Fears of a Free Market

0:00Fears of a Free Market I think most of us are well aware of the fact that we need a marketplace from which we can obtain the goods and services that we want. However, as we talk to other people and listen to what they have to say, Today, we discover that most people today are very much afraid of the idea that there could be a free market operating without some kind of government regulation. As a matter of fact, there are movements afoot now, and they have been afoot for many years, to increase the number of laws passed by government to intervene in the market and to regulate things in terms of making the market safer and better for everybody.

0:55The general consensus appears to be that we must have government in a position of dominance over the market or everyone is going to be cheated, exploited, taken advantage of and so on. Where do we get this idea? Actually, we really don't have a good basis of comparison today, because what people are looking at isn't a free market. And they see things happening today that ought not to be happening, and they always presume that what is happening that is wrong is the result of a lack of government control. And so whenever they find something breaking down, when they When they find an instance of criminality or fraud or some other malfunction manifest, they almost invariably conclude that the reason for this failure is that the government hasn't done enough.

2:00So actually they are thinking and reasoning from a position where the government has already be done of a very great number of things. And we are not thinking in terms of a free market. It would be important to understand what a free market really is and to try to figure out what the fears are that people have in relation to it. Now let me give you what I believe would be a pure concept of a free market. If we had a really true free market. This would be what has been called a laissez-faire market. That's a French expression, laissez-faire, which means in effect, leave it alone, let it go, let it go as it will, laissez-faire, leave it alone.

2:50To have such a market would mean that there would be no government intervention for any reason whatever. In other words, the government would not help anybody, it would not injure anybody, it would not seek to control anybody, it would permit the marketplace to function as it would with benefits accruing wherever they accrue, with damage accruing wherever that would accrue. It would simply be a free market where anybody could provide any good and service he wanted at any price that he wanted, he could make as much or as little as he was capable of making and there it would be. Well now that idea frightens people. It seems to them to smack of anarchy. It sounds as if everything is out of control and that there would always be a few people who would take advantage of the situation and we would be at their mercy. Because in general people People tend to look at government as their friend and at the businessman as their enemy.

4:02They look at the businessman as a fellow who's going to make profits from them, and consequently they distrust him because they figure, if he can make a profit on me, he's got to be taking advantage of me somehow, and I'm afraid of that. But then they look at the government as their friend because they recognize that the government isn't making a profit, and therefore they feel that the government is really on their side in the matter. And so that's the way public opinion tends to drift, and in fact it tends to become concretized, it's locked in cement, and that's about the way it goes. Now let me take up the basic fears that people have. I hear these expressed all the time in various ways, there are certain areas where these fears constantly are brought to the surface. I would suppose that probably the basic fear that people have of a free market – now I'm not talking about any other type of fear, I'm only talking about the fears

5:06people have of a free market, that is a market where there would be no government control or intervention at all. So they are afraid of this, and the fear tends to appear this The first fear is the fear of high prices. I presume that is the number one terror that people have considering a marketplace that is unregulated. It is certainly a well-known fact—and no businessman has ever denied it—that the reason you go into business is to make a profit. That's the idea. And therefore the fear runs this way, that given In a market without any government, the businessmen who are seeking profits, and they admit to seeking profits, would have no reason not to raise prices.

5:58And so if you had a free market, the prices would trend upward, upward, upward. There would be nothing to hold them down, because in theory, it is well known that profits Profits are those sums that accumulate after all the bills have been paid. So you would have an ever-widening gap between cost of production and selling price. And that widening gap would be the area of expanding profits, and the businessman would be making more and more profits. And who could say no to him? You see, what would happen—and this is the The fear, you understand, would be that the businessman would simply want to make profits, and as he began making them, he'd want to make more, and so what he would tend to do would be to just constantly raise his prices, and you and I would be compelled to pay for whatever he asked, and there would be nothing to hold him down, and the consequence is we couldn't afford to meet these payments, and we would then move into an area of complete

7:01– lack, we would suffer poverty and deprivation of every sort just so that a few greedy, grasping businessmen could maximize their profits and just take advantage of us up and down and backwards and forwards. This is the general fear. It happens to be really – and I hope you won't resent my saying this, but that's an old wives' tale. It just isn't so. That isn't the the way the market works, although let me concede at once that there probably isn't a businessman but what would like to do it. This is true. The businessman would undoubtedly like to make as much profit as he can, and if that meant raising his prices, he probably would raise his prices. Well, now just take a moment and look at things and you'll see that businessmen, although they might like to raise their prices, all other factors remaining Have you ever found this happening?

