Are competitive free markets unfair? Progressives believe the free market system is unfair. Obama has said that at some point people have made enough money. Recently referring to Bank of America’s plan to charge $5.00 for use of debit cards, Obama said: “You don’t have some inherent right just to– you know, get a certain amount of profit.” When we cut through all the rhetoric, the reason progressive don’t like the competitive free market system, is that a few get rich and the rest don’t and in their twisted minds that is not fair.
We free market capitalist know that the transactions that take place in the free market are neither fair or unfair. Fairness, if it could actually be measured, has nothing to do with a transaction or deal between two or more parties.
What the progressives do not take into account, in my opinion, is that there are two sides to every deal or transaction. So, on the off-chance that some progressives or “Take Over Wall Street” types stumble across this post, let me attempt to give them an explanation on how they ought to look at free market transaction. Think of it as “A Free Market Story”.
A Free Market Story
Our story begins with a man by the name of Solomon. Solomon derives joy in life by bringing together people who he believes can benefit each from the other.
One day Solomon is talking to Bob, a free market type of guy. Bob tells Solomon about an idea he has to make widgets. Solomon listens to Bob’s story about widgets and asks Bob how much would he have to charge for a widget. Bob explains that anything over $100 would make it worthwhile for him to produce widgets. Solomon tells Bob that he may know someone who might be interested in buying a widget. Solomon tells Bob he is going to talk to this man without sharing any information on Bob’s minimum price and if the other man does have an interest buying a widget he will arrange a meeting between the two of them.
Solomon then goes to talk with a man named John. John is a progress to the bone. Without sharing any confidential information, Solomon tells John about a man he knows that wants to produce and sell widgets and he wonders if a widget is something John could use. John immediately responds that he certainly would like to have a widget. So, Solomon asks John how much would he be willing to pay for a widget. John takes some time to think about it and then tells Solomon that anything under $300 would make it worthwhile for him to buy a widget. Solomon smiles to himself thinking Bob and John really could benefit each from the other and so he arranges for Bob and John to meet in his conference room the next day.
Solomon does not participate in the negotiations between Bob and John but he is present at the far end of the conference table. At one point he hears John complain that there is no way he would pay such a high price for a widget and at another point in the negotiations he hears Bob complain there is no way he could sell a widget at such a low price. After some time, Solomon sees the two gentlemen stand up and shake hands. A deal has been made. Solomon walks down to the other end of the table to congratulate Bob and John on reaching a deal. They are both smiling ear to ear. Solomon asks them if he may know the price struck for a widget and they simultaneously respond, $150. Solomon smiles and nods his head knowingly.
Solomon is very pleased with himself. He brought two people together and each benefitted from the other. Bob got a cost benefit of $50 more than he was willing to accept. And John, he got a cost benefit of $150 over what he would have accepted.
So, you see fairness had nothing to do with this free market transaction. Only Solomon knows that John had a much greater cos benefit than Bob. both Bob and John were happy with the deal that was struck freely between themselves. Our story then has a happy ending, right? Wrong. The story continues:
Several months after the meeting in Solomon’s conference room, Solomon runs into John and who is not a happy camper. John complains that Bob took advantage of him. He says the Bob is a greedy price gouging capitalist pig. Solomon doesn’t understand and he ask John to explain. John tells him that Bob formed a corporation to produce and sell widgets. He recently read in the financial section of the news paper about the enormous profits made by Bob’s corporation. John continues saying how Bob now lives in a big mansion and even has a private jet. “It’s not fair!” shouts John. Solomon tries to calm John down and he decides to share the confidential information that only he knows. Solomon reminds John that he would have been willing to pay $300 for a widget but he negotiated a price of $150 for an additional cost benefit of $150. Solomon further explains that Bob was willing to sell widgets for $100 and at $150 Bob had an additional cost benefit of only $50. Solomon goes on to explain that Bob, being an entrepreneur, formed a corporation and was able to produce and sell widgets to 999,999 other people just like John. He then told John that together these one million people had an additional cost benefit of $150 million and that their cost benefit was non-taxable because their benefit was the joy of owning and using their widgets. However, Solomon continued, Bob’s corporation , which had an additional cost benefit of $50 million, did pay taxes that benefit everybody including the people who bought widgets. So, asks Solomon, “Why is that unfair?”. Without hesitation, John replies angrily: “I’ll tell you why. When Bob and I met in your conference room, we were equals. I wasn’t rich and neither was he. Bob should have sold the widgets for $100 and then he wouldn’t be living in a mansion and have a private jet. HE’S A GREEDY CAPITALIST PIG!” with that Solomon walked away shaking his head.
And that, my friends, is how progressives see the free market system. They see only the benefits that accrue to the capitalist from free markets and none of the benefits free markets provide to the consumer and society at large. They only look at one side of the transactions.
Well, that’s what I’m thinking. What are your thoughts?