What Is the Free Market, and Who Cares?

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If we tried to manage our biological functions by the same logic we insist upon for governing our social lives, each of us would be dead within a matter of minutes. Our respiratory, circulatory, digestive, intellectual, immune systems, and various other bodily activities interact, spontaneously, to maintain our physical existence. What if we were dumb enough to want to take this on as a conscious, regulatory process, with our mind having to intentionally inhale and exhale, pump blood, remove waste byproducts, digest food, and perform other functions that are accomplished by a body unencumbered by intellectual hubris? Such conscious decision-making would be an endless process, without any breaks for sleep, pleasure, or any other act save trying to stay alive. Anyone who tried to live in such a manner might survive for three or four minutes, but I doubt if it would be much longer.

Though all of us can see both the pointlessness and the danger of such an undertaking, most of us fail to see the dysfunctional nature of applying this same premise to our social conduct. We recognize that our conscious mind would quickly destroy us if it endeavored to override the spontaneous order that our heart and lungs exhibit in supplying us with oxygen, but most of us still imagine that we require the conscious direction of political regulators to make our social lives function well.

Nowhere is this confusion more evident than in our awareness — or lack thereof — of how we provide for our economic needs. While experience may be enough to demonstrate that our body’s physical needs can best be realized by respecting the spontaneous order of our biological system, most of us fail to see how our material needs for goods and services can be satisfied without the conscious direction of some authority.

Considering that we are innately self-interest motivated people who, at base, define such interests in material terms; and further considering that our material well-being is dependent upon an understanding of economic systems, one would expect us to have a fierce insistence on a clarity of thinking in such matters. Political systems, schools, business organizations, and many intellectuals — each pursuing their special interests – have helped condition us to think that our economic well-being is dependent on the political supervision of the marketplace. So inbred is this idea that, for most people, economic behavior is the interplay of business and government forces, with the state existing to protect the interests of consumers, workers, and other so-called "little guys."

When it comes to understanding the nature of economic systems, most of us are like bumpkins at the state fair midway who have been swindled out of our egg money by sharpies peddling tin watches as solid gold. We have bought into a lot of unexamined nonsense about a system whose workings are central to our living well. What we fail to understand is that our inability to distinguish between market-driven and politically-driven economic systems can be as detrimental to our well-being as the failure to distinguish between the breathing in of oxygen and chlorine gas.

Just how far-reaching is the failure to make such distinctions was brought home to me in a two-day period. My previous article — critical of the holy crusade many have launched against Wal-Mart stores — evoked a great deal of unfocused, irrational anger from people whose reactions unwittingly confirmed the very point I was making. A few perceptive readers correctly pointed out that many businesses make use of government coercion (e.g., powers of eminent domain, government bond measures, free governmental services for which others must pay, etc.), and that such practices are inconsistent with a free market. I could not agree more and, perhaps, I too quickly assumed that LRC readers would not have to be reminded of this distinction.

Some accused Wal-Mart of making use of such political tools. I do not know whether this accusation is true but, if it is, the company is to be criticized for that, not for having the gall to come into a community and daring to compete with established retailing interests. It is the war on the marketplace – and upon an unrestricted freedom of entry by competitors that disciplines the market — that underlies the anti-Wal-Mart jihad. When I read newspaper articles telling of distraught townsfolk descending upon city hall to demand an end to the powers of eminent domain and political subsidies, I will reconsider my critique of the Wal-Mart bashers.

The best evidence for the productive superiority of the marketplace is that it has provided a lot of foolish people with spare time to condemn the very system that has created this luxury. Environmentalists, socialists, labor unionists, animal rights advocates, and others can always be counted upon to attack a self-interest-driven spontaneous system that produces goods and services none of us could have accomplished on our own. Our material well-being far exceeds that of our hunting-and-gathering ancestors because we learned to freely cooperate and exchange with one another. I do suspect that, along the way, there were some primordial tribesmen of socialistic persuasion condemning those who were more adept at picking beetles off trees or digging grub-worms from the ground! The descendants of such pre-Luddites can be found in city halls across America, urging state violence against Wal-Mart and other businesses of which they disapprove.

In the interest of historical accuracy, it must be noted that small, independently-owned businesses have come and gone without any prodding from chain stores. I recall a number of successful, family-owned firms in the city in which I was raised that were sold, upon the deaths of their founders, by the children (or grandchildren) who were not interested in continuing their operation. The families sold these businesses to larger chain operations in order to invest in other endeavors. They were not forced out of business by some imagined "predatory" practices!

