I was recently thinking about the many caricatures one sees of businessmen, and it struck me how contradictory they often are. First, we often hear about the "heartlessness" of businessmen, about the the "unfeeling" capitalist system, and how it places "greed" above all else. It is an absurd charge, in a way, as no one denies that capitalism is based entirely upon pursuing one's self-interest, so in one way it is like accusing fish of being wet. But in another it is completely wrong, as capitalism may be based on pursuing self-interest, but it is hardly the Hobbesian war of all against all the critics proclaim. Self-interest often leads to greater cooperation than forced altruism. However, ignoring that, let us look at the other set of contradictory complaints.

The other charge often leveled is that businessmen, left to their own devices would engage in practices which are not designed to profit them, but simply to harm others. Most explicitly, one hears that but for forced integration most businesses would remain segregated, would practice discrimination and otherwise simply ignore their own benefit in order to express their racist beliefs. But that is not the only case. Many times we hear businessmen are engaged in acts which, when one examines them, would not lead to profits, but just harm others, such as the supposed speculators who just buy oil to drive up the price, but then never sell to make a profit. Or the lenders who supposedly made bad loans just to foreclose on homes in a declining market. Many pretend there are "get rich quick" schemes, but if you look at them rationally, there is no way they could make money, they are again charges that businesses simply exist to harm others.

The truth is, businessmen are inspired by "greed", but so are we all. We all act solely for our own benefit, whether it is explicitly so, such as investing in the stock market, or less obviously, such as helping out a friend because we value the well being of our friend more than we do the gift given. So long as we act rationally, we all act in a "greedy" way, we trade something of lesser value, as we understand it, for something of greater value.

Of course, to many "greed" means something different. They equate greed with envy or confuse rightly pursuing one's self interest with acts such as theft or fraud. But those sort of acts do not figure into true "greed", at least not as I am using it. Nor are those a proper part of the free market. When I say we all act on "greed", all I mean is that we do not act unless we believe we are at least breaking even, when considering the whole picture. We may take a loss for the time being, but only as it will eventually bring a benefit of greater magnitude.

Let us look at a most basic question, work. We all, or at least almost all, must work. And work is a burden to some degree. When an act is not burdensome, we call it "play". By definition work is something we would choose to do for enjoyment¹. So we would not choose to work unless we received some benefit equal to or greater than the discomfort. That is simply rational. So we demand pay for our work. (Or, in the alternative, we work independently only when the proceeds have a value exceeding the burden.) However, that is not all. Given the choice between two levels of reimbursement, we will always choose the level which provides more satisfaction. That too is rational, as we would not choose to get less when more is available. (Of course one must consider all aspects of reimbursement, as well as all ways in which the burden of work is made lighter, pay is but one factor. Working conditions, benefits, responsibility, job satisfaction, coworkers, locations, and so on must all be considered. That should serve to dismiss the supposed refutation of the original point by those who argue by pointing out that people often take jobs which pay less.)

Now, these are obvious, even self-evident, assertions. No one would argue with the idea that in our own lives we don't work without some sort of payment, and when looking at payment, we choose that combination of type of work, working conditions, hours, coworkers, bosses, pay and benefits which gives us the most satisfaction, be it monetary or otherwise. We do not find anything wrong with individuals doing that.

However, that is "greed". It is no different than a company trying to get the best return it can on its products, a CEO trying to get the best pay package, or a gas station raising prices during a shortage, to ensure the best possible profits. But when we do it in our own lives, we call it common sense, and when others do it, especially if they do it to great success, we denounce it as "greed". And when an entire economic system is based on it, we call it "heartless" and "mercenary".

A related complaint sometimes heard is that capitalism is "unfeeling" or focused entirely on the material. However, what such objections fail to recognize is that capitalism is not intended to be a solution to all of life's needs, but only to address material wants. One would not criticize a doctor for being unable to fix a car to a chef for being unable to sign an aria, we would not criticize our priest or rabbi for failing to give sound financial advice, so why criticize the free market for addressing only economic concerns? An economic system is meant to address economic issues, and, as we have seen with the many attempts at social engineering by our government, using economics to achieve non-economic ends is often a very bad idea. But whether it is a bad idea or not, why would it be a mark against an economic system that it addresses only economic concerns? If one has spiritual desires, allow them to inform your actions, that will shape the market, but how does a critic justify reshaping the entire market to conform to their spiritual beliefs? Is that not the "theocracy" the left accuses the right of desiring? (See "The State and Morality", "A Bit More Explanation" and "Theocracy on the Left?" for more discussion of the topic.)

Then again, simply pointing out that critics are hypocritical is not a response to the allegations. So I suppose I should point out why this "greed" works and works well. Why this self-serving behavior on the part of everyone actually produces the most benefit for the greatest numbers, creates the most equitable distribution possible of economic goods, and, most relevant for our arguments, dissuades the sort of outright evil with which businesses are sometimes charged. Along the way, I hope to show that practices that event he right won't defend, like massive CEO salaries, inheritance by the "idle rich", "price gouging" during shortages or crises, and speculation in resources are actually good and produce outcomes we should desire, not criticize. And finally, I will discuss how the free market would, on its own, largely eliminate those evils the government was supposedly required to cure, such as impure food and drugs, child labor and unsafe working conditions, most of which were simply carry overs from pre-industrial poverty and destined to end even without government intervention².

First, I suppose we should agree on some basics. Without those agreements the whole argument is pretty pointless.

