# Last edited on 2014-09-05 17:23:19 by stolfilocal
# NOT SENT
# for the Wall Observer thread

I understand "free market" in a strictly technical sense: a market for some product where (1) customers can freely choose among suppliers, (2) supplers are free to set their price as suits them, and (3) there are no spurious barriers to suppliers entering or exiting the market.

For the purpose of free-market theory, there may be arbitrarily strict regulations, taxes and red tape on both sides; but, as long as those three conditions hold, the market is technically free.  The point is that, if those conditions hold, the price and the set of suppliers will automatically adjust themselves until the suppliers make as much profit in that market as they would in any other activity.

Simplifying at the limit, if shoe stores are found to be more profitable than grocery stores, owners will close the latter and open the former, and the resulting changes in supply will lower the prices of shoes and raise those of groceries, until the advantage disappears.  The resulting "free market equilibrium price" will typically be a fair price, only a few percent over costs and interest on investment -- even if the demand is not elastic (that is, even if the customers [i]need[/i] to buy, at any price).  

When any of those three conditions fail, the market is a monopoly or oligopoly: each customer is restricted to buy the product from one supplier, or from a fixed set of suppliers, and no new suppliers can enter to offer a lower price.  In those conditions, the suppliers will naturally form a cartel and set the price so as to maximize their revenue.  This monopoly/oligopoly price is always higher than the free market price, and can be much, much higher.

Note that, for the purpose of this theory, "free" does not mean "free from regulation", "free from government interference", or "suppliers are free to do whatever they like".  Even if a market is initially free, the leading suppliers, if allowed to do as they please, will often use their superior economic power to  prevent the entry of new ones -- through dumping, gifts, negative marketing, exclusive long-term contracts, mergers and acquisitions, bribing politicians, etc..  

So, paradoxically, the persistence of a free market requires [i]people-oriented[/i] laws (antitrust, antidumping, truthful advertising, fair business, consumer protection, etc.) and a strong [i]people-oriented[/i] government that is willing and able to prevent the leading suppliers from turning it into a monopoly.  Needless to say, a strong but [i]capital-oriented[i/] government will usually speed up the devolution of free markets into monopolies or oligopolies.

Copyright is an instructive example of how badly a free market can go sour.  Book printing was a free market for a hundred years, at most, after Gutemberg's invention.  Book printing was very lucrative at first, since printers were few, and customers were used to the high price of hand-copied ones.  But, by the early 1600s, increasing competition was driving prices down; so the established printers in France, Spain and other countries ([b]not[/b] the book writers!) lobbied governments to create the first "copyright" laws.

Those laws typically banned the importing of printed books, and universalized an occasional practice of feudal lords, the granting of exclusive printing privileges for certain works to specific printers.  These printer privilege laws turned each literary work into a monopoly market, whose only supplier could then impose the price that maximized his revenue.  England lagged a bit; some printer privilege laws were enacted in the mid-1600s, but fully implemented with Statute of Anne, around 1710 -- still by pressure from the printers, not from authors.  In fact, AFAIK the Statute or Anne was the first copyright law that explicitly gave some rights to book authors -- apparently, only because the member of parliament who drafted it was a book writer himself. 

As new media were developed, copyright laws were immediately extended to them.  And, even today, printers and other publishers use some of their fat monopoly profits to bribe governments into strenghtening their monopoly -- by extending the scope of copyright laws, criminalizing personal printing and file sharing, violating citizens' privacy to fight "piracy", etc.