I have written on this topic before ("Symmetry and Greed", for example), but it is one which comes up so often that I feel the need to repeat the argument again and again. Mainly because, even for those who support the free market, there are many who feel it is somehow "immoral", that running an economy based entirely on individual choices will somehow lead to unethical people having a field day. And, sadly, this is mostly due to the fact that, despite being nominal conservatives, and supporting the free market, many still believe in the left's characterization of trade as "exploitation" ( "Exploiting Workers?", "Fairness and the Free Market", "Capital Investment", "Exploited Labor"), still hold on to their fear of "big business" and "corporate greed" ("Beware Populist Deception", "Fear of the "Big""), worry about "greed" of any sort ("Greed", "Greed Part 2", "Greed Versus Evil"), and generally imagine running an economy this way will lead to disaster ("Bad Economics Part 16"). While many do not openly support government intervention, their attitudes and fear lead them to tacitly support such measures ("Inescapable Logic", "Don't Blame the Politicians", "What We Deserve", "Who Is To Blame?", "What is Wrong with Us", "The Single Greatest Weakness", "Why We Lose"), and, as a result, we end up with both conservatives and liberals adopting positions which not only oppose business freedom ("Bad Economics Part 2", "Bad Economics Part 3", "Bad Economics Part 5", "Bad Economics Part 12"), but end up curtailing individual freedom as well ("How the Government Corrupts Relationships",  "Deadly Cynicism", "The Citizen Dichotomy", "In A Nutshell", "Cognitive Dissonance Part 2", "The Right Way", "The Danger Inherent in Banning "Bad Ideas"", "Contradictory World Views" )

What we need more than anything is to understand that the free market, properly understood ("Bad Economics Part 17") is nothing but a policy of respecting individual freedom in all things ("In Praise of Contracts "). The free market is not a system allowing exploitation, it does not make money the measure of all things, it does not turn all human relationships into commercial matters, or any of the other absurd claims that too many of us believe. What the free market truly is, is a system which respects the individual, which assumes he knows best what he needs to be satisfied in life, and that he is competent enough to be trusted in the pursuit of those goals. The free market does no more than that, or does very little more. Yes, it establishes policy and armies to protect our rights against forces domestic and foreign, and it creates civil courts to provide a binding, peaceful means for arbitrating disputes, but that is it. Beyond that, the free market thinks it best to allow individuals to establish their own rules, to create their own relationships with one another, and to set the terms under which they will interact. The free market is all about trusting men to run their own affairs better than a handful of government "experts", or perhaps politicians, can run the lives of the nation.

But, some will complain, while that sounds good, the very act of giving free rein to big business allows them to exploit workers, or to harm consumers. Freedom sounds good, but thanks to disparate economic power, freedom tends to inordinately benefit the rich, and so all this talk is meaningless, as the high sounding ideals still end up in nothing but handing corporate powers the keys to the kingdom.

The problem with this explanation is obvious. The situation described, where established, wealthy firms have an unfair advantage, actually better describes a regulated market than a free one ("The Inevitability of Bureaucratic Management in Government Enterprises", "Bureaucracy Revisited", "The Inherent Disappointment of Authoritarianism", "Anti-Business Businesses", "Transparency, Corruption and Reform", "Who Does It Harm?"), for many reasons. First, politicians fear change, especially change which could seem negative. And so, they dread the closing of large firms. As we have seen, they will go to great lengths to "save jobs" or "rescue major employers", including bailing out firms which are no longer viable. The free market provides no such safety net. Second, the government gives both an easy point of entry, an excess of power and an arbitrary set of rules justifying anything. In the free market the laws are clear and narrowly defined, giving little (though not no) scope for abuse. And without government regulation, no single individual, or even group, possesses the power to provide an economic advantage to a large firm. On the other hand, thanks to the discretion many regulators have, the vague laws, and the great amount of power, it is very tempting for certain firms to forgo competition in the marketplace for competition for political patronage. As a result, government regulated economies tend to be quite static, with the established big firms exercising the sort of power supporters of intervention claim to fear from the free market.

Some will argue, while that may be true, at least intervention protects the worker, while the free market does nothing. I have argued this point as well, showing that many supposed government reforms were actually the result of free market changes ("Child Labor and the Industrial Revolution"), for example. However, as I have written so much ("Exploiting Workers?", "Fairness and the Free Market", "Capital Investment", "Exploited Labor"), perhaps it would be better to simply try a new approach, to hopefully show that morality and business are not antithetical, and, while many think otherwise, the forces of the free market tend to press individuals to treat one another with scrupulous fairness (or suffer serious consequences).

