"The great virtue of a free market system is that it does not care what color people are; it does not care what their religion is; it only cares whether they can produce something you want to buy. It is the most effective system we have discovered to enable people who hate one another to deal with one another and help one another."
~~Milton Friedman
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Let’s have a Free Market
Once upon a time there was a
free market. But that was long ago. That was before government,
before writing, before history, and before money. Anyone who
wanted to trade some of their property or their services could
do so. If the other party agreed, a trade was consummated. Both
parties were better off as a result. No one forced either party
to trade. No one prevented either party from trading. Neither
party had greater knowledge of the things being traded than
the other. Neither party lied or otherwise deceived the other.
Everyone liked this arrangement. Trades on this basis became
the foundation of friendships, alliances, even marriages.
But it was not to last. Women
were even then inventing agriculture,
(the apple from the story of
the Garden of Eden, perhaps).
They were growing crops and building
permanent dwellings. They were
domesticating animals other than
the dog. Families could no longer
move with the seasons but had
to stay in one place to tend
the fields and guard the flocks
and keep the fences and barns
and house in good repair. Trade,
which had been important but
not vital, became necessary.
The goods one could get locally
were limited. One needed things
which could be acquired only
from far away or by spending
considerable time in their acquisition.
Salt, for example, was necessary
for life but was not always at
hand. One might have to trade
for salt. So even if one had
plenty of salt, one would accept
salt in trade because salt could
always be used to trade for something
which one did want or need.
Thus did money come to be: Money
in those times was anything that
was used as a medium of exchange
and a standard unit of accounting;
Varying things were accepted
as money in diverse places and
different cultures due to their
differing circumstances, but
money was always represented
by some sort of physical object.
At first, and for a time, objects
being used as a medium of exchange
did make trades easier. No longer
was a coincidence of wants required
before a trade could take place,
as with the barter that had occurred
in the free markets. Either party
could now use the money objects
to exchange for needed items
and services. Better still, money
allowed a greater division of
labor so that people could more
easily specialize in what they
did best. This was far more efficient
and raised the overall standard
of living. However, there was
a price to pay: The free market
simply stopped working when money
came into common use.
Why would using a physical object
for money stop the free market?
To understand why, we have to
look more closely at those things
that were being used as money.
First off, they had to be things
which were pretty highly valued.
Things no one cared much about
were never useful as money because
too few people would be willing
to accept them in trade. Second,
those valued items needed to
be relatively small. Otherwise,
one could not transport very
much of value to some distant
location where the trade was
to take place. (And remember
that trades generally were for
items from far away.) So the
money items were small and valuable,
just the thing for stealing.
If some person or village acquired
a large number of these valuable
items, they became a tempting
target for robbers or raiders.
In short, since physical objects
can be taken by force, the money
items were sometimes taken by
force.
To protect their money, villagers
put up walls and organized to
fight off raiders. But those
in the village who specialized
in using force to fight off outsiders
(the “military” or “police” in
our terms) were also able to
use force to coerce their fellow
villagers to give them more money.
They were able to do this because
the money was physical objects.
And thus were government and
taxes born.
The village market, which had
been a free market, still used
barter (as witness “Jack
and the Bean Stalk”). Barter
exchanges were still free. But
the market of the village was
now using money items more and
more often as the village grew.
That was especially true of trades
with any strangers who brought
goods from far away. Since those
travelers had to carry their
goods long distances, the value
of the goods had to be high to
make such great effort worth
the trouble and the size and
weight of those goods had to
be low to make the trip possible
at all. (This was before the
development of ships.) Therefore,
such travelers would have money
objects and would accept only
money objects (or things of similar
size and value) in trade for
their goods. As trade spread,
the money items came to be more
important for trade to take place.
Trading with strangers whom one
is likely to never see again
provides great temptations to
cheat. (Horse traders came by
their unsavory reputation for
good reasons.) So the villagers
would try to cheat the travelers
and likewise, the travelers would
try to cheat the villagers. The
travelers had several big advantages.
