The Freeman 1972 - The Ludwig von Mises Institute

19'72 ADVERTISING 517talk about a world of honest men,men who do not try to deceive.Further, let us imagine a puremarket economy with governmentintervention kept to the absoluteminimum - the night watchmanrole. The government stands tothe sidelines and ensures· the protectionof private property rights,the enforcement of contracts freelyentered into. Everyone thenproceeds to play the game of thefree market economy with producersproducing that which theybelieve can be sold to the consumersat the highest possiblemoney price. Entrepreneur producers,who detect where resourcesare currently being used in lessthan optimum fashion, take theseresources and transfer them toother uses in the economy wherethey will serve consumer wants·which the entrepreneurs believeare more urgently desired, asmeasured by the amounts' of moneyconsumers are willing to payfor various products.We will assume that there isfreedom of entry into all industries.No entrepreneur has solecontrol over any resource that isuniquely necessary for the productionof a given product. No governmentlicenses are required inorder to enter into the practice ofa given profession or to introducea particular product. All entrepreneursare free to produce whatthey believe to be profitable. Allresource owners are free to selltheir resources, whether labor,natural resources, capital goods.They are free to sell or rent theseresources to the highest bidder.In this way the agitation of themarket gradually shuffles resourcesaround until they begin tobe used to produce those productswhich consumers value most highly.Consumers arrange theirspending to buy the commoditiesthey believe to be most urgentlyneeded by themselves. And themarket flows on in the way thatwe understand it.Open CompetitionWe say this is a free. market, alaissez-faire, competitive system.But we do not mean a perfectlycompetitive market, as this notionhas been developed by theneo-classical economists. In a perfectlycompetitive market, eachseller faces a demand curve whichis perfectly horizontal. That is tosay, each seller believes that hecan sell as much as he would liketo sell without having to lower theprice. Each buyer faces a perfectlyhorizontal supply curve andeach buyer believes that he canbuy as much as he would like tobuy of anything without havingto offer a higher price. In such aworld of "perfect competition,"we have what we call an "equilib-