In The Spontaneous Redistribution of Wealth Part I: Division of Production Cost, I illustrated the production side of the market in the terms of the Left. I claimed libertarian laissez-faire capitalism is a system more fair, just and equal in any terms, than any system engineered by the left. Liberty naturally evolves into a situation of equality that benefits all, while a socialist system necessarily is divided into two classes: those using coercion (the political class), and those being coerced.                                                           

In showing this, I used an example of the services of dental care, which we all know to be expensive yet well worth its cost. The production cost is initially much higher than the marginal cost to produce the specific product or service you purchase, and someone will have to bear those costs.  My argument was that it is better for everyone if the initial costs are paid for by the entrepreneur and then distributed upon his/her consumers.  

Somebody might argue that the price may still be too large for some individuals, and this unequal possibility to use the products or services may create a divide between people in a community (thus creating classes). This may be true if one believes the market is single-sided, and only exists to produce. But the market clearly consists of both supply and demand, meaning there is an ever ongoing cooperation between producers and consumers to fulfill the needs of everybody acting in the market (i.e. everyone relies on services provided by other people, and are therefore not self-sufficient).  

We have already seen how the market spontaneously by voluntary means “acts” to minimize the costs of production. The market also acts to minimize the costs of consuming, i.e. the purchase price. What is usually referred to here is the possibility to choose a cheaper supplier of goods and services if one is not satisfied with the terms offered. This is true, and this is an important lesson on how the market functions, but it is far from the only means to minimize the costs of the consuming individual.  

Most crucial high-cost services are a threat to anyone’s budget because they are of large amounts, occur suddenly, and can come rather unexpected: dental care, health care, automobile repairs, and perhaps fire in one’s home. Because of the risk of such costs arising, it would be in everyone’s interest to always keep at least one year’s full pay in a safe bank deposit box somewhere. But this is clearly not possible for a large portion of the population.  

These people, whom we might call “poor” considering the risks associated with uncovered costs they face, would appreciate if they were relieved with this risk. You might also put it this way: these people are in a greater need than others, because they face a risk they may not be able to face single-handed.  

It would be much better if someone could take the risks of these people and take the costs in their place. This would surely lessen their burden and make them more “free” (in a positive meaning). And it would make the burden much more equal too, since nobody would have to be weighed down by possible future ruin.  

There are people offering to coordinate the risks of people not being able to cover such costs. They promise to take care of any such unexpected or uncovered costs, to the benefit of anyone volunteering to use their services. (In the marketplace such institutions of coordination of risk are called insurance agencies.)  

This does not only mean the cost is divided into many small payments that are much easier to bear, but also that there is a redistribution process among the clients of the insurance agency – the healthy pay relatively more (relative to the expenses) for their health care with a health insurance than do the unhealthy, the strong-toothed pay relatively more for their dental care with a dental plan than do the weak-toothed, and so on.  

In terms of economic resources and economic and social freedoms, these risk-takers are liberators for the not-so-financially-strong in society. As such, they should be rewarded. The small fraction of their yearly or monthly fee that aims to cover the probability of all clients’ risks happening at the same time is their reward. As long as this probability is not reality, they will profit.  

As we can see, just as is the case in production and production costs, the market spontaneously and by voluntary means “acts” to minimize the costs of all consumers (i.e. all of us). It is to the benefit of everyone, but the benefit is greater to those who are financially weak than to those who are financially strong.  

I claimed in the beginning of The Spontaneous Redistribution of Wealth Part I that I would show that laissez-faire capitalism is much better at creating equality and satisfying needs than any socialist system; I believe I have.  The market distributes the costs of production upon a large number of consumers, and it may distribute the costs of purchase upon a large number of presumptive consumers. This is all done spontaneously by free individuals acting in their own self-interest, while any fraction of equality created in a socialist system is based upon the existence of coercion, i.e. by the division of mankind into rulers and ruled.  

The left blames the market for causing inequalities because in times of radical change, there seems to be growing differences between the wealthy and the poor. But they fail to see this is only a result of wealth not being created everywhere at once and at equal speed. Wealth is created only where entrepreneurs seize the moment to provide those in need with what is needed. The conclusion about the rhetoric of the left is they are ignorant.  

Blaming the market for causing inequality is like blaming the sun for causing darkness.

January 21, 2004