They knew their trade goods far
better than the villagers did
and the villagers had no other
source of the goods the travelers
had to offer. Thus, the traveling
salesmen had a monopoly and could
charge “all the market
would bear.” They also
could trick the locals and then
leave town before the deception
was discovered. (You didn’t
think Jack’s magic beans
were really magic did you?)
So traveling salesmen were likely
to be relatively well off, which
made them a tempting target for
the local military / police authorities.
But if the local police simply
took the merchant’s goods
and left him with nothing, word
would soon spread to stay away
from that village. The police
had to merely take part of what
the merchant had and leave enough
for the merchant to still “make
a profit.” In that way,
the merchants provided a continuing
revenue stream for the local
police. And the local police,
being “on the take,” would
allow some fraud by the merchants
without doing anything to stop
it. In this fashion, bribes to
local officials became part of
the ordinary cost of doing business.
In many places in the world,
this is still the case to this
day.
So the local market became a
place in which one found fraud,
theft, taxes, monopolies, coercion,
and all the other things we associate
with a market which is not free.
This was true all over the world
in every nation which developed
agriculture. Naturally, the more
capital goods that were involved
in that agriculture (such as
irrigation works, terraces, barns,
and silos), the more likely were
restrictions on the market and
the more likely money would have
destroyed whatever free market
elements remained.
So any form of money which is
a set of physical objects or
represents physical objects will
destroy any free market which
might come to exist. And since
every form of money ever used
in history has been physical
objects or representations of
physical objects, no real free
markets have ever existed in
any nation, not even the United
States of our Founding Fathers.
Well that’s a “show
stopper,” isn’t it?
If money prevents a free market,
how can we have a free market?
How can we get the enormous benefits
of free markets when we have
to use money to buy things?
The answer is obvious if you
stop to think about it. If the
problem is that our money is
or represents physical objects,
then we need to develop a type
of money which is not physical
objects and does not represent
physical objects. We need a free
market money, a money which is
not only compatible with a free
market but which produces, creates,
encourages, and brings into being
a free market.
That’s easier said than
done. Think about it. How can
money not be a physical object
(or a representation of a physical
object as in a checking account
or savings account)? How can
you trade money for some product
or service unless the money is
or represents a physical object?
If you say that it’s impossible
and you stop thinking at that
point, you are saying that it’s
hopeless and we have to continue
to live with fraud, theft, coercion,
bribes, exploitation, government
oppression and so forth. You
have given up before you have
even tried to solve the problem!
That’s apathy, defeatism,
hopelessness, and giving in to
depression. Do you want success
or do you want failure? I will
tell you this: Doing nothing
to change our money guarantees
failure. Can you see the world
in a new way or are you too scared
to think anew about old problems?
If you are unwilling to accept
real, transformative change,
then you can stop reading now
and continue to suffer. If you
are willing to at least consider
that 1. We need to make some
changes, and 2. It can be done,
read on.
Solution
To begin with the easy part
it’s
really simple to create computer
accounts for everyone. Almost
all functional adults and many
children have them already with
banks and credit card companies.
So the existence of some kind
of money which is not a physical
object is no problem from that
point of view. The hard part
is to get that money to not be
treated as if it were a physical
object.
With a physical object money
(POM) when one acquires money
it comes from someone else and
when one spends money it goes
to someone else. That’s
what is done with physical objects
so that’s how POM works.
But let’s say that somehow
money simply comes into existence
in your account when you do something
to earn money and somehow simply
ceases to exist when you spend
it to buy something. Well, that’s
really easy. When you earn money
we just make the number in your
computer account larger and when
you spend money we make the number
smaller. That’s far easier
than transferring money from
one account to another. So that
aspect is no problem at all.
But we have only just begun.
I’ll bet you have spotted
a problem or two that remain
to be solved. Before we address
those, let’s digress at
this point to see the advantages
of this non-transferable money.
Remember that it simply comes
into existence when you earn
it and ceases to exist when you
spend it.
The main advantage is that it
cannot be taken from you. It
cannot be stolen. You cannot
be robbed of your money. It cannot
be taken in taxes. The courts
cannot take it. No one can take
it because it is yours and yours
alone. No one has an incentive
to trick or fool you to get your
money because you can’t
give it to them even if you wanted
to. You cannot use your money
to bribe someone else. You cannot
hire someone to kill your rich
uncle. Also, you cannot go into
debt and you cannot buy insurance.