8:02Here comes a union leader to a businessman, and he says, I'd like to raise the wages of the people here. And the businessman, of course, says, gee, I'm glad you got here. I've been wanting to raise my prices for a long time, but I couldn't justify it. Now with you here, I can justify an increase and we'll both make a lot more. So I'm going to put my prices up very high, and that will make it possible for me to grant the wage increase that you want, and I'll immediately put my prices way above that, and let's do that right away. Gee, what took you so long? Why weren't you here last week? Have you ever found businessmen saying this? I don't think so. You'll usually find the businessmen squaring off toe-to-toe with the labor boss and saying, no, I don't want to raise wages because if I do, I've got to raise prices.

8:52Well, why doesn't the businessman want to raise a price? You see, the fear that we have that businessmen really want to raise prices isn't really carried out in fact, although let me concede that they probably do. But faced with a free market, they probably wouldn't be able to. We're going to get into an examination of that a little further on to see just what does happen in a free market. I'm only concerned at the moment with focusing on the fears that people have. And certainly it is true that most people have a belief, a fear. Actually, it's a superstition. They don't really understand how the market works. And they presume that because of the desire of businessmen to maximize their profits, that every businessman, without any government and Overseer would simply be engaged in raising his prices as high as he could in order to maximize his profits.

9:53Now there are some corollary fears that extend from this. If it is true that businessmen would be constantly trying to put higher prices on their goods, it would also follow that businessmen would be trying to lower wages. And so in addition to the fear of high prices, There is a corresponding fear of low wages. Now that's an interesting thing in itself, because in point of fact, if you want to analyze it, a wage is nothing but a price paid for the commodity of labor. So why don't people fear that businessmen would also raise wages since they believe that businessmen are going to raise all the prices? Why wouldn't the businessmen also raise the price of labor? Well, the reason people don't think so is is because they view the price of labor as a cost factor in production, but the selling price as a profit factor. And so they see the businessman as a being of great power, who is able to set prices and set wages. And therefore they are afraid of the businessman

11:04because they view him as a creature of power who can impose on their lives and reduce the the amount of wages that they get if they're a wage earner and increase the amount that they have to pay for the goods and services made. They don't trust this man, whom they presume to have power, but they do trust the government, which has corresponding power, and so they tend to trust the government to get in and hold down the businessman so that he can't, one, lower wages or, two, raise prices. Now there are still other areas that touch in this same context. One would be the concept of excess profits. What is an excess profit? Well, I don't really know. The word excess is a general term. It means too much. Well, how much is too much? I don't know. It's sort of like some of the ambiguous terms that we use today that tend to be emotive but they They don't mean too much, like saying, well, that man is rich and this other man is poor.

12:12Well, how rich is rich and how poor is poor? I don't know. A rich man is always somebody that has more than I have and a poor man is me and everybody else in my situation or in a situation that's worse than mine. So poverty always begins with me and riches always begins with the other fellow. But what does that mean? It doesn't mean anything. I know people who look down on me because economically speaking, financially speaking, I can't measure up to them at all. I couldn't begin to. So they look down on me. But I know other people look up to me because they think I've got a lot. It's a comparative proposition. You are rich or poor in terms of other people who are richer or poorer. That's what it means. It means We've taken surveys around the country to find out what the opinion of students in high School and the University hold in respect to the amount of profits they think businessmen

13:31are making. And the bulk of the opinion today has it that businessmen are making anywhere from 50 to 80 percent profit. Well, actually, that is absolutely ridiculous. A very, very Every successful firm today may be making 3 or 4 percent profit. Many firms feel delighted if they can make a 1 percent profit. There are, of course, very few highly risky endeavors that may make 6 or 7 percent profit. But the idea that you're making anywhere from 50 to 80 percent is pure poppycock.

