Resources

The Free Market: What It Is, What It Implies

By Tom Rose
December 01, 2003

The Power of Ideas

The attracting power of right ideas never ceases to amaze me! I recall with fondness how a student approached me after a particularly stimulating class discussion. "Sir, this thing you call the 'free market,' will you please explain it for me in more detail?" The person standing before me was a young man from Lebanon ; he had recently enrolled in a small Christian college where I was teaching. He had never heard the term "free market" before, and it interested him.

I quickly outlined the essential ideas behind the philosophy of man's individual freedom and self-responsibility before God. As I did, the young man's eyes lit up, his face literally shone, and he exclaimed, "Why, it's beautiful! This is exactly what I am looking for!" Then he went on to share with me the dream that brought him to America : He and his compatriots back home have had the dream of making Lebanon a land of "milk and honey" that shines as a beacon of moral, economic success so that other nations might follow.

I was forced to end our discussion, which had moved to my office, after two hours because of a prior engagement. But I made sure the searching scholar went home armed with some carefully selected books and Bible readings to shape his and his friends' ideas -- ideas that could point the way to personal and national greatness.

Vision and Integrity

History has proven, with Old Testament Israel and America as her most shining examples, that right ideas held by men of vision and integrity can rapidly transform underdeveloped nations into economic giants, which in turn richly bless the rest of the world. When sowed at an opportune time, in a friendly and receptive climate, ideas germinate quickly.

Our Founding Fathers recognized that man is free by his very nature, as they stated in the Declaration of Independence. In doing so, they uncovered once again the moral base of cooperative society which had been obscured for thousands of years. Their declaration reiterated man's inherent right to be free and self-responsible before God and in relation to his fellow men. Their declaration re-echoed the cry of Moses some 3,000 years earlier when he stood before the Egyptian Pharaoh and cried, "Thus saith the Lord, 'Let my people go, that they may serve me!'" (Ex. 8:1)

The Free Market Defined

The free market is the voluntary exchange of goods and services between free persons who stand as self-responsible individuals before God. The idea of free-market exchange is as simple as that! As a teenager I became aware of the tendency for society to devolve into centralized collectivism (statism). So since my early twenties I have been dedicated to the challenging task of reversing America's forsaking the rich blessings of voluntarism and succumbing to the false promises of socialism, fascism, and communism. Many scholars differentiate between the welfare state, socialism, communism, and fascism. But, in essence, they all rely on one common factor: Each depends on state-mandated coercion rather than voluntary persuasion to induce exchange between consenting individuals.

Many people favor compulsory exchange over voluntary exchange because they fail to understand the underlying morality and personal relationships presupposed in each system.

For instance, we should recognize that the free-market "system," in essence, is not really a system at all. For the word "system" connotes an already planned scheme or method of doing things; but free-market exchange is not planned at all in this sense. Rather, the free-market method of facilitating exchange between individuals is the natural outgrowth of human interaction (or aggregation of human interactions) resulting from the very nature that God planted in man at the time of his creation (Gen. 1:26-28). What we call the free market is simply the natural result of man's internal ability to place (or impute) a value on a good or service, and the necessary freedom to act externally based on those values. Thus, free-market exchange was not planned -- indeed, could not be planned -- by any finite being. The spirit of freedom that is found in man is a spiritual gift from God (2 Cor. 3:17 ). Thus, it is found in the heart of every man, woman, and child all over the world! It is too big, too all encompassing, and too perfect to have been the handiwork of mere man. In short, the free market, and its innumerable voluntary exchanges, is what it is because of what God created man to be!

The Elusive Concept of Value

The essence of man's inherent free nature, and his right to freedom and his responsibility to maintain his freedom, can be ascertained in two ways:

First, it can be seen in the Bible (Gen. 2:7), which is sufficient for those who accept the Bible as God's inspired word. The signers of the Declaration of Independence understood and accepted the revealed truth that man was created as a free moral agent and, thus, by his very nature is and has a right to remain free and self-responsible.

Second, it can be discovered through empirical evidence. Herman Heinrich Gossen (1810-1858), a German economist and statistician, derived certain economic laws from everyday observation. Example: "The value of a thing is to be reckoned entirely in terms of the enjoyment which it can procure." 1 Later, Carl Menger (1840-1921), who was not aware of Gossen's earlier work, came up with similar views on the concept of value. This led to the establishment of the Austrian School of Economics. These economists stumbled upon a Biblical truth without realizing it: that value is an imputed quality that is mentally placed upon a good, a person, or a choice -- rather than an inherent quality that is already embedded in a good (Dt. 7:7). This discovery served as an important milestone that led to a more accurate understanding of man's thought processes and a deeper understanding of man's free nature. Value cannot be measured objectively. For instance, we cannot objectively determine the value of a pie by counting the hours of labor that went into producing it. If we could, then an awful tasting mud pie might be worth more than a tasty cherry pie!