You cannot get interest and you
never have to pay interest. (So
if you are now in debt such as
credit cards or mortgage, and
we change over to this free market
money, your debt will cease to
exist.) There is no more government
spending and no more national
debt. (The government is not
a person and only persons can
have money.) There is no more
organized crime and no more banks
and no more stock market. Things
get a lot simpler. But I have
digressed for long enough now...
So we are now considering a kind
of money which is not transferrable
from one party to another. It
is not a physical object and
it is not being treated as if
it were a physical object, but
how can it function as a medium
of exchange unless you can give
it to someone else?
Let’s explore that question.
What is an exchange? Let’s
say we have a room full of people
and each of them has something
small enough to fit easily in
the hand. Then each of these
people gives whatever they have
to someone else such that when
the giving is over, it’s
still a room full of people each
of whom has something small enough
to fit easily in the hand. No
one has the same thing they started
with but they each have something.
There has been quite a bit of
exchange. True, some may have
done a simple two party exchange
but in many cases the person
to whom something was given gave
what they had to someone else.
But each person gave and was
given to. A medium of exchange
is something which motivates
such exchanges. It provides compensation,
a justification, a reason to
give. So a medium of exchange
does not have to be a physical
object so long as it rewards
the person who gives something
(a good or service) to someone
else.
Now let’s go back to that
free market money when it comes
into existence in someone’s
account. If an increase in the
money in your account is likely
when you give something to someone
else then you have a motive to
give something to someone else.
Let’s say that with our
current POM you have a chair
that you built. It’s a
nice chair. And let’s say
you take that chair to a free
market and exchange it for some
physical object money. You gave
up ownership of the chair and
the amount of money in your possession
increased. That’s how POM
works. If you give someone something
they want, then you are likely
to get an increase in the amount
of money that you possess. So
what we have to do with the free
market money we are developing
is to arrange things so that
the money in one’s account
is likely to increase if one
gives something to someone else.
The motivation in both cases
is exactly the same. One gives
things in order to get money.
But you will note that the money
does not have to be provided
by the person who got the things
given. (The clerk in a store
where you buy goods is not getting
the money you pay. The clerk
is paid by someone else.) Therefore,
it is not necessary for a medium
of exchange to be either a physical
object or something being treated
as if it were a physical object.
It only has to motivate the giving
of goods and/or services.
So our next problem is to think
of some means by which the numbers
in the computer accounts can
increase if the owner of the
account does something which
deserves to be paid. Clearly
the idea that money has been
earned or that someone deserves
to be paid is a subjective judgment.
Only people can make such decisions.
And today with our POM people
make those decisions. When one
spends one’s money one
is making such decisions. When
a judge rules in a lawsuit, the
judge is making such a decision.
When Congress passes a spending
bill or grants a subsidy or changes
the amount to be given in social
security due to inflation, the
Congressmen are making such a
decision. So having human beings
make subjective money decisions
is traditional and universal;
nothing new there.
But look at the history of such
money-paying decisions. It is
filled with fraud, graft, corruption,
and misuse of one’s office,
as well as kickbacks, and all
sorts of chicanery. Everyone
who has some POM makes such decisions
and we know that people use their
money for all sorts of ends both
good and bad. You see, physical
objects have no morality, no
ethics, no sense of right and
wrong. Physical objects are amoral.
So naturally a POM is also amoral.
The Church uses money. Organized
crime uses money. Totalitarian
dictators use money. The Salvation
Army uses money. Money is used
for all sorts of things. But
what we need in our new money
is some way to make it moral,
ethical, a good thing rather
than a tool that can be used
for evil.
Keeping in mind that we are attempting
to produce a free market here
we must allow anyone who likes
to enter the market as either
buyer or seller. Because the
payers are the ones who increase
the money in accounts, they would
constitute the buyers. Thus,
anyone who wants to become a
payer would have to be accepted.
Similarly, no one could be required
or forced to become a payer.
