The Free Market and Invisible Hand

[philibusters]

I am not that well read on economics, but as I understand it the notion of the invisible hand is that people are economically rational and will seek to maximize their economic interests. Under certain conditions (a well structured economy for exmaple) all these private choices will lead to near optimal economic results. Generally speaking, near optimal economic results means economic growth. Government intervention which manipulates these choices generally speaking produces economic inefficiencies.

However, often that idea comes up in a different form on this message board. It is often cited that the free market should be totally free of government and that if left totally unrestrained we would hit optimal results (though what those optimal results are, are generally not defined by the posters).

I think its worth while to briefly discuss a few points. First the invisible hand doesn't work in a completely free market. You know what happens in a completely free market---might makes right--the person with the gun takes what he wants. The invisible hand assumes that their is a government in existence and the government has met certain preconditions. For example, most interpretations of the invisible hand probably rely on the government establishing a system of private property. Further, fundamentally for a free market to exist the government has to establish legal rules it will enforce. Not sure the law of property, but the law of contract, and other areas of law are needed for a market to arise. The government must have a system to enforce these rules.

I'm going to continue in a new post, lest this post get to long.

 

[philibusters]

But even if the basic preconditions are met there will be massive market failures in a truly free market.

Take the legal field of intellectual property which consists of trademarks, copyright, and patent. Trademark stops me from starting a cheeseburger joint calling it McDonalds and using golden arches as my mark. If I did so it would help by business because confused consumers would assume I am a McDonald's franchise, but such practices could drive McDonalds out of business. Trademarks indicate quality of goods. I could make defective computers and if I call myself Dell I could continuely sell them. The Dell name would get hurt, but that trademark probably has enough good will they could survive my crappy computers even though they would lose some customer good will and since people can't tell me apart from the real Dell I could continue to foist myself off on customers. Without gov't intervention in the form of trademarks, large scale industry is not possible because customers won't personally know suppliers and trust is an important part of industry. Yet trademarks is government intervention and almost definitely causes economic inefficiences like all government intervention.

The same with copyright and patent. If I am a writer or scientist it may take me years to write a new book or develop a new technology. The only way I can hope to make a return on my effort is to have the exclusive right to sell my product for a given amount of years. If somebody can come a long and copy the new drug for diabetes I designed I don't have the incentive to spend years creating the new drug. Same with writing a book. Yet copyright and patent are obviously creating economic inefficiencies. Both sets of law artificially restrain supply. Other drug companies could easily replicate my new drug and as ECON 101 tells us as more drug companies enter the market the price of the drug will fall until it hits its optimal price.

Another example of government intervention is assessing externalities in an efficient way. This is controversial. Cigarette companies produce products that have very negative effects for our health care system in terms of cost and can even harm non-smokers through second hand smoke. Should either the cigarette companies or smokers have to pay the increased health care costs caused by their products. If they can't pay should cigarettes be banned. Clearly if cigarette companies don't have to pay anything and smokers are not penalized finacially for increasing healthcare costs, the free market fails. The people causing a financial burden don't have to pay it. Therefore they have no incentive to minimize its effect. The negative effect could easily outweigh the positive economic result of the product. Thats a huge market failure. Government has to step in to get the market out of a state of failure.

 

[philibusters]

Lastly there is the issue of what is optimal results. In ECON that is an easy answer and you can pencil it on a graph but the generally idea is that it is where the combined profit of the customers and suppliers is the largest therefore society is getting the largest possible profit.

In another thread somebody posted an article about how not enough people are going into engineering and how everybody wants to be in finance, law, or social work. One poster said that the free market would dictate optimal distribution of labor. In other words as engineers were needed the salary would rise and more people would become engineers. And that is probably true, but I think you have to consider what optimal distribution of labor is. I certainly don't think optimal distribution of labor in the sense that poster was referring to would lead to long term economic growth and a more prosperous life for our grandchildren then we had. If left to our choices a person with a degree in social work and a degree in engineering may be offered two jobs. Making $35,000 as a social worker with a 40 hour week or making $105,000 working sixty hours a week. If the person thinks the social worker job is the better choice as that will be a much more fulfilling career then they will pick that job despite making only 1/3rd as much. They get more fulfilling work and have substantially more free time. Such a choice could be economically rationally. The value free time highly and they put a high dollar amount on the value of having a stress free job. So its wrong to assume their choice doesn't make economic sense. Yet if lots of people make the same decision there becomes a shortage of engineers. And for a lot of jobs, the project simply wouldn't be profitable if they had to pay the engineers over $105,000 so that number cannot be adjusted. Those short term economic optimal results were achieved, but long term economic goals---like growth of the national economy has not been achieved. To say whether the free market achieved optimal results depends on how you define "optimal results", so its important to remember what we mean when we say the free market achieves optimal results.

 

[philibusters]

I am making this posts because people will cite the free market leads to optimal results a a truism in a lot of policy debates on this forum without thinking through if what they are saying is correct. Further because it is a bit of trusim, other posters except that reasoning without asking whether that is true.

 

[Mongo53]

I am not that well read on economics, but as I understand it the notion of the invisible hand is that people are economically rational and will seek to maximize their economic interests. Under certain conditions (a well structured economy for exmaple) all these private choices will lead to near optimal economic results. Generally speaking, near optimal economic results means economic growth. Government intervention which manipulates these choices generally speaking produces economic inefficiencies.

However, often that idea comes up in a different form on this message board. It is often cited that the free market should be totally free of government and that if left totally unrestrained we would hit optimal results (though what those optimal results are, are generally not defined by the posters).

I think its worth while to briefly discuss a few points. First the invisible hand doesn't work in a completely free market. You know what happens in a completely free market---might makes right--the person with the gun takes what he wants. The invisible hand assumes that their is a government in existence and the government has met certain preconditions. For example, most interpretations of the invisible hand probably rely on the government establishing a system of private property. Further, fundamentally for a free market to exist the government has to establish legal rules it will enforce. Not sure the law of property, but the law of contract, and other areas of law are needed for a market to arise. The government must have a system to enforce these rules.

I'm going to continue in a new post, lest this post get to long.

Agree,

Invisble Hand: the invisible hand is just a metaphor for the Market Forces being influenced by the participants, which vice-a-versa, the forces influence the participants. Large trends and movements occur out of lots of small transactions, all being driven by the most efficient path to accomplish the economic activity. I'm sure you know that, but so often the concept gets lost in the discussion. Seen lots of liberals argue that Free Marketers must believe in magic because they so misundertand that concept.

Aguably, when people plunder what they want from others, its NOT capitalism, its plundering, plain and simple.

I've always argued, that Capitalism would just be the natural result of free people, that respected each others natural rights and property, working together. In a way, it closer to the Anarchist dream than the philospies they espose and calls into question their intellectual process when they universally reject capitalism.

You make the Liberterain argument as to the purpose of Government, to protect the people from foreign powers and the people in our own society that don't respect others freedom and rights, i.e. crime. If the government fulfills their role properly, that protects the environement for Capitalism to florish and NOT get trampled under the might pinciple to plunder others property. Pretty much your protecting private property principle.

I don't think to many people mind government extending that concept slightly into "reasonable" safety, consumer protection and licensing for business. To preventing abuses where people are ripping off others, i.e. unfairly exchanging property. But some won't agree, that the market would resolve this and buyer beware should remain. (If this were our only problem, that would NOT be a too much of a problem).

