About Markets

Don Boudreaux on markets.
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Many opponents of markets find the open quest for profits in market economies to be unethical or unaesthetic, and they blame markets. What these opponents miss is the fact that the self-interest that is typically – and even the greed that is sometimes – on display in markets is not created by commercial markets. Commercial markets are merely a forum in which individuals act on these motivations. One of most profound errors committed by market opponents is to suppose that when activities are transferred from commercial markets into the realm of politics human imperfections and self-interest are replaced by superhuman perfection and altruism. But as Buchanan argues, it’s naive to suppose that the mere shifting of activities from one resource-allocation forum to another changes the underlying human motivations. (And such shifting certainly does not change the underlying human cognitive limitations.)

So profit seeking occurs in political settings no less than in market settings. But the kinds of information and constraints in political settings differ greatly from those in market settings. Therefore, the kinds of actions taken in one setting, and the consequences of those actions, differ from the actions and consequences in the other setting. One important difference is that in markets, profits are earned only through voluntary payments while in politics profits are typically extracted by forcibly transferring property from the politically weak to the politically strong. The fact that such transfers are not overtly called “profit seeking” – and the fact that political activities are camouflaged with public-interest rhetoric – doesn’t change the underlying reality.

In summary, in the market Smith profits only by building a better mousetrap or by devising a process that reduces the amount of resources used to build a familiar mousetrap. (Smith might do so directly, as a mousetrap producer, or indirectly, as someone who secures the financing for a mousetrap producer.) In politics, Jones typically profits by confiscating mousetraps from Smith or from Smith’s customers, or by confiscating the inputs that Smith would otherwise use to make mousetraps.