The Free Market is the Ideal Market

"The Free Market is the ideal market."

You have likely heard the phrase before. Economists use it to talk about economic equations. The ideal market.*

Economists then talk to people with Business degrees. It should be pointed out that Economists and Business majors are two very different creatures. To the average joe, they look about the same, but to eachother, they're about as much the same as icecream is to butter. Or, more accurately, it's like the difference between a physicist and an astronaut.

"Why's it rumble when we do that?"
"Because it makes me look dramatic."
"... you sure we shouldn't make sure the screws are all tight?"
"DRAMATIC!"

You see, the focus of their studies are extremely different. In our astronaut vs physicist example, the business person plays the role of the astronaut. Their goal is to figure out how to survive in the tricky world of economics. The economist's goal, on the other hand, is to understand the tricky world of economics. Just because you're an astronaut doesn't mean you have a full understanding of a blue star's coronal mass ejections, and just because you're a physicist doesn't mean you know how to pilot a T-35.



Similarly, a person with a business degree and a person with an economics degree are two very different people. Going back to our Physics/Astronaut example; in Physics, they have what they call "The Ideal Environment." It is the perfect place for doing physics. If you heard someone mention working in "the Ideal Environment" you might imagine a cushy office overlooking a beautiful park with trees and birds chirping while a beautiful secretary of the appropriate gender for your tastes massages your feet while you watch a ticker of your invested stocks climb slowly higher and higher.

You might then turn to such a a person and ask them to please get you into the ideal environment.

If they're sufficiently sadistic and have enough funding, you'll shortly be dead with your wish granted.

A weightless frictionless airless environment... sounds pleasant, right?

You see, when a physicist talks about an ideal environment, they're talking a weightless, frictionless, airless environment. Basically, it's a place where physics math is easy. It's not ideal to your survival, it's a place where physicists can make predictions and the results happen almost always exactly as predicted. An astronaut does NOT want to be in this environment. They like breathing too much to be airless. This is why they wear space suits, because the "ideal physics" environment would kill them, and they need to take along a bit of their normal environment.

Again, the relation between physicists and astronauts is similar to economists and businessmen. Economists (at least good ones) are quite good at predicting the economy as a whole. And their ideal environment is an environment that makes their math easy. Looking through things, it seems this misunderstanding is where businessmen got the idea that a free market is somehow some kind of holy grail. That they heard an economist at some point say "The ideal market is the Free Market." What this hypothetical economist probably meant was, "Using the free market makes my math really easy and I can predict things!" but what the businessman thought he meant was, "People will make lots of profits in a free market and businessmen can retire years earlier and get a few extra yachts and everybody will be rich." In reality, a Free Market doesn't mean easy money. It means a market free of external influence. That doesn't even mean more customers (in fact, it means less, because you've gotten rid of the government as a customer).

"But, I want to get a government grant to make my cookies and feed people..."
"Sorry, only sticks. How many sticks is your cookie worth? I've got plenty of sticks!"

That wasn't the only thing that got misunderstood. There's the phrase "distort the free market." Economists use this phrase a fair amount. It means anything that gets away from their perfect ideal math situation. Literally, it distorts the math of their system free of outside influence. It makes economists frustrated because it makes their jobs harder. And businessmen get frustrated of it because... they see it makes economists frustrated and assume that's a bad thing for business... and "distorting" something "free" sounds soooooo bad, so it must be bad.. right? Well... remember, fricitonless airless space without gravity is ideal to physicists, that doesn't mean you want to raise a family in it.

So, what's that mean for a free market? Pretty much everything. A free market doesn't mean everybody makes money. A free market doesn't mean its guaranteed to succeed. A free market doesn't mean everyone's going to get the food they need, that everyone will get wealth, or that children will go singing in the streets or even that people (or even the world) will be able to survive. It merely means an environment in which the outcome is easy to predict.

Which is one reason the misunderstanding as perpetuated so much. Stockbrokers LOVE predictability.