My big point, Captilalism is De-Centralized, the individuals make the decisions, and they are appropraitely accountable for the those decisions and suffer the consequences for irresponsible decisions, thus the vast majority learn very quickly to make well though out, good decisions, or suffer the consequences. This results in the "Invisible Hand" so effectively guiding the market, its the result of millions, 100's of millions of people making smart decisions at the lowest level, that are researched and well thought out, far better guidance for a Market, than a single centralized body arrogantly thinking they are smarter than the others and smart enough to consider all the factors and make some policy to guide that market better than all the individual that are guiding the market already. Nothing could be more Democratic than Capitalism, everyone gets to participate and vote with their dollars for what they want or without their dollar to punish those that deserve it.

Government, is NOT accountable, except to the perceptions of the Voters, which can be easily manipulated. Government tries to replace the "Invisible Hand" and guide the market, it is NOT accountable for the decisions it makes and thus, consequences of their decisions is NOT the driving the factor in their decision making. Perceptions of voters, which can be manipulated, is the driving factor in the government decision making. And when you make centralized decisions, you can't possibly consider all the factors involved, this is where you get the "One Size Fits All, Government Solutions" which removes the choice and options for individuals. Eventually, governement can argue their solutions do NOT work because people are NOT participating voluanterily and thus must compell everyone to participate. Are we still a Free Society at that point?

Why do we you think we find so many of the Socialist and Communist System, eventually degrade into less freedom, and even Dictatorship/Defacto Facism, because Centralized Planning is inefficient, and results in the attitude that the only reason its NOT working, is NOT because of the central planners, they are the elites that know better than everyone else, its the ignorant masses that refuse to participate like we plan, they must be compelled to participate, because they don't know any better, and they'll see that how wrong they were once they have it forced on them.

"Basically the Bill Maher attitude".

 

[Mongo53]

But even if the basic preconditions are met there will be massive market failures in a truly free market.

Take the legal field of intellectual property which consists of trademarks, copyright, and patent. Trademark stops me from starting a cheeseburger joint calling it McDonalds and using golden arches as my mark. If I did so it would help by business because confused consumers would assume I am a McDonald's franchise, but such practices could drive McDonalds out of business. Trademarks indicate quality of goods. I could make defective computers and if I call myself Dell I could continuely sell them. The Dell name would get hurt, but that trademark probably has enough good will they could survive my crappy computers even though they would lose some customer good will and since people can't tell me apart from the real Dell I could continue to foist myself off on customers. Without gov't intervention in the form of trademarks, large scale industry is not possible because customers won't personally know suppliers and trust is an important part of industry. Yet trademarks is government intervention and almost definitely causes economic inefficiences like all government intervention.

The same with copyright and patent. If I am a writer or scientist it may take me years to write a new book or develop a new technology. The only way I can hope to make a return on my effort is to have the exclusive right to sell my product for a given amount of years. If somebody can come a long and copy the new drug for diabetes I designed I don't have the incentive to spend years creating the new drug. Same with writing a book. Yet copyright and patent are obviously creating economic inefficiencies. Both sets of law artificially restrain supply. Other drug companies could easily replicate my new drug and as ECON 101 tells us as more drug companies enter the market the price of the drug will fall until it hits its optimal price.

Why do you think its called "Intellectual Property", its considered property, even though its less tangible than durable goods, but property none the less. Everything you describe, is the Governments core responsibility to prevent crime, and arbitrate torts, NOT obtrusive government intervetion. Why do you think the founding fathers developed a patent system and patent offices as one of their first orders of business? They did NOT believe in obrusive government, they considered it protecting private property rights, in the form of intellectual property. Same with trade marks.

People should be really angry the Government has tipped the balance of intellectual private property rights toward busines and industry and away from consumers, in exchange for campaign contributions.

Another example of government intervention is assessing externalities in an efficient way. This is controversial. Cigarette companies produce products that have very negative effects for our health care system in terms of cost and can even harm non-smokers through second hand smoke. Should either the cigarette companies or smokers have to pay the increased health care costs caused by their products. If they can't pay should cigarettes be banned. Clearly if cigarette companies don't have to pay anything and smokers are not penalized finacially for increasing healthcare costs, the free market fails. The people causing a financial burden don't have to pay it. Therefore they have no incentive to minimize its effect. The negative effect could easily outweigh the positive economic result of the product. Thats a huge market failure. Government has to step in to get the market out of a state of failure

2nd Hand Smoke Dangers are the product of flawed studies, but that point besides.

You whole example is socialist health care system as the strawman for capitalist markets.

In a true free market, everyone would pay their own health care costs, the invisible hand would create far greater efficiency that would result in far lower prices.

If cigarettes made a person less healthy, than that person would have to pay more for health care, he would suffer the consequences for his own decisions, NO one else.

Government has a true role in arbitrating Tort matters, which it has done an utterly horrible job at doing and is arguably the biggest reason for out of balance market forces in the industry, as well red tape form gov intrusion. Instead, Government refuses to do its job in Tort reform, and instead argues that more centralized control is necessary to fix the problems that result from all their centralized control and lack of doing the job its suppose to in Tort.

The Centralized planning system that is the result of so much government intervetion into health Care, now they have to restrict freedoms as a practical measure to fix the inefficiency and lack of effectiveness of their centralized planning.

Banning Cirgarettes, IMO, we are in the Grey area of Democratic Republics, its outside the realm of Libertainism, but still inside the grey area of Democratic Republics, like pornography available to kids, drugs and limits on alcohol, etc. You can argue, directly these things do NOT harm or infringe on the rights of others, therefore you can NOT bann them. You can also argue, indirectly they do harm and infringe on people's rights, thus there is an arguement to ban them, as long as it does NOT contradict the garaunteed rights in the constitution.

Again, Oh to have such problems, more than once, in an argument with liberals that argued Communism was NOT so bad, it turned to examples of Communist killing millions vs Capitalist Democratic Republics banning pornographic billboards. I would thank them for making my argument, Oh to have such problems as to argue about pornographic billboards, while other societies are murdering their own people, and we can't acknowledge there is a difference.

We are facing the Socialization of 1/7 of our economy under Health Care and we are arguing about the merits of capitalism, because trademark and patent law may are may NOT be the legitimate role of government in capitalism? Oh to have such problems. We must agree to get our economic system back toward real capitalism, then we can argue all day about the governments proper role in trademarks and patents, and if that is really a true free market or NOT.

 

[Mongo53]

Lastly there is the issue of what is optimal results. In ECON that is an easy answer and you can pencil it on a graph but the generally idea is that it is where the combined profit of the customers and suppliers is the largest therefore society is getting the largest possible profit.

In another thread somebody posted an article about how not enough people are going into engineering and how everybody wants to be in finance, law, or social work. One poster said that the free market would dictate optimal distribution of labor. In other words as engineers were needed the salary would rise and more people would become engineers. And that is probably true, but I think you have to consider what optimal distribution of labor is. I certainly don't think optimal distribution of labor in the sense that poster was referring to would lead to long term economic growth and a more prosperous life for our grandchildren then we had. If left to our choices a person with a degree in social work and a degree in engineering may be offered two jobs. Making $35,000 as a social worker with a 40 hour week or making $105,000 working sixty hours a week. If the person thinks the social worker job is the better choice as that will be a much more fulfilling career then they will pick that job despite making only 1/3rd as much. They get more fulfilling work and have substantially more free time. Such a choice could be economically rationally. The value free time highly and they put a high dollar amount on the value of having a stress free job. So its wrong to assume their choice doesn't make economic sense. Yet if lots of people make the same decision there becomes a shortage of engineers. And for a lot of jobs, the project simply wouldn't be profitable if they had to pay the engineers over $105,000 so that number cannot be adjusted. Those short term economic optimal results were achieved, but long term economic goals---like growth of the national economy has not been achieved. To say whether the free market achieved optimal results depends on how you define "optimal results", so its important to remember what we mean when we say the free market achieves optimal results.

