We normally think of an invention as something we can touch and hold in our hands. However, an invention can also be a process or a system – a way of doing things. The greatest of man’s inventions isn’t the telephone, electricity, the airplane, the light bulb or the world wide web, but rather one that has allowed these inventions to be widely produced and adopted in a manner that has greatly increased our standard of living: The Free Market System .
The Free Market System has four key components:
1) Prices that are freely set by producers.
2) Profits that flow from the difference between the price of a product and its cost to produce.
3) Competition that is unhindered.
4) Private property rights that are inviolable and protected by commonly understood law.
In any society, goods and services are generally scarce and there needs to be a means to provide for their distribution. That is the purpose served by price. When something in demand is scarce its price will tend to be higher. Customers who feel that they can do without the product at a high price will not purchase the product thereby leaving it to those who place sufficient value upon it. Also, high prices encourage the development of replacement products that are less expensive to produce .
Profit is the mechanism that informs producers whether they are producing products in an efficient and cost-effective manner. When profits are low, the message is conveyed to producers to become more efficient or to perhaps develop alternative products. When profits are high then other producers get the message that there is money to be made and that they should compete in producing the same or similar products.
Now, producers can compete in the production of a product only if they are not hindered in doing so. History teaches us that when competition is hindered, it is due solely to interference by the state. (Dr. Tom DiLorenzo’s article, “The Myth of Natural Monopoly”, provides excellent insight into the instability of monopolies that might come to exist, albeit briefly, in a Free Market System.) When competition is artificially hindered by the state then existing producers will tend to produce lower quality products at higher prices than would be the case in a market with free competition. As Dr. Robert P. Murphy states in “Lessons for the Young Economist” (pg. 128):
“One of the most beautiful aspects of a market economy is that it harnesses some of the most selfish, ambitious, and talented people in society, and makes it in their direct financial interest to worry at night about pleasing others. Entrepreneurs drive the market economy, but competition among entrepreneurs keeps them honest.”
Private property rights are required in order to ensure that arguments over ownership of capital and output are minimized and to encourage entrepreneurs to compete knowing that they and their employees will benefit from the fruits of their labour.
When the above four components are allowed to function freely and without interference from the state, then the Free Market System produces goods and services like no other system ever invented by man. In fact, no other system has created so much wealth for the average person. For example, it is the Free Market System that is solely responsible for the creation of the middle class.
When any of the four components is adversely affected or crippled by state interference then the Free Market System fails to operate effectively. Think of the four components as the legs of a chair: If any leg is damaged or removed, then the chair will fail.
When all four components are prevented from functioning properly then we arrive at man’s worst invention: The Socialist System . With the Socialist System we find a system that perverts the four components of the Free Market System as follows:
1) Prices are not freely set by producers but are, instead, fixed by law or regulation.
2) Profits are controlled or do not significantly enter into a business’ economic calculation (take the case of a subsidized crown corporation, for example).
3) Competition is limited or disallowed.
4) Private property is not protected by commonly understood and inviolable law but is, instead, subject to the whim of state politicians and bureaucrats.
We find the awful results of the Socialist System in so many aspects of our society today. For example, the provision of health care in Canada has become so corrupted that “Canada now ranks below Slovenia in terms of effectiveness and last or second last in terms of value for money”. We see the state’s attacks on the ride sharing company Uber even though Uber is only attempting to bring the benefits of the Free Market System to customers who are presently served only by municipal taxi monopolies. We see the effects of the Socialist System on Canadian protection services, the most abysmal being the government’s monopoly army that now engages in endless, murderous, costly and unjust wars abroad.
The hallmark of the Socialist System is the inevitable decay of society and the economy. One need only look to modern day Venezuela for the evidence of its advanced effects The Guardian’s article “Price controls and scarcity force Venezuelans to turn to the black market for milk and toilet paper” highlights the horrific societal and economic destruction that results from the corruption of the four components of the Free Market System. History has proven that only the Free Market System is capable of providing increasing standards of living with products and services that increase in quality, decrease in price and are in step with the customer. The Free Market System puts milk and toilet paper on store shelves and does not require the military to dole it out. The Socialist System provides the opposite: greater poverty, lower lifespans, poor products and services (or none at all as witnessed by the people in Venezuela), widespread chaos and dysfunction .
Another point to make is that the Free Market System has become widely adopted because its basis is freedom – where freedom means the ability of the individual to live, invent and trade without interference from the state. It also operates on the basis of decentralized action. No one person or influential group is in charge of a Free Market System. Individual choices regulate its operation.
In contrast, the Socialist System is the product of court intellectuals who promote the idea that an economy must be centrally managed and regulated. However, free men and entrepreneurs naturally object to being told what to do and how to do it. Hence, the Socialist System requires powerful police forces and corrupt court systems to enforce bad laws that intentionally cripple free prices, profits, competition and property rights. The Socialist System is always accompanied by increased militarism, civil strife, war and needless death. It is a system based upon tyranny rather than freedom and is, therefore, abhorrent and objectionable to any man who desires to be free.
Modern politicians and intellectuals will claim that the optimum economy is one that blends the characteristics of the the Free Market System with the Socialist System – the so called “mixed”, “corporatist” or “public-private-partnership” system. However, blending in this sense can only mean the corruption of one or more of the four essential components of the Free Market System. Such corruption necessarily leads to a less efficient, productive and humane economy and society. Back to the chair analogy: If one of the legs of a chair is purposefully cut or damaged, how can a better chair result? It simply is not possible.
Our standards of living and our freedoms depend upon a well-functioning Free Market System. Politicians, bureaucrats and state-connected monopolies who interfere with its four critical components are our mortal enemies. Each of us has a duty to reject their interferences and discredit them whenever possible. We have a duty to band together to work against them. For they are not harmless nor are they innocent. They are a very dark evil we must be willing to confront.
Note: Another term for the Free Market System is Free Market Capitalism. It is unfortunate that the term capitalism has lost its clarity of meaning due to the adoption of nonsensical terms such as welfare capitalism and state capitalism.  For a more complete explanation of prices and the concept of supply & demand, plus many other critical aspects of economics, please refer to Dr. Robert P. Murphy’s excellent book “Lessons for the Young Economist” and/or take his on-line course Principles of Economics.  One cannot even use the term “market” in the context of the Socialist System because a market implies a system whereby customers are free to buy and sell.  It is interesting to note that even though the state has socialized major swaths of the Canadian economy such as health care and protection services, it hasn’t dared to completely socialize the production and distribution of food (though some food industries such as the dairy industry are dominated by state-licensed monopolies). Perhaps the politicians and bureaucrats recognize that mass hunger and civil strife would be the result.