So, let us start by agreeing that the point of economic activity is to satisfy individual wants. And, outside of a bare minimum of biological necessities, those wants are purely subjective and established by each individual. There is no way to say Shakespeare is "worth more" than Barbara Cartland, at least not in an economic sense. Nor can we establish how many tomatoes are worth one potato. Nor whether a red tie is better than a blue one. Each individual establishes the worth of a good to him. As a result, from the perspective of an individual, the success or failure of an economic system is based on the amount of subjective satisfaction he receives form those goods and services which he obtains.

Next let us postulate that money is a convenient shorthand for the individual valuation of various goods and services, but it can also mislead. As I described in "The Rubber Yardstick", monetary measures can be misleading for any number of reasons. Inflation is the most obvious, but hardly the only way in which monetary measures can deceive. Still, for the most part, money can be used as a convenient shorthand for aggregate valuation, so long as we keep in ind two facts. First, that money values should be compared only over a very short time span. Second, that as an aggregate they should not be confused with individual valuations. An aggregate may be close to each individual's thought, but it could also be highly skewed by outlying or highly polarized values. So an individual and the aggregate may have absolutely no common ground.

Finally, let us eliminate the idea of "fair" or "just". There are many possible ways we can evaluate an economic system, but terms such as "fair" and "just" are so vague as to be worthless. What is "fair" to one is not to others. I may find a system just which allowed each to profit to the degree he satisfies others, you may only find just a system which produces equal incomes. So, if we are going to evaluate a system, we need to agree on which measures we will use. For purposes of this debate, let me state up front my first measure is the greatest total satisfaction of individual wants, that is total productivity. (Actually, productivity and distribution, as satisfaction is not achieved until consumed, so total production is but half of the equation.) Only second will I consider the question of how evenly distributed that satisfaction might be, that is what most on the left consider "fairness" or "economic justice". I will also consider the ability of any individual to increase his own satisfaction through his efforts, that is economic mobility. (Though some may argue true economic mobility must not be based on ability or motivation, so there may be some objections to this terminology.) Also, though it is not an essential measurement, as I mentioned the ability of an individual to do harm, I will take a look at the system's incentives to avoid harming others, that is inherent security of the system.

I suppose I should make one final statement. Every so often someone will attempt to refute this argument by bringing up the idea of renunciation or "making do with less". And that may or may not be a valid perspective, from a spiritual position. However, just as a doctor cannot study medicine from the point of view of those who think learning to accept disease is better than struggling to cure it, an economist cannot look at economics from any position other than attempting to maximize satisfaction. If an individual exists who truly does not care about benefiting from trade, who will give something of greater value for something of lesser value, who consistently fails to pursue his own interest, and who is completely insensitive to his own desires, then his behavior is non-economic. However, taken to its logical conclusion, such an individual also would have very little impact on the world, and have little time to do so, as if he were truly consistent, he would, like a Jainist saint, end up starving to death as he ignored his own hunger, if not dying of exposure from giving away his own clothes. So, for economic purposes, we can safely ignore such questions, and instead deal with the overwhelming majority of mankind, which not only pursues its own interests, but does so by rationally attempting to always benefit form trades and always tries to maximize the satisfaction obtained in any exchange.

And, having established all of that, allow me to begin my argument proper.

An absolutely free market is a fairly minimal framework. Many absurd things have been said about it on both the right and the left, so allow me to paint a picture of what a truly free market would entail. Basically, the free market is nothing but a group of individuals without any constraints on their right to contract, trade, produce or labor. Sitting above this great mass of free individuals is a minimal government framework. There are two main functions of government, at least from an economic perspective. First, the government attempts to prevent explicit acts of force, fraud or theft, or tries to right them once they have occurred, and then punishes the perpetrator in an attempt to protect society³. Second, it provides a binding set of arbitrators to allow for peaceful, but binding, resolution of disputes among the individuals in society. In addition the government also provides defense against external aggression, as well as defending the rights of citizens outside the borders of the nation⁴, but, while this is essential , it has little economic impact so long as it is not neglected, so we can safely ignore it for now⁵.

You may notice that many things are missing from this description that are traditionally included by some so-called conservatives. For example, I make no provisions for government involvement in banking. Nor do I allow for regulation of the stock market, nor of food or drugs. I do not include government poor relief, or free public education. In fact, as far as economics is concerned, I pretty much leave government out of the picture entirely.

No, this is not an oversight, nor am I about to add these features. As I described in "My Vision of Government" and "My Vision of Government Part II", my vision of the free market is just that, a free market. Many regulations or interventions that some think consistent with a free market are not included in my vision, as I am convinced those additions not only are unnecessary, but actually harmful.  For example, there is no need for government to involve itself in banking. As I explained in "The Inflation Engine", the problems which the government intervention was supposed to "cure" were themselves the result of earlier government intervention. Nor is it merely useless, the current system, by centralizing reserves, creating a monolithic policy, and allowing the pyramiding of inflation upon a tiny monetary base, is almost tailor made to create a destructive boom-bust cycle. While this is traditionally seen as an aspect of the "free market", in reality the free market would exhibit no such cycles, it is only government meddling which creates them.

But that is neither here nor there. I will justify my omissions later, should they become relevant. For now, let us satisfy ourselves with my description of the free market. Once again, as I see it, it amounts to little more than courts and police, with an army in the distant background, and the vast majority of matters being settled between free individuals, without the government anywhere in sight. In short, as I see the free market, it is a realm ruled almost entirely by the private law of contracts rather than the public law of government legislation or regulation. Only when it comes to the violation of individual rights⁶, by aggressors and thieves, either internal or external, does the government come into play. It would otherwise be a place, as I described in "We're From the Government and We're Here To Help You", where the average citizen has almost no contact with government throughout the whole of their lives.

