You and I a walking down the street. As long as you continue in the direction I consider ‘just and fair’ I will take no action. But try to go in a direction different from what I want, and I will pull you back. Are you free or am I controlling you?

You and I are walking down the street. As long as you don’t litter, steal, loiter, incite terrorism, etc… the policeman will take no action. But try to do anything illegal and he will arrest you. Are you free?

No-one is really free* – part of being a member of society is accepting that society binds and restricts your freedom in return for certain benefits. Note, though, that I don’t agree with the Reid/Blunkett/Bush position that our privacy/civil freedoms are fair game – but thats a totally different argument.

There is a vast difference between state regulation of the economy and full state control of it.

* Footnote: except a sociopath, maybe.

You said:

Maximum price: This increases the demand for the product (people who would not have bought at the market price can now buy) but it eliminates the marginal sellers

Clearly, if done naively. I would assume that the government would subsidise the food with, perhaps, £6, allowing Max and Armin to make a small profit.

You said:

Minimum price: Here it is the marginal buyer (he who can buy at at most the market price) who is eliminated. Same (or even greater) supply , but demand is reduced. The result: over production.

Well, isn’t the minimum wage exactly this? And the rate of unemployment has been lower in the past few years than during most of the 90s. In any case, the scientists were not complaining about being unable to find jobs (we are told there is a shortage of scientists) but that the jobs they have are underpaid. (and i’m not saying that they should get any more money! see the final paragraph of the original post!)

You said:

This makes no sense. Why would Max start selling rotten food when he can make a profit selling good food?

Because, to make more profit, he is buying Armin’s unsold produce at a lower price than Armin’s cost of production. He does this because he likes money and sees a loophole in the rules which allows him to resell food unfit for human consumption. He does this because he is a bad person and doesn’t care if it makes Nana sick.

You said:

Armin would probably end up appealing to his elected representatives to fix the price.

Either that or lobby for minimum food quality standards, which would cut Max out or make him compete on a level playing field, in which no-one gets sick from eating rotten food.

Also, why shouldn’t Armin appeal? Its his taxes paying the elected representatives wages, travel and admin costs.

Anyway… this has gone way off topic, so I’ll close this article for comments in a few days! I don’t think either of us are likely to convince the other of our point of view

Read Aristotle’s Politics.
In many ways the Philosopher was far wiser even than Plato.

A void argument it may be, but it certainly wasn’t mine. My point was that the situation where the government intervenes ‘only’ when it believes the market (aka the choices of the consumers) is’wrong’ IS NO DIFFERENT FROM FULL STATE CONTROL OF THE ECONOMY.
You and I a walking down the street. As long as you continue in the direction I consider ‘just and fair’ I will take no action. But try to go in a direction different from what I want, and I will pull you back. Are you free or am I controlling you?

You said:
Who gets to decide what the right market value of a particular product or service? Clearly the answer should be the elected representatives of those making up the market.

The state can interfere in two ways – it can mandate a maximum price below what the unhampered market determines, or it can mandate a minimum price above what the unhampered market determines.

Maximum price: This increases the demand for the product (people who would not have bought at the market price can now buy) but it eliminates the marginal sellers (those who must sell at at least the market price to not go bust). The result is a shortage. For example suppose the state decrees that food should cost £5. Now Nana can conceivably buy more food. The problem is that at this price Max and Armin are eliminated as sellers (remember it costs £10 to produce food). Nana has no one from which to buy. No doubt the elected representatives would claim that in a more just and fair society, food should be cheaper. The point of the price-ceiling was supposed to be to make easier for Nana to buy food. The result, however, is that she no longer can.

Minimum price: Here it is the marginal buyer (he who can buy at at most the market price) who is eliminated. Same (or even greater) supply , but demand is reduced. The result: over production. The government decrees a minimum wage for scientists above that determined by the unhampered market. On the one hand more people are attracted to science since it has become a more lucrative profession (increase in supply). On the other hand, however, the employers who could afford at most the market price (marginal buyers) are eliminated (drop in demand). There will be scientists, even those willing to work at the wage determined by the unhampered market, who will be unable to get a job. Remember, the point was supposed to be to help scientists! Instead institutional unemployment has been created.

No matter which way we look at it, interference with market prices can only make matters worse, EVEN FROM THE VIEWPOINT OF THOSE WHO SUPPORTED THE INTERFERENCE.

You said:
“To continue your example: Max notices that he can sell food which is becoming rotten, or which is grown in areas with chemical or heavy-metal poisoning.”

This makes no sense. Why would Max start selling rotten food when he can make a profit selling good food? Give good food to your customers and they keep coming back, thus assuring your income for years to come. Poison them and they will sicken and die and then who will you sell to?

You said:
“Or, he approaches Armin and together they make even more money by fixing the price.”

More likely that Armin would approach him. It is in Armin’s interest to fix the price at the higher level otherwise he will lose his comfy profit margin. It is not clear, however, that Max would agree. If he raises his price to £15 he will certainly lose Nana as a customer and will have to compete with Armin for Miles, a contest in which he no longer has an advantage. On the other hand if he keeps his price low, he has a guaranteed customer in the form of Nana and a good chance of getting Miles too.

Armin would probably end up appealing to his elected representatives to fix the price.

Any legislature has the power to manipulate or control the economy, as they manipulate and control the “physics” of the domain in which the market operates. The argument that free market forces would be stifled by the possibility that the government might intervene (which is what you imply with “if the state gets to decide whether or not economic conditions justify its intervention, then no decision is left to the the market“) is void. After all, that situation exists currently in all democratic countries.

