“The great virtue of a free market system is that it does not care what color people are; it does not care what their religion is; it only cares whether they can produce something you want to buy. It is the most effective system we have discovered to enable people who hate one another to deal with one another and help one another.”
~~Milton Friedman
Once upon a time there was a free market. But that was long ago. That was before government, before writing, before history, and before money. Anyone who wanted to trade some of their property or their services could do so. If the other party agreed, a trade was consummated. Both parties were better off as a result. No one forced either party to trade. No one prevented either party from trading. Neither party had greater knowledge of the things being traded than the other. Neither party lied or otherwise deceived the other. Everyone liked this arrangement. Trades on this basis became the foundation of friendships, alliances, even marriages.
But it was not to last. Women were even then inventing agriculture, (the apple from the story of the Garden of Eden, perhaps). They were growing crops and building permanent dwellings. They were domesticating animals other than the dog. Families could no longer move with the seasons but had to stay in one place to tend the fields and guard the flocks and keep the fences and barns and house in good repair. Trade, which had been important but not vital, became necessary. The goods one could get locally were limited. One needed things which could be acquired only from far away or by spending considerable time in their acquisition. Salt, for example, was necessary for life but was not always at hand. One might have to trade for salt. So even if one had plenty of salt, one would accept salt in trade because salt could always be used to trade for something which one did want or need.
Thus did money come to be: Money in those times was anything that was used as a medium of exchange and a standard unit of accounting; Varying things were accepted as money in diverse places and different cultures due to their differing circumstances, but money was always represented by some sort of physical object.
At first, and for a time, objects being used as a medium of exchange did make trades easier. No longer was a coincidence of wants required before a trade could take place, as with the barter that had occurred in the free markets. Either party could now use the money objects to exchange for needed items and services. Better still, money allowed a greater division of labor so that people could more easily specialize in what they did best. This was far more efficient and raised the overall standard of living. However, there was a price to pay: The free market simply stopped working when money came into common use.
Why would using a physical object for money stop the free market? To understand why, we have to look more closely at those things that were being used as money. First off, they had to be things which were pretty highly valued. Things no one cared much about were never useful as money because too few people would be willing to accept them in trade. Second, those valued items needed to be relatively small. Otherwise, one could not transport very much of value to some distant location where the trade was to take place. (And remember that trades generally were for items from far away.) So the money items were small and valuable, just the thing for stealing. If some person or village acquired a large number of these valuable items, they became a tempting target for robbers or raiders. In short, since physical objects can be taken by force, the money items were sometimes taken by force.
To protect their money, villagers put up walls and organized to fight off raiders. But those in the village who specialized in using force to fight off outsiders (the “military” or “police” in our terms) were also able to use force to coerce their fellow villagers to give them more money. They were able to do this because the money was physical objects. And thus were government and taxes born.
The village market, which had been a free market, still used barter (as witness “Jack and the Bean Stalk”). Barter exchanges were still free. But the market of the village was now using money items more and more often as the village grew. That was especially true of trades with any strangers who brought goods from far away. Since those travelers had to carry their goods long distances, the value of the goods had to be high to make such great effort worth the trouble and the size and weight of those goods had to be low to make the trip possible at all. (This was before the development of ships.) Therefore, such travelers would have money objects and would accept only money objects (or things of similar size and value) in trade for their goods. As trade spread, the money items came to be more important for trade to take place. Trading with strangers whom one is likely to never see again provides great temptations to cheat. (Horse traders came by their unsavory reputation for good reasons.) So the villagers would try to cheat the travelers and likewise, the travelers would try to cheat the villagers. The travelers had several big advantages. They knew their trade goods far better than the villagers did and the villagers had no other source of the goods the travelers had to offer. Thus, the traveling salesmen had a monopoly and could charge “all the market would bear.” They also could trick the locals and then leave town before the deception was discovered. (You didn’t think Jack’s magic beans were really magic did you?)
So traveling salesmen were likely to be relatively well off, which made them a tempting target for the local military / police authorities. But if the local police simply took the merchant’s goods and left him with nothing, word would soon spread to stay away from that village. The police had to merely take part of what the merchant had and leave enough for the merchant to still “make a profit.” In that way, the merchants provided a continuing revenue stream for the local police. And the local police, being “on the take,” would allow some fraud by the merchants without doing anything to stop it. In this fashion, bribes to local officials became part of the ordinary cost of doing business. In many places in the world, this is still the case to this day.