Now, what is interesting about such a system is that, even though completely "unmanaged" ("An Analogy"), the design is such that it can take apparently destructive or otherwise harmful inclinations and channel them into courses which end up working for the benefit of mankind in general.

Perhaps an example of a similar phenomenon will help demonstrate this is not an unusual occurrence. I wrote before of slavery, and the way in which, while an evil, slavery was a step in the gradual civilization of mankind. While primitive, living hand to mouth, and without agriculture or crafts, man still fought wars. However, when he warred with another tribe, primitive man did not take prisoners. Even keeping wives, at least wives who are not also productive members of the tribe, requires some sort of surplus with which to feed them, so it was unlikely a primitive tribe would even abduct spouses. As a result, primitive wars tended to end in general slaughter. However, once man became wealthier and settled, when he had farms and workshops and mines which could be benefited by captive labor, suddenly such general slaughter stopped. Man was now a commodity, and as such was not something to be slaughtered. And so, though it was an unpleasant existence, slavery itself put a stop to an even more vile practice, genocide. Rather than slaughtering all and sundry, men, women and children, now the victors not only spared them, but even fed and clothed and housed them, at least so long as they were of value. And so a seemingly base practice still managed to help improve the general condition of mankind, and, even more impressively, did so by appealing not to noble sentiment, but to base inclinations.

Similarly, the free market can channel even the most base emotions into productive ends. Often one will hear the opposite, the claim that the free market must be regulated, to free it of abuses, to keep people's "greed" from destroying the benefits the market brings("Planning For Imperfection"), but such worries are unfounded. The truth is such base motives, such unbridled greed, even the most opportunistic and unscrupulous of individuals, are all harnessed by the very nature of the free market, and, so long as they can grasp their interests in even the most basic way, directs them into paths which work to the benefit of the greatest number of their fellow men⁷.

Now, before I go any farther, let me say the free market is not perfect. There will still be criminals, though that is the purpose for police and courts. Likewise, some may find ways to obtain profits out of proportion to the benefits they provide. Quack cures and get rich quick schemes will continue to exist under a fully free market. On the other hand regulation has not managed to eliminate them either, just shift them from restricted avenues into avenues not yet regulated. In truth, so long as man yearns for unearned riches and eternal youth and health, he will be victim to such schemes, and no regulatory scheme is going to do anything more than redirect scam artists to other areas. (And sometimes make things worse. For example, by giving cover to scam artists who can claim their licenses prove they must be respectable. Home improvement schemes often rely upon the trust individual place in licensing. In the past, similar results were obtained through the respect held for patents. It is why the term "patent medicine" went from a respectable to a disreputable phrase. See "Medical Regulation II" for a brief discussion of the latter topic.)

Having said that, now allow me to show that the free market, to the degree possible, pushes us all toward socially beneficial action, and, in general, directs us away from actions most people would find disagreeable. It may not be perfect, but then nothing in this lifetime is. But of all the systems imaginable, it does the best job of redirecting mankind into beneficial actions.

Let us start with just one example, the much maligned activity of "speculation". The general impression of the public is that speculators simply wait and prey on the rest of us, taking advantage of changes in the market to get rich, or, in some theories, driving up prices through constant purchases, making us all pay more for goods. However, a moment's thought would show that second is absurd. If you want to get rich, you don't bid up a good and the never sell. You have to sell, and thus drive down prices, in order to make money. And that shows the truth behind speculation. Far from driving the market, the speculators FOLLOW the market, buying when prices are below normal, and selling when they rise above normal⁸. And what is the outcome of this speculation? Unlike the caricatures which self-serving politicians used to escape blame for their own energy policies, speculation serves to level out the market price, keeping it from rising and falling as drastically as it would. Speculation serves to ensure that there will always be some supply available, and available at something approaching a stable price.

But that is the nature of the free market. It turns greed into a tool to benefit mankind.

Let us look at the great villain of the regulators, the greedy individual without any ethics. He wants money and nothing else, and has no ethics at all about how he will obtain it. So, how does this individual behave under the free market?

Assuming he is not a fool, he will see that the returns of crime are nowhere near adequate to offset the benefits⁹.There may be the rare criminal who through genius and good fortune stays out of jail, but even then the time spent avoiding capture, laundering money, and so on makes a life of crime less remunerative than a similar effort invested into a legitimate venture would be. So even the most unethical individual would eschew outright criminality, such as theft, open fraud or murder as sources of income¹⁰.

So, our greedy individual will be left looking for a means to become wealthy without running afoul of the law. And, as many have learned, the easiest way to get rich is to provide something people want, be it bread or booze or pornography or Bibles. And the more people you supply, normally, the more wealthy you become. So, if we wants to become wealthy, greed would inspire him find a way to provide goods that are in high demand by a large number of people. In other words, to become as wealthy as he wants, he needs to create as much social benefit as he can, as the route to riches is fulfilling the most keenly felt needs of others, for as many as possible¹¹.

And the market itself ensures that he will be paid in proportion to the worth he provides. Many have argued that the market is absurd as it pays a teacher less than an athlete, but that is actually proof that the market does work, not only that it works, but that we DO value teachers more than athletes. After all, a given professional athlete may provide his service to fifty million people, yet he will be paid only $10 million a year. That means each individual values his contribution to their lives at only twenty cents a year. On the other hand, the teacher can serve only twenty or thirty children, yet is paid thirty or sixty thousand, showing she provides thousands of dollars of value to each child. Thus, the relative valuations are quite fair, it is simply that the athlete, requiring less one-on-one contact, can provide his services to many more people. The same is true of actors, directors, and many others who are accused of "unfairly" making "too much".

