A Superb Regulatory System

To the esteemed members of the legislatures of the world,

Ladies and Gentlemen, I write to you today to tell you that I have devised a superb system to regulate economic activities in your countries. You revered statesmen have often noted that capitalism and the free-market economy cannot function without proper economic regulation of its actors, and I cannot agree with you more. I thus propose the following system of economic regulations, which I humbly suggest may work even better than the vast array of regulatory measures passed by you, the members of the world’s most distinguished assemblies.

             

           What is the purpose of having economic regulations? I submit that their purpose is to induce the owners of enterprises and factors of production, especially those that are not-so lovingly referred to as ‘capitalists’ in common speech, to obey the dictates of the sovereign people, the ones that will consume their products. My system will prove quite effective in fulfilling this purpose, and here is how. 

           Businessmen will only be granted monetary rewards if they take a combination of factors of production valued at a certain price by the world’s market participants as their input, and with it, turn out an output of products that the world’s consumers, the sovereign people, are willing to buy at a higher price than the combined price of the input’s component factors. By turning out a more highly valued output with a less highly valued series of inputs, the businessmen can be said to be serving the sovereign consumers in an appropriate manner, and thus deserve to be rewarded for their efforts.

   

           But what of the businessmen who do the opposite, who turn more highly valued inputs into less highly valued outputs? They should be punished for the disservice they are doing to the sovereign people, in proportion to their mistake, by making them lose some of their accumulated monetary assets, the amount depending on the magnitude of their error.

               

            But, hold on a moment, for what if a particular businessman finds a good way of turning less highly valued inputs into more highly valued outputs and does so indefinitely, reaping vast monetary rewards for himself? He surely deserves something for his contributions, but perhaps a never-ending stream of monetary income for doing the same thing over and over again is a bit excessive? I agree, but luckily, my regulatory system has a secret weapon to prevent this eventuality, and that works in other beneficial ways as well. I call this aspect of my system: competition. Businessmen will not simply be assigned certain tasks to perform forever that are beneficial to the world’s consumers; rather, each businessman will compete with others in order to find the best way of turning less valued inputs into more valued outputs. If one finds a lucrative opportunity to do so, others may follow his lead and copy his actions in hopes of reaping some rewards for themselves. How will they do so? By trying to bid away the factors of production that constitute less highly valued inputs from other businessmen. But to do so, they will have to pay higher prices than these factors were going at before. In this way, the price of the input-factors will keep rising as more and more businessmen compete to use them to produce valuable output-products, while the price of the output will keep falling as more is produced and offered on the market, tending towards an elimination of the discrepancy in the price of input and output itself! 

           This will, consequently, restrict the monetary rewards of the businessmen performing certain activities, to the extent that more businessmen copy them in doing so. Thus, by forcing the businessmen to compete against each other, they are not allowed to rest on their laurels and earn a steady stream of monetary rewards in this way, but must constantly exert themselves to find new discrepancies between input and output prices in order to keep reaping monetary rewards. Besides this, competition will generally force businessmen to save scarce inputs as much as possible and produce as attractive and as high-quality outputs that the consumers are prepared to buy at suitable prices as possible, or else their competitors will do so and drive the laggards out of their exalted positions in the economy.

           

           I must note, dear legislators, that there is one thing that will undermine my system more surely than anything else, and that is: coercion. If the aforementioned businessmen are able to use violent force themselves, or through devilish tricks are able to convince you honourable members to use the might of government to advance their ends, than the system is placed in great jeopardy. They may use such coercive powers to exact tribute from the citizens of the world which they will receive regardless of how well they serve the sovereign consuming public. These tributes I call subsidies. They may also use their powers to violently prohibit other businessmen from competing with them, which I call monopoly. They may, alternatively, give themselves competitive advantages over other businessmen, which I call special privileges. Or, they may put in place arbitrary barriers such as licensing or operating requirements, not demanded by the consumers through their purchasing decisions, or tariff barriers in order to hinder potential competitors. Coercion used in these ways will diminish the efficacy of my regulatory system, and thus must be prevented.

            

            But I have pontificated enough about the workings and benefits of my system. You, dear lawmakers, must now be wondering: how do we put such a marvellous regulatory system in place? I have the pleasure to tell you that not only will it not cost a penny for the government to implement, but the government will actually save money if they do adopt this system. To implement my system to its best effect, consumers must be allowed to purchase freely and producers must be allowed to compete in whichever line of business they want to in whatever way, provided that when doing so, they do not coerce unwilling consumers or competitors using physical violence. I call my system the Free-Market Profit-and-Loss System, and to implement it, dear legislators, you must: do nothing save use the government’s power to stop private individuals from using coercion to circumvent the desires of the consumers, and you must refrain from using the government’s power to aid, directly or indirectly, certain businessmen at the expense of others. You will then have a regulatory system that is better than any number of government inspectors at ensuring that businessmen are serving the sovereign consumers as efficiently as possible with as little waste as possible, and rewarding and punishing the businessmen accordingly with monetary rewards. If you want to protect the consumers, then preserve a system where the only way the producers can make money is by competing with one another to serve these same consumers in the best way.