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Prerequisites of Free Market Thought

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Prerequisites of Free Market Thought

PontificatingChauncy
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Posted 11/28/08 - 03:59 PM: Subject: Preresquisits of Free Market Thought	#1
I've been puzzling over free-market and libertarian beliefs for a while now, and I thought I'd throw up some questions that seem to affect the foundation of the thought. Firstly, the Free Market system seems to presuppose a rational and at least minimally intelligent consumer base. Is this a correct assesment on my part? Or can an irrational/ unusually dull consumer base continue to regulate a corporation via the 'invisible hand'. Second, the system would appear to award cost-effectiveness as the overarching principal, is it acceptable to say that the bottom line is... well, the bottom line? Third, it has been observed that if a closed market competes w/ a free one, the closed market will win. Is this so? These questions may seem simple-minded and banal. But I want to start my thinking with the foundationary elements of capitalism.
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William Burnett
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Posted 11/29/08 - 01:23 PM:	#2
PontificatingChauncy, I would like to weigh in on your questions, but I don't like the options you provided. Usually, when one has to choose between option 'a' or option 'b', both options are wrong. I think both options are wrong in each of the three questions you ask. Your third qeustion betrays the problem in you even asking questions in this area: "it has been observed that if a closed market competes q/ a free one, the closed market will win. Is this so?" "Free market" is not defined, as such, as a market in apposition to a "closed market." "Free market" is defined in apposition to a "regulated market." The "free market" argument presumes that any regulation of a market systems inhibits the market's ability to grow and succeed. The "regulated market" argument presumes that guidelines need to be in place to ensure that private greed, the private interest of a person or corporate entity to maximize a pofit, does not place a market system at risk of failure or collapse. I would hope that recent experience belies the "free market" argument, but recognize there are ideologically-committed persons who would defend "free market" at all costs. Hopefully, you, yourself, are rational enough to address the rational questions head on.
"Da mihi castitatem et continentiam, sed noli modo." -- Augustine of Hippo

PontificatingChauncy
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Posted 11/29/08 - 02:44 PM:	#3
Sorry, for technical purposes, assume that all my questions contain "C: I (that is, the asker) don't know enough to have concieved of the correct answer." And then provide me with such. Although I may have done so in error, I was using the terms "closed" and "regulated" interchangably. I have heard the recent market events explained, obviously, as a free market failure. But they have also been phrased as the result of mis-managed market regulation. I am not sure, on reflection, that I understand the idea of free markets well enough to judge. Hence, this thread.
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Fried Egg
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Posted 12/01/08 - 02:37 AM:	#4
Firstly, the Free Market system seems to presuppose a rational and at least minimally intelligent consumer base. Is this a correct assesment on my part? Or can an irrational/ unusually dull consumer base continue to regulate a corporation via the 'invisible hand'. When a free market advocate says "Rational", they mean "purposeful". It is pre-meditated action aimed at certain ends. We do no presume that people will always select the most effective means at their disposal to achieve their desired ends, only that they will always strive to do so. Second, the system would appear to award cost-effectiveness as the overarching principal, is it acceptable to say that the bottom line is... well, the bottom line? Well, yes, but probably not quite how you mean it. For a given level of effectiveness, the means with the lowest cost is always preferable. It does not mean that low cost always triumphs, whatever the effectiveness. Third, it has been observed that if a closed market competes w/ a free one, the closed market will win. Is this so? This is false. An economy with protectionist measures in place only causes itself more harm in the long run. For instance a tariff on imports only increases prices for it's domestic consumers. A subsidy on exports makes goods cheaper in the economy you're exporting too.

Caldwell
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Posted 12/02/08 - 02:16 AM:	#5
I thought that in the rational choice theory, people are in a position, and do have the basic knowledge, of factors needed in order to make the choice, hence rational. The irrational factor, though, comes in when it isn't true that they do have these needed facts to make the choice, but do make the choice anyway: based on factors such as emotion or impulse or bandwagon.