So the local market became a place in which one found fraud, theft, taxes, monopolies, coercion, and all the other things we associate with a market which is not free. This was true all over the world in every nation which developed agriculture. Naturally, the more capital goods that were involved in that agriculture (such as irrigation works, terraces, barns, and silos), the more likely were restrictions on the market and the more likely money would have destroyed whatever free market elements remained.
So any form of money which is a set of physical objects or represents physical objects will destroy any free market which might come to exist. And since every form of money ever used in history has been physical objects or representations of physical objects, no real free markets have ever existed in any nation, not even the United States of our Founding Fathers.
Well that’s a “show stopper,” isn’t it? If money prevents a free market, how can we have a free market? How can we get the enormous benefits of free markets when we have to use money to buy things?
The answer is obvious if you stop to think about it. If the problem is that our money is or represents physical objects, then we need to develop a type of money which is not physical objects and does not represent physical objects. We need a free market money, a money which is not only compatible with a free market but which produces, creates, encourages, and brings into being a free market.
That’s easier said than done. Think about it. How can money not be a physical object (or a representation of a physical object as in a checking account or savings account)? How can you trade money for some product or service unless the money is or represents a physical object? If you say that it’s impossible and you stop thinking at that point, you are saying that it’s hopeless and we have to continue to live with fraud, theft, coercion, bribes, exploitation, government oppression and so forth. You have given up before you have even tried to solve the problem! That’s apathy, defeatism, hopelessness, and giving in to depression. Do you want success or do you want failure? I will tell you this: Doing nothing to change our money guarantees failure. Can you see the world in a new way or are you too scared to think anew about old problems? If you are unwilling to accept real, transformative change, then you can stop reading now and continue to suffer. If you are willing to at least consider that 1. We need to make some changes, and 2. It can be done, read on.
Solution
To begin with the easy part it’s really simple to create computer accounts for everyone. Almost all functional adults and many children have them already with banks and credit card companies. So the existence of some kind of money which is not a physical object is no problem from that point of view. The hard part is to get that money to not be treated as if it were a physical object.
With a physical object money (POM) when one acquires money it comes from someone else and when one spends money it goes to someone else. That’s what is done with physical objects so that’s how POM works. But let’s say that somehow money simply comes into existence in your account when you do something to earn money and somehow simply ceases to exist when you spend it to buy something. Well, that’s really easy. When you earn money we just make the number in your computer account larger and when you spend money we make the number smaller. That’s far easier than transferring money from one account to another. So that aspect is no problem at all. But we have only just begun.
I’ll bet you have spotted a problem or two that remain to be solved. Before we address those, let’s digress at this point to see the advantages of this non-transferable money. Remember that it simply comes into existence when you earn it and ceases to exist when you spend it.
The main advantage is that it cannot be taken from you. It cannot be stolen. You cannot be robbed of your money. It cannot be taken in taxes. The courts cannot take it. No one can take it because it is yours and yours alone. No one has an incentive to trick or fool you to get your money because you can’t give it to them even if you wanted to. You cannot use your money to bribe someone else. You cannot hire someone to kill your rich uncle. Also, you cannot go into debt and you cannot buy insurance. You cannot get interest and you never have to pay interest. (So if you are now in debt such as credit cards or mortgage, and we change over to this free market money, your debt will cease to exist.) There is no more government spending and no more national debt. (The government is not a person and only persons can have money.) There is no more organized crime and no more banks and no more stock market. Things get a lot simpler. But I have digressed for long enough now…
So we are now considering a kind of money which is not transferrable from one party to another. It is not a physical object and it is not being treated as if it were a physical object, but how can it function as a medium of exchange unless you can give it to someone else?
Let’s explore that question. What is an exchange? Let’s say we have a room full of people and each of them has something small enough to fit easily in the hand. Then each of these people gives whatever they have to someone else such that when the giving is over, it’s still a room full of people each of whom has something small enough to fit easily in the hand. No one has the same thing they started with but they each have something. There has been quite a bit of exchange. True, some may have done a simple two party exchange but in many cases the person to whom something was given gave what they had to someone else. But each person gave and was given to. A medium of exchange is something which motivates such exchanges. It provides compensation, a justification, a reason to give. So a medium of exchange does not have to be a physical object so long as it rewards the person who gives something (a good or service) to someone else.
