Markets - Free and Fair? Q&A with Dr Eamonn Butler, director and co-founder of the Adam Smith Institute, a free market think tank. Markets are impartial and efficient. They provide choice and help increase political freedom. However, markets promote inequality and can easily fail. Specialising on market economics and liberal social policy, Dr Butler was well placed to answer some of Lev Titov’s questions about free markets. What, in your opinion, is the single greatest advantage of free markets? The fact that they are based on voluntary cooperation, not coercion. The socialist ideal is that we all agree on what we want to achieve, plan how to achieve it, and then play out part in doing so. But in fact, we will never all agree on that. Each of us has different values, hopes, aspirations and visions for the economy and society. Even if most people go along with the plan, there will be others who do not agree with it — perhaps very strongly. So, for the plan to work, the doubters and dissidents have to be forced into compliance. Markets work precisely because we do all have different values. People value the same good or service differently. So, by exchanging with others, we can all make ourselves better off. (Think of a child swapping a toy they’re bored with for another that some other child is bored with. Nothing new is created, but they both reckon themselves better off.) Markets are based on voluntary exchange, where both sides are free to walk away from the deal. People accept a voluntary exchange precisely because they each get something out of it, not because they are forced to. But if you want people to follow some pre-conceived economic plan, you have to force them. Of course, free markets have other benefits too — they work, they lift people out of poverty far more effectively than socialist experiments ever did, they embrace diversity, they spread trust and toleration, they adapt quickly to changing circumstances, they encourage innovation and progress. But I think that
Trinity Economic Review 2020
freedom, and sparing us all from coercive force, is the main one. In your opinion, what role should governments play in market economies? I’d like to see a separation of economy and state. You still need the state in a market economy, because you need some justice system to make sure that people at home or abroad do not try to use force to coerce us into what they want to do. So, you need defence, police and courts. And yes, you need some coercive apparatus to make sure that people respect others’ rights and freedoms. Some libertarians think that even these things can be done without the state, but liberals like myself generally believe that if you’re going to have judicial authority it is best wielded by an independent agency that we all sign up to. But in terms of the economy, the state’s role should be only to ensure that it keeps working. That, as I say, means taking action against people who want to interfere in free exchange in order to profit by using force or fraud against others. The only legitimate way to profit in a free-market economy is by producing goods and services that other people willingly buy because they improve those people’s lives. Most state interventions in the economy actually have the opposite effect of that intended. Minimum wages, for example, might be motivated by the aim of taking people, particularly vulnerable groups, out of poverty. Unfortunately, these are the very groups who are most likely to be damaged by it. If an employer cannot make a job pay when minimum wages apply, that job will simply disappear. Likewise, with government-mandated price caps. If producers cannot make a profit because the state has set a low price for their product, they will simply stop producing it. That is why rent controls shrink the supply of rented accommodation and leave young people scrambling for substandard housing.
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