Which is a perfect argument as to why the decentralized Free Market should dictate this and NOT a centralized government planning. Free Market, individuals will be free to make those choices, despite it NOT being economically rational to others. Government Central Planning, the central planners will make those choices for the individuals and rationalize to themselves that NO one would make that choice, sinces it irrational to the central planner. You'll get one size fits all solutions.

The counterpoint to your argument, regardless of the wants of the people, what are the needs? If everyone wants to purchase a new generation of iPods every year, with new features, BUT NO ONE is willing to design and build them, how will it ever happen??

The decentralize free market will work this out through the invisible hand, business will be free to try to meet the need of a consumer the most efficient way possible and consumers and workers can decide what they want to do as well. Market forces will drive people to fill positions that are needed and if they don't fill those needs, then the market forces will drive people to other products that the market can fill their needs.

There's an argument that market never fail, the people in the market fail, IMO, the markets are just people working together. There is NO gaurantee they can't fail, anything with humans involve can fail.

What it all comes down to, neither side of the argument is a gaurantee of failure or success, do you think people working together making the best decisions for themselves and guided by the invisible hand of the free market is more likely to fail than centralized planning of government that fails to address the decisions of individuals and replace the invisible hand of the free market with the hand of government that will use politician's agenda as the guide for the government hand.

 

[philibusters]

Why do you think its called "Intellectual Property", its considered property, even though its less tangible than durable goods, but property none the less.

Okay, you can call it property, but its still massive government interference in the market. Simply labeling it property doesn't change anything. When it comes to intellectual property you are talking about ideas, theories, and know how. For example if somebody patents an item they have to exclusive right to sell it. So even if a second party comes along and independently invents it with no knowledge of the first party, they still cannot sell the item as the other party was granted an exclusive right to sell it. You can talk about these exclusive rights as property or you can talk about them as "exclusive rights to sell certain things granted by the government", either way its massive government interference in the market.

Everything you describe, is the Governments core responsibility to prevent crime, and arbitrate torts, NOT obtrusive government intervetion. Why do you think the founding fathers developed a patent system and patent offices as one of their first orders of business? They did NOT believe in obrusive government, they considered it protecting private property rights, in the form of intellectual property. Same with trade marks.

Why do I think the founding fathers put in the Constituton provisions granting Congress rights to devise a system of patent and copyright you ask. I think the founders did so because they wanted to make sure people had an economic incentive to develop new works and to invent new technologies. In a truly free market, government intervention is not needed, in otherwords there is no need for the government to give parties economic incentives to take certain actions. In a free market government does not create incentives for people to do something. The free market provides all the economic incentives needed. I am not understanding why you can't see that intellectual property is a system of law designed to give people economic incentives to be productive. And yes, when I say free market I mean a market with NO government intervention other than a very basic system of property ownership of real and personal property and a simple system of contract law.

You whole example is socialist health care system as the strawman for capitalist markets.

I am not sure what you meant. I think you grasped at something incidental to my argument rather than the main point I was trying to make. My example had nothing to do with capitalist markets, it dealt with the fact that in a truly free market with no government intervention, the free market cannot account for externalities. I used the example of second hand smoke, but if second hand smoke is not real, I can come up with another example. That was just the example, not the point I was getting at. The point is, say second hand smoke is real. Say second hand smoke increases the healthcare costs substantially for non-smokers. Assume that some non-smokers die from secodn hand smoke. I have no idea if those things are true, but for the sake of argument assume they are. The free market could have a market failure. The increased healthcare costs and death of non-smokers could outweigh the benefits created by the cigarette industry so that on the whole for society the cigarette industry had a negative effect. Nevertheless the free market does not have an answer of how to do with the second hand smoke externality. Externalities exist all over the place, its part of life. You fire an employee and the employee's family will also be impacted and so on. Sometimes their is truly nothing to be done about them, other times government intervention can help the market achieve a positive result.

In a true free market, everyone would pay their own health care costs, the invisible hand would create far greater efficiency that would result in far lower prices.

I shifted the analysis to second hand smoke so that we are dealing with an externalities that can not be attributed to persons by the free market.

Banning Cirgarettes, IMO, we are in the Grey area of Democratic Republics, its outside the realm of Libertainism, but still inside the grey area of Democratic Republics, like pornography available to kids, drugs and limits on alcohol, etc. You can argue, directly these things do NOT harm or infringe on the rights of others, therefore you can NOT bann them. You can also argue, indirectly they do harm and infringe on people's rights, thus there is an arguement to ban them, as long as it does NOT contradict the garaunteed rights in the constitution.

I think you dwelled too much on my example and not enough on my point which was a free market cannot address certain types of externalities.

Again, Oh to have such problems, more than once, in an argument with liberals that argued Communism was NOT so bad, it turned to examples of Communist killing millions vs Capitalist Democratic Republics banning pornographic billboards. I would thank them for making my argument, Oh to have such problems as to argue about pornographic billboards, while other societies are murdering their own people, and we can't acknowledge there is a difference.

That may be, but I didn't make any arguments about pornographic billboards.

We are facing the Socialization of 1/7 of our economy under Health Care and we are arguing about the merits of capitalism, because trademark and patent law may are may NOT be the legitimate role of government in capitalism? Oh to have such problems. We must agree to get our economic system back toward real capitalism, then we can argue all day about the governments proper role in trademarks and patents, and if that is really a true free market or NOT.

We are arguing about the merits of capitalism???? It seems to me you are equating a perfectly free market with capitalism. There is not a single absolutely free market in the world--but yet we can all agree that capitalist systems of organizing the economy exist throughout the world.

At the end of my third post, I got down to my point in writing the posts. That posters use the truism that a free market always leads to optimal results. First I tried to show some examples of where that was not true and second I looked at what is meant by optimal results. I did not even address the merits of a system of private property and such, I simply noted that you have to assume some body of property and contract law exists in order to have the conditions necessary for the invisible hand to work as argued by its proponents.

 

[EmptyTimCup]

A SPEECH DELIVERED IN THE HOUSE OF COMMONS ON THE 5TH OF FEBRUARY 1841
by Thomas Babington Macaulay​

On the twenty-ninth of January 1841, Mr Serjeant Talfourd obtained leave to bring in a bill to amend the law of copyright. The object of this bill was to extend the term of copyright in a book to sixty years, reckoned from the death of the writer.

On the fifth of February Mr Serjeant Talfourd moved that the bill should be read a second time. In reply to him the following Speech was made. The bill was rejected by 45 votes to 38.​

Though, Sir, it is in some sense agreeable to approach a subject with which political animosities have nothing to do, I offer myself to your notice with some reluctance. It is painful to me to take a course which may possibly be misunderstood or misrepresented as unfriendly to the interests of literature and literary men. It is painful to me, I will add, to oppose my honourable and learned friend on a question which he has taken up from the purest motives, and which he regards with a parental interest. These feelings have hitherto kept me silent when the law of copyright has been under discussion. But as I am, on full consideration, satisfied that the measure before us will, if adopted, inflict grievous injury on the public, without conferring any compensating advantage on men of letters, I think it my duty to avow that opinion and to defend it.

