Problems the Free Market Can't Solve
OCTOBER 01, 1969 by PAUL L. POIROT
How often, and in what variations, we here the old theme:” The government should intervene because private enterprise has failed to solve the problem!” The following list is far from complete, but will serve to illustrate:
The social security problem
The farm problem
The unemployment problem
The housing problem
The transportation problem
The school problem
The medicare problem
The poverty problem
The population problem
The slum problem
The conservation problem
In a sense, every need felt by each and every person in the world is a problem – for that individual. The person who sees a way to satisfy a given need looks upon the situation as an opportunity rather than a problem. That’s what private enterprise is: a process of converting problems into opportunities. A successful entrepreneur is one who sees and seizes the opportunity when there is a problem, turning available resources into goods and services most wanted by others, serving their needs and helping himself in the bargain. Private enterprise involves cooperation between a person who views it as an opportunity.
Socialism, on the other hand, is a pooling of persons, all of whom have the same problem: they want something for nothing. Such a demand affords an entrepreneur no opportunity to serve himself by serving others. Hence the cry: “Private enterprise has failed, the government must intervene!” Check again the foregoing list, or any other situation that has now become a major public problem. Does it provide an organized demand for something for nothing? If so, private enterprise can’t solve it – not on those terms; but neither can it be resolved by resort to force.
The problem ever has been a relative scarcity of the resources required to satisfy the municipality of human wants – insufficient knowledge and will and energy to combine available resources in ways that would fulfill every person’s wishes. Because there is a cost of producing or acquiring everything of an economic nature that man wants, it has been necessary to determine in some way or other what is mine and what is thine.
That determination, during most of recorded history, has been by force – the strong lording it over the weak, some men enslaving others and confiscating others and confiscating their property. Only in relatively recent times, and only in parts of the world, have men ever tried the alternative of getting what they want from one another by serving that other’s interest, instead of stealing from or enslaving him. This is the system of private ownership and control of resources, with open competition in the market, and with government limited to the protection of peaceful persons and their liberty.
Such competitive private enterprise has not afforded instant utopia on earth. Man’s wants have multiplied much faster than his capacity to meet them, despite the remarkable record of material achievements when, and to the extent that, the market economy has been tried.
Our Wants may Deceive US
In a sense, the infinite expansibility of wants is one of human progress. His unsatisfied desires drive a man to work and plan and event produce. They also render him venerable to promises of something for nothing – launch him on flights from reality that may destroy the source of goods and services to which he owes his rising expectations, if not his life. It is not the comparative records of performance under freedom or under slavery that cause men to turn from competitive enterprise has failed to deliver to every man his due; competitive enterprise is rejected by thoughtless men because it has not delivered everything that irresponsible demagogues neither have been able to nor can they ever fulfill their promises by the methods they espouse.
The person who demands that private enterprise solve the social security problem, else he will reject private enterprise, is demanding that a way be found for a person to have reasonable income and resources when retired without his having saved anything of value prior to his retirement. There is no way for man to perform such a miracle. The government only appears to do so when it takes property from those who have earned it and gives some of it to those who have not.
The compulsory social security program was launched in the United States in 1935 primarily as a device to induce oldsters to give up jobs in order that youngsters might be employed. Few at that time bothered to ask what had caused the widespread depression of economic conditions and the heavy unemployment. "A failure of private enterprise," they assumed; whereas, in fact, prior government intervention had granted special privileges to organized labor, had tampered with supplies of money and credit, had artificially depressed interest rates, and generally had erected barriers to industry and trade.
Nevertheless, over the years from 1935 through mid-1968, the Federal government collected some $219 billion dollars in the name of social security from those younger persons who had found jobs in covered occupations. Most of that money has gone in benefit payments to those who had retired. The balance, perhaps an eighth of the total (which is unrealistically referred to as the OASDI Trust Fund) has been spent for other purposes of government. In other words, not a penny of the amount any worker pays as social security taxes is saved or invested to yield a return to him when and if he retires. Such payment, if he ever gets it, still must come from those younger workers currently employed and subject to taxation.
Shortages and Surpluses
No; private enterprise cannot solve the social security problem which government intervention has created. Neither can the government solve it. Private enterprise does afford the individual the maximum opportunity to prepare for his own retirement. And that is a far better chance than any intervening government would allow him—after taxes.
What government has done, with regard to social security, is to establish a price ceiling. The offer, in essence, is "free" social security benefits to anyone over 65. In other words, the price to be paid by him is zero.’ Whenever the government establishes terms like that, private enterprise cannot and will not do the job.
Price fixing by government is the classic way of creating shortages and surpluses. The price, if set lower than the market would have determined, creates an immediate surplus of would-be consumers and a shortage of willing suppliers. Everyone would like a lot of something for nothing; no one wants to supply anything at that price. On the other hand, a price, which is set higher than the market would have determined, results in a rash of suppliers and a dearth of buyers.
