Many people fear that, without government regulation, there would be no way to insure the safety and reliability of the goods and services they rely upon every day.
They fear that a free market would be an “unregulated market” where consumers would be blind and helpless before deceptive, dangerous marketers out to take advantage of them.
This is a major deal-killer that keeps many people from fully embracing free markets and libertarianism.
Happily, there’s a great answer to this concern. The truth is, there’s no such thing as an “unregulated market.” Instead, there are two kinds of regulation: regulation by government command, and far more efficient regulation by markets and consumers.
A recent article in The Freeman by economist Howard Baetjer Jr. does a great job of explaining this — and of telling why this distinction is so crucial for libertarians to make.
The article is entitled “There’s No Such Thing as an Unregulated Market: It’s a choice between regulation by legislators or by consumers.”
“A big economic problem the world faces is semantic. That is, ‘regulation’ has come to mean ‘government regulation.’ We don’t seem to be aware of the alternative: regulation by market forces. That’s a problem because it leads us to accept so much government meddling that we would be better off without.
“We want the aims of regulation — regularity and predictability in markets, decent quality and reasonable prices for the goods and services we buy — and thinking that government regulation is the only way to get those, we accept a vast array of unnecessary, wrongheaded, and usually counterproductive mandates and restrictions.
“But government regulation is not the only kind of regulation.
“To regulate is to make regular and orderly, to hold to a standard, to control according to rule, as a thermostat regulates the temperature in a building. Market forces do this continually as competing businesses offer what they hope will be a good value, then customers choose among the various offerings, then the competing businesses react to customers’ choices. That process is the market’s regulator.”
Baetjer explains how markets and consumer feedback regulate the quality of the goods and services we buy and how market and consumer feedback forces regulate prices, thus protecting consumers from higher-than-necessary prices.
Baetjer also explains the flip side of this: how government regulations that consumers think protect them actually hamper this crucial market and consumer regulation. How market/consumer regulation is weakened as markets become less free.
Finally, Baetjer sums up the problem — and opportunity — this realization offers free market advocates:
“We never face a choice between regulation and no regulation. We face a choice between kinds of regulation: regulation by legislatures and bureaucracies, or regulation by market forces — regulation by restriction of choice, or regulation by the exercise of choice.
“Government regulation is not the only kind of regulation; market forces also regulate. Recognizing this, communicating it to others, and getting the awareness into public discourse are key steps toward greater economic liberty.
“The benefit of this semantic change — opening up the meaning of ‘regulation’ to include regulation by market forces — is to raise the question, which works better? Regulation by market forces works better, but that’s another argument. The first step is to recognize that market forces regulate, too.”
These are vital insights for those interested in spreading the ideas of liberty. Avoid the phrase “unregulated market” and others like it. Not only are such phrases scary to many people, it doesn’t at all accurately convey what we mean. Libertarians favor market and consumer regulation over inefficient, misleading, coercive and costly government regulation.
Learning to convince others that consumers and markets regulate — and do it marvelously well, and far better than government — will help you win people to libertarianism.
I highly recommend Baetjer’s article. Read it — and start sharing the good news about market and consumer regulation.