Your Mom’s A Blog

This market which I have so far described is about those with money and those without money and skill.  A skilled laborer can command a higher wage in a free market because their skill is relatively scarce.  So how does an unskilled laborer become a skilled laborer?  They must learn a trade.  For thousands of years this has been accomplished via some form of apprenticeship.  Of course, not everyone can become an apprentice, because, as previously mentioned, the skill is scarce.  Moreover a craftsman or skilled worker doesn’t want to take on a lot of apprentices because they would eventually be rivals to him and potentially drive down the amount of money he can charge for his services.

This indicates that knowledge has a good deal of value in the free market as well.  If the people with the knowledge keep it to themselves and prevent others from easy access to it, they can force them into staying in lower paying jobs.  Because those with the knowledge do not want to diminish their own economic security they may charge a fee to transfer their knowledge to another individual.  This again requires money, which may not be readily available, even to a person who works very, very hard.

This is much like our situation today, except that real knowledge is less valued, up front, than perceived knowledge.  Many times a person’s skill in some field is valued at nothing if they can’t produce a college degree.  In the United States most college degrees are expensive, and require classes that are not necessary for some particular field.  I am a consultant and software developer, but in college I was required to take music appreciation, lifetime wellness, European history, biology, algebra, literature, etc., etc.  I paid anywhere from $90 – $120 per credit hour for these courses, plus usage fees etc.  My current employer wanted me to have a college degree, but doesn’t care that I am a decent historian, German speaker, or that I know a fair amount about British Literature or the anatomy of plant and animal cells.  This exemplifies another major flaw in the free market: collusion.

In an unregulated market the wealthy have the means to collude against others.  Collusion has been especially problematic since the beginning of the modern era (beginning around 1500.)  Adam Smith wrote “rarely do people of the same trade meet, even for merriment and diversion, but the conversation ends in a conspiracy against the public.”  (The father of modern capitalism wrote this.)  People in the same trade usually have two things that allow them to unfairly manipulate the market, wealth and knowledge of their trade.  When competitors agree to artificially inflate their prices, what can be done to stop it?  They have capital and can wait if people are first reticent to pay unfair prices.  If they control a something that people absolutely need like food, water and clothing, there is little anyone can do besides go without or pay unfair prices.

Of course it is a free market, so if someone is selling something at too high a price anyone else can start selling the same thing at a fair price and turn a profit, forcing those in collusion to lower their prices or be pushed out of business, right?  Ideally that would be the case, but a person going into business is usually going into it for what is called the profit motive.  Once they have started to sell something what prevents them from entering into collusion with those artificially inflating the price?  There is also the Wal-Mart effect.  A person starting a business usually does not have the kind of capital as a person or group of people who have been in business for a long time.  If the established group does not want new competition they have the capital to sell at a loss and wait the new competitor out.  The more diverse the entrenched system is, the more likely they can wait out a competitor to one of their sources of income indefinitely.  In either case those with capital can intentionally skewed the system in their favor making it difficult if not impossible for others to enter and compete.

All these things are problems that can and do occur with varying frequency and intensity in free market systems.  When the system is essentially controlled and defined by the movement of capital, those with the most capital have the most power.  They also have the ability to increase their ability to artificially increase their worth while artificially decreasing the worth of others.  It is possible that some entity in the free market system can essentially short-circuit the market and dump virtually all the money into their pockets.  They can collude to push out competitors, they can inflate prices to such a level that the people dependant on their services have to pay them because the nearest competitors are too far away to make it cheaper to get services anywhere else.  And, of course, because we do have governments, those with a lot of capital have more power to lobby or otherwise convince legislators to pass laws favorable to them.