When left to its own devices, the free market system acts in a way that benefits the consumers. At its core, the free market enterprise is a democracy where there is no god-given right bestowed upon anyone. If there is a product consumers prefer, people involved in its production & distribution win. The first principle of a free market that governs every subsequent occurrence is human choice & action. At the individual level, how humans choose & why is a matter of great importance in economics. Several economists have put forth their theories as to how humans choose, dissemination of such theories is for another time.
Whatever be the ways & means of how humans make a choice, the effect of decisions is structured along a differential. There are orders to the effects of decisions made. The scale of effect changes when the individual becomes in a mass of individuals making their own choices. The beauty & bane of the free market system is very similar to how biological systems react to stimuli. The general trajectory of products is that they go from being unique to commonplace over a long period of time. When something works, everyone will want to try it out. That applies to producers as much as consumers. If a certain product is better than the competing goods, consumers will prefer that over the competing goods & subsequently, the producers also shift to trying to recreate the superior item in some way or the other. A good idea becomes abundantly commonplace as it is the superior idea among the rest. When this happens, the uniqueness of the product is lost. The irony of a great product is that the highest accolade is when the product becomes absolutely unremarkable yet unmissable from human existence.
Amidst all this noise, we miss one thing out. The scale at which the market of supply & demand shifts is tremendous. When a product becomes commonplace, there’s very little to fight on the grounds of better value offered. Perceived value is subjective, yes. However, for unremarkable products, value of owning & consuming them is very well understood. The market of transactions has been through business cycles & the product is understood by the consumer very well. When business cycles have been weathered, the market has matured. In such a phase, the next level of evolutionary pressure for businesses to cope shifts to optimising costs & becoming leaner to get the same output. That is, unless all the suppliers agree to not lower costs any further. Ultimately, the cost leader wins. The manufacturer/supplier who has the least costs to achieve the same level of unremarkability pushes the other suppliers out of the market, or at least, makes them second-class.
Unremarkability isn’t apriori condition to satisfy. It’s one perspective to use to look at the structure of the scale of effects. When an individual makes a choice, it’s a minuscule event of opportunity & resources. When many individuals make such decisions, it affects the supply of goods & services to as many individuals. When the same decisions are repeated over time, the suppliers get rooted out based on the ability to service demand sustainably. Over business cycles, the business with better economics repeatedly wins; with a clear supply dominance of a very few businesses. Is the free market actually free when there is a supply dominance; albeit the dominance being earned by catering to the demand of the customers repeatedly? What freedom does the word free mean in the context of free markets? This is a question that leads to the pandora’s box of the role of government in a market system. The government is expected to protect people’s freedoms & if such freedom is cannibalising itself, must the government step in to stop this?
The context of what free means in a free market system is freedom to act within broad constraints. If I do not wish to pick up a product in a store, the brand making it cannot enforce me to. I am free to pick up whatever I wish to within whatever is available to buy. If I can’t find what I want in one store, I have every right & freedom to go to another store to get what suits my demand. If a supplier wants to up the price of an item, there is nothing to stop them from doing so. Ultimately, it’s a auto-corrective feedback loop that fixes & tweaks itself as it goes. There’s freedom to try something until it works. Failure is built into the system as feedback to course-correct. The freedom to always have another chance to try something out; either as a consumer or as a supplier/manufacturer, is what the free market enterprise is. For those want access to capital to start their business, there are banks & financiers keep the market running. The only thing stopping anyone from trying is their intrinsic instinct to try & do something. This may vary from person to person, based on their situation in life & their circumstances. The opportunity is there to try something out.