That part is easy to see. Now
for the hard part.
The motivations of those making
the payment decisions are very
important. If they are motivated
to pay only for good works, then
the money they credit to accounts
will be moral, it will be a root
of and motivation for good actions.
How can we control a person’s
motivations? By controlling their
situation! So let’s see,
we need to arrange things so
that the payers want what’s
good for other people. If their
own rewards depend on other people
being happy, satisfied, and content
then they will attempt to keep
those other people happy, satisfied,
and content. If the payers must
live among the general public
and are dependent upon others
for everything, they will be
powerfully motivated to keep
those others happy. So how can
we bring that about? It turns
out to be rather easy.
Obviously we cannot have the
payers paying themselves. In
fact we cannot have payers paying
each other. So the payers have
no way to acquire money. Thus
money must not be necessary to
live in this free market money
economy. So the actual necessities
of life will need to be given
at no cost to the people who
receive them. This would include
the payers, naturally, and thus
no one would have to become a
payer to live. Obviously, giving
people necessities of life is
a good thing and deserves to
be paid. People who give others
necessities will earn some money.
Also, we cannot have people being
a payer this week and not next
week since they could grossly
overpay someone this week and
then be overpaid grossly themselves
by that same person next week.
So once a person becomes a payer,
once they make that first payment,
they can never again have money
or anything that money buys.
Under these conditions the payers
would have to live among the
ordinary people since they would
have no money to pay for housing
in exclusive neighborhoods. They
would have to live near their
work since they would have no
money to pay to commute long
distances. They would be dependent
on what others freely gave them
in order to live so they would
want very much for ordinary people
to approve of the way they are
paying. So the payers would be
scattered throughout the populace,
interacting with everyone and
very concerned with how the general
public feels about how things
are going.
But let’s look even more
closely at the payers’ situation.
Since payers can have no money
nor anything that money can buy,
volunteering for such a post
would be quite unlikely for anyone
who strongly wanted the things
that money can buy. Almost every
one of the volunteers therefore
would be people for whom the
social rewards of being a payer
were far more important than
what they must give up in becoming
a payer. So the role of payer
self-selects for people who are
sensitive to how other people
feel about them. Thus, the rewards
a payer receives such as being
important in the eyes of others,
being appreciated, receiving
approval, doing something to
really help others, having power,
these rewards all come only if
the people among whom the payers
live are happy, satisfied, and
content.
As you can see, the problem solves
itself. The motivation to pay
well and fairly is inherent to
the situation in which all payers
will find themselves. To do anything
else results in suffering by
the payers. Therefore no law,
regulation, or enforcement is
required to get the result we
want.
What follows seems like another
digression at first but is really
at the heart of the matter regarding
a free market. What are the payers
paying for? They are paying for
net benefit. That statement requires
some explanation. As you well
know, every human action has
consequences* for others. Some
are good, some are bad, some
are so-so and many never even
come to our awareness. If one
subjectively examines those consequences
and “adds them up” (something
only a human being can do) one
gets a net benefit for those
consequences. If it is positive,
then the benefactor (the person
who provided net benefit) should
be paid accordingly. If negative,
then no payment is made. (Please
note and remember that a payer
can credit accounts but cannot
reduce the money in an account.
Once money is in an account,
only its owner can cause the
account’s amount to be
reduced.)
Because it is the benefits derived
by the public that determine
the payers’ rewards, it
will be only benefits derived
by the public that will generate
pay for the producers of that
benefit. A producer of food will
not be paid for producing food
but for the nutrition that people
gain from eating it. A producer
of cars will not be paid for
producing cars but for the safety,
comfort, and convenience of those
who use the cars. A producer
of child care will not be paid
for the hours spent in the company
of a child but for the safety,
education, and health of the
child. You will note that in
every case, it is the benefits
that are being paid for, not
the particular product or service
or the effort or the risk or
the intentions of the producer
of those benefits. Only the results
matter because only the results
determine the benefits enjoyed
by the public. Only the results
control and determine how people
feel about the payers. This is
inherent in the situation for
the payers. No law or ordinance
or training or requirements or
anything else is needed for this
result. Human nature will do
it for us.
