[Throatpoker]

I've seen a lot of people here and in other forums criticize free market ideas for being unrealistic, as the businessmen's dishonesty prevents from a fair functioning of the market under such circumstances. To those here that like to pull the "greed" card on laissez faire discussions, check out this excerpt from Ludwig Von Mises' Liberalism (Chapter 2 - section 5):

...it is conceded that socialism, the communal ownership of the means of production, is altogether, or at least for the present, impracticable. But, on the other hand, it is asserted that unhampered private ownership of the means of production is also an evil. Thus people want to create a third way, a form of society standing midway between private ownership of the means of production, on the one hand, and communal ownership of the means of production, on the other. Private property will be permitted to exist, but the ways in which the means of production are employed by the entrepreneurs, capitalists, and landowners will be regulated, guided, and controlled by authoritarian decrees and prohibitions. In this way, one forms the conceptual image of a regulated market, of a capitalism circumscribed by authoritarian rules, of private property shorn of its allegedly harmful concomitant features by the intervention of the authorities.

One can best acquire an insight into the meaning and nature of this system by considering a few examples of the consequences of government interference. The crucial acts of intervention with which we have to deal aim at fixing the prices of goods and services at a height different from what the unhampered market would have determined.

In the case of prices formed on the unhampered market, or which would have been formed in the absence of interference on the part of the authorities, the costs of production are covered by the proceeds. If a lower price is decreed by the government, the proceeds will fall short of the costs. Merchants and manufacturers will, therefore, unless the storage of the goods involved would cause them to deteriorate rapidly in value, withhold their merchandise from the market in the hope of more favorable times, perhaps in the expectation that the government order will soon be rescinded. If the authorities do not want the goods concerned to disappear altogether from the market as a result of their interference, they cannot limit themselves to fixing the price; they must at the same time also decree that all stocks on hand be sold at the prescribed price.

But even this does not suffice. At the price determined on the unhampered market, supply and demand would have coincided. Now, because the price was fixed lower by government decree, the demand has increased while the supply has remained unchanged. The stocks on hand are not sufficient to satisfy fully all who are prepared to pay the prescribed price. A part of the demand will remain unsatisfied. The mechanism of the market, which otherwise tends to equalize supply and demand by means of price fluctuations, no longer operates. Now people who would have been prepared to pay the price prescribed by the authorities must leave the market with empty hands. Those who were in line earlier or who were in a position to exploit some personal connection with the sellers have already acquired the whole stock; the others have to go unprovided. If the government wishes to avoid this consequence of its intervention, which runs counter to its intentions, it must add rationing to price control and compulsory sale: a governmental regulation must determine how much of a commodity may be supplied to each individual applicant at the prescribed price.

But once the supplies already on hand at the moment of the government's intervention are exhausted, an incomparably more difficult problem arises. Since production is no longer profitable if the goods are to be sold at the price fixed by the government, it will be reduced or entirely suspended. If the government wishes to have production continue, it must compel the manufacturers to produce, and, to this end, it must also fix the prices of raw materials and half-finished goods and the wages of labor. Its decrees to this effect, however, cannot be limited to only the one or the few branches of production that the authorities wish to regulate because they deem their products especially important. They must encompass all branches of production. They must regulate the price of all commodities and all wages. In short, they must extend their control over the conduct of all entrepreneurs, capitalists, landowners, and workers. If some branches of production are left free, capital and labor will flow into these, and the government will fail to attain the goal that it wished to achieve by its first act of intervention. But the object of the authorities is that there should be an abundance of production in precisely that branch of industry which, because of the importance they attach to its products, they have especially singled out for regulation. It runs altogether counter to their design that precisely in consequence of their intervention this branch of production should be neglected.