If objective measurements could be used to determine value, the output of an inefficient worker would be more valuable than that of a more efficient worker because the inefficient worker took longer to produce it. If we had the pleasant task of choosing between two seemingly identical new automobiles, would you pay more for one just because it had more labor costs than the other? Not by a long shot! The history of the auto industry is rife with firms that have gone out of business because consumers do not measure value objectively by the costs of producing goods, but rather by subjectively weighing the benefits derived from a good versus the "pain" of parting with one's money to obtain the good.

Where Do We Go From Here?

Wherever two individuals are free to higgle and haggle (barter) with each other to engage in voluntary exchange, it is there that we observe an automatic emergence of the free market. Civil rulers, more often than not, tend to interfere with the process of free exchange because of their own political goals and agendas. But wherever civil rulers adhere to God's directives by limiting their power to the maintenance of law and order by punishing wrongdoers, there we likewise find a natural tendency for society to be decentralized into an economy that is dynamically controlled by markets generated by millions of freely acting individuals. In contrast, wherever civil rulers systematically intervene in the economy in attempts "to take care of the people" through subsidies and welfare payments, or "to protect them from their own ignorance" or from "quacks," then we find the economy being centralized and controlled by special-interest groups behind the political elites -- as has happened in most countries in the world, including these United States of America.

What can be done to solve the problem of the centralization of economic and political power that is so common in the world today?

Those who treasure freedom sometimes become apprehensive about the rising tide of statism throughout the world, including our country. They see the continued trend of government intervention in our private and public life and imagine a day when the free market will disappear. The free market can be restricted in many ways, but it can never be eradicated; God has implanted the spirit of freedom in the heart of man. Wherever two individuals come in contact with each other, the free market exists potentially if not actually. It can lie dormant for a long time, but the free market will bloom into mutually profitable exchange at the slightest recession of external coercion.

The free market comes into being naturally because man, by his God-given nature, is a free being. In the long run, the nature of man assures success in spreading the philosophy of voluntary exchange because God has gifted man with His spirit of freedom. Let us therefore apply ourselves conscientiously and creatively to the stimulating avocation of helping others to discover and understand the motivating power of Biblical freedom.

Let us heed God's warnings in the Bible regarding man's fallen nature (Jer.17:9) and its impact on society, in both the economic and political spheres. Men whose minds and hearts are not governed by God's law will always seek ways to plunder others -- either through outright force (illegally), or by the perversion of the law itself, as indicated in Psalm 2 and explained by Frederic Bastiat in his 1849 book entitled The Law .

We must constantly search Scripture to discover and understand God's intention for the proper role of civil government in society: decentralized civil government (Ex. 8); the limited powers of rulers (Dt. 17); the punishment of wrongdoers rather than caretakers of the people (Rom. 13); societal peace and tranquility being the goal of civil government (1 Tim. 2:1-6).

It is important to teach our children and churches about the Biblical role of civil government in society and the natural existence of a competitive free market economy.

Let us pray that our Lord will indeed turn the hearts of civil rulers to bow their knee and "kiss the Son" (Ps. 2:4, 12). And we should pray that God will unseat the ungodly and replace them with righteous rulers whom God will raise to positions of world-wide power and influence (1 Kin. 12:1-24; 1 Kin. 15: 9-24).

Remember that God's timing is not our timing. As Creator and Lord of the universe, He is in control (Is. 40:12-31). His plan for the world is still in progress. Thus, we can rest in the salvation that Christ has wrought for us once and for all on the cross, and we can focus on reforming every social institution (including every aspect of family, church, state, business, and voluntary organizations) to the mind of Christ (2 Cor. 10:3-5; Eph. 6:1-12). For that is our calling!

© Tom Rose, 2003

Notes

1. Eric Roll, A History of Economic Thought, 3d ed., (Englewood Cliffs, NJ: Prentice-Hall, 1954), 374-375.


Topics: Biblical Law, Christian Reconstruction, Dominion, Economics, Government, Statism

Tom Rose

Tom is a retired professor of economics, Grove City College, Pennsylvania. He is author of seven books and hundreds of articles dealing with economic and political issues. His articles have regularly appeared in The Christian Statesman, published by the National Reform Association, Pittsburgh, PA, and in many other publications. He and his wife, Ruth, raise registered Barzona cattle on a farm near Mercer, PA, where they also write and publish economic textbooks for use by Christian colleges, high schools, and home educators. Rose’s latest books are: Free Enterprise Economics in America and God, Gold and Civil Government.

More by Tom Rose