On the free market system and the necessity for its regulation

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There are many who believe that government should be kept small, that it should do the bare minimum, and the rest should be left to private enterprise and the free market system. I tend to agree with this viewpoint. I would get the government out of most of the things it now does. The free market system works far more efficiently and produces better products than does the government. Government needs to be responsible for national defense. And government, at some level (local, state, or federal) , needs to do a considerable amount of regulating. Without regulations businesses would be preparing food in unsanitary conditions, adding harmful substances to food to make it taste better, cutting all kinds of corners to save a few cents. There has to be some rules and some monitoring. It is important to keep the rules and regulations to a minimum. I do tend to be skeptical of a slave adherence to any dogmatic system. I am a firm believer in common sense and sometimes blind adherence to some dogmatic system leads to conflicts with good sense. To illustrate, consider the following example: Suppose we state as a general principle, “In a free market system no one should be able to tell a business owner or company how much they can charge for a product or service they are selling. They should be allowed to set whatever price they want. Government should stay out of this.” This sounds like a reasonable assumption, a good basic tenet, of a free market system. Many people might make this assertion. Let us now consider what problems this principle might lead to. Suppose some giant global drug company has managed to gobble up all of its competitors, is now the sole source of drugs, or at least all the most essential and important drugs, and now proceeds to use its monopoly position to raise the price of its drugs to some exorbitant, astronomical level. It knows that people can be made to pay almost any price for a drug if their life is on the line and it is using its monopoly position to exploit this fact. How does one handle this problem? Any business owner would understand the enviable position he would be in if he were the sole producer of a very important and critical product. He could ask whatever price he wanted. Consider an electric company who is supplying some region with electricity. It has a monopoly position with regard to supplying its customers and, if unregulated, could charge exorbitant rates for its electricity and its customers would probably pay. Back in the late 1800's railroads exploited their monopoly position in regard to elevator storage and railway transportation to charge farmers exorbitant rates for storage and transportation of their grain, creating a lot of angry farmers and resulting in the Granger laws of 1877 for the regulation of railroads and warehouses. History is rife with people creating and exploiting monopoly positions. How do you handle this kind of problem? When a publishing company gets a copyright on a book it has created for itself a monopoly position for itself in regard to the publishing of that book. The same goes with the music industry in the publishing of songs. There is a natural temptation for businesses to seek monopoly positions if they can. For a case as important as a drug company exploiting a monopoly on critical drugs, interference by the government would appear necessary. On the other hand, suppose a drug company after investing a huge amount on research has come up with some drug that is unique in its ability to cure people with some disease that is usually fatal. Should the government be able to limit the amount the drug company can charge for the drug? If some company starts manufacturing some new and very unique and useful invention, should the government be able to limit how much it can charge for it? In some cases it seems clear to me that government regulation of prices is necessary. However, this doesn’t mean that the free enterprise system doesn’t work or that it isn’t the best system around. It just means that it presents some problems that need to be addressed.

If one is postulating economic dogma, one must always keep in mind the general nature of man. A very large portion of humanity has very few scruples about taking advantage of their fellow man, especially in matters of money. Many people are very clever and do figure out ways to exploit their fellow man. The free enterprise system is not perfect. It is just better than socialistic type systems. I would much prefer to be at the mercy of the free enterprise system than at the mercy of some egg-headed socialist who thinks he is smarter than anyone else and is determined to create a beautiful, socialist state in which everyone will be equal and is willing to do whatever necessary to do it. The free enterprise system is the old, tested natural system. That man who thinks he can create a better system greatly deceives himself.

Jan 2017