14:20It just isn't so, yet that's what people think. You see, when a man goes to work, say, in a department store, what he sees is the inflow of customer's money and the outflow of his wage, and that's about all he sees. He doesn't see the cost of the department Store. He doesn't see the overhead. He doesn't see the advertising bills. He doesn't see the entire payroll. He doesn't see the insurance cost. He doesn't see the interest rates on borrowed money. He doesn't see any of these things. What he sees is an influx of thousands of dollars a day from customers who are buying merchandise, and he is getting paid maybe Money, $20 a day. So he sees thousands of dollars coming in every day and $20 going out to him. And he sort of makes a quick conclusion. You know, the fellow that owns this is pocketing the difference. Well, of course, the fellow isn't pocketing any major portion of that at all. In fact, on that day he may lose money. It's only in the overall, including the rush

15:40business at Christmas and in other types of special promotional affairs that enough profit will be accrued and that profit has to take care of all of the rest of the operation throughout the year, which may simply be so marginal that there's no profit at all most of the time. You're doing well if you just meet expenses most of the time. Now, anybody in business who knows what I've said or has heard what I've said knows what I'm saying is true. But people who are not in business don't understand this. They think that business is a very simple process of taking in a lot and spending a very little. It's actually just the reverse. Business is the process of spending a great deal and taking in enough so that actually you do end up with a little more than you spent. And that's the way it really works.

16:32But people don't understand that. So they have this idea that there will be surplus Plus profits, and of course there really isn't any such thing. The profit that a person could make in today's business world wouldn't be surplus no matter what you did. But this is one of the reasons people fear a free market. They fear that somehow the businessman is just going to make a bundle and he's going to make it at your expense and my expense and therefore something has to be done to hold him in check. Now there's still another fear in this same area, and that's the fear that if businessmen can't take and raise their prices for any reason, if any reason should appear, then at least they can lower the quality. And by this process they will cut costs and be able to maximize their profits. You see, always they view the businessman as being the arch-villain.

17:30He is in a central position where he can manipulate all around the periphery of his activities and injure everybody in process so that he can take advantage of them all the way around. This is one of the fears. Of course, it would be important to examine that to see whether or not that is so, and I intend to do that. Here is another one of the fears that we have in the market in addition to the fear of high and the fear of monopoly. For it is a well-known fact that every businessman wants to be a monopolist. And here is what the fear is, that given a free market without any government intervention, there would be one or maybe two businessmen who would be very good, very efficient, and they would engage in the process of becoming more and more efficient and these people would lower their prices. The reason they would lower their prices would be to defeat their competition.

18:40They would simply operate with an ever-lowering price until they drove all their competition out, at which point they would have a monopoly. Now having a monopoly, they would simply raise their Without their price to the skies, there would be nothing to hold them back because their competition is gone. And without government in there, why, that's what you'd have. This is the fear. Without government to intervene in the market, the most efficient men would become monopolists. And once they became monopolists, then they would have the ability of imposing what could be called a monopoly price. So if you analyze this, you discover that really The fear of monopoly isn't a fear of monopoly. It's a fear of a high price. It's the fear of a high price sustained through a monopoly practice. And so, again, it's the same fear that people have the fear of a high price, this time obtained in a very special way, the special way being a monopoly.

19:41Now there is another fear that people generally have, and this is the fear of the business cycle. There is a well-known belief that the free market itself tends to operate cyclically. It has its periods of ups and downs because there is something inevitable about this. You have a period of time when market activities accelerate, conditions are good, a lot of Money is in circulation. People are buying and spending and working and everything is great. And then you have the recession. The market slows down. The flow of money is retarded.

20:27And everything tends to go downhill. And this is something we don't like. We would like to always live in paradise. We would like everything to be on the upside, not the downside. and the consequences. We fear this and given a free market, we are led to believe that this kind of behavior would eventuate constantly. We would simply be in kind of an economic elevator that would rise and fall at the behest of the businessman who is going to take advantage of it whether it's going up or down and we are going to be the poor suckers who are caught in the middle and we're going to have to pay for it and so we resent that and we're afraid of it and this is why people call for the government to come in and intervene. So all of these are fears of a free market.

21:16Now to substantiate the fears of the free market that you hear on every hand, there are several historical periods of time or events which are usually brought forward as arguments to justify the fears of the market that you've heard expressed. One of these, and I haven't heard this talked about too much lately, but at one time this was a very, very prevalent one, and of course among people who are studying economics and certainly on your campuses today you'll find this argument offered quite a bit, it will be said something Okay, you people who believe in a free market, well great, it sounds good. But don't forget there was a time when that's what you had. There was a time when government did not intervene in the economy. The only reason that government did begin to intervene is because the people in the market demonstrated conclusively that they were kind of a shifty lot and you had had to have intervention, otherwise everybody would have been exploited.

