea to reach you; that they were conceived, manufactured and packed by an array of hard-working people in a variety of countries. Other people in several other countries are likely to have worked on providing the raw materials used in making the items you unwrapped. Having all these people from distant countries co-operating to produce goods for your pleasure is one of the great benefits of freer markets and civilisation.
Reaching our current level of civilisation has taken about 200,000 years, the estimated time since modern humans appeared on earth. My own definition of the process of civilisation is, “the gradual elimination of force and aggression in the interactions between human beings”. Professor Walter Williams defines a free market to be “voluntary exchange between individuals free of third party intervention”, which means elimination of force and aggression from economic exchanges, which links voluntary economic co-operation firmly with the advance of civilisation.
Economic freedom and free trade are relatively new phenomena. They had their true beginnings in the latter part of the 18th century along with the Industrial and Education Revolutions in Great Britain. They then spread to Western Europe and the rest of the world, with America providing the additional spice of greatly increased individual liberty. We now take for granted these benefits we derive from freer markets and the greater individual freedom we enjoy, all of which has evolved over a mere 0.1 per cent of the time humans have spent on earth. What is disturbing is that these widely enjoyed benefits and freedoms are under attack from people who believe that they can improve our human condition by retrogressing to the force and aggression from which we, as humans, have so recently been striving to escape.
Give a thought to all the people who work to provide the freshest possible produce for your enjoyment. Farmers and other tillers of the soil, together with fishermen, will provide you with the main ingredients of the dinners you will enjoy during the festivities. From the farms and fishing boats, the vegetables, fruits, sea foods, meats and drinks will be transported to the markets, often in refrigerated trucks, and then to the shops where you can buy them.. Herbs and spices from far afield will add delicate flavours to your meals. Recognise that the vast majority of providers and distributors of all these victuals, wherever they might be, do this voluntarily.
Why do they choose to do what they do? What is it that motivates these people who you have never met and who don’t know that you exist, to work so hard to serve you? How do they know what you want and how much you will be prepared to pay for it? How is it that usually you can get what you want, at most after visiting a few shops to find something out of the ordinary? Suppliers of all your goodies are reacting to the information contained in ‘Prices’. Prices guide the process of supply and demand; monetary values that result from the subjective value judgements of as many people as have an interest in any particular product or service.
Prices guide, and the prospect of profit motivates people from near and far to serve you. In return, you exchange money, the product of your own labour, for their goods and services. In every exchange both parties profit as no exchange takes place unless a less preferred item is being exchanged for something that is more highly valued.
Producers who provide what consumers want, prosper, but those who do not, fail and go out of business. While such conditions might appear harsh, they are precisely the reason why all the goods flow generally on time, in the right quantities, into great cities to meet the requirements of residents. Higher prices, except when caused by money debasement, signal that there is a shortage and that production must increase. Reduced prices, likewise, signal that there is a surplus and that production should be cut.
A truly great achievement of free markets is that producers learn to judge the wants of consumers with a remarkable degree of accuracy, enabling them to fine-tune their activities in harmony with consumer demand. This ability, based on their interpretation of prices, allows producers and suppliers to provide you with the gifts you want for your family and friends and the ingredients for the festive dinner you want to serve them. Without freely forming prices, the delicate co-ordination required to provide millions of people with the quality of goods they want, at the time, place, and in the quantities they want them, with minimum waste, would be impossible.
In unfree economies, such as the former Soviet Union and Mao’s China, economic calculation was impossible, production and distribution was chaotic, and the consumers suffered because government officials controlled all prices. And what became all too apparent in those countries is that interference in prices is always accompanied by violence and the threat of violence,
The process of civilisation itself, the gradual banishing of violence and the threat of violence from human interactions, in fact, has allowed the development of prices. Prices have become a means of co-ordinating peaceful interactions within and between communities across the globe, sending signals about what should be produced and where it is in demand.
Prices don’t affect only what we eat and buy. They also determine where we can find employment. Today, in South Africa, there are millions of people who will not be opening gifts and enjoying good meals because they are suffering the consequences of having been ‘priced out of the market’ by the government’s labour policies and regulations. Despite the poverty and misery clearly visible to us all, the government insists on setting prices for labour and imposing costly employment conditions that keep between 5 and 7 million people out of work, and perhaps even permanently unemployed.
As you celebrate this festive season and the coming New Year, spare a thought for those who are casualties of the fact that in SA today there is no free market in labour. Don’t feel guilty, unless you are one of those responsible for imposing or supporting the intervention. Just make a vow that you will do everything you can to help free the unemployed to make their own decisions about their own working lives with any employers of their choice, including setting the price for their labour. Help to persuade government to create the conditions that will allow them to find jobs and celebrate a great festive season next year along with the rest of us.
AUTHOR Eustace Davie is a director of the Free Market Foundation and one of the authors of the book Jobs Jobs Jobs. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.
FMF Feature Article / 20 December 2011
Note: The FMF last month released the book Jobs Jobs Jobs, which deals with the unemployment problem. The book is available for R160.00 from all the major book stores.