Although human choice is a first principle, no market can exist if suppliers aren’t there. The incentive to become a supplier/manufacturer is to have a business that offers a path out of poverty & the means to becoming prosperous in life. In a consumer transaction, goods/services are exchanged for money. The manufacturer will become prosperous by serving their fellow human beings’ demands. If prosperity isn’t in the line of sight, there is only going to be a long list of unfulfilled demands. As wealth accumulates, it tends to do some peculiar things as well. The wealthy tend to have an effect on where the accumulated capital comes out through philanthropic activities. That puts the wealthy in a position of power & influence. John Rockefeller was one such man in the onset of the 20th century with his Standard Oil empire. Rockefeller was a peculiar case of business ownership. Thanks to the oil industry’s lack of maturity in the late 19th century, Standard Oil was structured as a chain of trusts that effectively blocked any new competition from entering the oil business. These trusts led to the campaign of Theodore Roosevelt to break the trust of Standard Oil. The amorphous structure of the trusts kept Standard Oil from being known to the public in the context of just how massive the empire was. That being said, there was no doubt that Standard Oil was one of the greatest holding companies by size of commercial activity in its aegis.
Rockefeller aggressively ensured there was no competition coming up. He would undercut the price to the extent that almost anyone who wanted to compete would have to lose out. He was also a smart man that knew his bargaining power. Unlike the rest who paid the price as the railroads dictated it, Rockefeller ensured they sang to his tune for the sheer quantum of business he was planning on offering them. To sum up – Rockefeller used everything and anything that offered him advantage to sustain the Standard Oil operations as a going concern. It is still no reason to ratiocinate that such activities are morally wrong. At best, the argument that can be made is that such acts hamper the morale of the people that nothing new can be tried. Taking a teleological perspective, viewing this as a consumer makes life easy. To get the cheapest product in the market that’s available everywhere makes a consumer’s life easy. With a single tweak to the teleology to becoming an entrepreneur, the monopoly appears like a crushing weight that is heavy enough to break the back of Atlas.
If competition isn’t allowed to flourish, the necessity is that everyone who ascends to the role of the Chief Executive has to have the same characteristics as the one who ensured the company was run like a tight ship. To avoid such a situation in the long run of events, there needs to be a balance of who serves the customer. If pure consumer happiness on being served is what matters, there really is no counterargument against a state-run enterprise. Competition is akin to the competing organisms in a biosphere vying for the same pool of finite resources. The day competition stops, evolution stops. The day evolution stops, the likelihood of failure increases. This is the very undoing of every monopoly. It is never about the times when things are going good; it is always about having a fail-safe in case things do not pan out every consecutive day as the day before.
Should the government step in to save free market enterprise from itself when it goes to a feverish excess? Rather, is it the duty of the government to do so? Morally speaking, the rights are god-given but the government acts as the regent-in-charge. Teddy Roosevelt was morally right in wanting to curtail the stomping down on competition. As I type this, my libertarian heart skipped a beat. How do we curtail the government from stepping in every time there maybe an excess? Should the government have stepped in before the crisis imploded the housing market in the USA? It takes a moral leader to stop themselves from curtailing someone when they feel there is a monopolist running the market. Trying to pre-empt monopolies from arising through taxes & bureaucratic structures only cripples the economy. Any Indian that has lived through or is aware of the Indira Gandhi years would know this.
A possible way out would seem to keep an eye out on innovations being tried out & create a space for innovators to find those who’d like to fund their venture. This has been tried, and now we have a battle for valuations. To compete is a natural instinct for humans. It is not as if Standard Oil had no competition either. There were competing European firms that would’ve pushed the boundaries. In that situation, Standard Oil was unique. The trust structure provided an opaque layer & hence was the problem. Once the trusts were revealed, a cartel unveiled itself. A veil of competition was being put up. Since telecommunications didn’t exist, unless someone really went from town to town, they wouldn’t have known that it was Standard Oil everywhere in a different name. The illusion of competition was simply made a reality. This nuance must be kept in mind before we bring the government into things; government policies never seem to leave once they set a foot in the door.
Assuming that legislation would solve problems is a foolish thought. Every time a new regulation comes up, new bureaucrats must be hired & their salaries must be paid as well. That means there’s a good chance of a tax increase. And this again bites the average consumer for no reason. The objective isn’t necessarily achieved every single time the government steps in. Marx is precisely wrong for this reason. We are not subjects of the regent-in-charge to be cared for. We are consumers of services we pay through taxes & must see it that way. Maybe we can at a time when temporary legislations remain temporary & disappear after a set time.
Fundamental Review 