But, some will object, once he starts providing these goods, being unethical, won't he do damaging things? Ignore labor laws? Skimp on workplace safety? Pay too little? Charge too much? Create monopolies? Pollute? (And, though it does not fit with the specific scenario, as it is easiest to handle here, let us add "discriminate on race, religion or sex?")

But in each case, the free market itself will discourage such behavior.

Let me first say, as I did before, the free market is not perfect. In many of these cases, the alleged misbehavior is actually impossible under the free market, or, if not impossible, cannot be maintained for any length of time without courting bankruptcy. On the other hand, some behaviors, such as ignoring worker health, paying too little, or discriminating, can conceivably be maintained for some time, provided the businessman is willing to accept reduced profits, subpar workers, and a general decline in profitability. On the other hand, if the company relies on investors or loans, such behavior will make the company unattractive to outside funding sources, and so will rapidly lead to bankruptcy. Even if it a privately owned company, and capable of absorbing the losses, under many circumstances trying to maintain a policy of discrimination or substandard pay will just not be possible, as labor will prove unavailable¹².

I have written on each of these topics, so let me deal with them quickly.

Discrimination, be it sex, race, religion or other, as well as trying to underpay, minimum wage laws, and Marx's "Iron Law" can all be dismissed at once, as they all rely upon the same misapprehension. Let us provide the explanation using our earlier example.

Presumably, our amoral wealth seeker would be interested in paying as little as possible. According to traditional Marxist theory, he would pay workers as little as required to keep them alive and working, while appropriating all profit above that cost for himself. It sounds nice, but it completely ignores the reality of the market.

Let us assume there is a second person who also wants to make money. He sees our evil capitalist paying next to nothing and realizes he can pay 5 cents more an hour, still make a tremendous profit, and not only get his pick of the best workers, but earn their loyalty and best efforts by being the highest paying employer on the block.

But then there comes a third employer, and a fourth, and a fifth, each seeing a chance to earn extraordinary profits by paying only slightly more, and so they each bid a bit more than the other until the wages bring the profits of the industry in line with the rate of profits in the economy as a whole. In other words, the "Iron Law of Wages", and justifications for minimum wage laws, are absurd, as the greed of the capitalists themselves will keep wages competitive, as below market wages provide too much incentive for another greedy entrepreneur to bid up wages slightly.

And the same applies to discrimination. Assuming the victims are as competent as other workers (and if they are underpaid for incompetence then it is not discrimination, so they must be), then discrimination will end not because of high minded men, but through greed. If everyone pays black employees 50 cents less than market wages, one could make 40 cents an hour per employee, by bidding just ten cents more. And starting there, you can see the end point. Unless there are legal prohibitions against employing a group, or paying them equal wages, the market itself will equalize wages thanks tot eh greed of employers.

Now, some will argue that the employers could all conspire to keep wages low. If the market was dominated by a few employers, I suppose it could be possible, maybe, for a brief time, but even with a very small market, it won't last. Why not? Because the conspiracy would only touch current employers. But with wages so low, the region would become a capital magnet, attracting investors who would take over the market by slightly raising wages. And that too would start the cycle mentioned above, bringing wages back to market.

The truth is this, greed ensures the wages in any market will always rise to the prevailing market rate, adjusted for local education, capital investment, cost of living, transportation costs and so on, but to the proper market rate, regardless of the desires of the employers, unless there is a legal intervention into the market.

Nor are low wages the only labor ills that are self correcting. We often hear that the government cured many ills of early capitalism such as labor safety conditions, long work hours, child labor, and so on, but the truth is, many were already fading by the time the laws were passed. The truth is, it is in the interest of the greedy boss to keep his workers both healthy and happy. Even "unskilled labor" develops skills of a kind when performing the same task over time, and having the same workforce for a longer time allows bosses to figure out who is a reliable worker and who is not. So it is in the interest of employers to keep the workers they have, and to keep them healthy enough to work. In other words, some minimal workplace safety is in the interest of employers, as replacing workers is usually more costly than safety measures. Even if it is not, as society in general becomes more wealthy, the number of safe workplaces rises, as well as those offering shorter working hours, so to attract sufficient labor, and quality labor, one must follow the trends and cut hours and improve safety. Similarly, as the need for children to be self supporting declines, the incentives for parents to employ their children to keep them from starving drops. In addition, with more capital investment, the need is for more skilled and reliable labor, which child labor simply cannot provide. During the early industrial revolution, when labor was in short supply and people were very poor, child labor made sense as an alternative to starvation for the children, but even without laws it would not exist today, not in any but the poorest economies.

Finally, let us touch briefly on pollution. Here we have three factors which argue against involving the government. First, the same argument made above. As most labor traditional lives near where they work, pollution has a tendency to harm one's own labor, which harms profits. Second, the possibility of torts  for real harm or nuisance make pollution a losing proposition for most modern employers, with or without government laws. Finally, rich societies tend to have strong public pressures to reduce pollution. As employer must sell to the public, they have incentive to be good citizens and reduce their pollution. We an see this in the west. Even before laws were passed, the west had far less pollution than both developing economies and the regulate economies of eastern Europe. Wealth makes for clean air and water.