The first thing to be done, Sir, is to settle on what principles the question is to be argued. Are we free to legislate for the public good, or are we not? Is this a question of expediency, or is it a question of right? Many of those who have written and petitioned against the existing state of things treat the question as one of right. The law of nature, according to them, gives to every man a sacred and indefeasible property in his own ideas, in the fruits of his own reason and imagination. The legislature has indeed the power to take away this property, just as it has the power to pass an act of attainder for cutting off an innocent man's head without a trial. But, as such an act of attainder would be legal murder, so would an act invading the right of an author to his copy be, according to these gentlemen, legal robbery.

Now, Sir, if this be so, let justice be done, cost what it may. I am not prepared, like my honourable and learned friend, to agree to a compromise between right and expediency, and to commit an injustice for the public convenience. But I must say, that his theory soars far beyond the reach of my faculties. It is not necessary to go, on the present occasion, into a metaphysical inquiry about the origin of the right of property; and certainly nothing but the strongest necessity would lead me to discuss a subject so likely to be distasteful to the House. I agree, I own, with Paley in thinking that property is the creature of the law, and that the law which creates property can be defended only on this ground, that it is a law beneficial to mankind. But it is unnecessary to debate that point. For, even if I believed in a natural right of property, independent of utility and anterior to legislation, I should still deny that this right could survive the original proprietor. Few, I apprehend, even of those who have studied in the most mystical and sentimental schools of moral philosophy, will be disposed to maintain that there is a natural law of succession older and of higher authority than any human code. If there be, it is quite certain that we have abuses to reform much more serious than any connected with the question of copyright. For this natural law can be only one; and the modes of succession in the Queen's dominions are twenty. To go no further than England, land generally descends to the eldest son. In Kent the sons share and share alike. In many districts the youngest takes the whole. Formerly a portion of a man's personal property was secured to his family; and it was only of the residue that he could dispose by will. Now he can dispose of the whole by will: but you limited his power, a few years ago, by enacting that the will should not be valid unless there were two witnesses. If a man dies intestate, his personal property generally goes according to the statute of distributions; but there are local customs which modify that statute. Now which of all these systems is conformed to the eternal standard of right? Is it primogeniture, or gavelkind, or borough English? Are wills jure divino? Are the two witnesses jure divino? Might not the pars rationabilis of our old law have a fair claim to be regarded as of celestial institution? Was the statute of distributions enacted in Heaven long before it was adopted by Parliament? Or is it to Custom of York, or to Custom of London, that this pre- eminence belongs? Surely, Sir, even those who hold that there is a natural right of property must admit that rules prescribing the manner in which the effects of deceased persons shall be distributed are purely arbitrary, and originate altogether in the will of the legislature. If so, Sir, there is no controversy between my honourable and learned friend and myself as to the principles on which this question is to be argued. For the existing law gives an author copyright during his natural life; nor do I propose to invade that privilege, which I should, on the contrary, be prepared to defend strenuously against any assailant. The only point in issue between us is, how long after an author's death the State shall recognise a copyright in his representatives and assigns; and it can, I think, hardly be disputed by any rational man that this is a point which the legislature is free to determine in the way which may appear to be most conducive to the general good.

We may now, therefore, I think, descend from these high regions, where we are in danger of being lost in the clouds, to firm ground and clear light. Let us look at this question like legislators, and after fairly balancing conveniences and inconveniences, pronounce between the existing law of copyright, and the law now proposed to us. The question of copyright, Sir, like most questions of civil prudence, is neither black nor white, but grey. The system of copyright has great advantages and great disadvantages; and it is our business to ascertain what these are, and then to make an arrangement under which the advantages may be as far as possible secured, and the disadvantages as far as possible excluded. The charge which I bring against my honourable and learned friend's bill is this, that it leaves the advantages nearly what they are at present, and increases the disadvantages at least fourfold.

 

[EmptyTimCup]

The advantages arising from a system of copyright are obvious. It is desirable that we should have a supply of good books; we cannot have such a supply unless men of letters are liberally remunerated; and the least objectionable way of remunerating them is by means of copyright. You cannot depend for literary instruction and amusement on the leisure of men occupied in the pursuits of active life. Such men may occasionally produce compositions of great merit. But you must not look to such men for works which require deep meditation and long research. Works of that kind you can expect only from persons who make literature the business of their lives. Of these persons few will be found among the rich and the noble. The rich and the noble are not impelled to intellectual exertion by necessity. They may be impelled to intellectual exertion by the desire of distinguishing themselves, or by the desire of benefiting the community. But it is generally within these walls that they seek to signalise themselves and to serve their fellow-creatures. Both their ambition and their public spirit, in a country like this, naturally take a political turn. It is then on men whose profession is literature, and whose private means are not ample, that you must rely for a supply of valuable books. Such men must be remunerated for their literary labour. And there are only two ways in which they can be remunerated. One of those ways is patronage; the other is copyright.

There have been times in which men of letters looked, not to the public, but to the government, or to a few great men, for the reward of their exertions. It was thus in the time of Maecenas and Pollio at Rome, of the Medici at Florence, of Louis the Fourteenth in France, of Lord Halifax and Lord Oxford in this country. Now, Sir, I well know that there are cases in which it is fit and graceful, nay, in which it is a sacred duty to reward the merits or to relieve the distresses of men of genius by the exercise of this species of liberality. But these cases are exceptions. I can conceive no system more fatal to the integrity and independence of literary men than one under which they should be taught to look for their daily bread to the favour of ministers and nobles. I can conceive no system more certain to turn those minds which are formed by nature to be the blessings and ornaments of our species into public scandals and pests.

We have, then, only one resource left. We must betake ourselves to copyright, be the inconveniences of copyright what they may. Those inconveniences, in truth, are neither few nor small. Copyright is monopoly, and produces all the effects which the general voice of mankind attributes to monopoly. My honourable and learned friend talks very contemptuously of those who are led away by the theory that monopoly makes things dear. That monopoly makes things dear is certainly a theory, as all the great truths which have been established by the experience of all ages and nations, and which are taken for granted in all reasonings, may be said to be theories. It is a theory in the same sense in which it is a theory that day and night follow each other, that lead is heavier than water, that bread nourishes, that arsenic poisons, that alcohol intoxicates. If, as my honourable and learned friend seems to think, the whole world is in the wrong on this point, if the real effect of monopoly is to make articles good and cheap, why does he stop short in his career of change? Why does he limit the operation of so salutary a principle to sixty years? Why does he consent to anything short of a perpetuity? He told us that in consenting to anything short of a perpetuity he was making a compromise between extreme right and expediency. But if his opinion about monopoly be correct, extreme right and expediency would coincide. Or rather, why should we not restore the monopoly of the East India trade to the East India Company? Why should we not revive all those old monopolies which, in Elizabeth's reign, galled our fathers so severely that, maddened by intolerable wrong, they opposed to their sovereign a resistance before which her haughty spirit quailed for the first and for the last time? Was it the cheapness and excellence of commodities that then so violently stirred the indignation of the English people? I believe, Sir, that I may with safety take it for granted that the effect of monopoly generally is to make articles scarce, to make them dear, and to make them bad. And I may with equal safety challenge my honourable friend to find out any distinction between copyright and other privileges of the same kind; any reason why a monopoly of books should produce an effect directly the reverse of that which was produced by the East India Company's monopoly of tea, or by Lord Essex's monopoly of sweet wines. Thus, then, stands the case. It is good that authors should be remunerated; and the least exceptionable way of remunerating them is by a monopoly. Yet monopoly is an evil. For the sake of the good we must submit to the evil; but the evil ought not to last a day longer than is necessary for the purpose of securing the good.

