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05-27-2011, 06:29 AM   #16
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QuoteOriginally posted by MPrince Quote
If you think that, you don't understand what a free market is.
OK - so I don't understand what a free market is - so maybe you can lead me on a path to understanding.

So if there is a market situation - there is A kilo of rice for sale - the last one. I am about to offer my last dollar to the person selling it, but somebody else offers 2 dollars and gets it - we are both winners, right - because he gets the rice, and although I don't I still get to keep my money, although I starve? The market is free one - goods are limited - but that's what markets are for, the allocation of scarce resources.

That's the simplest example, but when we look at the interactions in commodity markets (free markets) where hedge funds and commodity price bubbles are involved the winnings get bigger and so do the losses. Markets are all about game theory - zero sum games at that, with winners and losers. It is in their very essence.

It sounds a bit Pollyanna-ish to say that free markets are so benign there are only winners, as firstly although markets have themselves no moral content, they operate within a wider moral context, and also their outcomes have moral implications.

05-27-2011, 07:10 AM   #17
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QuoteOriginally posted by midori Quote
OK - so I don't understand what a free market is - so maybe you can lead me on a path to understanding.
It will be my pleasure.

I have apples, but no money. I'm hungry. I could eat one of my apples, but every apple I eat is an apple I can't sell. Besides, I don't particularly like apples. I prefer oranges. I know a guy who sells oranges for $1.00 each. I'm willing to sell my apples, but only if I get at least $2.00 per apple, because I want to be able to buy two oranges for every apple I sell.

You have money, but nothing to eat, and you're hungry. You could buy oranges, but you like apples better. You're willing to pay as much as $3.00 for an apple. You ask me how much I want for an apple. Hoping to receive a price higher than the minimum I want, I say $2.50. You think that's a good price, but hoping to do better you counteroffer with a price of $2.25. I agree to your counteroffer, and we make the exchange.

I'm happy. I not only sold an apple, I received more than my minimum price. Not only can I buy two oranges, I have enough left over to buy some m&m's. I love m&m's!

You're happy. You bought an apple for less than you were willing to pay. You have enough left over to buy an ice cream cone. You love ice cream cones!

We're both happy. We both win. Yay, free market!

Now let's suppose a third party comes along. Let's call this third party "government". The government, wishing to create the illusion of a strong and vibrant economy, tells me that I have to charge no less than $3.50 for an apple, and I have to give them $2.00 for each apple sold, for the privilege of being allowed to sell apples. The government also tells me that I have to sell at least ten apples a day. I could resist, but I will get punished if I do. The government has guns. Lots of guns. If I defy the government, I could end up fined, jailed, or dead.

You ask me how much I want for an apple. Hoping to receive a price higher than the minimum price the government requires, I say $4.00. That's more than you're willing to pay, so you offer me $2.75. I tell you sorry, the government requires me to sell apples for no less than $3.50.

Scenario 1: You grumpily hand over $3.50. You have an apple, but you're not happy. You had no choice but to pay more than you thought the apple was worth, and now you don't have enough money to buy an ice cream cone.

I'm not happy, either. Sure, I got $3.50 for an apple, but I have to turn over $2.00 to the government. I don't have enough left over to buy two oranges, I can only buy one orange and some m&m's. I'd rather have two oranges, even if I have to go without m&m's.

Scenario 2: You refuse to pay $3.50 for an apple. You'll buy an orange instead, even though you like apples better. You're no longer hungry, but you are nonetheless unhappy.

The apples rot, because no one will pay $3.50 for an apple. Now, I not only have no money, I have no apples and thus no way to earn money, and the government sends me a threatening letter for failing to meet my quota. I apply for welfare, but the government denies my application. Government records show that I am a prosperous purveyor of apples. I am warned not to try to take advantage of a program designed to assist the poor. From each according to his ability, to each according to his need. That's only fair, after all. Besides, they're looking for reasons to reduce the welfare rolls anway. Tax receipts, it seems, are lower than anticipated. Despite the best efforts of the government's top central planners, the economy is just not humming along like they thought it would.

