Market Forces and Government Perversion

September 22nd, 2008 by Eric Cope

With the demise of AIG, Lehman Brothers, etc etc,  I feel it is my duty to remind people of the market forces necessary in a free market and the impact of government, a.k.a. government market perversion.

Profit
All organizations participating in the market strive for profit. Either to distribute to share holders, employees, or owners, they strive to make a profit, windfall if possible. Banks, web design firms, medical device firms, movie studios; they all are in business to make money. People work jobs to make money.

Loss
In addition to profit, all organizations strive to avoid loss. Companies do what they can to avoid loss; whether loss of capital, loss of people, market share, etc. The same is true for people.

If companies do not have both market forces, they are doomed to fail. If companies can’t turn a profit, they will not remain in business. Look at GM. If companies can’t avoid loss, they fail. Again, look at GM or most airline companies.

On a personal level, if an individual does not attempt to profit at their job, they won’t get proper training and will not remain competitive in their market and will eventually get fired. On the other hand, if they are not afraid of losing everything, they will be willing to risk everything (or almost everything) for a gain of nothing (or almost nothing).

Now, if the government removes either of these forces (taxes remove the profit force; bailouts remove the loss force), the market will fail over the long term. It may temporary flurrish, but over the long term, it will fail. A perverse free market gives a communist market a run for its money regarding who can hold back growth and the creation of wealth more.

This is the reality of the situation. Because it does not exist today, does not mean it can’t exist. It means that we need to educate ourselves and our children, history is doomed to repeat itself. If you think the Great Depression was bad, you ain’t seen nothing yet!

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