Now, I will not affirm that the existing law is perfect, that it exactly hits the point at which the monopoly ought to cease; but this I confidently say, that the existing law is very much nearer that point than the law proposed by my honourable and learned friend. For consider this; the evil effects of the monopoly are proportioned to the length of its duration. But the good effects for the sake of which we bear with the evil effects are by no means proportioned to the length of its duration. A monopoly of sixty years produces twice as much evil as a monopoly of thirty years, and thrice as much evil as a monopoly of twenty years. But it is by no means the fact that a posthumous monopoly of sixty years gives to an author thrice as much pleasure and thrice as strong a motive as a posthumous monopoly of twenty years. On the contrary, the difference is so small as to be hardly perceptible. We all know how faintly we are affected by the prospect of very distant advantages, even when they are advantages which we may reasonably hope that we shall ourselves enjoy. But an advantage that is to be enjoyed more than half a century after we are dead, by somebody, we know not by whom, perhaps by somebody unborn, by somebody utterly unconnected with us, is really no motive at all to action. It is very probable that in the course of some generations land in the unexplored and unmapped heart of the Australasian continent will be very valuable. But there is none of us who would lay down five pounds for a whole province in the heart of the Australasian continent. We know, that neither we, nor anybody for whom we care, will ever receive a farthing of rent from such a province. And a man is very little moved by the thought that in the year 2000 or 2100, somebody who claims through him will employ more shepherds than Prince Esterhazy, and will have the finest house and gallery of pictures at Victoria or Sydney. Now, this is the sort of boon which my honourable and learned friend holds out to authors. Considered as a boon to them, it is a mere nullity, but considered as an impost on the public, it is no nullity, but a very serious and pernicious reality. I will take an example. Dr Johnson died fifty-six years ago. If the law were what my honourable and learned friend wishes to make it, somebody would now have the monopoly of Dr Johnson's works. Who that somebody would be it is impossible to say; but we may venture to guess. I guess, then, that it would have been some bookseller, who was the assign of another bookseller, who was the grandson of a third bookseller, who had bought the copyright from Black Frank, the doctor's servant and residuary legatee, in 1785 or 1786. Now, would the knowledge that this copyright would exist in 1841 have been a source of gratification to Johnson? Would it have stimulated his exertions? Would it have once drawn him out of his bed before noon? Would it have once cheered him under a fit of the spleen? Would it have induced him to give us one more allegory, one more life of a poet, one more imitation of Juvenal? I firmly believe not. I firmly believe that a hundred years ago, when he was writing our debates for the Gentleman's Magazine, he would very much rather have had twopence to buy a plate of shin of beef at a cook's shop underground. Considered as a reward to him, the difference between a twenty years' and sixty years' term of posthumous copyright would have been nothing or next to nothing. But is the difference nothing to us? I can buy Rasselas for sixpence; I might have had to give five shillings for it. I can buy the Dictionary, the entire genuine Dictionary, for two guineas, perhaps for less; I might have had to give five or six guineas for it. Do I grudge this to a man like Dr Johnson? Not at all. Show me that the prospect of this boon roused him to any vigorous effort, or sustained his spirits under depressing circumstances, and I am quite willing to pay the price of such an object, heavy as that price is. But what I do complain of is that my circumstances are to be worse, and Johnson's none the better; that I am to give five pounds for what to him was not worth a farthing.

 

[EmptyTimCup]

The principle of copyright is this. It is a tax on readers for the purpose of giving a bounty to writers. The tax is an exceedingly bad one; it is a tax on one of the most innocent and most salutary of human pleasures; and never let us forget, that a tax on innocent pleasures is a premium on vicious pleasures. I admit, however, the necessity of giving a bounty to genius and learning. In order to give such a bounty, I willingly submit even to this severe and burdensome tax. Nay, I am ready to increase the tax, if it can be shown that by so doing I should proportionally increase the bounty. My complaint is, that my honourable and learned friend doubles, triples, quadruples, the tax, and makes scarcely any perceptible addition to the bounty. Why, Sir, what is the additional amount of taxation which would have been levied on the public for Dr Johnson's works alone, if my honourable and learned friend's bill had been the law of the land? I have not data sufficient to form an opinion. But I am confident that the taxation on his Dictionary alone would have amounted to many thousands of pounds. In reckoning the whole additional sum which the holders of his copyrights would have taken out of the pockets of the public during the last half century at twenty thousand pounds, I feel satisfied that I very greatly underrate it. Now, I again say that I think it but fair that we should pay twenty thousand pounds in consideration of twenty thousand pounds' worth of pleasure and encouragement received by Dr Johnson. But I think it very hard that we should pay twenty thousand pounds for what he would not have valued at five shillings.

My honourable and learned friend dwells on the claims of the posterity of great writers. Undoubtedly, Sir, it would be very pleasing to see a descendant of Shakespeare living in opulence on the fruits of his great ancestor's genius. A house maintained in splendour by such a patrimony would be a more interesting and striking object than Blenheim is to us, or than Strathfieldsaye will be to our children. But, unhappily, it is scarcely possible that, under any system, such a thing can come to pass. My honourable and learned friend does not propose that copyright shall descend to the eldest son, or shall be bound up by irrecoverable entail. It is to be merely personal property. It is therefore highly improbable that it will descend during sixty years or half that term from parent to child. The chance is that more people than one will have an interest in it. They will in all probability sell it and divide the proceeds. The price which a bookseller will give for it will bear no proportion to the sum which he will afterwards draw from the public, if his speculation proves successful. He will give little, if anything, more for a term of sixty years than for a term of thirty or five and twenty. The present value of a distant advantage is always small; but when there is great room to doubt whether a distant advantage will be any advantage at all, the present value sink to almost nothing. Such is the inconstancy of the public taste that no sensible man will venture to pronounce, with confidence, what the sale of any book published in our days will be in the years between 1890 and 1900. The whole fashion of thinking and writing has often undergone a change in a much shorter period than that to which my honourable and learned friend would extend posthumous copyright. What would have been considered the best literary property in the earlier part of Charles the Second's reign? I imagine Cowley's Poems. Overleap sixty years, and you are in the generation of which Pope asked, "Who now reads Cowley?" What works were ever expected with more impatience by the public than those of Lord Bolingbroke, which appeared, I think, in 1754? In 1814, no bookseller would have thanked you for the copyright of them all, if you had offered it to him for nothing. What would Paternoster Row give now for the copyright of Hayley's Triumphs of Temper, so much admired within the memory of many people still living? I say, therefore, that, from the very nature of literary property, it will almost always pass away from an author's family; and I say, that the price given for it to the family will bear a very small proportion to the tax which the purchaser, if his speculation turns out well, will in the course of a long series of years levy on the public.

