Everyday we hear something about markets. Your six o'clock news anchor might say, "The market had a bad day." Last year Federal Reserve Bank Chairman, Alan Greenspan, talked about the market's irrational exuberance. I guess now he'd say the market has irrational pessimism. In college your professor might have told you that the market can't be trusted and that's why we need government. Your politician might preach, "Who gets prescription drugs shouldn't be left up to the market." A civil rights leader or a feminist might say that the market is racist and sexist and possibly homophobic.
Here's my question: who is this guy we call the market? If he raises so much havoc in people's lives, shouldn't we find a way to make him behave? If we're going to straighten out this market guy, we should start first by identifying him.
Suppose every single American just went about his business every day, kept his money in his pocket, and had absolutely nothing to do with the stock market. Would the stock market be exuberant or pessimistic? What would a news anchor say the market did today? My guess is the market wouldn't do anything. In fact, the stock market wouldn't even exist. You say, "What's your reasoning, Williams?"
What we call the stock market is literally millions upon millions of independent people around the world making independent decisions. A simply put example is this: I think or guess AT&T shares will rise in price so I want to buy a hundred. Somebody else might think or guess that AT&T shares are going to fall in price so he wants to sell his 100, but there's a big problem. I don't know where he is and he doesn't know where I am. No sweat. There are specialists who, for a price, get us together so we can make the transaction; we call him a stock broker.
School teachers are more important to society than professional basketball players. The fact that professional basketball players earn more money leads some people to condemn the market for not having the right priorities. The reason why professional basketball players earn more money is both a result of reality and decisions made by millions of decision makers. The first reality is the number of people with skills to do what Michael Jordan does is far smaller than the number of people who possess teacher skills. The second reality is that Michael Jordan's personal contribution to the benefit of society far exceeds the personal contribution of an individual teacher. The third reality is that millions upon millions of Americans want to see him play and cough up big bucks to see him do so.
What we call the market is really a democratic process involving millions, and in some markets billions, of people making personal decisions that express their preferences. When you hear someone say that he doesn't trust the market, and wants to replace it with government edicts, he's really calling for a switch from a democratic process to a totalitarian one. An excellent example is when people demand that government confiscate the earnings of wealthier Americans to give to poorer Americans. Michael Jordan is much wealthier than I, but whose doing is that? It's decisions made by millions upon millions of people who prefer to fork over their money to watch him play basketball. I'd be just as rich if they were willing to do the same to watch me play. When someone condemns Jordan's earnings they are really condemning the voluntary decisions made by millions of people.
Tyrants always condemn and seek to replace the market process with government coercion because tyrants do not trust that people behaving voluntarily will do what the tyrants think they should do.
Walter E. Williams
July 29, 2002
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