How to Stop Worrying and Love the Free Economy by Eamonn Butler
Economics is usually dry and impenetrable but in this slim volume Eamonn Butler explains the workings of market economies in a light but non-trivial way.
Books on economics are usually substantial but if The Best Book on the Market were fiction, at around thirty thousand words, it would barely qualify as a novella. Indeed many novels are harder to read than this book by Dr. Eammon Butler who is a Director of the world renowned think-tank, The Adam Smith Institute. His qualification are therefore not in doubt but his writing will come as a surprise considering the subject.
Exchange and Markets
The author is clearly excited by markets, at all levels, and their workings. He starts with an example of a tiny business in a Chinese street market and uses it as a platform to explain why and how markets operate as they do. He explains why sellers of particular products, say shoe sellers or butchers, often congregate in the same locality.
He then builds on the nature of exchange and the virtuous circle that comes from specialization which enables efficiencies and accumulation of capital to support further gains. It can be deduced from these ideas why micro-finance in the developing world can be so powerful.
Price and Information Flow
Dr Butler explains how prices are established and that they provide buyers and sellers with information, albeit imperfect. He explains how price is a messaging system and a discovery mechanism for establishing supply and demand. Accordingly it is also price that drives the elimination of waste.
Regulation and Subsidy
By disturbing the messaging system subsidy and other pricing control mechanisms, usually by government, distort the information about supply and demand. As a result the market becomes less efficient which explains why centrally controlled economies have unintended consequences of shortages and the rise of black (free) markets is an inevitable attempt to recreate the natural workings of a market.
Having explained why competition is positive and the need for entrepreneurs, and even speculators, this little book goes on to address why honesty is the best policy and how the market creates rules. Consequently human psychology and interference by regulation distort the information flows creating boom and bust, bubbles and recession or depression.
Rules and Morality of the Market
The author argues that exchange is built on trust and brands communicate such a promise. This is why the longer a business or brand exists the more it is trusted – if a business has not established trust it will struggle to survive. He also describess why property rights, including human effort as in intellectual property, are so important to workable markets and that the choice of rules determines the outcome.
Growing the Market
Dr Butler finally moves on to how markets are grown and after showing how the Russian government does not yet fully understand markets; it is probably inevitable at this stage as it takes time to rebuild human institutions.
After considering how the market and the necessary trust are established in global Internet based markets the book then moves back to using the developing market in China and how it is growing more slowly, and accordingly with less disruption, than in Russia.
Finally the author moves back to his original small business in the Chinese street market, a seamstress who sewed by hand, and how her business might grow. He finally makes the point: “I’m sure it won’t be income redistribution, nor the communism of the past, that will raise her and ... It will be hard work, customer service, luck, incentives, ambition and enterprise.”
This small book is a most enjoyable, even light-hearted, read for anyone with an interest in business, economics or the politics of capitalism. Putting over the workings of such a complex topic as the workings of market economies with such a balance of wit and clarity requires a great writer with a complete understanding and passion for the subject. At a time of economic uncertainty it should be read by all Finance Ministers.
The Best Book on the Market is published by Capstone Publishing ISBN: 978-1-90646-505-6
First appeared on Suite101