It is therefore clearly evident that an attempt on the part of the government to interfere with the operation of the economic system based on private ownership of the means of production fails of the goal that its authors wished to achieve by means of it. It is, from the point of view of its authors, not only futile, but downright contrary to purpose, because it enormously augments the very "evil" that it was supposed to combat. Before the price controls were decreed, the commodity was, in the opinion of the government, too expensive; now it disappears from the market altogether. This, however, is not the result aimed at by the government, which wanted to make the commodity accessible to the consumer at a cheaper price. On the contrary: from its viewpoint, the absence of the commodity, the impossibility of securing it, must appear as by far the greater evil. In this sense one can say of the intervention of the authorities that it is futile and contrary to the purpose that it was intended to serve, and of the system of economic policy that attempts to operate by means of such acts of intervention that it is impracticable and unthinkable, that it contradicts economic logic.

If the Government will not set this right again by desisting, from its interference, i.e., by rescinding the price controls, then it must follow up the first step with others. To the prohibition against asking any price higher than the prescribed one it must add not only measures to compel the sale of all stocks on hand under a system of enforced rationing, but price ceilings on goods of higher order, wage controls, and, ultimately, compulsory labor for entrepreneurs and workers. And these regulations cannot be limited to one or a few branches of production, but must encompass them all. There is simply no other choice than this: either to abstain from interference in the free play of the market, or to delegate the entire management of production and distribution to the government. Either capitalism or socialism: there exists no middle way.

- I know it's pretty long, but the idea needs such thorough analysis.

[Astroboy]

the short version, govt intervention, generally either increases prices at home, or overseas and to do this there is a cost to consumers or producers, along with loss in efficiency, where this loss of efficiency is called dead weight loss (used to be part of market but now disappeared of lack of efficiency). Also in the case of tariff, taxs, govt causes deadweight loss and also collects revenues. Also there can be a loss in overall welfare.

[Cojofl]

That's weak. Government intervention in pricing may not be a good idea, but that does not imply government intervention in any area will be harmful. That excerpt alone seems like a strawman argument.

Government intervention to handle market failures is not the first step on an inevitable a slippery slope towards communism. Markets can screw up. Informational deficiencies, non-excludabilty, non-rivalry, excessive market power, risk, uncertainty, externalities, un-enforceability of contracts, collusion, excessive entry and many more things can at times lead to socially inefficient market outcomes. That is, situations were government intervention may be useful, because a better outcome might be achieved.

[Mackavelli]

So are you saying that there should be no government intervention at all or they shoulnt impose price fixing? Because if there is no government intervention at all it would be very bad, more enrons and more monopolies and greater corporate power. I agree there shouldnt be set prices but that problem needs to be solved on an international level, which is part of the reason we have it, so our suppliers can compete with international ones.

[Guts]

They intervene, and line their own pockets, it's called insider trading.

[Cojofl]

Originally Posted by Guts

They intervene, and line their own pockets, it's called insider trading.

Insider trading is something completely different.

[Akuma Kanji]

Originally Posted by Guts

They intervene, and line their own pockets, it's called insider trading.

you really don't know what you're talking about, do you?

[jodka]

Originally Posted by Octavian

You want zero intervention? ok... Just note the likelyhood that the economy would be in a complete tailspin right now if the fed hadn't stepped in to save the latest little "free market" greed play. And 'yes' I am playing the greed card. People should begin to understand that a) this is not the same economy that the likes of Mises wrote and theorized about and b) greed corrupts, it blinds, it seeps into government, it pirates and it manifests itself in ways you don't even realize.

Right, but many would argue we wouldn't even have the massive issues we have now if the FED and the government weren't intervening in the first place.

I'm not saying that some level of government intervention isn't occasionally needed, but most examples of government intervention "helping" these days tends to be the government just further worsening a problem they caused in the first place.

[Akuma Kanji]

I think a dude like Ludwig Von Mises is theoretically interesting to consider, but only in a purely academic setting. After all, he died over 30 years ago. His thinking is unlikely to consider many of the realities of today’s global economy.

Free trade can advance under the law and under policies designed to encourage prosperity, but the public interest does require advocacy. It is unrealistic to imagine no oversight of businesses.

in short, there is a middle way: capitalism, with intervention to protect the rights and interests of the overall system and as many of the individuals within that system as possible.

[Cojofl]

I think people over-estimate the level of government failure. I'm not saying it isn't there, but some people will drive on a government built road for 300 miles and then cite a pot-hole they see as a sign of the government's complete failure to manage transport infrastructure.