The morality of markets

Perhaps I ought to apologise to Walter Williams for pasting such a lengthy quotation from the speech (.doc) he gave recently at Hillsdale College, but in fact my real problem was deciding where to stop. The whole thing is superb.

Let us begin with a discussion of a working definition of markets. Markets are simply millions upon millions, internationally billions upon billions, of individual decision-makers, engaged in the pursuit of what they determine to be their best interests. We say that the market is free if it is characterized by peaceable, voluntary exchange, private property rights, rule of law and limited government intervention and control. Liberals often denounce free markets as immoral. The reality is exactly the opposite. Free markets are more moral than any other system of resource allocation. Let us examine the moral superiority of free markets.

Say that you hire me to mow your lawn and afterwards you pay me $30. What I have earned might be thought of as certificates of performance, i.e. proof that I served you. With these certificates of performance in hand, I visit my grocer and demand 3 pounds of steak and a six-pack of beer that my fellow man produced. In effect, the grocer asks, "Williams, you're demanding that your fellow man, as ranchers and brewers, serve you; what did you do in turn to serve your fellow man?" I say, "I mowed my fellow man’s lawn." The grocer says, "Prove it!" That's when I hand over my certificates of performance -- the $30.

A resource allocation method that requires that I serve my fellow man in order to have a claim on what he produces is far more moral than government resource allocation. The government can offer, justifying it with one reason or another, "Williams, you don't have to serve your fellow man in order to have a claim on what he produces. Through the tax code, we'll take what he produces and give it to you." Of course, if I were to privately take what my fellow man produced, we'd call it theft. The only difference is when the government does it, that theft is legal but nonetheless theft -- the taking of one person's rightful property to give to another.

The essence of free markets is good-good exchanges. Exchanges of this sort are featured by the proposition: "I'll do something good for you if you do something good for me." Game theorists recognize this as a positive-sum game -- a transaction where both parties, in their own estimation, are better off as a result. An example of this is where I go to my grocer and offer the following proposition: If you do something good for me, give me that gallon of milk, I’ll do something good for you, give you three dollars. I am better off because I valued the milk more than I valued the three dollars and he is better off because he valued the three dollars more than he valued the gallon of milk.

Of course there's another type of exchange not typically, voluntarily entered into, namely good-bad exchanges. An example of that kind of exchange would be where I approached my grocer with a pistol telling him that if he didn't do something good for me, give me that gallon of milk, I'd do something bad to him, blow his brains out. Clearly, I would be better off, but he would be worse off. Game theorists call that a zero-sum game -- a transaction where in order for one person to be better off, of necessity the other must be worse off. Zero-sum games are transactions mostly initiated by thieves and governments, both are involved in what is euphemistically called income redistribution.