By Bradley Harrington
“There is a tendency in a free market toward the establishment of a uniform rate of profit on capital invested on all the different branches of industry … The reason is that investors naturally prefer to earn a higher rate of profit rather than a lower one.” — George Reisman, “The Government Against the Economy,” 1979 —
Last week, I said that government controls on our economy, by “further muddying the waters of economic calculation … further destroy the possibility of even engaging in such calculation at all” (“ENDOW bureaucrats show ignorance on economic calculation,” WTE, Dec. 18).
Such controls achieve this effect because they interfere with the normal and natural workings of a free market — the pricing operations of which, when left to themselves, always act to balance supply with demand in all the various sectors of our economy.
This happens, ultimately, as a result of profit rates. If TVs are being overproduced and undersold, for instance, while refrigerators are priced high because the supply is a bit short in relation to demand, then capital will flow out of the first sector and into the second, as there is a greater profit rate to be had in refrigerator production as opposed to that of TVs.
That shift of capital, in turn, functions as a corrective mechanism for the imbalance — for, as production dollars flee TVs for refrigerators instead, TV inventory will drop while refrigerator inventory will rise. This, in turn, causes TV prices to decrease while refrigerator prices increase. And ever the two will gently rise and drop in relation to one another, constantly seeking profit rate equilibrium.
This principle of profit rates as applied to prices, moreover, works in relation to ALL sectors of the economy, regardless of the actual product or service; it is a general principle applicable to all areas of production of any kind.
Observe also that this system functions, like a thermostat, entirely on its own; Adam Smith’s “invisible hand” works independent of the need for any kind of management or control.
As a self-regulating system, it’s the market forces themselves that breed their own corrections. It’s the reason why nobody ever has to figure out if we have too many teachers vs. not enough construction workers, or too much sugar vs. too little steel.
Next, observe what such workings make possible: An entire economy constantly seeking equilibrium within itself, whereby millions of prices act to stabilize not only each of the millions of sectors within that economy, but also all of the billions of interrelationships each of those sectors have with every other sector.
And, finally, observe that all of this takes place billions of times a second, with the impact of all feedback mechanisms taking place immediately, and in ways that not a single one of us could ever even hope to grasp.
The beauty and justice of the market, however, is that none of us NEED to grasp it all; we only need to comprehend what’s going on in “our neck of the woods,” i.e., in the economic sectors that directly concern our own production and consumption. And it’s just those factors that each of us, individually, happen to have expert knowledge about.
A market economy, in other words, grants us all ultimate power over our own resources, planning and economic calculation — but no power over anybody else’s. We “vote,” with our dollars, only on what we’re competent to vote on — and what we are actually calling an “economy” is nothing more than the aggregate sum of all the choices, decisions, productions, consumptions and actions that take place within it.
So, since an “economy” is nothing more than the summation of all of what we do with one another — then doesn’t it necessarily follow that anyone who wants to regulate it, seeks control over at least a portion of those individual transactions? Over what YOU peacefully do with YOURS? By what right? By what standard?
And, when political figures, such as Wyoming ENDOW bureaucrats, decide they’re not happy with the way the free market allocates resources and that it’s time THEY started managing things instead — by what right? By what standard?
What on Earth would ever give our ENDOW bureaucrats the arrogance to presume they can even figure out what those market forces are, anyway, much less how they’re all supposed to be interrelating with one another?
You might as well expect a chimp to sit down at a typewriter and pound out the works of Shakespeare. And if the people of Wyoming decide to stupidly pitch another $37.5 million down this rabbit hole, then we’ll all be chimps– and chumps — as well.
Bradley Harrington is a computer technician and a writer who lives in Cheyenne. Email: firstname.lastname@example.org.
NOTE: This column was originally published in the Wyoming Tribune Eagle on December24, 2017.