I should probably spend some more time on the preceding, but having written about all of them before, I will try to provide some links below, and leave the more comprehensive arguments to each specific post¹³.

So let us turn to monopolies. Though the free market often takes the blame (""How To Blame the Free Market"), it is impossible for a free market to create coercive monopolies, and non-coercive monopolies are not the harm many suggest¹⁴.

Allow me to explain.

It simply is not possible to close a market without government intervention. There is always the possibility of a firm entering the market. But let us see how this works.

Let us assume our evil businessman builds up quite a war chest, and he decides to corner the market. He sells at a loss to keep out competition, buys up their firms, and takes a huge loss. He would then have to raise prices far above market to make up his losses. But as soon as he does so, he invites investors to put money into competitors, and he has to lower prices once again, to drive them out. And it continues until he either goes bankrupt or gives up.

The only way he could continue holding a monopoly would be to charge prices equal to or lower than competitors would charge, but in that case the monopoly would produce the results identical to a competitive market, which makes it questionable why such a monopoly would be harmful.

There are two situations where monopolies are argued as possible, even by some free market economists. First, where they control a very scarce resource and second where entry costs are very high.

The scarce resource one is the weaker of the two, as there is no resource which does not admit of some substitute. So even if a monopolist controls it, he must still charge market prices or else risk driving consumers to use the imperfect substitute. Which means that control of a resource does not give enough advantage to sustain a monopoly in the long run. One need only imagine how much money would have flowed into alternative fuels had the OPEC boycott of the 70's lasted longer to see how true this is. Only the short duration kept us from changing to alternate fuel sources. (And even then, the semi-monopoly of OPEC was possible only due to our government's stupid price control policies, not the free market.)

The entry cost argument is actually very similar, but with another twist. Yes, if entry costs are very high, then potential profits need to be quite high to attract capital, so a monopolist could conceivably charge between the market price and that profit level and earn excess profits. However, there are two factors working against this. First, the same substitution factor mentioned above. The substitute will not have the same entry costs, as there are preexisting firms, so there would be a lower price ceiling than one would expect. Second, with the potential for some profit, funds may not flow into competitors, but into research to lower entry costs, as such technology would yield a part of those excess profits. This would not immediately break the monopoly, but would, inevitably, cause its downfall. So while monopolies could exist, possibly, for some time, they would end up serving as an even greater leveling force than expected.

All of which is a long winded way of arguing that monopoly is possible, but only once government has intervened, or, in some rare cases, when the monopoly is as efficient or more so than the competitive market itself. And in the second case, there is no reason to worry about a single firm controlling the market, as it will do so only so long as it serves the consumers perfectly.

And finally, that brings us to the fear many have of "price gouging".¹⁵

First, let us establish what "price gouging" is. It is a term without meaning. When someone accuses a firm of "price gouging" it means they think the prices are "too high", not that the prices are too high by any objective measure. That is because there is no objective measure of price. If buyer and seller agree, that is the price. If the seller can't move his inventory, he may be charging too much, but he will suffer for it.

However, as this usually comes up during emergencies and shortages, I will use the common meaning of raising prices when there is a shortage of a good. The usual objection is that heartless businessmen are trying to "make a killing" and that is true. However, they are also performing valuable economic functions by following their self interest.

Let us imagine that during a disaster bottled water is in short supply. A firm has 100 bottles. Should they continue to sell for $1 a bottle, or raise it to $50 a bottle? Well, in the first situation, the first customer would buy all 100 and either use them himself or resell them at $50 a bottle. In the second, consumers would buy only what they absolutely needed. In other words, by charging more, he ensures people will only buy what they need, will avoid nonessential uses, and will economize as much as possible.

Second, and more importantly, if bottled water is now worth $50 a bottle in that area, manufacturers will redirect shipments from places where it sells for $1 a bottle to the area with the shortage. The higher prices serve to tell sellers to redistribute their stock to make better profits, and in so doing provide desperately needed goods.

All of which means that "price gouging" actually better serves the consumer than laws against such acts. Oh, it is nice to have price controls if you are first in line and get those 100 $1 dollar  bottles, but the 99 people behind you may not like it quite so much. For them, price gouging would be a much better deal. Not to mention the 1000 other people who will now have water thanks to redirected, if overpriced, shipments. After all, is it better to have bottles of $1000 dollar water on the shelves, or no bottles of water, but a promise they will cost $1 if they ever arrive?

All of which means that even the most unethical individual, driven by nothing but greed would still be driven by the forces of the market to do nothing but serve the general good. Not that he would do so selflessly, or out of the kindness of his heart, but simply by pursuing his own selfish aims, he would still end up helping his fellow man.¹⁶

Wait! Some will say at this point. What about those other problems? What about people who inherit a fortune without doing a day of work? Don't they create an inequitable situation? Don't they create a situation where we have an inherited elite of wealthy individuals?

Inherited wealth is hardly the ill many claim. Those who inherit have three choices. They can simply spend ti up, in which case they employ for a time those who provide their goods and services, until they eventually fall back among the working class, having spent their wealth. Thus they have real little impact, at best living the good life for a time on inherited wealth.

Some show a passion or talent and either continue the family business or find a new one. In this case, they doubtless would have accumulated their own wealth without having inherited the fortune, they simply were spared the difficulty of saving starting funds or finding backers.