"Thanks, it means the world to me."
"... if I convinced this person to tell you to give me your pants and lovely wife too, would you do it?"
"Yes... why do you ask?"

A stockbroker makes money by the buy and sell of stocks and predicting what they'll do next, trading based off the difference in prices between now and later, and skimming off the top. Taking a route that makes them more predictable is VERY enticing to a stockbroker, because it changes things from making just a little money to making boatloads of it... that would otherwise go to people who invested in the business because they, you know, believed in it. And they like that. They like it a LOT. Not so good for other people, but good for them.

So, if there's a myth going around that's causing people to make things easy for you and give you things for free, and your focus in life was making money, would you try to correct them or help perpetuate the myth?

I'll leave you be for awhile you figure out the answer to that. Take your time.

...

Okay, done? Great.

So, a society with a Free Market doesn't mean it's a good society, just a predictable society. If your full goal in life is to "accurately predict money flow based on market forces" that may be a good thing, but for everybody else, it can spell disaster. We'll start off with an extreme example and go into subtleties after you've grasped the basics....


Imagine you're in a warzone. If your goal is to survive and win, you might want to build weaponry, train an army, build bunkers, research tactics, etc. If your goal is to "accurately predict money flow based on market forces" then the best route is to simply not defend and watch what happens with morgues.

"But won't people die?"
"Yea, but those who survive will make a proportionate killing investing in burial plot ventures."
"What if nobody survives?"
"Well, according to the math, that's infinite profit. You could even say 'everlasting rewards'."

 Okay, now we'll break it down to a little bit closer to home that's almost the exact same thing. People starving to death. Sure, food stamps distort the free market. Investing in preparation of people starving won't be as profitable. But you know what? Less people will starve. Police that protect CEOs from being assassinated and robbed every minute? That's a distortion of the free market. Building roads that make transportation easier, reducing transportation costs? That's also a distortion of the free market.

Also, there's another source of government influence on the free market that most businessmen fail to remember. The government prints money. There have only been two major times that economies didn't run on government-printed money. One is in older eras where they traded precious metals (known to economists as their "medium of exchange") and in the U.S.'s westward expansion, businesses often printed their own money (often that could only be spent at the company store. And that's all they would pay their employees with. This effectively resulted in a barter system between different currencies. It was a mess for most people involved, and that's why the U.S. passed a law saying to only use its currency.)

The problem with gold and other precious metals were that they were a limited commodity. Sure, that's useful if you're banker or an investor, but it's not so great for actually spending and here's why:
The strength of an economy has little to do with the value of the money. People are going to trade for things they need and trade away things they don't need as much. It's the number of trades that actually make an economy's strength. And people keep making, trading, and reselling. In a system of gold, where gold is limited, the value of gold will constantly go up. This is because as the economy gets stronger but the gold supply stays the same, gold becomes proportionately more rare. This is what's known as a deflation economy. The best thing to do in a system like this is just to sit on your money forever and never spend it. The problem with this is that then noone wants to spend their money if they can avoid it. It hurts innovation. That's one reason the dark ages moved so slowly. It was more profitable to steal someone else's gold than it was to invent something new, and then sit on that gold till the end of time.

Both these points makes it clear... for a healthy economy, government (or something similar, which would for all intents and purposes be the government in the system: such as a bitcoin algorithm that controls the bitcoin economy) needs to be a system for making a recognized currency.  And that's government in economy. And THAT means a market that isn't a true free market.

Literally, a thriving free market is an economist's fantasy world to make math easier. It is not possible to truly exist. You'll either end up with uninovating dark ages where the market is struggling or a paper barter system.


TL;DR: Police stopping you from being shot is a distortion of the coffin free market.

---

* Note, no references for this particular article. This article is written based on me looking up definitions of words and just listening to people being people, and looking at context used when people talk about things. As a result, I have no good articles to point to for this article. It's just my own observations and an attempt to explain what people usually mean when they say things and to clear up a common misunderstanding that arises.