Now let’s go back to that free market money when it comes into existence in someone’s account. If an increase in the money in your account is likely when you give something to someone else then you have a motive to give something to someone else. Let’s say that with our current POM you have a chair that you built. It’s a nice chair. And let’s say you take that chair to a free market and exchange it for some physical object money. You gave up ownership of the chair and the amount of money in your possession increased. That’s how POM works. If you give someone something they want, then you are likely to get an increase in the amount of money that you possess. So what we have to do with the free market money we are developing is to arrange things so that the money in one’s account is likely to increase if one gives something to someone else. The motivation in both cases is exactly the same. One gives things in order to get money. But you will note that the money does not have to be provided by the person who got the things given. (The clerk in a store where you buy goods is not getting the money you pay. The clerk is paid by someone else.) Therefore, it is not necessary for a medium of exchange to be either a physical object or something being treated as if it were a physical object. It only has to motivate the giving of goods and/or services.
So our next problem is to think of some means by which the numbers in the computer accounts can increase if the owner of the account does something which deserves to be paid. Clearly the idea that money has been earned or that someone deserves to be paid is a subjective judgment. Only people can make such decisions. And today with our POM people make those decisions. When one spends one’s money one is making such decisions. When a judge rules in a lawsuit, the judge is making such a decision. When Congress passes a spending bill or grants a subsidy or changes the amount to be given in social security due to inflation, the Congressmen are making such a decision. So having human beings make subjective money decisions is traditional and universal; nothing new there.
But look at the history of such money-paying decisions. It is filled with fraud, graft, corruption, and misuse of one’s office, as well as kickbacks, and all sorts of chicanery. Everyone who has some POM makes such decisions and we know that people use their money for all sorts of ends both good and bad. You see, physical objects have no morality, no ethics, no sense of right and wrong. Physical objects are amoral. So naturally a POM is also amoral. The Church uses money. Organized crime uses money. Totalitarian dictators use money. The Salvation Army uses money. Money is used for all sorts of things. But what we need in our new money is some way to make it moral, ethical, a good thing rather than a tool that can be used for evil.
Keeping in mind that we are attempting to produce a free market here we must allow anyone who likes to enter the market as either buyer or seller. Because the payers are the ones who increase the money in accounts, they would constitute the buyers. Thus, anyone who wants to become a payer would have to be accepted. Similarly, no one could be required or forced to become a payer. That part is easy to see. Now for the hard part.
The motivations of those making the payment decisions are very important. If they are motivated to pay only for good works, then the money they credit to accounts will be moral, it will be a root of and motivation for good actions. How can we control a person’s motivations? By controlling their situation! So let’s see, we need to arrange things so that the payers want what’s good for other people. If their own rewards depend on other people being happy, satisfied, and content then they will attempt to keep those other people happy, satisfied, and content. If the payers must live among the general public and are dependent upon others for everything, they will be powerfully motivated to keep those others happy. So how can we bring that about? It turns out to be rather easy.
Obviously we cannot have the payers paying themselves. In fact we cannot have payers paying each other. So the payers have no way to acquire money. Thus money must not be necessary to live in this free market money economy. So the actual necessities of life will need to be given at no cost to the people who receive them. This would include the payers, naturally, and thus no one would have to become a payer to live. Obviously, giving people necessities of life is a good thing and deserves to be paid. People who give others necessities will earn some money.
Also, we cannot have people being a payer this week and not next week since they could grossly overpay someone this week and then be overpaid grossly themselves by that same person next week. So once a person becomes a payer, once they make that first payment, they can never again have money or anything that money buys.
Under these conditions the payers would have to live among the ordinary people since they would have no money to pay for housing in exclusive neighborhoods. They would have to live near their work since they would have no money to pay to commute long distances. They would be dependent on what others freely gave them in order to live so they would want very much for ordinary people to approve of the way they are paying. So the payers would be scattered throughout the populace, interacting with everyone and very concerned with how the general public feels about how things are going.
But let’s look even more closely at the payers’ situation. Since payers can have no money nor anything that money can buy, volunteering for such a post would be quite unlikely for anyone who strongly wanted the things that money can buy. Almost every one of the volunteers therefore would be people for whom the social rewards of being a payer were far more important than what they must give up in becoming a payer. So the role of payer self-selects for people who are sensitive to how other people feel about them. Thus, the rewards a payer receives such as being important in the eyes of others, being appreciated, receiving approval, doing something to really help others, having power, these rewards all come only if the people among whom the payers live are happy, satisfied, and content.
As you can see, the problem solves itself. The motivation to pay well and fairly is inherent to the situation in which all payers will find themselves. To do anything else results in suffering by the payers. Therefore no law, regulation, or enforcement is required to get the result we want.
What follows seems like another digression at first but is really at the heart of the matter regarding a free market. What are the payers paying for? They are paying for net benefit. That statement requires some explanation. As you well know, every human action has consequences* for others. Some are good, some are bad, some are so-so and many never even come to our awareness. If one subjectively examines those consequences and “adds them up” (something only a human being can do) one gets a net benefit for those consequences. If it is positive, then the benefactor (the person who provided net benefit) should be paid accordingly. If negative, then no payment is made. (Please note and remember that a payer can credit accounts but cannot reduce the money in an account. Once money is in an account, only its owner can cause the account’s amount to be reduced.)