Fried Egg
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Posted 12/02/08 - 02:41 AM:	#6
Caldwell wrote: I thought that in the rational choice theory, people are in a position, and do have the basic knowledge, of factors needed in order to make the choice, hence rational. The irrational factor, though, comes in when it isn't true that they do have these needed facts to make the choice, but do make the choice anyway: based on factors such as emotion or impulse or bandwagon. Well I guess that different schools of thought take different points of view. Austrian school is strictly methodologically subjectivist. Thus they believe that the rationality of a given action can only be judged from the point of view of the actor at the time of engaging in the action. One cannot hold up any objective source of value by which to judge the rationality of the actions of another. One cannot say that a choice should be made on the basis of logic, emotion or anything else. Purposeful action is necessarilly rational, by definition. Even if the choice of means turns out to be an inneffective way of attaining the ends sought, it merely makes the actor mistaken, not irrational. I realise that this use of the word "rational" may differ from common useage of the word, but this definition of the word "rational" is the kind depended on in our theories of economics and not that definition which may be in common useage.

Caldwell
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Posted 12/02/08 - 03:26 AM:	#7
@Fried Egg, We do mean the same thing when I say "rational", we certainly do not mean the common use of the word. But yes, we can say that any choice made by a consumer or a voter, for instance, is rational if the theory goes that these people meet the minimum reasonable "requirement" (I say that loosely) to be a rational choice maker. As you said, so long as it is purposeful, that can be said to be rational as it is impossible to know all the fact between competing choices. This is, perhaps, a very lax requirement. Some theorists though, such as in political choice, insist on more requirements in order for a choice to be rational. As a basic example, I will use this latter view on consumers: a rational consumer makes comparison of qualities and prices before making the choice. He reads the label, compares prices, and judges based on these. In an "irrational" condition, a consumer would not read the label, understand the label, does not make price comparison, but just buys it because it says "bread". Edited by Caldwell on 12/03/08 - 01:25 AM

Fried Egg
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Posted 12/02/08 - 05:46 AM:	#8
Well, you may define "rational" how you like but advocates of free markets do not pre-suppose rationality (as you define it) in their arguments. Besides, antagonists of free markets do not serve their own cause well by alledging the so called "irrationality" of consumers. If consumers cannot be trusted to make their own decisions about which products to buy, what reason is there to trust them to select representatives to make those decisions for them? Afterall, a consumer may oft get it wrong, but at least they always have their own best interests at heart; something that cannot be said of their democratically elected representatives.

at
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Posted 12/02/08 - 05:42 PM:	#9
Fried Egg wrote: If consumers cannot be trusted to make their own decisions about which products to buy, what reason is there to trust them to select representatives to make those decisions for them? "I know whats good for them, and they don't" and so forth..

Caldwell
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Posted 12/03/08 - 01:43 AM:	#10
Note: I edited my previous post because I wrote "prize" instead of price. Apologies. Late night posting is really bad. Fried Egg wrote: Well, you may define "rational" how you like but advocates of free markets do not pre-suppose rationality (as you define it) in their arguments. That can be true, since the rational choice theory I brought up is really a theory about the consumer/voter. We have two different players in our discussion. Yours is the free-market and mine is the consumer. I should have clarified this from the beginning. Besides, antagonists of free markets do not serve their own cause well by alledging the so called "irrationality" of consumers. If consumers cannot be trusted to make their own decisions about which products to buy, what reason is there to trust them to select representatives to make those decisions for them? Afterall, a consumer may oft get it wrong, but at least they always have their own best interests at heart; something that cannot be said of their democratically elected representatives. Yes, exactly: studies about consumers must include factors affecting their decision, so, advocates of free market naturally do not buy into this kind of theory because it can work against them, or not. But whatever the reason, the free market advocates can ignore these studies, but certainly these studies help the public understand something about themselves. It is the case also in voting: certainly the candidates can and do benefit from the ignorance of voters. And so, the rational choice theory points this out, and works to illuminate the plight of voters: the concern is really about whether the voters can or do make a rational choice, either because they are, or are not, in a position to do so, whether they are, or are not, willing to make the effort to learn about facts, etc.

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