 

[EmptyTimCup]

If, Sir, I wished to find a strong and perfect illustration of the effects which I anticipate from long copyright, I should select,--my honourable and learned friend will be surprised,--I should select the case of Milton's granddaughter. As often as this bill has been under discussion, the fate of Milton's granddaughter has been brought forward by the advocates of monopoly. My honourable and learned friend has repeatedly told the story with great eloquence and effect. He has dilated on the sufferings, on the abject poverty, of this ill-fated woman, the last of an illustrious race. He tells us that, in the extremity of her distress, Garrick gave her a benefit, that Johnson wrote a prologue, and that the public contributed some hundreds of pounds. Was it fit, he asks, that she should receive, in this eleemosynary form, a small portion of what was in truth a debt? Why, he asks, instead of obtaining a pittance from charity, did she not live in comfort and luxury on the proceeds of the sale of her ancestor's works? But, Sir, will my honourable and learned friend tell me that this event, which he has so often and so pathetically described, was caused by the shortness of the term of copyright? Why, at that time, the duration of copyright was longer than even he, at present, proposes to make it. The monopoly lasted, not sixty years, but for ever. At the time at which Milton's granddaughter asked charity, Milton's works were the exclusive property of a bookseller. Within a few months of the day on which the benefit was given at Garrick's theatre, the holder of the copyright of Paradise Lost,--I think it was Tonson,--applied to the Court of Chancery for an injunction against a bookseller who had published a cheap edition of the great epic poem, and obtained the injunction. The representation of Comus was, if I remember rightly, in 1750; the injunction in 1752. Here, then, is a perfect illustration of the effect of long copyright. Milton's works are the property of a single publisher. Everybody who wants them must buy them at Tonson's shop, and at Tonson's price. Whoever attempts to undersell Tonson is harassed with legal proceedings. Thousands who would gladly possess a copy of Paradise Lost, must forego that great enjoyment. And what, in the meantime, is the situation of the only person for whom we can suppose that the author, protected at such a cost to the public, was at all interested? She is reduced to utter destitution. Milton's works are under a monopoly. Milton's granddaughter is starving. The reader is pillaged; but the writer's family is not enriched. Society is taxed doubly. It has to give an exorbitant price for the poems; and it has at the same time to give alms to the only surviving descendant of the poet.

But this is not all. I think it right, Sir, to call the attention of the House to an evil, which is perhaps more to be apprehended when an author's copyright remains in the hands of his family, than when it is transferred to booksellers. I seriously fear that, if such a measure as this should be adopted, many valuable works will be either totally suppressed or grievously mutilated. I can prove that this danger is not chimerical; and I am quite certain that, if the danger be real, the safeguards which my honourable and learned friend has devised are altogether nugatory. That the danger is not chimerical may easily be shown. Most of us, I am sure, have known persons who, very erroneously as I think, but from the best motives, would not choose to reprint Fielding's novels, or Gibbon's History of the Decline and Fall of the Roman Empire. Some gentlemen may perhaps be of opinion that it would be as well if Tom Jones and Gibbon's History were never reprinted. I will not, then, dwell on these or similar cases. I will take cases respecting which it is not likely that there will be any difference of opinion here; cases, too, in which the danger of which I now speak is not matter of supposition, but matter of fact. Take Richardson's novels. Whatever I may, on the present occasion, think of my honourable and learned friend's judgment as a legislator, I must always respect his judgment as a critic. He will, I am sure, say that Richardson's novels are among the most valuable, among the most original works in our language. No writings have done more to raise the fame of English genius in foreign countries. No writings are more deeply pathetic. No writings, those of Shakspeare excepted, show more profound knowledge of the human heart. As to their moral tendency, I can cite the most respectable testimony. Dr Johnson describes Richardson as one who had taught the passions to move at the command of virtue. My dear and honoured friend, Mr Wilberforce, in his celebrated religious treatise, when speaking of the unchristian tendency of the fashionable novels of the eighteenth century, distinctly excepts Richardson from the censure. Another excellent person, whom I can never mention without respect and kindness, Mrs Hannah More, often declared in conversation, and has declared in one of her published poems, that she first learned from the writings of Richardson those principles of piety by which her life was guided. I may safely say that books celebrated as works of art through the whole civilised world, and praised for their moral tendency by Dr Johnson, by Mr Wilberforce, by Mrs Hannah More, ought not to be suppressed. Sir, it is my firm belief, that if the law had been what my honourable and learned friend proposes to make it, they would have been suppressed. I remember Richardson's grandson well; he was a clergyman in the city of London; he was a most upright and excellent man; but he had conceived a strong prejudice against works of fiction. He thought all novel-reading not only frivolous but sinful. He said,--this I state on the authority of one of his clerical brethren who is now a bishop,--he said that he had never thought it right to read one of his grandfather's books. Suppose, Sir, that the law had been what my honourable and learned friend would make it. Suppose that the copyright of Richardson's novels had descended, as might well have been the case, to this gentleman. I firmly believe, that he would have thought it sinful to give them a wide circulation. I firmly believe, that he would not for a hundred thousand pounds have deliberately done what he thought sinful. He would not have reprinted them. And what protection does my honourable and learned friend give to the public in such a case? Why, Sir, what he proposes is this: if a book is not reprinted during five years, any person who wishes to reprint it may give notice in the London Gazette: the advertisement must be repeated three times: a year must elapse; and then, if the proprietor of the copyright does not put forth a new edition, he loses his exclusive privilege. Now, what protection is this to the public? What is a new edition? Does the law define the number of copies that make an edition? Does it limit the price of a copy? Are twelve copies on large paper, charged at thirty guineas each, an edition? It has been usual, when monopolies have been granted, to prescribe numbers and to limit prices. But I did not find the my honourable and learned friend proposes to do so in the present case. And, without some such provision, the security which he offers is manifestly illusory. It is my conviction that, under such a system as that which he recommends to us, a copy of Clarissa would have been as rare as an Aldus or a Caxton.

 

[EmptyTimCup]

Why do we you think we find so many of the Socialist and Communist System, eventually degrade into less freedom, and even Dictatorship/Defacto Facism, because Centralized Planning is inefficient, and results in the attitude that the only reason its NOT working, is NOT because of the central planners, they are the elites that know better than everyone else, its the ignorant masses that refuse to participate like we plan, they must be compelled to participate, because they don't know any better, and they'll see that how wrong they were once they have it forced on them.

"Basically the Bill Maher attitude".

[amazon]0226320553[/amazon]

 

[philibusters]

Which is a perfect argument as to why the decentralized Free Market should dictate this and NOT a centralized government planning. Free Market, individuals will be free to make those choices, despite it NOT being economically rational to others. Government Central Planning, the central planners will make those choices for the individuals and rationalize to themselves that NO one would make that choice, sinces it irrational to the central planner. You'll get one size fits all solutions.

I don't really disagree with anything you said there. But in my example the free market produces a situation where society is happier with lots of social workers and less enginners. The creates more short term happiness, but doesn't create long term economic growth.

If the people want that, that is fine. But we all know voters expect politicians to enact policies that will create long term economic growth. The ones that let the economy slip won't be re-elected and the mandate will be on the newly elected politicians to create long term economic growth. Government interference could simply be emphasizing math and science early in children's education are spending extra resources on fun school trips that emphasize how math and science are interesting and offer awarding careers. Such actions are government interference but if what we need our engineers for economic growth, those actions made help more people chose to be engineers rather than social workers.

The counterpoint to your argument, regardless of the wants of the people, what are the needs? If everyone wants to purchase a new generation of iPods every year, with new features, BUT NO ONE is willing to design and build them, how will it ever happen??