The one which most upsets those fearing a permanent monied class are those who invest their inherited wealth, continuing to earn on their fortune while doing nothing themselves. However, while this may seem to be a tool of keeping a permanent wealthy class, it actually is a great leveling force. How? The money they invest is one of the pools form which newcomers get starting capital. Without great masses of accumulated wealth, newcomers would have no starting capital. And ongoing firms have little to spare, as they need to invest in their own ventures, making those who have money to invest, but no business of their own the perfect source of funds for talented newcomers. In short, without the "idle rich" we would have a lot less upward mobility for those seeking to better themselves¹⁷.

Which brings me back to my original point. The free market, by any measure, really does provide an ideal system, or at least as close as we are going to get in this imperfect world¹⁸.It may not match the ideal at any given moment, but at every moment the desires of every participant push the market toward the optimal, toward the system which most fully satisfies the most strongly felt needs of the greatest number of participants. Not only that, but each is free to rise to the degree his abilities provide for the wants of his fellows. More than that, as the system of competition continually forces improvement, prices constantly drop, meaning that the lot of those worst off rises as well as the lot of the wealthiest.

One need only look at our poor to see this. Yes, there are still some in abject poverty, but throughout much of history, poverty meant 10%, 20 % of people in starvation, dressed in rags without shelter. The number fitting that description in modern society (excluding those voluntarily so, through either drinking or drug abuse or other self-destructive choices¹⁹) is a tiny portion of the population. Poverty, for the most part, now means well dressed, adequately fed people in houses, many with TV and cars. Capitalism works so well that the poor have riches little short of the richest in the middle ages. Think of all the wonders we take for granted, how well distributed even the toys of technological society are, and you will see how just capitalism truly is. It was not government or welfare which made the poor so rich, it was the lowering prices made possible by capitalism.

As I said again and again, capitalism and the free market are brilliant for the simple reason that they take the worst of our impulses and turn them to bettering the lot of all of mankind. They require no higher aspirations, no dedication to anything but ourselves, and in that way, they are more reliable tools of improving the lot of mankind than all the faiths, creeds, philosophies and charities of the world.

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1. There are rare fortunate individuals who can do something they find enjoyable as a job, but they are unusual enough that we can ignore them. Logically, such individuals would be inclined to work even without pay. Because there is the option of receiving pay for their labor, they would logically still take as much pay as they could for their efforts. But if there were no pay available, as they enjoy their work, they would still likely work. On the other hand, as work is not only burdensome because of the effort itself, but because of the need to maintain a regular fixed schedule, answer to superiors and so on, it is possible they could enjoy the work, but the other circumstances could be so burdensome they would still not work without some pay. Which is yet another reason this tiny handful can be ignored, for even within that tiny subset some percentage would find the associated burdens disagreeable enough they would still behave as ordinary workers.

2. As one can see from the fact that many largely vanished before the government intervened, and vanished elsewhere without state intervention. Not to mention that some persisted long after officially banned, and persist today in poorer nations. Most of these ills really do seem to correlate very strongly with national wealth and weakly, if at all, with the amount of government intervention. For example, child labor is very clearly a function of national wealth. And it makes sense, as the productivity of children is very low. For it to be worthwhile to employ children automation must be almost nonexistent and overall labor must be almost totally unskilled (and processes must require almost no skill as well). On the other side of the equation, for the minimal income a child can earn to be worthwhile, families must be very poor and cost of living very low. With or without government intervention, child labor makes economic sense only with an almost total lack of mechanization, a dearth of skilled or educated labor and with very low incomes and cost of living. (Such as urban environments during the early part of the industrial revolution.) One point worth noting is that child labor was a constant of life in agrarian society, and was not banned by most government child labor laws, meaning child labor was not a novelty of the industrial revolution, the end of child labor was. Even today, primitive societies engage children in farming, gathering, hunting and other types of labor. Only relatively wealthy industrialized societies have the luxury of idle childhoods.

3. I have written on this topic elsewhere, so I won't go into it here.Punishment can take many forms, but the primary goal is always protection. Sometimes rehabilitation can best serve this goal, at other times isolation by confinement can, and in some cases, it may be that only execution of the individual can prevent him from continuing to harm others, either inside or outside jail. At one time the stigma attached to jail made even a light sentence enough to dissuade most from criminal acts, but as that no longer applies in many strata of society, it seems a lengthy incarceration may be needed, both to discourage and to keep the guilty from having a chance to offend again. But all this can be read in my posts "Compassionate Execution", "The Death Penalty", "A Rational Approach to Punishment", "The Ends Justify the Means?", "Fair or Functional?", "Not Completely One Sided", "Motives Unimportant" (referring to "Mental Illness" -- I forgot the link in the post itself) and "Sunday Morning Talking Heads".

4. The defending of rights outside the nation is a tricky one, but best exemplified by the attacks on the Barbary pirates. While not an official government, the pirates violated the rights of US citizens with impunity. As the local government was unwilling or unable to deal with them, the US government intervened. That is a proper role for our armies, either neutralizing non-governmental threats to our citizens outside the nation, or protecting our citizens against foreign states which routinely violate the rights of citizens. The state is not obligated to do so, they can announce to citizens that nation X is a dangerous location and citizens travel at their own risk, but doing so impedes world trade to some degree, by effectively putting nation X off limits. In the long run it is best when the state, either independently or as part of a coalition of friendly states, actively defends rights of its citizens around the world.

5. This is not to say military protection is economically irrelevant. Just that it has a pretty silent role in economic matters. In many ways, it is like the role of air in one's health. So long as air is present in adequate quantities, it can be safely ignored, while its absence is catastrophic. Similarly, so long as the nation is adequately defended and citizens protected abroad, there is no real need to examine military matters when talking about economics. On the other hand, if the state neglects military affairs, the economic impact is immeasurable, as the threat posed by inadequate military defense makes economic planing almost impossible.

