Free markets: How many more will have to suffer?


Thursday, September 28, 2017

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In furtherance of the idiotic, neo-liberal economic model, the term “free market” is used to justify every asinine economic behaviour that is done. It would be helpful, therefore, to understand what is meant by free markets, and the limits of the free market.

The concept of the free market got its greatest boost from the writings of Adam Smith. But was Smith advocating that in economic matters people should be free to do as they please no matter what? Certainly not! Greedy and selfish men, however, have enlarged Smith's concept beyond what was intended to justify their self-aggrandising actions.

What was meant by free markets? Smith wrote his magnum opus, The Wealth of Nations, in 1776. This was against the background of Mercantilism, Feudalism, and Serfdom. Under Mercantilism, the prevailing view was that gold and silver was a measure of wealth, and when countries got gold and silver it should be hoarded and not spent. Smith argued that by spending the gold and silver — which was the medium of exchange — freely, to buy what the countries needed, it would lead to greater prosperity.

The next economic activity of the time was feudal lords owning the lands and allowing Serfs to live on and work the land. For that privilege the Serfs were required to turn over the fruits of their labour to the feudal lords, who were the ones who disposed of the goods that were produced. Smith argued that no serf would do his best under those circumstances. It would be better, he argued, if the serfs were allowed to produce and then be free to dispose their produce in an open market for a price the market would bear.

Smith also wrote about “limited government” — selfish conservatives interpret this to mean “small government and lax regulations”. What Smith meant was that governments should not insert themselves in deciding what the serfs would plant. If the serf planted tomatoes one year and there was a glut, he should be free to switch to cabbage the next year without Government telling him what he can and cannot plant. Also, he argued that if a village needed a grocery shop, that should be left to the discretion of enterprising people and not the Government. How can the Government know when a community needs a hair salon? Or when consumer sentiments have shifted from wearing cotton pants to jeans? That is where governments should limit themselves.

Smith also argued that it is for selfish reasons that people do the things they do. It is not for benevolence that the butcher brings you beef or the baker brings you bread. People do the things they do because they selfishly need to provide for their families and themselves. Greedy men have interpreted this to mean that any selfish act is justified.

Free markets do not mean that nations should open up their markets to all and sundry. Greedy international traders who stand to gain the most are the ones who are placing that interpretation to the concept of free markets. People live where they live and they need a livelihood. A nation of 2.8 million people cannot compete in anything with a nation of 320 million people, or worst 1.3 billion people.

Free markets do not mean that when a Government grants a hospital licence, the hospital should be free to close beds and operating theatres, lay off doctors and nurses, and instead stock up on supplements and prosthesis and employ sales clerks to sell them because they can make more money doing that instead of caring for the sick. Every community needs a hospital, and hospitals must do what they were licensed to do. They cannot just switch to the next best money-making venture in the name of free markets.

Every community needs banking services. Banks are granted special licences to take the deposits of people, and through financial intermediation channel those funds into the life-sustaining productive sectors of the economy. And just as how hospitals cannot take their licence and do as they please in the name of making money, so too the banks should not be allowed to do same. Banks are not just another business where the shareholders are at liberty to make money how they see fit. They are to make money doing “financial intermediation” and to provide “banking services” to the people. If they cannot do that their licences should be revoked.

For too long the people of the world have allowed the financial sector to take us down the garden path. For 18 centuries we believed in the folly that seeking and hoarding gold and silver was the mission of man. We now know that gold is indeed the barbarous relic, as Keynes described it. Today Canada's gold reserves is the fantastic amount of 77 ounces. For far too long we have allowed the financial sector to dictate what matters. And for far too long the financial sector has been wrong. We do not hear about an agriculture crisis, a manufacturing crisis, a sport and entertainment crisis, or a tourism crisis. It is always a financial crisis. It means they have no monopoly on smarts. The financial sector has made citizens' lives miserable and they are in the process of strangling the economic life from the rest of society.

It is time our Government sheds itself of its self-imposed impotence and compels the banks to do what banks were set up to do. Stop talking nonsense about free markets. Free markets don't mean that a handful of greedy people should be allowed to freely destroy others. Is labour free? Can't people freely withhold their labour? But can they freely withhold their labour in any sector of the economy? No! Some labourers fall under the essential services law and by compulsion they cannot freely withhold their services. So, too, there are essential sectors of the economy and the banks must be one such sector.

Banks must be reminded that they were established for a specific purpose. And if they fail to be persuaded, they must be forced by law to do what they must do. If they don't, stagnation will become a way of life. How many more will have to die or have to do without so that men who have it made can make some more?

Dorlan H Francis is a personal financial adviser and author. Among his books is The Economic and Financial Crisis of 2007 — What caused it; how to avoid a repeat. Send comments to the Observer or




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