The social security "problem" is a surplus of retired persons hoping someone else will provide their livelihood during their flight from reality.
While no attempt will be made to discuss here the details of the various other "problems" the market allegedly has failed to solve, the nature of shortages and surpluses may be clarified somewhat by brief reference to "the farm problem."
The Farm Problem
The farm problem is at least as old as the industrial revolution, when businessmen found ways of attracting personal savings for investment in factories and machines and tools that would afford better employment opportunities than prevailed when nearly everyone farmed as a matter of self-subsistence.
Naturally, mechanization works from industry back into agriculture. As specialization and trade develop in a given society, a smaller percentage of its population is needed to produce food and fiber. Agriculture appears to be a depressed industry over the many decades generally involved in the shift from a 90 per cent agrarian to a 90 per cent urbanized and industrialized economy. This is the competitive market manner by which workers and other scarce resources are drawn from less attractive to more attractive employment opportunities—from old industries to new. This is why agriculture was a chronically depressed industry in the United States over much of the past century—why there came to be a "farm problem" and a demand for government intervention.
Fortunately in a way, much of the intervention inadvertently had the effect of speeding farm specialization and mechanization. The price supports and other farm subsidies by and large were made payable to the most successful farmers; the pittance paid to smaller and less efficient operators was not enough to appreciably slow the movement of workers from farming into other industry. American agriculture today ism full mechanized and well capitalized – on a par with other Industries. The shift of population from rural to urban employment is largely accompanied in the United States.
So, the government farm price support programs of the twentieth century in the United States have accidentally eased rather than aggravated the chronic surplus of farm operators. How these and other government interventions combined to yield a prolonged and general unemployment and waste of manpower will be discussed shortly. Meanwhile, let it be noted that the farm subsidy programs did create serious surpluses of wheat, cotton, corn, peanuts, rice, tobacco, potatoes, milk, butter, eggs, wool, and various other farm commodities. Scarce resources were wasted to the extent that government price-fixing held such farm produce above the reach of consumers in U.S. and world markets. And there were other consequences. For instance, a part of the world market demand for cotton that American growers otherwise might have supplied thus was diverted to foreign growers or to manufacturers of synthetic fibers. And the same is true with respect to other commodities under price control. A price arbitrarily set too high creates a surplus; a price set too low results in a shortage. And the marginal buyers and sellers thus excluded from the market are the very ones who can least withstand such discrimination.
Actions and Reactions
Causes have consequences, and no particular injection of force into the economy ever ends at that point. As suggested above, the farm programs that drove workers off farms were blended with other interventions that denied them more productive employment opportunities. Wage and hour laws, special privileges to unions, and various relief programs turned unemployment into a way of life for some—at everyone’s expense. Men who are paid as much for not working as for working are likely to remain unemployed; but who can believe that he’s still a man whose life depends on the dole?
These ever-expanding voting blocs of nonworkers demand their "rights." And government officials, who do not understand the importance of defending private property, continue to tax the savers and workers in a futile attempt to give those others their something-for-nothing. Meanwhile, businessmen are urged to cooperate and develop employment training programs—apparently, without capital and without prospect for profit. Private enterprise simply can’t solve that kind of a problem: a surplus of subsidized nonworkers.
Nor can private enterprise build low-cost new housing as fast as the government can condemn existing structures and bulldoze them down. Rent controls, zoning regulations and restrictions, tax exemption or abatement, and privileges granted to building trade unions artificially boost the demand for housing and render it impossible for anyone to supply such housing at a profit.
There is no way on earth for private enterprise to supply all the freeways drivers would like. Or all the bridges or ferries or subways or airports or commuter transportation consumers would use if someone else could be made to pay the cost.
Private enterprise cannot build costless schools as fast as financially irresponsible boards of education, teachers’ unions, and students can outmode and destroy them.
It is impossible to build enough hospitals or to train enough doctors and nurses and other personnel to service the demands of those who are paid to be sick.
Private enterprise did not solve the problem of landing two men on the moon in 1969, because private enterprise did not have a $25 billion charge account against the market’s limited resources in exchange for a small packet of moon dust. But the fact that a government can force 200 million citizens to ship two of their number to the moon and back does not mean that the government can either measure or fulfill the more urgent of the infinitely varied wants of the 200 million.
If the problem is to exchange something for nothing, private enterprise can’t solve it. Government may pretend to do so up to the limit of the property and the patience of long-suffering workers and taxpayers. But if the problem is to exchange something for something in ways that best allocate scarce resources to the willingness and satisfaction of those involved, then government’s only role is to protect private property, leaving all else to free men and the free market.
To provide for us in our necessities is not in the power of government. It would be a vain presumption in statesmen to think they can do it.