While debating the merits of my last post, I received plenty of objections, most of which were from people who were just missing the point entirely and therefore not worth responding to. But I also received one objection that I felt was worth addressing, and that comes up fairly often whenever I write about the virtues of the free market and how the private sector is optimally designed to respond to feedback and ensure society’s most urgent needs are filled. It generally goes something like this:
“You talk about how great the market is at allocating resources to ensure that society’s most urgent needs are met. Well what do you think elections are? In civilized countries, anyone can vote and voting indicates your preference. So if we have politicians who spend X amount of public funds on schools, roads, etc. then that is obviously society’s preference. Voting is pretty much the same thing as the free market!”
Now to me, the flaw in this logic is self-evident, but this particular objection comes up so often that it’s probably worth taking the time to fully flesh out. One matter we must clarify right from the start is exactly what it means to refer to “society.” The great Austrian economists acknowledged one simple truth: Only individuals act. Therefore, a “society” can exist as a collection of individuals, but ultimately, “society” itself can take no action. Following this example, when I speak of “society,” I am speaking not of some collective mass of people who happen to reside in any particular jurisdiction, but rather, of each individual who happens to comprise whatever collective mass we are considering. In other words, when I emphasize that the free market can allocate resources to ensure that society’s preference are satisfied, I am speaking of the unique preferences of each and every individual that comprises “society,” but I am not speaking of the most popular of a mutually exclusive preference that will be required of every individual, backed with the threat of force to anyone who refuses to comply.
This is where we can see the wisdom of popular (if overly simplistic) phrases such as: “Democracy consists of two wolves and a sheep deciding what to have for dinner,” or classic arguments as to how in a Democracy, 51% of the population could easily enslave the other 49%. Though these notions may be considered cliché, they are grounded on an intellectually solid and logical basis. The point is that due to the feedback mechanism of profits and losses, the free market can allocate resources in such a way as to satisfy the preferences of every individual in the market simultaneously. If you prefer X and I prefer Y, there is no need for any conflict between us, because the market will produce both X and Y. We don’t need to engage in physical combat, some type of complicated negotiation, or a silly popularity contest to decide which of X or Y will be produced. We can have them both. The government, being inefficient in general and lacking the necessary feedback mechanisms, doesn’t produce both. It is unlikely to produce multiple options, almost by definition. Consider that the government enjoys a monopoly or near-monopoly in virtually every area under its jurisdiction. While it is theoretically possible that a government could simultaneously manage competing agencies to offer the same product, in reality, this is incredibly rare.
Let’s start with an example of how the free market satisfies the preferences of every individual at once. Think of leisure activities, an area where the government, for the most part, leaves us alone to pursue our own preferences in a (relatively) free market. In modern society, there are probably thousands of different ways an individual might prefer to pass their leisure time. Some people might enjoy physical activities (playing basketball, rock climbing, running, snowboarding), some people might prefer intellectual pursuits (reading, listening to a lecture, playing chess), others might want to just relax and do nothing in particular (lying on a beach, watching television, listening to music). Most of us prefer many of these different activities. What we prefer at any given time might be different than what we prefer at some other time (the beach isn’t nearly as popular in the winter; you might not want to watch television unless something good is on). Fortunately, the market makes all of these options available to all of us, all the time. If you want to go to the beach in the winter, you can. The fact that most people don’t want to go to the beach in winter does not stop you from exercising your preference. 100 different individuals with 100 different preferences can all have their preferences satisfied, at the same time.
Now, consider a service which the government essentially monopolizes, protection from aggression. Much like leisure activity, everyone almost certainly has different preferences for this as well. Some of us probably like the idea (and would be willing to pay for) militarized police forces, surveillance cameras, etc. Others might want a simple detective service that investigates crimes after the fact and charges per investigation, rather than a flat subscription fee. Others might literally want armed guards surrounding their property at all times (something you can get now, but you still must pay for the government police even if you don’t depend on them for protection). The amount of different services that could be offered for personal protection is potentially as large and varied as the amount of different services offered for leisure activity (It is hard to imagine this is the case, because we have been offered one and only one service for so long. It is natural to assume that this is the only reasonable way such an end could be accomplished, but that is simply not the case.). But alas, the free market is not allowed to enter into this equation. Profit and loss signals are entirely absent from government police services. There is no non-arbitrary way for the police department to decide whether to invest additional resources in surveillance cameras, additional officers on patrol, additional detectives, etc.
Because a monopoly exists, the service that everyone receives will be standard. So, in order to ensure that these decisions are made in a “fair” manner, we have an election. Elections for mayor, police commissioner, sheriff, attorney general, and any number of other offices federal, state, and local, will determine what kind of personal protection service everyone in a particular jurisdiction receives. If 100 different individuals have 100 different preferences, 99 of them are now basically guaranteed that their preferences will not be fully satisfied. So the election comes, and a new sheriff is chosen. Let’s say that of the 100 people who voted in this election, exactly one of them fully supports this sheriff and his department on every conceivable issue under the sun. 50 other people generally support the sheriff on some of his policies, but oppose him on others. They voted for him just because they support his policies marginally more than they support the policies of his opponent. Meanwhile, 49 people voted against him, as they oppose more of his policies than they support.
So what has happened here? Well, when considering the free market, we had a situation where 100 people each had their preference fully satisfied. When considering the government (as decided by elections), we have exactly one person fully satisfied, 50 people partially satisfied, and 49 people generally unsatisfied. Thanks a lot, government! This not only isn’t an improvement, it’s a dramatic leap backwards.
The critical thing to keep in mind when comparing markets to governments is that markets cater to individuals. In order to succeed, a business must ultimately convince an individual to take the action of choosing to purchase its product. Government, on the other hand, has absolutely no regard for the desires of individuals. All it must do is simply convince a majority of the population that it offers a better alternative than its opponents do on any particular issue. It is not action, but inaction that motivates the government to succeed. If it can simply keep the populace happy enough to not take up arms against it, it will succeed, even if it utterly fails at satisfying the preferences of large numbers of individuals. When it comes to seeing that the preferences of all individuals are satisfied (and not just a simple majority), elections are indeed an incredibly poor substitute for voluntary exchange made possible by a free market.