Who gets to decide what the right market value of a particular product or service? Clearly the answer should be the elected representatives of those making up the market. I’m not advocating that they control all of the economy, but limit their manipulations to situations that lead to a more just and fair society. This requires good government, which is arguably an oxymoron. Read Plato’s The Republic for the wisdom of a greater man than I.

To continue your example: Max notices that he can sell food which is becoming rotten, or which is grown in areas with chemical or heavy-metal poisoning. Or, he approaches Armin and together they make even more money by fixing the price.

I take it from what you have written that you would not describe yourself as someone who advocates total control of the economy by the state. Yet you argue that the state should intervene when the market fails to make ‘the right decision’. But, as SteveC pointed out, you failed to answer the question ‘who gets to decide what is the right decision’? Is it the state? They are the ones interfering after all. But if the state gets to decide whether or not economic conditions justify its intervention, then no decision is left to the the market. The consumers no longer decide what is produced, but the government. For as soon as the consumers make a choice that the state deems is not ‘the right decision’ it will interfere. The market can do nothing the State doesn’t want it to do.

So my question is this:

How is the state of affairs you advocate different from full state control of the economy?

Of course if he lowers the price too far he won’t be able to cover his costs and will quickly go bust.

You cannot afford a Porsche because enough people buy Porches at the current price that the sellers see no reason to lower the price and you are consider a Porsche less important than the other things you use your money for (however apparently enough people are not buying mercedes, hence the current ‘you CAN afford it’ ad campaign).

You said:
“It becomes a bad thing when income inequality is so great that people cannot afford basic goods and services, such as food, shelter, healthcare, etc…”

We could all have an income of 1p per decade, in which case, though all incomes are equal, and assuming the price did not fall, we would not be able to afford the ‘basic goods’. (The price might not fall if, for example, there were enough customers in another country to keep the suppliers of basic goods in business). While we all take our OWN incomes into account when deciding what to buy and what not to buy – thus influencing the price – we do not take OTHER incomes into account (did you consider the difference between your and my income when deciding whether to buy a Porsche?)

It is income, not differences in income (a.k.a income inequality) that influences prices.

By the way I agree that income inequality exists in the (free) market economy, but I am not sure that free markets cause increases in such inequality.

You said:
“…in a high income inequality society a greater proportion of that society will live under the poverty line, compared to a low income inequality society subject to the same overall costs of production.”

Consider the following example. Armin is selling food, which costs him £10 to produce. Nana can pay at most £11 while Miles, having a higher income than Nana, can pay as much as £15. Who does Armin sell to? All things being equal, to Miles of course. I presume you would say at this point that income inequality has forced Nana under the poverty line. But you are forgetting that this is a free market society. In such societies exist entrepreneurs like Max. Max notices that there is a market for food not being served by Armin. So he sets himself up in the production of food, setting his price at £11. Nana need no longer go hungry. But what does Miles do? He notices he can get food at £11 from Max. All things being equal what does he do? Of course he stops buying from Armin and starts buying from Max! If he is to stand any chance at all, what must Armin do? LOWER HIS PRICE TO £11.

Despite the income inequality, everyone gets to eat.

If we agree free markets tend to increase income inequality then it only remains to prove that income inequality is A Bad Thing. As Steve pointed out, free markets find the equilibrium price for goods or services, which must be less than the amount available to the individuals, or no-one would be able to buy them. In a society with large income inequality there will be more people who cannot afford the equilibrium price than one with a low income inequality. This is not necessarily a bad thing – I can’t afford a Porsche, for example. It becomes a bad thing when income inequality is so great that people cannot afford basic goods and services, such as food, shelter, healthcare, etc… This means living below the poverty line. There are some problems with the definition of poverty, basic needs, and so on, but the basic point remains that in a high income inequality society a greater proportion of that society will live under the poverty line, compared to a low income inequality society subject to the same overall costs of production. (Therefore it is unfair to compare income inequality in the UK and, for example, central Africa, as the costs of production are too dissimilar.)

That free markets `tend to increase income inequality’ is not in itself a strike against them.

Some would argue that. I value primary and secondary school and so am happy to pay for it. Others might say that they don’t want to pay for someone elses child to go to school.

A better way of making the same point would be: the effects of market economics are not always in the best interests of those participating in the market.

So..?

It may surprise you to find out that there are many people who cannot afford to pay for care, either in terms of time off work or hard cash. Even in the USA, your exemplar, the Medicare scheme means that many people cannot pay for their own drugs, let alone help others.

So what? The government through taxation attempts in general to look after the frail sections of society and most people are happy to pay those taxes. Do you just mean you dislike US Social Security?

However, the free market doesn\’t work when there is little competition. For example, Royal Mail – their service is farcical and they would not survive if they were not a de-facto monopoly. The same might be said of BT and (ex-)British Rail.

I’m not sure you’d find anyone without strong social or communist sympathy who disagrees.

Another situation in which the free market doesn\’t work is when the product or service is not a matter of choice for the consumer – or victim. Examples: police, judiciary and emergency medical care.

You’re setting up the framework and the argument. You could imagine all of these services having a market. American healthcare, election of the county sheriff for example. In California there are elected Judges I believe. Private security and police are the norm in US gated communities and universities.

Finally, free markets tend to increase economic inequality. See also a list of countries by income equality.

Evidence?