I turn to a life of crime so I can eat. I grab your wallet out of your hand as you're getting ready to pay for a couple of oranges. You recognize me, flag down a police officer, and the chase is on. I toss your wallet in a storm drain right before I'm caught, and it is never recovered. I can't afford a very good lawyer, so I am convicted and thrown in jail. Thanks to the slop that passes for food in jail I'm no longer hungry, but I am unhappy.

We're both unhappy. We both lose. We yearn for a free market, but government, while it may tolerate the appearance of a free market in order to make it easier to blame capitalism when things go bad, won't allow truly free markets.
05-27-2011, 09:09 PM   #18
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QuoteOriginally posted by MPrince Quote
It will be my pleasure.

I have apples, but no money. I'm hungry. I could eat one of my apples, but every apple I eat is an apple I can't sell. Besides, I don't particularly like apples. I prefer oranges. I know a guy who sells oranges for $1.00 each. I'm willing to sell my apples, but only if I get at least $2.00 per apple, because I want to be able to buy two oranges for every apple I sell.

You have money, but nothing to eat, and you're hungry. You could buy oranges, but you like apples better. You're willing to pay as much as $3.00 for an apple. You ask me how much I want for an apple. Hoping to receive a price higher than the minimum I want, I say $2.50. You think that's a good price, but hoping to do better you counteroffer with a price of $2.25. I agree to your counteroffer, and we make the exchange.

I'm happy. I not only sold an apple, I received more than my minimum price. Not only can I buy two oranges, I have enough left over to buy some m&m's. I love m&m's!

You're happy. You bought an apple for less than you were willing to pay. You have enough left over to buy an ice cream cone. You love ice cream cones!

We're both happy. We both win. Yay, free market!

Now let's suppose a third party comes along. Let's call this third party "government". The government, wishing to create the illusion of a strong and vibrant economy, tells me that I have to charge no less than $3.50 for an apple, and I have to give them $2.00 for each apple sold, for the privilege of being allowed to sell apples. The government also tells me that I have to sell at least ten apples a day. I could resist, but I will get punished if I do. The government has guns. Lots of guns. If I defy the government, I could end up fined, jailed, or dead.

You ask me how much I want for an apple. Hoping to receive a price higher than the minimum price the government requires, I say $4.00. That's more than you're willing to pay, so you offer me $2.75. I tell you sorry, the government requires me to sell apples for no less than $3.50.

Scenario 1: You grumpily hand over $3.50. You have an apple, but you're not happy. You had no choice but to pay more than you thought the apple was worth, and now you don't have enough money to buy an ice cream cone.

I'm not happy, either. Sure, I got $3.50 for an apple, but I have to turn over $2.00 to the government. I don't have enough left over to buy two oranges, I can only buy one orange and some m&m's. I'd rather have two oranges, even if I have to go without m&m's.

Scenario 2: You refuse to pay $3.50 for an apple. You'll buy an orange instead, even though you like apples better. You're no longer hungry, but you are nonetheless unhappy.

The apples rot, because no one will pay $3.50 for an apple. Now, I not only have no money, I have no apples and thus no way to earn money, and the government sends me a threatening letter for failing to meet my quota. I apply for welfare, but the government denies my application. Government records show that I am a prosperous purveyor of apples. I am warned not to try to take advantage of a program designed to assist the poor. From each according to his ability, to each according to his need. That's only fair, after all. Besides, they're looking for reasons to reduce the welfare rolls anway. Tax receipts, it seems, are lower than anticipated. Despite the best efforts of the government's top central planners, the economy is just not humming along like they thought it would.

I turn to a life of crime so I can eat. I grab your wallet out of your hand as you're getting ready to pay for a couple of oranges. You recognize me, flag down a police officer, and the chase is on. I toss your wallet in a storm drain right before I'm caught, and it is never recovered. I can't afford a very good lawyer, so I am convicted and thrown in jail. Thanks to the slop that passes for food in jail I'm no longer hungry, but I am unhappy.

We're both unhappy. We both lose. We yearn for a free market, but government, while it may tolerate the appearance of a free market in order to make it easier to blame capitalism when things go bad, won't allow truly free markets.

OMG
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