That raises a point that sometimes while if one person does in action it doesn't seem important if everybody does that same action it can have a huge economic impact that people don't want. This is pretty much the prisoners dilemna. Other examples are say that the best way for farmers to get the best price for corn is for them to agree that each farmer leaves 1/10th of his field unplanted. No single farmer has any incentive to leave 1/10th of their field unplanted, but as a whole their interest is to do so. Government interference can solve such collective action problems.

The decentralize free market will work this out through the invisible hand, business will be free to try to meet the need of a consumer the most efficient way possible and consumers and workers can decide what they want to do as well. Market forces will drive people to fill positions that are needed and if they don't fill those needs, then the market forces will drive people to other products that the market can fill their needs.

I think this goes back to what do we mean by optimal result.

There's an argument that market never fail, the people in the market fail, IMO, the markets are just people working together. There is NO gaurantee they can't fail, anything with humans involve can fail.

Obviously we agree on that.

What it all comes down to, neither side of the argument is a gaurantee of failure or success, do you think people working together making the best decisions for themselves and guided by the invisible hand of the free market is more likely to fail than centralized planning of government that fails to address the decisions of individuals and replace the invisible hand of the free market with the hand of government that will use politician's agenda as the guide for the government hand.

I think you are thinking in terms of a big dichotomy--totally free market vs. Communist state/centralized plan government. But I am not sure it has to be such a black or white thing. Each piece of legislation should be debated on its policy merits. For example whether cars makers should have to follow gas-mileage and environment standards is one policy debate--another debate may be whether financial institution need to disclose certain information about the financial products they are selling. I think each piece of proposed regulation needs to be considered on its own merit.

 

[philibusters]

I think I more or less agree with Macaulay, though I say more or less because I would probably have to read that a couple times to really understand his argument.

 

[Mongo53]

Philibuster, I offered some of my own examples and even brought up a conversation I have had with others on an entirely different forum. Did NOT mean to imply I attributed others statements to you, or that I was countering your argument by attributing examples you did NOT use, to you. The posts got long and rambling, I can see how it could appear that way to you.

I think your arguing Free Markets from the perspective of a purist, that absolutely no government interaction at all, otherwise it is NOT a free market??

Would NOT the correlarry be, if government has any interaction or say over citizens of a country they are NOT a true free people??

Its a matter of perspective, you can make a good argument supporting that, but Freedom, like Truth and Perfection are absolutes, and as imperfect human beings we can NOT acheive absolutes. That should NOT stop us from striving for the ideal, even if its an absolute that is humanly unacheiveable, because that struggle will get us closer to the absolute then if we resigned ourselves to NOT even trying because we can reach an absolute goal.

So, we may have some subjectivity in the terms, but its generally understood in our culture, the term means the practice of the ideal, that there is an academic argument we have NOT acheived the absolute of the ideal.

i.e.
We are Democracy, but arguably NOT a true Democracy, doesn't mean that dictatorship is no different than our less than "True" Democracy, it is quite better in many objective ways.
We are Free, but arguably NOT a truly Free, doesn't mean that enslavement is no different than our less than "True" Freedom, it is quite better in many objective ways.
We have Free Markets, but arguably NOT a true Free Markets, doesn't mean that Socialism is no different than our less than "True" Free Markets, it is quite better in many objective ways.

Libertain Principle, where government should stay out of everything except its only most basic role. I disagree that it was ever envisioned that Government would NOT be involved in business in commerce, IN NO WAY OR FORM, the constitution has specific clauses on what the role of government was in Commerce, i.e. business, markets, etc.

Your argument seems to be one more of Government than Free Markets, Communists believe Government would eventually wither on the vine, and Anarchist believe government is uneccessary completely. BUT, arguably those are naive philosphies. Our Founding Fathers looked at Government as a necessary evil, they would love to have NO government at all, but knew that this would NOT work and would result in chaos, they set up limited government that was suppose to stay within its roles only.

That was Communism's and Anarchist's argument, they could acheive the absolutes of their worker's paradise and thus NO one would do anything wrong, everyone would always cooperate and government would NOT be needed.

What were the founding father intent with patents and intellectual property rights, I'm NOT an expert, I could be wrong, but it is obvious to me, intellectual property rights is just an extension to private property rights. If its more complex, its only because its more intangible a concept.

Is there NOT complex laws about deeds for land and their filings, because the idea of property rights becomes a little less tangible for a plot of land than for homes you build, or items you can hold in your hand. Your argument about People coming up with an idea first, cheat out someone that might have come up with the idea all on their own later. There is tons of cases of people arguing over plots of land, as too who claimed it first and who does it belong to. Does that mean we have major government intervention on private property rights.

Totally agree with you, from the perspective of purist thought, there are NO True Free Markets anywhere in the world. But, when people speak of Free Markets, they are NOT refering to the purist ideal, like many other things, they are speaking about the practical application of the theory and philosphy, the striving to achieve to the absolute, tempered with some pragmatic realism.

What I was getting at with some of my example, with the reply to "Oh to have such problems". You won't get perfection, there will be degrees of governments role that we all disagree about, but the idea is to get to a Free Market that where we discuss the proper role of government as to what they should be licensing, how far should they go with consumer protection.

When we are discussing Socializing the Health Care System, we are NOT in an academic discussion over Free Markets and governments limited role, we are talking about Socialism and how much we will have in some hybrid economic system.

 

[preselector]

There's always trade-offs. Some government intervention is necessary to maintain a 'free market' which means there is no such thing as a truly free market. The idea is to minimize government intervention.

The natural tendency of a successful business is toward a monopoly. A business which produces an obviously superior product at a cheaper price will eliminate the competition and become a monopoly. That in and of itself isn't bad. The monopoly will be able to stay a monopoly only as long as it continues to produce the superior product at the cheaper price in a theoretical free market. The problem arises when the monopoly uses it's economic clot to maintain the monopoly by temporarily selling at a lose. From the monopoly's point of view it's logical. They worked hard to achieve monopoly status, now it's time to reap the rewards. Government intervention is needed keep the free market working.

Copyright and patent law is clearly government intervention in the marketplace to encourage innovation and creativity the result of which supports the competition necessary for the free market to operate. But copyright and patent holder campaign funding has encouraged the government to continually extend the length of patents and copyrights which kills free markets.

Free markets tend to become monopolies.

Government intervention is necessary to maintain the free markets.

Too much or too little government intervention kills the free market.

There's always trade-offs.

 

[Larry Gude]

I am not that well read on economics, but as I understand it the notion of the invisible hand is that people are economically rational and will seek to maximize their economic interests. Under certain conditions (a well structured economy for exmaple) all these private choices will lead to near optimal economic results. Generally speaking, near optimal economic results means economic growth. Government intervention which manipulates these choices generally speaking produces economic inefficiencies.

However, often that idea comes up in a different form on this message board. It is often cited that the free market should be totally free of government and that if left totally unrestrained we would hit optimal results (though what those optimal results are, are generally not defined by the posters).

I think its worth while to briefly discuss a few points. First the invisible hand doesn't work in a completely free market. You know what happens in a completely free market---might makes right--the person with the gun takes what he wants. The invisible hand assumes that their is a government in existence and the government has met certain preconditions. For example, most interpretations of the invisible hand probably rely on the government establishing a system of private property. Further, fundamentally for a free market to exist the government has to establish legal rules it will enforce. Not sure the law of property, but the law of contract, and other areas of law are needed for a market to arise. The government must have a system to enforce these rules.

I'm going to continue in a new post, lest this post get to long.

Balance.

