Sunday, July 27, 2008

Free to Choose

"...The price system works so well, so efficiently, that we are not aware of it most of the time. We never realize how well it functions until it is prevented from functioning, and even then we seldom recognize the source of the trouble."

You can say that again!

"The long gasoline lines that suddenly emerged in 1974 after the OPEC oil embargo, and again in the spring and summer of 1979 after the revolution in Iran, are a striking example. On both occasions there was a sharp disturbance in the supply of crude oil from abroad. But that did not lead to gasoline lines in Germany or Japan, which are wholly dependent on imported oil. It lead to long gasoline lines in the United States, even though we produce much of our own oil, for one reason and one reason only: because legislation, administered by a government agency, did not permit the price system to function. Prices in some areas were kept by command below the level that would have equated the amount of gasoline available at the gas stations to the amount consumers wanted to buy at that price. Supplies were allocated to different areas of the country by command, rather than in response to the pressures of demand as reflected in price. The result was surpluses in some areas and shortages plus long gasoline lines in others. The smooth operation of the price system- which for many decades had assured every consumer that he could buy gasoline at any of a large number of service stations at his convenience and with a minimal wait- was replaced by bureaucratic improvisation.
Prices perform three functions in organizing economic activity: first, they transmit information; second, they provide an incentive to adopt those methods of production that are least costly and thereby use available resources for the most highly valued purposes; third, they determine who gets how much of the product- the distribution of income. These three functions are closely interrelated."

That was an excerpt from the book "Free To Choose", by Milton and Rose Friedman. It was originally published in 1980, and makes frequent references to another book (actually a set of five books), Adam Smith's "Wealth of Nations", originally published in Scotland in 1776.
The principles described therein are very relevant today; and once again, people everywhere are pointing fingers in the wrong direction and claiming the free market is at fault, when in reality the fault is in suppression of the free market.

The United States and much of the world suffer from a lack of education, disguised by its replacement with collectivist propaganda. That's what we get when we rely upon government (any government) to supply, subsidize or have any control over our education: we get fed the same principles that have failed over and over, in societies all over the world.
The economic difficulties we are experiencing right now are not the result of free market principles as described by Smith, Friedman and others, but of diverging from those principles.
If you would like to learn more, here are the books:

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