The Academy of Medical Royal Colleges, which apparently is a “united front” of the medical profession, says its doctors are seeing the consequences of unhealthy diets every day and that it has never come together on such an issue before. Needless to say a whole raft of interventionist measures are recommended to curb this apparent problem:

  • A ban on advertising foods high in saturated fat, sugar and salt before 9pm;
  • Further taxes on sugary drinks to increase prices by at least 20%;
  • A reduction in fast food outlets near schools and leisure centres;
  • A £100m budget for interventions such as weight-loss surgery;
  • No junk food or vending machines in hospitals, where all food must meet the same nutritional standards as in schools;
  • Food labels to include calorie information for children.

We will set aside for the moment the issue of whether it can be said that there are “right” choices for people to make when it comes to what they want to do with their own bodies (why, for example, should people prefer a longer life to the enjoyment provided by a burger and fries washed down with a pint of coca-cola?). Instead, the problem here is rather more grievous which is that, whenever members of the public make choices about how they want to live their lives there is the ever present assumption that, as these choices are made with apparent freedom, that it is the free market that has failed in preventing the emergence of the “undesired” outcome. What is never discussed or even raised is the possibility that people’s choices are already constrained or influenced by existing Government interference to the extent that, not only is it impossible to say that the choices made would be the same as those that would be made on a genuine free market, but that Government intervention is itself causing the undesirable choices to be made. And, lo and behold, blinded by such ignorance, the call is always for more Government intervention to augment that which we already have to put up with.

The present author has examined in detail why socialising healthcare will lead to greater ill health. There is little need to repeat all of this here except to say that people prefer doing that which comes at a lower cost, all else being equal. So that if you lower or remove the cost of becoming ill then, relatively, you will have more people who lead lifestyles that will result in ill health.

But the same fallacy is advanced in all cases where the proximate cause of a problem is people’s apparent free choices. Let’s examine some of the most popular:

“There is not enough food in the world! If the free market has brought such widespread hunger then Governments much intervene!”

The allegation here is usually some variant of the rich world refusing to share its wealth with the poor world. Leaving aside the fallacious belief that one person having means that another must not have, just why is it that we have widespread poverty in the age of the iPad? The plight of poor nations has nothing to do with being unable to understand technological development, nor are they in anyway lacking a rich diversity of raw materials. Rather it stems from the lack of capital investment per head of the population compared to the West. In the West, we have more machines and better tools that can churn out more and better goods per person than they can in poor nations. So yes, investors and capitalists have not invested in poor countries. The free market has not reached these nations, it must have failed! But the precise reason why the West has benefited from the free market is that it has long cherished institutions that have allowed to the free market to flourish, in particular strong legal rights to private property and relative political freedom. These are precisely the conditions that are lacking in poor nations, conditions that cause entrepreneurs to seek other havens for their investments. At the back of their minds, no doubt, is also the mass expropriation of foreign investment in the post-colonial era. Why should anyone bother investing in a poor nation if their wealth will just be pinched by the Government? To make matters worse, poorer nations began to model themselves on their Western role models just at the point when the latter started to turn away from a social order based on private property towards interventionism and social democracy with the result that the wrong lessons are being learnt. A product of this tide has been that Western governments now heavily interfere in world food markets, whether it be through such wicked and wasteful outfits as the Common Agricultural Policy, subsidies for farmers to devote farmland to ethanol production, or the vast regulatory network that impedes food production at the behest of a few powerful lobbyists. The recent scandal of horse meat appearing in processed beef products sold in UK supermarkets should be viewed in this context.

Poverty and hunger are therefore a failure of Government, not of the free market.

“The forests are disappearing! The free market, seeking ever greater profits, is decimating our natural resources! The Government must stop it”

Let’s go even further: add to the list fish stocks, elephants, whales, and any other of the countless number of “endangered” species that you like. Yes, there is a great problem, and yes, looking at the issue at face value, it appears that capitalists are running down these resources.

But this raises the question of why has the free market not produced similar shortages of other things? The dairy industry, for instance, exploits cows for profit but we never hear of a shortage of cows. Nor do we seem to be in short supply of chickens to supply us with eggs on our breakfast plates. So why is it only some resources that seem to be in danger of depletion? What is the difference between the endangered group and all the others?

The reason is that people are not permitted to own the capital value of forests, parts of the sea, elephants, tigers, etc. If one is able to own the capital value of the resource then exploiting it for present revenue has to be balanced against the loss of capital value in doing so (a full explanation of this is available here). But if one does not own the capital value then the only concern is for present revenue – there is no cost to exploiting resources to their fullest now. In fact the only cost is that someone will get there before you. So instead of all the myriad of Government restrictions and regulations concerning these depleted resources in order to “cure” the alleged free market ravaging all that is needed is to extend full private property rights to these resources and they will be conserved. Once again the problem is not too much free choice but the fact that people have been prevented by the strong arm of the Government from having a reason to make the “right” choices.

And let us conclude with the most pertinent of all alleged market failures, the phenomenon of “boom and bust”:

“Free market greed has caused capitalists to invest in wasteful projects! Clearly they need the Government to give them speed limits!”

Once again, looking at only the proximate causes of boom and bust will reveal that entrepreneurs invested too heavily in a particular sector, inflating a bubble that eventually pops, causing widespread misery and unemployment. In the 2007-8 financial crisis, the effects of which are lingering with the current malaise, a summary of the charge is that greedy bankers had lent money to people who could not afford to pay it back. End of story. But what is not told by peddlers of this narrative such as Paul Krugman is the moral hazard created by the so-called “Greenspan put” which had the effect of financial institutions expecting their profits to be retained and their losses to be borne by an influx of monetary liquidity during any risk of collapsing asset prices (i.e. in short paid for by inflation). If one can keep one’s profits and socialise one’s losses is it any wonder that people took wild risks? If there is only ever an upside then wouldn’t you? This is before we consider the fact that credit expansion is the cause of the business cycle in the first place that will always lead, by falsifying the societal time preference rate, to the expansion of unsustainable investment projects that must be rendered wasteful as soon as the inflation stops.

Therefore, next time you read that the “free market” has caused this, that, or the other, stop and think as to precisely what the options of the free market participants were. More often than not you will trace the source of the bad decision to some kind of Government interference.

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