After my Wal-Mart article appeared, I received an e-mail from an independent retailer in the rural Midwest. He and his wife own and operate two women’s clothing stores, and rank in the top three percent in the nation in annual sales for their line of retailing. They have done this even in the presence of a Wal-Mart Supercenter, whose five year existence, he informs me, has not led to the closure of a single pharmacy, grocery, or small retailing business in that town. According to this man, stores have closed in nearby towns, even in the absence of Wal-Mart. Such closings have always been part of the history of retailing for reasons unrelated to the presence of chain-stores. Wal-Mart and other chains have also closed down in various communities. As a board member of his state’s retailers association, this merchant has publicly chided his colleagues who seek to punish Wal-Mart through legislative means. "Wal-Mart is a great company," he told his fellow retailers, and "I’m willing to earn my living by competing with it, not by whining or crying foul." There is hope for the future of American commerce and industry if attitudes such as this can become more prominent.

News stories abound with evidence of the economic self-interest motivations of the Wal-Mart attacks. A Washington Post article (June 15, 2004) informs us that a supermarket chain and the union that represents its grocery employees, have been able to get an ordinance introduced that would ban Wal-Mart stores in Montgomery County, Maryland. The measure has been carefully crafted to apply to Wal-Mart — a non-union chain – while leaving other chains untouched.

A spokesman for Safeway stated that, while his firm was not lobbying for this ordinance, "we are supportive of the concept." This man’s thinking reflects the short-term perspective that attends so much economic policy in our world. Perhaps he was simply unaware that, had Congress passed the federal "death sentence" tax bill of 1938 — which, as I wrote in my previous article was one of the efforts of that generation to destroy chain stores — Safeway (with earnings of just over $4.2 million that year) would have paid a federal tax of just under $58.6 million. That Safeway could be "supportive of the concept" of using the very state power of destruction that its competitors were prepared to use against it in 1938 is remarkable, even for shortsighted businessmen!

The lower prices Wal-Mart is able to profitably charge for its merchandise troubles its less efficient competitors. So, too, are labor unions threatened by the lower wages for which Wal-Mart employees are willing to work. As a result, the unions have carried their anti-competitive campaign to Chicago’s city hall, hoping to obtain — by legislative fiat — what they cannot obtain in a free market. The unions take up the usual whine that cutting labor costs, purchasing goods from foreign countries, or moving manufacturing operations overseas, have grave antisocial implications.

One anti-Wal-Mart alderman proclaimed the need for "standards that benefit everyone," a sentiment arising from the desire of most business and labor union interests to standardize — and, thus, help cartelize — the conditions under which business is to be conducted. In a free market, customers — not legislators — define "standards," and they do so by their willingness to purchase (or not purchase) the goods and services of sellers. A vibrant, energized economy is characterized by variation, not standardization.

If I desire to purchase a widget, but a local manufacturer insists on charging me $10 for it, am I — or is American society — harmed by my being able to purchase a widget from a foreign manufacturer for $5? "Oh, but the American widget workers who insist on being paid $25 an hour might lose their jobs!," the whine continues. In the words of Danny DeVito in one of my favorite films, Other People’s Money, "who cares?" If someone has overpriced their product or services in comparison with what others are willing to charge, why should the rest of us be compelled, by force of law, to give up the lower-priced source?

Does the aforementioned alderman use the logic of the unions in purchasing gasoline for his car? Does he drive around looking for the highest-priced station from which to fill up his tank, lest he be perceived as lowering wage "standards" in the community? Or might he prefer that the automobile had not been invented in the first place, considering how much harm was done to buggy manufacturers and horse ranchers — as well as to their employees — by marketplace creativity and competition?

Are those who lament the decline of higher-priced goods and labor unaware that, when I save $5 on the purchase of a foreign-made widget, I now have an additional $5 to spend on something else; that the increased resources available as a result of lower prices opens up demand opportunities for other businesses to develop? Do these people not understand that the competition they condemn is what provides lower prices for consumers, thus reducing their costs of living?

There are broad social consequences associated with the political gerrymandering of the marketplace to serve the interests of those who have lost either the will or the capacity to compete. A spokesman for the United Food and Commercial Workers union stated that "Walmartization of America has a broader impact than just retail workers." So does the collectivization of America. As historians have made abundantly clear, enforced standardization has been one of the major causes of the collapse of previous civilizations.

