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Free markets and the sovereignty of the human spirit

Having recently pissed off the members of the Institute of Economic Affairs (IEA) and their peers in the Adam Smith Institute and of course those at the Freedom Organisation for the Right to Enjoy Smoking Tobacco (FOREST) who are an tobacco industry funded sock puppet (all of whom seem to be a little  thin skinned )

I’ve been forced to clarify, for myself, my views on free markets.

Simon Clark and other trolls tend to sail under the flag of free markets, as if free markets were an end, in and of themselves.

This is a bizarre contention for organisations which are primarily funded by companies, firms that are themselves mechanisms for avoiding the costs associated with utilising the marketplace. As Coase argued , firms exist because they circumvent the market: That is their raison d’être. Companies are tools which we use to in order to escape the volatility of prices on the open market.

By creating organisations which are sustained over long periods of time costs such as that of discovering what the present market price of a given factor of production or say, temporary collapses in supply for some other factor of production the company exchanges the organisational costs of the enterprise for those of the marketplace. Where firms can produce their product for less that or equal to the market price, the firm produces profit for its owners, when it can’t, then it ceases to have a function and, ideally, is liquidated.

Firms therefore compete to have the most efficient internal structures as large numbers of firms compete (in an effort to become internally ever more efficient, and therefore profitable) where they maintain the supply of given factors of production the increase supply, thus driving down their product’s price where there is no excess demand. In so doing, the marketplace as a whole becomes more efficient in its use of the factors of production, and precisely because the marketplace has been evaded.

Free markets are not important simply because the exist, they are important because they allow our individual preferences to be expressed via the price mechanism. When other actors invade the marketplace and affect the market prices of available products, they corrupt the information associated with the price, artificial reductions in supply (say from import limits, licences, or monopolies) lead to higher prices which distorts other prices as purchases are diverted away from the ideal product, and towards other alternative products that do not match our individual preferences as closely, therefore overall utility declines from the ideal.

Tools, such as free markets, can easily be mishandled, and a tool mishandled quickly becomes a weapon. Where factors of production are not priced correctly, say if resources are held in common, and therefore accessed for free; or where freedom of occupation is repressed, this will depress the wage price of labour. Then, commonly held assets are despoiled, or liberty is crushed under serfdom.

Those who profit from the status quo (by transferring the costs of production onto others, via some non-market method like the adverse health effects which can result from pollution) have always turned the argument towards “free markets”. Knowing that a correct price would reduce their profits they rationally utilise their excess profits to maintain the circumstances which so benefit them. Therein we find that some of those who would be free marketeers are merely rent-seekers that clothe themselves in the vestments of liberty to continue current oppressions.

And so we return to the game that Clarke et al. in FOREST are playing when they rationally promote their self-interest under the cloak of free markets:

They undermine the purpose of free markets (as a tool to establish what set of relative prices maximise total utility) by manipulating the individual preferences of consumers. They do this through the mechanism of addiction; addiction which they claim, like Jardine and Matheson before them, doesn’t exist:

Addiction is the fracture point of their paradigm, either we are all rational, and therefore those that smoke do so of their own choosing, or we are acting irrationally in some fashion. Addiction is not a rational act, addiction is a form of chemical duress, those under addiction are compelled to consume the chemicals their brain has become accustomed to.

Different drugs have different powers of addiction; caffeine is addictive, but only weakly so. Furthermore, caffeine hurts us only in our pockets, we do not enter into caffeine thraldom, people do not sell their children for caffeine as they do for alcohol and opiates. Nicotine does not have alcohol’s power to bludgeon consciousness into submission, neither does it have opium’s powers of withdrawal, but for a large cohort it is strongly addictive. In the  Eurobarometer report that Chris Snowdon  is so fond of cherry-picking from we find that the majority of smokers have tried quitting, and have failed. A third of smokers have tried to quit only in the last year. Of the 12,700 respondents who had ever smoked 2,600 had never tried to quit (predominantly younger and poorer people) 4,400 had tried to quit and failed; 5,700 had quit and were still off tobacco (predominantly older or wealthier people).

The arithmetic is simple, recruit as many people to smoking as is possible, a fifth of those that pick up won’t ever bother to stop, a third will try to quit, but you’ll control them regardless of their will, and the balance you’ll lose. The trick is to get them when they are young and impressionable, and there, tobacco companies excel themselves, 70% of people who have ever smoked started before the age of 18. It’s a good thing for the tobacco industry that those who initiate smoking between 14 and 16 are 1.6 times more likely to become dependent on nicotine than those who start later in life.

Something that the apologists blissfully ignore with their line that children know the risks they are taking when they pick up tobacco:

Whether they are rational and competent to make a decision with such long-term effects is irrelevant to them.

In willfully, actively,  addicting children to tobacco the industry undermines the most basic tenet of the market economy: That of consumer sovereignty. In the absence of consumer sovereignty there is no consumer power shaping that the market requires and the edifice of the market economy crumbles, and with it the purpose of free markets.

This is where the involvement of the IEA is so peculiar, their support of the tobacco industry is not internally consistent with their philosophy of freedom of action, it is something which has been grandfathered into the present by the key role that the inveterate smoker Ralph Harris, Baron Harris of High Cross played in the formation of the IEA, and later as the chairman of FOREST, a position that he held until is death in 2006 by way of an aortic aneurysm (a condition seriously impaired by smoking) and irony which has ricocheted of the pig-iron prejudice of those at FOREST.

 

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November 7, 2013 · 7:37 pm