Capitalists want, NEED rules. They should be as clear as possible and as few as possible. Adjustments, changes in the rules over time that make the opportunity more equal is something most of us are for. Adjustments and changes that make the outcome more 'fair' or, for that matter, less, is the point where things go awry.

By and large, big business, corporations are NOT interested in free markets. So, they buy government and adjust the odds so they win. This is where government goes wrong.

It is government that has created the two biggest economic problems we have;

Health care and housing.

The state by state monopolies are the reason health care is so outrageously expensive. Capitalism, competition, is sorely needed. The answer we are throwing at it is more of why it is messed up; government.

The GSE, government sponsored entity, Fanny Mae, private gain backed by public risk, is why housing went off the rails. Wall Street would never have taken the risks they took without knowing the game was rigged, ultimately, if it came down to it.

Neither of these problems have been addressed with anything but more of what got us here.

Good regulation is essential to capitalism. Over regulation kills it if the invisible hand turns out to be the governments hands around the neck of capitalism.

 

[EmptyTimCup]

Balance.

By and large, big business, corporations are NOT interested in free markets.

yeah would you really want BCP Nursery's Opening up next to your place

 

[Mongo53]

NOT disagreeing with you preselctor, your post is the most concise, I'm just adding my thoughts, to answer philibuster.

There's always trade-offs. Some government intervention is necessary to maintain a 'free market' which means there is no such thing as a truly free market. The idea is to minimize government intervention.

+ Just like with the Rights of the People, the best way to do this is to define the role of government in the Free Market and then limit it to just those roles. Government protecting the people from crime and infringement of their rights, I see as a legitimate role of government and doing so maintains people freedom, the same goes for a free market.

A purist, can certainly argue that if the government can stop someone for reasonable cause and detain them for a short period of time, makes them NOT truly free because of government intervention. But the reality is, without government taking reasonable measure to protect the rights of the people, society could easily and likely decsend into choas, where criminals and thugs violate people's rights and you are arguably even less free because of the intervention of others that would steal, attack or oppress you.

The same with the Free Market, a purist would see any government involvement at all as proof it is NOT a free market, reality is, without government protecting people's rights and private property, the free market would could easily and likely collapse into choas from those that would steal, attack and oppress others within the market, arguably making it an even less free market from other outside forces.

Unfortunately, like other things, we have seen bad decisions from Supreme Courts that interpret the gaurantee of rights and limits on government, to mold the intent to a whole new meaning to fit the courts activist views. The Interstate Commerce Act is horribly abused, instead of it being reserved as the Fed being the arbitrator between squables between the states over commerce, its used as an excuse for the Fed Gov to intervene and regulate all sorts of things in Commerce/Business, that the Founding Fathers intended that would NEVER be the role of the Fed Gov.

The natural tendency of a successful business is toward a monopoly. A business which produces an obviously superior product at a cheaper price will eliminate the competition and become a monopoly. That in and of itself isn't bad. The monopoly will be able to stay a monopoly only as long as it continues to produce the superior product at the cheaper price in a theoretical free market. The problem arises when the monopoly uses it's economic clot to maintain the monopoly by temporarily selling at a lose. From the monopoly's point of view it's logical. They worked hard to achieve monopoly status, now it's time to reap the rewards. Government intervention is needed keep the free market working.

+ Mostly agree, in fact, look close at any Monopoly we have ever had that lasted and stood, you'll find Government behind them acting to help build and protect that monopoly. Either through Government Corruption OR quid pro qou that gave an advantage to one or a disadvantage to others. Whether its intended, or unintended consequence. The end result is, without Government Intervention, the Monopoly or virtual Monopoly would Never have happened.

Copyright and patent law is clearly government intervention in the marketplace to encourage innovation and creativity the result of which supports the competition necessary for the free market to operate. But copyright and patent holder campaign funding has encouraged the government to continually extend the length of patents and copyrights which kills free markets.

We may have to agree to disagree on the root of this issue, I see Intellectual Property Rights as nothing more than the logical extension of Private Property Rights. It is a less tangible type of property than most physical items, that is why the laws and handling differ, but like I showed, even for physical private property the laws vary to address the varying tangibility of ownership, i.e. a Deed to a Plot of land versus a widget you carry in your pocket.

As a corrollary, can you NOT argue, Government prosecuting theft from business's is an intervention in the marketplace to encourage the free flow of commerce and the profits of companies that produce the capital? For ever arguement on how intellectual property rights differ from private property, there are just as many arguments about how private property differs in its handling and protection, because of varying tangibility of ownership for that property. That is the crux, its all private property, that as a free nation we have to respect and protect, to maintain that freedom, but how we handle it will vary, because the nature of ownership of the private property varies.

Whether we agree or NOT on the root of copyrights and patents, I think we agree, protecting intellectual property rights is a legitimate role of government in the Free Market.

Free markets tend to become monopolies.

Free Governments tend to become tyrannical. You can apply the correllary of every argument to the same example for Government in a Free Country. It can happen, we can debate the likelyhood, but its NOT a gaurantee it will happen. Actually in practice we see more of a trend of oligarchy develop, its a chicken or the egg argument as to whether its Capitalism or Government Intervention driving that.

Like we've discussed, Monopolies are NOT necessarily bad, in theory, the only way for a Monopoly to stay a monopoly, is to be responsive to the consumer.

Yes, I'm aware of the price battle argument, investiment is a way to battle that and we do see people invest in companies losing money, because they have a superior product, knowing they will reap their rewards after the price war is over and the monopoly could NOT kill the competition.

To much Government Intervention and Regulation, creates Barriers to competition, and only serves to help a Monopoly maintain its monopoly status even being less responsive to consumers. I.E. someone wants to compete with a monopoly, but they have spend months going through red tape, paying for all sorts of gov fees, wait for the gov to clear them after doing impact studies, that can take years, etc, etc. It makes it easy for a Monopoly to sit on its laurrels and NOT worry, it would be years of being in debt and idle before the government will allow them to start to compete with them.

Government intervention is necessary to maintain the free markets.

Too much or too little government intervention kills the free market.

There's always trade-offs.

Like I said before with philibuster. Yes, the examples laid out here can happen, it also happens with lots of government intervention, arguably even more often. It comes down to, which do you think is a safer bet and more effective; the decentralized system of Adam Smith's Invisible Guiding Hand of the Free Market or the Centralized Planning System of Government Intervention, where one size fits all and they'll respond to the market on our own time, and they are NOT held accountable by the market?

This argument about there are NO True Markets, is specious, its NO different than an academic argument over there is NO one that is truly Free, or there are NO true Democracies, etc. Its purist academic arguments in a vacuum, NOT wanting to deal with reality, and the refusal of the purist to see that pragmatist terms of the ideal in practice, is NOT some ignorant position where they never realize the ideal is NOT pure.

I become suspicious of these deconstruct exercises, soem disengenous people with an agenda, usually follow with a reconstruction in a vacuum to support their agenda. philibuster, I have no idea if that was your intent, NOT accussing you of anything. But, if I see the argument, there is NO such thing as a free market, therefore there is NO argument against any Government Intervention. Its a false strawman, the old black helicopter conspiracy tactic of deconstruction and reconstruction in a vacuum, to create a credible example for an incredulous proposition.

IMO, the role of government in commerce is clearly defined and we should limit government to that role. Just like with the People's right. Of course there are gray areas, and in those gray areas, the intent should always be protecting market members rights, setting a level playing field fair to all. Interpreting those gray areas, we should do just like we do with the People's rights, always biasing the benefit of the doubt away from Government and toward the market.