Capitalism- Not Perfect, But Certainly the Best

By: Nathan Tabor

As the United States enters into the 2008 and another presidential election, there is widespread anxiety over the state of the economy. The subprime mortgage crisis, and the subsequent collapse of the housing market have cast a pall across even the most optimistic projections. In response, many Americans look to government to alleviate their concerns and usher in a new cycle of economic growth. Though such impulses are understandable, it would be a grave mistake to take any steps which would lead us away from the free market.

The reason to hold fast to free market principles is simple: no other institution can so effectively meet the wants and needs of American citizens.

The roots of our economic system can be found in the basic human drive to create, buy, and sell-interactions which have taken place since human beings began to form communities. These interactions are entirely voluntary– no government ruled that they should take place; rather, they have occurred spontaneously as human beings seek to satisfy their desires for food, comfort, and entertainment.

For that reason, buying and selling only occurs when both parties stand to benefit from the exchange. The other side of the coin is that neither party is interested in paying more than he or she believes a particular good or service is worth.

In the free market system, price and value are determined by the time, labor and expenses that contribute to the finished product, as well as the total supply of such products on the market, their relative availability to the customer, and the customer’s need to purchase the product. This incredibly complex latticework of variables is what sets prices and determines value in such a way that the manufacturers’, the buyers’, and the sellers’ considerations all factor into the equation.

In short, the genius of the free market system is its ability to process and transmit information to billions of people while continuously adapting in response to the actions of its participants.

Government intervention into economic activity, on the other hand, usually results in a form of price control. In contrast to the free market, which sets prices according to the behavior of people, government’s attempt at determining price is always arbitrary, for it cannot grasp the concept of value in a market system. This is why government intervention into the price mechanism usually worsens, rather than alleviates, economic crisis.

In response to the embargo set by OPEC in 1974, the United States interfered with supply and demand by rationing gasoline. There were long lines at gas stations, and citizens could only buy gas on certain days of the week. And yet, in Germany and Japan, there were no gas lines. The reason is that Germany and Japan allowed the market to continue to set gas prices. As supply went down and demand remained constant, prices went up. The increase in price transmitted valuable information to consumers: gasoline is less readily available than it was a few months ago. The United States attempted to avert the crisis by superseding the market, and paid an economic price for that action.

As the United States attempts to weather the housing crisis and the slowdown of the economy, it is important to remember that there are no quick fixes; no silver bullets. Government tampering with the machinery of the market tends to come at a steep price. The best course for now is for businesses and consumers alike to exercise caution and prudence in their dealings. The market forces will balance, as they always do, and hard work and ingenuity will continue to be rewarded in the land of opportunity.

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