22:29Don't forget the Industrial Revolution, for instance. Back at the time of the Industrial Revolution, the government hadn't begun yet to intervene. And what happened? Well, you had a number of these greedy, grasping capitalists, these big industrialists emerge, and they finally discovered how to mass produce goods. And the results was, of course, that they built sweatshops, they forced men and women and even little children to come in these miserable places that they built, because they wouldn't lay out the money, you see, to build a decent factory. They just brought them into these dark, depressing surroundings. There wasn't enough light, there wasn't enough air.

23:14In the summer, the rooms would be just terribly hot. In the winter, they wouldn't be properly heated. Sometimes they were too wet, sometimes they were too dry. People got sick, they were even crippled. Sometimes they were even killed in these factories because the owner of the factories just didn't care about them at all. He just was only interested in one thing, and that is maximizing his profits. And so that's what you had. You had a decline of human well-being. People's health was ruined. More people were killed and injured. In fact, the whole moral fiber of society began to break down. But finally, the government awoke to the danger that existed in the factories and then they began to intervene.

24:01And of course, this is where the modern labor union got started and the union also got in and began to intervene and to punish the businessmen and these industrialists that were taking advantage of the situation. And golly, if it hadn't been for the government and the union intervention, why by now there just be a handful of men who had all of industry in their hands and we would all be their victims. We would just be a bunch of little puppets being maneuvered and crushed and bled white just to satisfy the greed and avarice of these subhuman monsters who are the great industrialists. Now you've heard something like that, possibly not with all of the color that I've given it, But actually, you know, that's not true. What I've just said is the report. That's the superstition.

24:58In fact, what we want to do is to take the time to get into that area and examine it historically and see what really did happen. Because what we're examining right now relates to the fears alone and I'm not trying to explain the truth of the matter. I'm only reciting what the fears are and certainly this is one of the fears that people have. That there was a time historically where governments didn't intervene and at that time the businessmen behaved like subhuman fiends and simply took advantage of the situation and exploited everybody and so you have to have some kind of of Intervention. Now that's the popular belief. Now there is another period of history that is trotted out to sustain this same type of fear. And this is called the Age of the Robber Barons. And what we hear in this case is much the same. It will be said, all right you people who believe in a free market, sure, it sounds good. But don't forget there was

26:02a time in this country where we didn't have much in the way of government intervention. Why you have this group of the big moguls, so-called, the giants of industry, commerce and finance, who emerge and they form cartels and they seek monopolies and they simply get a stranglehold on the economy, just a handful of men really, and they begin to drive all their competition into bankruptcy and they take a position of power and influence obtained by their dominance of the market but fortunately before they could completely take it over the government caught on to what they were doing and we had the Sherman Antitrust Law passed in 1890 and other subsequent bits of legislation that helped to hold these big moguls in check so now you don't get that thing anymore because the government does intervene but if you had a free market without government intervention what would prevent the appearance of some more of these giant moguls.

27:08Why, there's just a whole lot of them waiting in the wings. But fortunately, they can't get started because the government is restraining them and holding them back, you see. So this is the fear that is expressed in this area, and that is that given a free market, you would have these giant people, cruel, rapacious, greedy, with no redeeming human characteristics, There is one further historical period that is trotted out and dusted off in order to confirm all of our worst suspicions about a free market, and this is of course the so-called Great Depression, for it is a well-known fact, quote and unquote, that the Great Depression occurred because of the greed and avarice of a limited number of businessmen who simply went to work and overproduced. And when they had a lot of stockpiles of goods and services that people weren't able to buy at the high prices that they demanded, why then the businessmen simply closed their factories and wouldn't produce anymore until they could sell the

28:25and the surpluses they'd already produced. And that meant that thousands of men were thrown out of work just to sustain the high prices and the high profits of these greedy industrialists. And if it hadn't been for the labor unions and, of course, for the government intervening, why by now the whole country would be in the hands of a small cartel of greedy, grasping monsters, and that would be the situation we face. But fortunately, the government saw what was happening, and so did the unions, and they They moved in, they intervened, they established public welfare and other benefits to the workers who had been thrown out of work and by this process they brought us out of the depression and of course that's why you have to have government intervention in the market.

29:11And what I have now done is just simply recite quickly some of the major fears that people have of the marketplace that is of a free market. So what I want to do is to consider those areas with some detail and you want to be sure to get in on it because it's a very, very interesting area. Thanks very much.