Because it is the benefits derived by the public that determine the payers’ rewards, it will be only benefits derived by the public that will generate pay for the producers of that benefit. A producer of food will not be paid for producing food but for the nutrition that people gain from eating it. A producer of cars will not be paid for producing cars but for the safety, comfort, and convenience of those who use the cars. A producer of child care will not be paid for the hours spent in the company of a child but for the safety, education, and health of the child. You will note that in every case, it is the benefits that are being paid for, not the particular product or service or the effort or the risk or the intentions of the producer of those benefits. Only the results matter because only the results determine the benefits enjoyed by the public. Only the results control and determine how people feel about the payers. This is inherent in the situation for the payers. No law or ordinance or training or requirements or anything else is needed for this result. Human nature will do it for us.
From this we can see that the market in which the payers pay has only one product: net benefits. There is only one thing which is exchanged for that product: the free market money credited to the accounts. Since any payer can pay any person for any benefits and since any person can produce benefits for others, the conditions for a completely free market are met. Knowledge of the product (net benefits) is freely available to all parties. Price fixing will not exist for several reasons. First, anyone can enter the market so there can be no monopolies. Second, the payers can only benefit if others benefit. It’s a win/win or lose/lose situation so they cannot gain by fixing prices. Third, the prices we are concerned with here are the money credited to the producers of benefits, not the price of things that consumers buy using their money. This particular free market is that between the payers and the producers of benefits. Thus, because there is a very large number of payers (some 3-5 percent of the functional adult population) and a very large number of producers (over 90 percent of the adult population) and each payer can pay each producer, the number of people who would have to agree in order to fix prices would be very large indeed.
What about government controls and regulation? There can be no government controls and regulation. Any law and any regulation must be enforced to have any effect. Since the payers are the only ones who can increase the money in the accounts of those who would enforce the controls or regulations, they could not be enforced to control the payers. The entire bureaucracy of government would be paid only if what they did generated net benefit. Enforcing controls and regulations directed at the free market of payer/producer would be impossible.
What about fraud and deception? What about the payers being fooled, tricked, and conned? Fraud and deception can and will certainly happen, no doubt. Payers and producers are only people. Some producers will be tempted to try to get credit they don’t deserve. Some payers will be tricked. Some payers will even be corrupt. (Anyone can become a payer.) Those things will happen. But the scale of such things will be quite small for the following reasons. 1) No producer can pay anyone else money to help fool the payers. 2) The payers will be relative experts in the matters they are judging and thus will be rather difficult to fool. 3) The payers pay only after the consequences of the producers’ actions are known and hindsight is better than foresight. 4) The people who work with the producer will have a very good idea of just what the producer did and will be paid for revealing any attempt to cheat they find out about. 5) Large cheats would be very obvious. Any person who has lots of money would have a “paper trail” of actions that would tie them to those large benefits. 6) For large payments, many payers would have to contribute to the decision as to how much was to be paid so that any conspiracy among payers would have to be a small one to keep the secret. So there would be some fraud and deception but relatively little.
What about the fairness of pay? The free market determines pay levels (prices for net benefits) without any effort or coercion or regulation or laws on the matter. If some benefits are very important to people (like having enough food) then the payers will pay whatever is necessary to get enough people to produce and distribute food. But if lots of people produce food and there’s more than can be used, then the rewards (pay) of all those people producing food is reduced per person until the proper balance in produced. That’s how free markets work. It’s automatic. It optimizes the allocation of resources to maximize the net benefits. No committee or commission or board of directors or government bureau or any other centralized decision making body has anything to do with it. (They would be ignored if they tried anyway.) The free market makes all those decisions.
Pay would be seen as fair also because if pay were unfairly high, that work would attract more people, and if unfairly low, people would avoid that work. Since no one has to work to live (remember one does not have to pay for necessities), no one would have to do any work unless they were willing. Bosses could not oppress since they would not get people to work with them and they do not control either pay or benefits for those who work with them. Neither would bosses have to pay anyone so they would not reject anyone who could help get the job done. In other words, there would be no unemployment. Anyone who produced net benefits would be paid.
So each of the factors which have destroyed and prevented free markets since the development of money, all those consequences of the physical object nature of our money, those fade away and are no more when we change the nature of our money, when we adopt a kind of money which not only produces a free market but is free market by its very nature.
