Yesterday, NPR aired a story about the increasing price of onions in India, up 40% due to heavy rains spoiling recent onion crops.
The story featured quotations from those blaming "middle men" or "market mafias" who manipulate prices even further by holding back supplies until prices rise, and then brought in a professor of economics from Nehru University in Delhi, Jayata Ghosh, who says:
"You know, I think there are some things that are just too important to be left to the free market, and food is one of them, because food is essential. You have to feed your population; you can't say, 'Well, too bad, if you don't have the money you can just starve to death.' So food has to be managed."
Professor Ghosh sounds like a very charming person, but we must take exception to her statement that "there are some things that are just too important to be left to the free market," and point out that by framing the issue in this manner she is committing the error which Friedrich Hayek warned about in his famous text, Road to Serfdom, of assuming that the free choices of individuals does not constitute "managing."
As we pointed out in a previous post in response to a similar quotation made by a public official in this country, both sides in this debate want goods (in this case, food) distributed by the best method possible -- the question is whether distribution is best managed by a central body of governing officials or whether it is best managed by the free choices of individuals who are left to themselves to pursue their own interests.
As Hayek put it: "it is not a dispute on whether we ought to employ foresight and systematic thinking in planning our common affairs. The question is whether for this purpose it is better that the holder of coercive power [i.e. the government] should confine himself in general to creating conditions under which the knowledge and initiative of individuals are given the best scope so that they can plan most successfully; or whether a rational utilization of our resources requires central direction and organization of all our activities according to some consciously constructed 'blueprint'" (41).
Professor Ghosh goes from the assertion that "you can't just say, 'Well, too bad, if you don't have the money you can just starve to death'" (and we would agree with her that free governments cannot say that) to the assertion that therefore "food has to be managed."
Hayek also agreed that, as he says later in Road to Serfdom, "there can be no doubt that some basic measure of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody" (148). But he makes a distinction between "security against severe physical privation" (of which food stamps are an example in the United States) and the idea of having government become responsible for feeding the population, as Professor Ghosh says, or of entering the market to "provide critical foods at reasonable prices in order to dampen the effect of speculation," as the commentator in the NPR story puts it.
If "middlemen" are actually manipulating onion prices in India by withholding onions from the market, this would create a business opportunity for other middlemen to sell their own onions for lower prices. Of course, if the government has not created an environment where those new sellers can be assured that they will not be threatened with violence, beaten, or killed for doing so, then it is really a lack of free markets that is causing the problem, not "free markets" themselves.
In fact, rising food prices and scarcity can often be traced back to governments failing to actually provide the environment for free market activity, or (even worse) directly interfering in the market and causing even more disruption (such as government mandates that Americans burn food in the form of corn ethanol in their automobile engines). Do listeners to NPR really think that food in this country or any other would be better distributed if it were "managed" by the government? The Soviet Union, in spite of its tremendous resources, was unable to adequately feed its citizens in spite of its best efforts at central planning, and even today those countries in the world with economies based on central management depend heavily on food supplies from those that allow "free markets" (as an aside, we make an important distinction between free markets and free enterprise, which we discuss here and here).
We agree with Friedrich Hayek that in free societies, government can and should use tax dollars to provide security against severe physical privation. When Professor Ghosh says that governments can't just let people starve to death if they don't have enough money, we agree with her. But, we would change her statement to read, "there are some things that are just too important to be managed by the government, and food is one of them."
Subscribe (no cost) to receive new posts from the Taylor Frigon Advisor via email -- click here.
The story featured quotations from those blaming "middle men" or "market mafias" who manipulate prices even further by holding back supplies until prices rise, and then brought in a professor of economics from Nehru University in Delhi, Jayata Ghosh, who says:
"You know, I think there are some things that are just too important to be left to the free market, and food is one of them, because food is essential. You have to feed your population; you can't say, 'Well, too bad, if you don't have the money you can just starve to death.' So food has to be managed."
Professor Ghosh sounds like a very charming person, but we must take exception to her statement that "there are some things that are just too important to be left to the free market," and point out that by framing the issue in this manner she is committing the error which Friedrich Hayek warned about in his famous text, Road to Serfdom, of assuming that the free choices of individuals does not constitute "managing."
As we pointed out in a previous post in response to a similar quotation made by a public official in this country, both sides in this debate want goods (in this case, food) distributed by the best method possible -- the question is whether distribution is best managed by a central body of governing officials or whether it is best managed by the free choices of individuals who are left to themselves to pursue their own interests.
As Hayek put it: "it is not a dispute on whether we ought to employ foresight and systematic thinking in planning our common affairs. The question is whether for this purpose it is better that the holder of coercive power [i.e. the government] should confine himself in general to creating conditions under which the knowledge and initiative of individuals are given the best scope so that they can plan most successfully; or whether a rational utilization of our resources requires central direction and organization of all our activities according to some consciously constructed 'blueprint'" (41).
Professor Ghosh goes from the assertion that "you can't just say, 'Well, too bad, if you don't have the money you can just starve to death'" (and we would agree with her that free governments cannot say that) to the assertion that therefore "food has to be managed."
Hayek also agreed that, as he says later in Road to Serfdom, "there can be no doubt that some basic measure of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody" (148). But he makes a distinction between "security against severe physical privation" (of which food stamps are an example in the United States) and the idea of having government become responsible for feeding the population, as Professor Ghosh says, or of entering the market to "provide critical foods at reasonable prices in order to dampen the effect of speculation," as the commentator in the NPR story puts it.
If "middlemen" are actually manipulating onion prices in India by withholding onions from the market, this would create a business opportunity for other middlemen to sell their own onions for lower prices. Of course, if the government has not created an environment where those new sellers can be assured that they will not be threatened with violence, beaten, or killed for doing so, then it is really a lack of free markets that is causing the problem, not "free markets" themselves.
In fact, rising food prices and scarcity can often be traced back to governments failing to actually provide the environment for free market activity, or (even worse) directly interfering in the market and causing even more disruption (such as government mandates that Americans burn food in the form of corn ethanol in their automobile engines). Do listeners to NPR really think that food in this country or any other would be better distributed if it were "managed" by the government? The Soviet Union, in spite of its tremendous resources, was unable to adequately feed its citizens in spite of its best efforts at central planning, and even today those countries in the world with economies based on central management depend heavily on food supplies from those that allow "free markets" (as an aside, we make an important distinction between free markets and free enterprise, which we discuss here and here).
We agree with Friedrich Hayek that in free societies, government can and should use tax dollars to provide security against severe physical privation. When Professor Ghosh says that governments can't just let people starve to death if they don't have enough money, we agree with her. But, we would change her statement to read, "there are some things that are just too important to be managed by the government, and food is one of them."
Subscribe (no cost) to receive new posts from the Taylor Frigon Advisor via email -- click here.