From this we can see that the
market in which the payers pay
has only one product: net benefits.
There is only one thing which
is exchanged for that product:
the free market money credited
to the accounts. Since any payer
can pay any person for any benefits
and since any person can produce
benefits for others, the conditions
for a completely free market
are met. Knowledge of the product
(net benefits) is freely available
to all parties. Price fixing
will not exist for several reasons.
First, anyone can enter the market
so there can be no monopolies.
Second, the payers can only benefit
if others benefit. It’s
a win/win or lose/lose situation
so they cannot gain by fixing
prices. Third, the prices we
are concerned with here are the
money credited to the producers
of benefits, not the price of
things that consumers buy using
their money. This particular
free market is that between the
payers and the producers of benefits.
Thus, because there is a very
large number of payers (some
3-5 percent of the functional
adult population) and a very
large number of producers (over
90 percent of the adult population)
and each payer can pay each producer,
the number of people who would
have to agree in order to fix
prices would be very large indeed.
What about government controls
and regulation? There can be
no government controls and regulation.
Any law and any regulation must
be enforced to have any effect.
Since the payers are the only
ones who can increase the money
in the accounts of those who
would enforce the controls or
regulations, they could not be
enforced to control the payers.
The entire bureaucracy of government
would be paid only if what they
did generated net benefit. Enforcing
controls and regulations directed
at the free market of payer/producer
would be impossible.
What about fraud and deception?
What about the payers being fooled,
tricked, and conned? Fraud and
deception can and will certainly
happen, no doubt. Payers and
producers are only people. Some
producers will be tempted to
try to get credit they don’t
deserve. Some payers will be
tricked. Some payers will even
be corrupt. (Anyone can become
a payer.) Those things will happen.
But the scale of such things
will be quite small for the following
reasons. 1) No producer can pay
anyone else money to help fool
the payers. 2) The payers will
be relative experts in the matters
they are judging and thus will
be rather difficult to fool.
3) The payers pay only after
the consequences of the producers’ actions
are known and hindsight is better
than foresight. 4) The people
who work with the producer will
have a very good idea of just
what the producer did and will
be paid for revealing any attempt
to cheat they find out about.
5) Large cheats would be very
obvious. Any person who has lots
of money would have a “paper
trail” of actions that
would tie them to those large
benefits. 6) For large payments,
many payers would have to contribute
to the decision as to how much
was to be paid so that any conspiracy
among payers would have to be
a small one to keep the secret.
So there would be some fraud
and deception but relatively
little.
What about the fairness of pay?
The free market determines pay
levels (prices for net benefits)
without any effort or coercion
or regulation or laws on the
matter. If some benefits are
very important to people (like
having enough food) then the
payers will pay whatever is necessary
to get enough people to produce
and distribute food. But if lots
of people produce food and there’s
more than can be used, then the
rewards (pay) of all those people
producing food is reduced per
person until the proper balance
in produced. That’s how
free markets work. It’s
automatic. It optimizes the allocation
of resources to maximize the
net benefits. No committee or
commission or board of directors
or government bureau or any other
centralized decision making body
has anything to do with it. (They
would be ignored if they tried
anyway.) The free market makes
all those decisions.
Pay would be seen as fair also
because if pay were unfairly
high, that work would attract
more people, and if unfairly
low, people would avoid that
work. Since no one has to work
to live (remember one does not
have to pay for necessities),
no one would have to do any work
unless they were willing. Bosses
could not oppress since they
would not get people to work
with them and they do not control
either pay or benefits for those
who work with them. Neither would
bosses have to pay anyone so
they would not reject anyone
who could help get the job done.
In other words, there would be
no unemployment. Anyone who produced
net benefits would be paid.
So each of the factors which
have destroyed and prevented
free markets since the development
of money, all those consequences
of the physical object nature
of our money, those fade away
and are no more when we change
the nature of our money, when
we adopt a kind of money which
not only produces a free market
but is free market by its very
nature.
Read Invisible
Hand and learn.
Next: Idle Capacity: A Form Of Insanity
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