Thursday, 12 July 2012

The Free Market

By now we all know that the Free Market is not an absolute fact of economic practice. The old believe that “The invisible hand” would bring about equilibrium, stability and justice thus maximizing the common good is long gone.

One of the problems with this conception is that at its root was the believe that individual actions, seeking individual gain would bring a general well being.
Individuals would follow a “rational” behaviour maximizing individual and social wealth. The market would select where more reward is to be found and would regulate individuals actions. The market is rational and fair. Individual benefit is the force behind decisions and actions.
Greed would propel individuals and society but the free market would regulate individual action and distribute social benefit.

Time has proven than only a few ended very wealthy while others are stuck with less and less. It is obvious that there are at least two problems with this view of the free market:
  • There is no such thing as a “Free Market”. Wealth, the wealthy will ensure that the market swings according to their benefit. The most recent example is the tampering with the Libor interest rate by a UK bank. Obviously this bank could not have done this by itself and others are to be found involved too. On both sides of the Atlantic. What does this say of the culture behind the financial sector? What does this say about the role of controllers and supervision?
    Markets were rigged (again) affecting loans, mortgages, bail out money received, altering information and confidence and of course banks profits and tax return.
  • The “Free Market” is sustained by the laws of supply and demand. But, do the laws of supply and demand apply to the whole population? Are they Universal? Of course not. Poor people (or countries) have needs but they have no role in the demand side of the market for they have no wealth/money to demand in the market. They are not a part of the free market, they simple don't count. Demand is not a synonym for need. Demand only applies to those that have resources to be part of the “Free Market”. The same can be said of Supply. How can the unemployed, the unskilled supply anything to a growing sophisticated market? No wonder sweat shops and such other abnormalities are an every day fact of life.

Today most wealth is “created” by the speculative capital managed by financial institutions. Volatile, risky, international suppositions are the realities behind price setting in the market. They are also behind the setting of interest rates for loans and investments. It is no longer the individual greed or “rational” behaviour that would lead to social benefit as first thought by the “Free Market” theorist and supporters.
Prices are no longer free to bring equilibrium into the market system (They have never been and they will never bring the theoretical stability and justice).

The current system needs reform. Mostly an ethical and legal reform. Capital is needed but it has to play a different role to the one that is playing today. A system that can rig the markets for the benefit of a few is no longer feasible.
The role of individual profit or of corporative profit (based on personal interest aka; greed) need to be redefined.
An individual or a corporation are part of a collective and it has to share fairly with the collective the profits and gains made, as much as the collective has bail out the financial institutions when they have done such a poor job.
The idea that greed as the foundation of personal benefit will bring justice and balance has to go. We need a conscious and conceptual change to
redefine economic laws and functions. The economy can not be an isolated reality that self sustain itself and that imposes itself on the gross of society. Economy is a means and should be subordinated to social realities. We need a new way of understanding of the foundations and purpose of economic activity.

Capital has a major role to play. It is needed and it can be a huge propeller of human development. It is not capital that is wrong, but the manipulation of it by selfish institutions and individual greed. Responsibility is a term that has to be brought into the centre light. There is no freedom without responsibility and a clear purpose. How each of us, how every society defines and implements the concepts and foundations of a new system is there affair and for sure will bring about different solutions and that is a good thing.

1 comment:

  1. The Creeping Claw of Money and Materialism have spread far and wide. But, eventually it will self destruct.


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