6. Just to be absolutely clear, by rights I mean simply those to life, liberty and property, or, as I described them in "Negative and Positive Rights", the negative rights. Rights do not include anything beyond the basic rights to life, property and freedom. Freedom includes such rights as freedom of speech, freedom of conscience, the right to bear arms, and so on. However, as those rights apply only to government actions, they are not the rights which the police or army protect. When considering the police, we are talking basically about the "MR & MRS LAMB" common law felonies (Murder, Rape, Maiming, Robbery, Sodomy, Larceny, Arson, Manslaughter, and Battery).

7. What is interesting is the less free the market, the more ability the government has to intervene, the more the individuals in charge and their ethics matter. In the free market, as each individual has power only over himself, and the state has very strictly circumscribed powers, the ethics of an individual are almost irrelevant. Once we allow government more discretion, the individuals holding power become more and more significant. So, ironically, the regulations intended to prevent "greed" from ruining the market open a door to allow individual corruption to harm the state. Without such safeguards we would be at much less risk of harm from unscrupulous individuals. See "Why Term Limits Will Fail (And Should)", "The Wrong People" and "Transparency, Corruption and Reform". (I am also planning to write a much more detailed post on this very topic, at least in terms of selective abrogation of rights introducing areas for "judgment calls", but as I have not yet posted it, I cannot provide a link.)

8. Due to the scope of modern markets, as well as the availability of substitutes for any good imaginable, attempts to drive the market, rather than follow, such as the Hunt brothers' attempt to corner the silver market, have been inevitably doomed to failure. There simply is too much of any given commodity on the market, not to mention the possibility of exact or inexact substitutes. On top of that, once speculators try to corner the market, they create ever increasing chances for profit, which drives others to release any reserves they hold. In the end, the market is too efficient at self-regulation for such schemes to succeed. (See "In Defense of Speculators", "Authoritarian Oil Talk", "Those Darn Speculators" and "Speculators Again?" for more discussion of how speculation has been misrepresented, especially by politicians in search of scapegoats.)

9. The government has created one exception to this, crimes which are essentially productive activities. Drug manufacture and sale, for example, are essentially identical to productive activities. They currently require violence as they have no recourse to civil means of settling disputes, but were they not made illegal, drug manufacture and sale would not differ from the sale of alcohol or automobiles. Thus, drug dealing is a criminal category which may actually be profitable for those entering it, unlike theft or fraud, where the profits tend to fall far behind the risk of jail. Then again, I have argued many times for decriminalizing those "crimes" which were created to protect people "from themselves". (See "Drug Legalization".)

10. It should not surprise us to discover that almost all criminals are not the best and brightest among their peers ("A Shortcoming of Conspiracy Theories"), it was once recognized pretty universally, but pop culture has made us believe in the dashing, clever con-man, the evil genius serial killer and the dogged but brilliant mafioso. However, the truth of the matter is that the old impression was much closer to the truth. Certain cultural groups may have pressures driving individuals into crime, but even with those pressures, it is still the down and out, the people with few prospects who end up in criminal enterprises.("Fair or Functional?", "Short Comment on the War on Drugs") There are exceptions, but if you visit a prison you will quickly realize that crime, even white collar crime, is carried out by people who have few other options. (Yes, even white collar crime. If you own a brokerage, and have real ability, why would you risk it all for a quick killing, after which you will have to live in hiding, rather than accept half that income, in perpetuity, without any legal hassles?)

11. We will ignore those who do not provide goods. Providing a service works out the same, but is a little more complex, so to keep this clearer, I will limit myself to providing goods. Likewise, if he were to become an employee, a CEO, a lawyer, or doctor, he would still be providing goods or services, just to his employer rather than to the individuals directly. His salary is still tied to the amount of satisfaction he provides and the number of individuals to whom he provides it, but it is harder to see clearly in those situations.

12. In our market, with the many impediments to free labor, including union closed shop laws, labor and workplace safety laws, unemployment insurance, welfare, and a host of other legislation, we often forget that labor in a free market is competitive and in short supply. We are used to our artificial pool of chronically unemployed individuals, which, ironically, result from government efforts to help workers, but in a truly competitive labor market, the problems caused by discrimination, substandard pay or ignoring safety will probably result in an inability to find sufficient labor. So where such policies might be harmful today, of allowed, under a free market they would be completely suicidal.

13. My posts on wages and discrimination are : "Fairness and the Free Market", "Exploiting Workers?", "Pay Disparities", "Just Asking For It" and "Informative Article". And on working conditions: "How Democrats Keep the Poor Poor" and "Capital Investment".

14. I wrote on monopoly in the posts "Saving Us From Lower Prices", "Technology and "Natural Monopolies"", "Beware Populist Deception", "Smaller Government , Fair Weather Friends and Special Cases" and "Cheap Lighters, Overseas Dumping and Monopolies".

15. Ironically, while the government wants to protect us from high prices, they also feel the need to protect us from low prices as well. (See "Saving Us From Lower Prices".) Apparently they subscribe tot eh three little bears, "just right" theory of prices.