First, let us imagine you are looking for a flat screen TV, a very nice one. You see it at various stores of everything from $5900 to $7000. At the end of the week, having found nothing better, you plan to go Monday and buy the one costing $5900. Why that one? Because, as a sensible individual, you would clearly pay the lowest possible price for the same product. (Were they different in some way, then you would need to balance features and quality against savings.) However, on Sunday, you find an advertisement in a local paper, offering the same television for $4200. Obviously, on Monday, that is the one you will buy, and, having saved $1700, you will be overjoyed, and think yourself quite a savvy shopper.

My question is, did you do anything immoral?

So, let us now imagine you are employing workers. You interview those qualified, and from among them you pick the one whose qualifications and state price works out to the best balance of price per skill, or else, if you need only limited skills, pick all those with those minimal skills and then select the cheapest. However, having done so, you will likely then make an offer somewhat below the price you want to pay. You may not do so if there is a high demand for workers of that type, or if you need to fill the position quickly, but if you have the time, and the market does not favor the worker, then you will try to bid down the salary in order to keep your costs low.

And now, the question, is this employer acting ethically?

Sadly, many will say, while the shopper was blameless, the employer was not, as he was trying to pay as little as possible. They will argue something along the lines of "but it is his livelihood, you can't put financial concerns ahead of people." But the counter argument is that the television is also someone's livelihood, by refusing to buy the most expensive version, the shopper is reducing the overall market price, driving marginal producers out of business, lowering wages, and perhaps closing firms*. Yes, it is not as direct as the employer's role, but every purchase also relates to someone's livelihood.

Then again, this whole argument overlooks one other factor, one which makes these hypotheticals unlikely to be found in real life (Or found often), thanks to the rest of the market, prices tend to be well established within very narrow ranges. Similar products tend to sell for similar prices at most shops. Likewise, employees tend to be paid the same when they possess the same skills**. Were this not the case, competitors would take advantage of the disparity and make a fortune for themselves. Overpriced goods would find themselves competing with a glut of market priced competition. Underpaid employees would be snatched up by eager employers, who could offer them a raise, while still paying less than they were worth.

Which is why it is so absurd to worry about the free market making the world into a brutal, exploitative environment. If anything, the influence peddling of the interventionist market, the competition for advantage in various zero-sum games ("The Irrationality of Government Redistribution"), along with the uncertainty of the interventionist laws ("The Problem With Evolving Standards",  "In Praise of Slow Changes", "Predictability", "Conservatism, Incremental Change and Federalism", "Empathy" Threatens not "Justice" but Predictability", "Sotomayor and Empathy", "Interpretation and Activism", "Why Judicial Activism Hurts",  "The Problem With Tort Reform", "Red Herring", "A True Conservative Platform", "A Perfect Example", "Analogies For Political Consistency") tend to make government run economies much less secure than a free market. In a free market, competition tends to keep competitors honest, they cannot afford to play favorites or pay too little. In addition, a completely free price mechanism, along with cost accounting, gives a very good tool for measuring performance. And so, though far from perfect, the free market is better than the alternatives, and gives us a system which is, in most meaningful ways, more ethical than the interventionist system many imagine to have a corner on compassion ("The Cycle of Compassion").

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* I do not argue this is bad, and in fact think those marginal firms which shut down tend to see their resources allocated to other, more productive uses. And while I say paying the lowest price "lowers wages" I say that only because paying above market would artificially raise wages, making a return to market seem a relative drop. Still, if one is concerned only with subsidizing workers, paying the highest price seems a moral obligation.

** Despite the simplistic picture often painted by economists, workers are not paid solely by their contribution to production. As with all decisions, uncertainty plays a part, as do expectations. Those without work history, obviously, will be paid less, as their output and reliability are unknown. Similarly, those with a work history will see their salary change due to the impression that work history creates. There are other factors as well (eg. my mention in "Pay Disparities" that the possibility of sexual harassment suits by bringing women into all male offices makes them worth very slightly less), but we need not go into those. My point is, while I will treat the question as based purely on productivity, as do most economists, I realize it is a simplification, and other issues come into play.