Planning Fails, Freedom Feeds
Voluntary agreements lead to the harmonious implementation of thousands of business plans and transactions. There is no economic exploitation.
“On coming to Paris for a visit, I said to myself: Here are a million human beings who would die in days if supplies of all sorts did not flow into this great metropolis. It staggers the imagination to understand the vast number of objects that must pass through its gates tomorrow to protect the inhabitants from the horrors of famine, insurrection, and pillage. And yet all are sleeping peacefully at this moment, not disturbed by the idea of such a frightful prospect… What, then, is the ingenious and secret power that governs the amazing regularity of such complicated movements, a regularity in which everyone has such implicit faith even though his prosperity and life depend upon it?”
Frédéric Bastiat, Economic Sophisms (1845): Chapter 18: There are no Absolute Principles
Feeding Paris
Paris passed the one million population mark in the 1850s. Today, the Paris Metropolitan Area is home to around 11,277,000 people. As in Bastiat's time, few Parisians go to bed worrying about there being food in the shops tomorrow.
Cities develop where humans congregate and exchange goods and services. They provide a path from poverty to prosperity and fulfil basic needs without us thinking about it. These include food, water, sanitation, electricity, roads, housing, clothing, schools, and doctors.
Let us take a closer look at food. There are millions of people with their own food tastes and preferences. They eat a range of perishable and non-perishable foods. Citizens buy food at stores, street markets, fast-food outlets, and restaurants. Home food delivery services are becoming popular too.
How does anyone know what foods and how much to produce? With Bastiat, we ask, what is the “ingenious and secret power” that puts food on our tables? His answer, “the principle of free exchange.” (Frederic Bastiat, Economic Sophisms (1845))
Free exchange
Free exchange means people and businesses exchange goods and services by voluntary agreement. It is the right to compete by offering customers better and cheaper goods and services.
Free exchange presupposes ownership. You may only exchange the goods and services you own. The government does not interfere in the exchange process. Its role is to apply laws that protect property and prohibit force and fraud. It protects and defends its citizens against domestic and foreign aggression. When these conditions exist, economic freedom exists.
Free exchange is the foundation of economic calculation. It breaks a big problem, such as feeding a country, or city, into thousands of smaller problems. A farmer does not provide food for everyone. Instead, farmers grow food to sell to whomever wants to buy it. Greengrocers and food retailers buy from them, and in turn, sell the food to their customers.
Food sellers set up shops in areas where they find a market for their produce. Without it being their aim, the sellers together provide food to the entire city.
The exchanges generate price, demand, and supply information. Farmers and food retailers use it to estimate the types and amounts of food customers might need. It enables them to estimate the income, expenses, and risk related to a potential exchange. Exchanges take place if the parties agree on the terms of the exchange.
Free exchange lets the market function as if a giant calculator. The market is millions of calculations, decisions, and exchanges taking place every moment. It is the source of the information needed to calculate and decide on what, where, how much, for whom, and when. The market itself does not make decisions; individuals and businesses do.
Voluntary agreements lead to harmonious implementation of thousands of business plans and transactions. There is no economic exploitation.
Prohibited exchange
Unfree exchange is when the government prohibits free exchange. It takes control of and produces and distributes goods and services.
The People's Republic of China abolished free exchange after its founding in 1949. The government’s aim was to industrialise and collectivise agriculture. Under the Great Leap Forward, it abolished private farming. Farmers became employees of state-owned farms. The food planners calculated the nation’s need for grains, meat, and dairy products. They turned this into production mandates for the state farms.
The food planners mandated experimental farming techniques, including the nationwide extermination of sparrows. With their natural enemy exterminated, locusts flourished. Massive crop destruction led to the worst famine in history. Between 1958 and 1961 more than thirty million people died of starvation.
The Soviet Union too tried forced collectivisation to improve agricultural productivity and efficiency. Five million people died of starvation between 1931 and 1933.
Compared to farmers, food bureaucrats know little about about climate, soils, food preferences, demand, irrigation, distribution, and prices. The knowledge is in the minds of thousands of farmers and farming businesses. Centralising the information in a government department is an impossible task.
Hampered exchange
Today, governments hamper the exchange process by economic regulation. Interventions include taxes, levies, price controls, import and export restrictions, licensing, and more. To attract investment, governments offer subsidies and tax breaks. All countries do this. Their taxpayers pay for it. No one can tell if the government spent the money better than the taxpayers could have.
Most economic problems occur in the sectors where government interferes most. Healthcare, housing, and education are prominent examples.
When free exchange is the norm, food is on the shelves. We take shoes, clothes, cars, computers, mobile phones, televisions, and fridges for granted. Shortages are rare in industries where government intervention is low.
Free exchange and prosperity
Bastiat's insight came from personal observation. Today, independent studies confirm his insight. (See links to the studies below).
Countries with high levels of free exchange, flourish. Free economies are prosperous economies. The poor is in free economies are more prosperous than the poor in less free countries.
Free exchange, freedom of choice, and secure property rights are prerequisites for prosperity.
Thanks to the "ingenious and secret power” millions of people can buy a coffee on their way to work every morning.
Originally Published on The Skeptical Planner
Johan Biermann is a retired planning consultant and policy researcher and an associate of the Free Market Foundation.
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