16. The following posts were about "price gouging" and "proper prices": "The Limits of "Scientific" Management",  "When Help Hurts", "Misunderstanding Economics", "When Did We Become Liberals?", ""True" Prices", "Price Gouging"

17. Oddly, an 18th century historian noticed this as well: "A Great Quote"
 
18. I was going to point out the fact that the free market acts as a force against aggression as well, with the interconnected trade routes making war costly for the nations involved, but I decided this was long enough already. One interesting aspect of this question is the role that protectionism and the resultant antipathies played in most modern warfare. So, for those interested, related links are here: "War Stimulates the Economy? Let's Nuke San Francisco!", "Protectionism", "Fear of Trade", "Protectionism Right and Left" and a host of others. As I shall return to this topic soon, I will provide a comprehensive list of links at some future time.

19. I know, many will object "addiction" is involuntary, as are many other problems of the "homeless", but I am a skeptic. First, because I spent enough years of my youth drinking heavily to doubt that it is an uncontrollable disease and not just a series of tremendously bad decisions. Second, thanks to time in social services, where I found a lot of homeless individuals had problems, but more of the "I won't control my temper" or "no need to stop drinking" or "I am not going to listen to any boss" or "I like to touch little girls" type, not problems one thinks of as involuntary. Yes, it is sad that a few bad decisions can plunge people into abject poverty, but on the other hand, they are usually such bad decisions there is adequate warning before one ends up on the streets. Not that I have no sympathy, just arguing that our poverty, especially among the homeless, is often self-induced and not the bolt out of the blue striking at random many on the left believe.

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POSTSCRIPT

I wrote about the benefits of capitalism in many posts, but the most noteworthy recent examples would be "Greed", "Greed Part 2", "The Limits of "Scientific" Management", "Utopian Pipe Dream", "Absolute Values", "When Help Hurts", "Misunderstanding Profits", "Planning For Imperfection", "D i c k Morris Gets His Economics Wrong Again" (TH language filters prevent me from using his first name, oddly enough) and "Fairness and the Free Market". Likewise, I wrote often on the topic of evil, especially ascribing malice to those with whom we simply disagree, in posts such as "Evil and Greed", "The Nature of Evil", "Life Without Villains", "Enemies Into Villains" and "Rethinking My Earlier Position". As I mentioned how even apparently evil acts can represent improvements, I would recommend reading "More Thoughts on Slavery", "Absurd Revisionism" and "Some Logical Problems With Reparations" on the topic of slavery. Finally, some of my thoughts on absurd conspiracy theories, the ultimate embodiment of senseless accusations of evil, can be found in "Conspiracy Theory Enters the Mainstream", "Mumia, the DaVinci Code, Full Body Scans, and Loose Change - How Conspiracy Theories Arise", "A New Take on an Old Topic", "Conspiracy Theories" and "False Flag Theories and 9/11". Finally, I would recommend two other posts. First, "Cognitive Dissonance Part 2" as a good description of the inherent contradictions of those who would "draw a line" and try to enact a half-socialist system. Second, "The Triumph of Good", which, though drawing theological conclusions, also makes another version of this argument, though framing it somewhat differently. Finally, for a very brief explanation of my opposition to large government I recommend the terse "My Entire Philosophy", or the slightly more lengthy version "A Question for Artists of the Left".

POSTSCRIPT II

Though I did not touch on it directly in this post, there is one caveat tot he above description of the free market. It is essential that the laws which protect rights, and the rules by which civil cases are adjudicated be both consistent and well understood by all parties. Without predictability and stability, economic planning is impossible. I suppose I thought readers would just assume this to be the case, but after writing it I decided I should make explicit mention of this requirement. For a more thorough discussion, see "Predictability", "Inescapable Logic", " Smaller Government , Fair Weather Friends and Special Cases", "Special Cases", ""Empathy" Threatens not "Justice" but Predictability" and "Sotomayor and Empathy".

EPILOGUE

This post has been much delayed by my physical ailments, and has suffered because of it. Even now I am not feeling my best. I had hoped to spend some more time on it, making it a bit tighter, making the arguments a bit more coherent and perhaps improving the focus a bit, and, most of all, making the whole thing a little shorter. But, as I have no idea when I will feel up to such a monumental task, I decided it best to just be done with it, and then correct the errors, oversights, omissions, and inaccurate or misleading bits in future posts. So, what I am trying to say is, despite the length, this is not my magnum opus (or "my magnificent octopus" as Baldrick would call it), it is simply a very long post that has taken too long to complete.

Still it is a good, if not great, discussion of the topic, so I hope you take the time to read through it.

CORRECTION (07/13/2009): Those who read this early may have noticed a line reading  "("<<TAKING THE BLAME>>")". I am a afraid that is a sign of sloppiness on my part. That is the shorthand I use to remind myself I need to look up and insert a link to an old article. Obviously, I forgot to search for them before publishing, and one got through. I have now replaced it with the link to How To Blame the Free Market , but I am afraid some readers saw it before I could make that correction. Sorry about that, in the future I will now remember to do a search-and-replace before publishing.

CORRECTION: I also see that there is at least one place where I failed to notice that I duplicated lines. I really do need to proofread better. Then again, I was just eager to get this finished. I guess I'll know better next time. (Isn't it funny how I act like this is all new to me, after almost 2000 posts?)

I also changed a little bit of my statement on poverty, as I realized I was unclear in regard to "abject poverty". As I expect someone to comment on "the homeless" I decided to clean that up, to make it more clear. It will doubtless offend those on the left even more, as I blame the homeless, addicts and drunks (not mutually exclusive categories) for their own fates, but having been one of the three (to one degree or another), I feel I have the right, the same way blacks can use the "N word". Isn't that the rule? Anyway, I make clear that poverty in the modern world, especially in the US, is relative poverty and would have been considered opulence, at least in most cases, at any other time in history. Something we often forget.