The holy war against Wal-Mart also embraces other interests. One brigade to enlist in the cause is a group called the National Trust for Historic Preservation, which is considering listing the entire state of Vermont as an endangered place because of the presence of Wal-Mart stores. "Vermont is uniquely a state of small towns, and many of these downtowns would be decimated" by the arrival of Wal-Mart stores, said the organization’s president. Vermont would lose its "special magic," he declared, a consequence of which would be to discourage the tourist trade. I wonder if this same group will lend its support to the current federal anti-obesity frenzy. I can imagine how the presence of fat people in quaint New England villages might detract from that "special magic!"

A few of my e-mail responses exuded the ignorance that keeps political systems alive. One reader – who must have inadvertently found my article while surfing socialist websites — accused me of being "narrow minded . . . to think that Wal-Mart should be allowed to persist." He then asked, perhaps to evidence his tolerant disposition, "what makes you think that you or anyone else for that matter are entitled to a free market?"

Other e-mail critics offered complaints amounting to nothing more than statements of marketplace preferences. "Wal-Mart doesn’t allow magazines to have covers that show women scantily clad," complained one, while another informed me that "Wal-Mart censors both the artwork and lyrical content of the CD’s they carry." From a marketplace perspective, I wholly support the liberty of these shoppers to withhold their patronage from stores that refuse to cater to their tastes. This is the disciplinary mechanism of the "free market" that I so "narrow-mindedly" advocate. But the refusal of an individual or a business to publish, sell, or purchase any product is no more an act of "censorship" than is the refusal of the local Baptist church to allow me to take over their Sunday pulpit an act of religious "suppression." Coercive force, alone, sustains censorship, and it is the state that enjoys a monopoly on the use of force. Such clear distinctions of thought, however, are lost on many of these crusaders.

Other readers informed me that they found Wal-Mart stores "dingy, depressing and chaotic;" while another "would rather see the profits of business stay in town. At the cost of a few bucks, I’ll do my shopping with local merchants." Echoing the same sentiment was a man who told me how much he preferred going to a smaller store where clerks had known him, on a first-name basis, for many years. "I really miss my local hardware store," he wrote. "Give me a local store run by someone who cares," declared another.

Again, I have no quarrel with any of these people making a free consumer choice as to where they want to spend their money, even if that means paying a higher price to satisfy what it is they value. It may surprise many of those who were critical of my earlier article to learn that my wife and I share many of these same preferences. We are not frequent customers at chain stores; we go out to eat a great deal, and it is almost always to small, privately-owned restaurants. I, too, "miss my local hardware store" where we shopped until, unfortunately, the owner died.

It has long been a thesis of mine that large, corporate enterprises are difficult to sustain in a truly free market system; that the need for competitive resiliency provides advantages that are generally unavailable to large, conservative, bureaucratized firms. My book, In Restraint of Trade, dealt, in part, with the need of larger corporations to obtain a structured and standardized competitive environment that could only be provided through governmental regulation. Political systems have been instruments of centralization and concentration; the free market is a process for decentralization and diffusion. There is nothing that major corporate interests would fear more than broadening the "separation of church and state" concept to the "separation of economy and state."

Wal-Mart is neither the economic savior of middle-class America, nor a Charles Dickens villain to be confronted with righteous indignation or town ordinances. It is but one of the many expressions of marketplace dynamics which, like liberty in general, will produce goods and services that some desire and others detest. It should not be forgotten that Wal-Mart began as one of those small town retailers who the chain store bashers want to protect. Sam Walton did precisely what every small businessman has the capacity to do, namely, use his mind to create competitive alternatives that will attract customers.

One reader, in fact, wrote of "several small business owners" who have, in fact, awakened to the competitive challenge of Wal-Mart "and are now thriving like never before." The growing popularity of "farmers markets," along with independently owned meat markets, demonstrates how small businesses — though they may be at a disadvantage in matters of price — can effectively compete with large supermarkets regarding personalized service and the quality of their produce.

It has always been the marketplace, not the restrictive and stifling influence of governmental regulation, that has advanced mankind’s material well-being. To preserve our world in state-regulated airtight containers — be they quaint villages or open countrysides — is to consign mankind to the lifeless sterility of a museum. It has been the liberty and spontaneity of people acting in furtherance of their self-interests that provides the "special magic" whose fruits we now enjoy in abundance and at low prices.

Butler Shaffer [send him e-mail] teaches at the Southwestern University School of Law.

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