Financial Markets Are Not 'Every Man For Himself'

With Rep. Paul Ryan chosen to be the Republican vice presidential nominee, the ongoing debate around the role of the free market has become more of a focal point. Critics are characterizing markets as "every man for himself" - or, to use President Obama's words, "You're-on-your-own economics."

Contrary to the critics, the free market does not mean we are all on our own and struggling for survival against our fellow citizens. The market is, in fact, the greatest forum for human cooperation ever discovered. In the market, we truly are all in it together.

Consider the shirt you're wearing. The cotton fabric, the dye, the thread, the buttons and the label were all produced by different people working in different companies. Turning raw material into a shirt requires cooperation. Some people brought the cotton from field to market. Others had to process it and turn it into fabric. Others ran the trains or drove the trucks that moved it through the process. Others built all the machines to do all that work. Still others had to create the dye. One could go on all day.

The market process that produced your shirt involved millions of strangers cooperating with each other. You did not (and probably could not) make that on your own. But when we specialize in producing the thing we can make at least cost, we can create more stuff than we can consume ourselves. We then trade the excess with others to obtain the things they have produced most efficiently.

In other words, it is thanks to the cooperation inherent in a "free market" that we have the goods and services we do. Though the social cooperation of the market is not as visible as the cooperation that goes into, say, raising an Amish barn, it is no less real or important.

But this social cooperation is not automatic. It happens when people are free to specialize and trade as they see fit. It also requires the freedom to set prices, earn profits and suffer the consequences of losses. Prices, profits and losses are the signals that guide us to cooperate effectively, even though we do so unintentionally.

What destroys this intricate fabric of social cooperation is when politicians and bureaucrats intervene, thinking they know better who should be producing which things and how they should be doing it. The social cooperation of the market relies on the accuracy of those price and profit signals. When government policy attempts to force prices up or down, limit profits or "bail out" losses, it pits us against each other in a struggle for government privileges rather than encouraging cooperation.

Unfortunately, the political process is a game where my win is your loss. In the market, we are not on our own and every man is not for himself. Markets enable us to cooperate to provide for our needs and wants.