I've heard this criticism of a free market touted very often. It's often used after I claim that a price system allocates goods to where they're most valued. It goes something like this:
"The free market can only work if all individuals have a similar purchasing power, if they do not, production will always be geared towards those with the highest ability to pay, not to where they're most valued."
It's a tricky one for me...thoughts?
Irish Liberty Forum
Bogart: The other is the existence of Hundai and KIa in the US market who have focused on poor folks first and have focused on progressively wealthy folks later.
The other is the existence of Hundai and KIa in the US market who have focused on poor folks first and have focused on progressively wealthy folks later.
So I guess I'm a non-progressive poor guy since I own 2 Hyundais. No wonder I'm for free markets.
The free market can only work if all individuals have a similar purchasing power, if they do not, production will always be geared towards those with the highest ability to pay, not to where they're most valued.
Yes, those with most purchasing power have a bigger say in directing the factors of production than those with less but the reason they have more purchasing power is that they have previously been better at serving the consumer than others. And they only continue to maintain their higher purchasing power by continuing to serve the consumer well.
Hence why the market economy is more meritocratic than a democratic socialist economy where the weight of your "vote" is not determined by your previous success.
Note, a common objection to this argument is the existance of inhereted wealth. Their purchasing power is not determined by their success at serving the market. However, it is important to bear in mind that they will only sustain their high purchsing power by beginning to serve the market well or else they will face an ever diminishing pool of wealth to draw from.
Pretty much the difference in purchasing power isn't the issue. Rather, the issue is that the disparity in purchasing power means a disparity in who is willing to buy and their given populations in comparison to those who are less willing to buy and their populations. In this case, the extremely rich aren't likely to buy a new car every other year, or a house on every corner. They didn't get extremely rich by spending, but by saving and investing. Compare that to the populations who are less rich (and even extremely poor in a few circumstances) in which they're more likely to buy rather than save. That's why the free market works, the sliding scale of time preference that can be leveraged in the market insures there's always some buyer, even if that buyer isn't Bill Gates or Warren Buffet. Catering to the extremely rich is very hard to do as they're more price-to-[subjective]-value conscious than the not-so-extremely rich (due to lower time preference). So, even the niche of the extremely rich is going to be harder to sell to in general. They're not likely to buy a Wal*mart brand pair of shoes, that's for sure.
"The power of liberty going forward is in decentralization. Not in leaders, but in decentralized activism. In a market process." -- liberty student
Production is not geared towards those with the highest ability to pay but is geared towards the highest demand. A rich man may have the ability to purchase 10 gallons of milk but his demand is equal to a poor man's, one gallon. So a rich and poor man have an equal "vote" with their dollars on which brand of milk best serves their needs. A poor man can't buy a yacht so he has no "vote" on which yacht is the best but the rich man does which makes sense because the rich person would be the only one of the two owning a yacht. The best way for a yacht company to get more “votes” than its competition is to lower prices and allow people with less income a chance to “vote”. It really is a beautiful system.
Larry Specht: Production is not geared towards those with the highest ability to pay but is geared towards the highest demand. A rich man may have the ability to purchase 10 gallons of milk but his demand is equal to a poor man's, one gallon. So a rich and poor man have an equal "vote" with their dollars on which brand of milk best serves their needs. A poor man can't buy a yacht so he has no "vote" on which yacht is the best but the rich man does which makes sense because the rich person would be the only one of the two owning a yacht. The best way for a yacht company to get more “votes” than its competition is to lower prices and allow people with less income a chance to “vote”. It really is a beautiful system.
That is what I said, but you said it easier to understand I suppose....
It sounds like the ocean, smells like fresh mountain air, and tastes like the union of peanut butter and chocolate. ~Liberty Student
MatthewWilliam: I've heard this criticism of a free market touted very often. It's often used after I claim that a price system allocates goods to where they're most valued. It goes something like this: "The free market can only work if all individuals have a similar purchasing power, if they do not, production will always be geared towards those with the highest ability to pay, not to where they're most valued." It's a tricky one for me...thoughts?
That "critique" doesn't make any sense. Are people with more money able to buy more products as well as higher quality products? Yes. So? What's wrong with that? That is what is valued the most by people. How does a free market not work when income isn't equally distributed?
This entire "critique" is a joke.
Political Atheists Blog
MatthewWilliam: "The free market can only work if all individuals have a similar purchasing power, if they do not, production will always be geared towards those with the highest ability to pay, not to where they're most valued." It's a tricky one for me...thoughts?
Point out that although the purchasing power of a millionaire greatly exceeds that of an average consumer, the total purchasing power of average consumers greatly exceeds the total purchasing power of millionaires. The business that caters to the average consumer will fare better than the one that caters to millionaires.
"As long as there are sovereign nations possessing great power, war is inevitable."
I would point out to them things like the iPhone. When the iPhone first came out it was prohibitively expensive for the vast majority of people, because it was expensive to make - production and R&D costs were high. Once the high demand for the iPhone became apparent, Apple found ways to streamline production, refine the design, and take advantage of economies of scale.
An iPhone is now half the price it was when it was launched, allowing people with less purchasing power to buy it. It's important to note that it was precisely those people who have more purchasing power (or at least more disposable income) who were willing to pay a premium for this new product that gave Apple the green light to ramp-up production and become more efficient. Of course, Apple still could sell a lot of iPhones at the premium price, but they would rather sell three times as many units at half the price. The case of Henry Ford and the first automobiles is another classic example of this dynamic.
It should be obvious that in a free mareket economy, the wealthy man is considered wealthy just because goods like bread, milk, shoes, etc.. are affordable by the "poor". The wealthier man can buy an iPhone just because the poor man can afford a standard phone(with camera). This extra purchasing power over the poorer man is what makes him wealthier.
The Socialist imagines an economy with no goods being produced for the common man because the "wealthy" buys up all the resources. But how can he be wealthy if bread is not produced to the masses and is only say 99 cents a loaf. How can he then purchase the common man as a "worker" if he cannot pay him a wage that will even buy him bread. All the Gold in the world in the possesion of the "wealthy" man will be worthless. This "wealthy" man is not wealthy then, he is as poor as the common man.
The socialist is confusing the Capitalistic economy with a Slave economy.
This claim also ignores the complexity of each consumer regarding their consumption preferances. Individuals use their money for various different tangible and intangible goods and services provided within the market economy. Everyone holds a different spending position in his or her life. It's erroneous to think everyone needs similar purchasing power if everybody doesn't operate with their consumption preferances, productivity, and certain needs.