By: R.J. Moeller

We've already covered Scarcity, Property Rights, and Division of Labor, and so today we move on to 4th "Free Market Essential":

Competition

When you combine scarcity with property rights and division of labor you inevitably arrive at “Competition.”

When a man, let’s call him Bill, decides to become a dentist, he has chosen a profession that will require him to be reliant upon other people to produce his food, clothes, and shelter (Division of Labor). Bill is able to purchase the goods and services he wants and needs because the fruits of his labor (i.e. clean teeth, root canals, etc.) were rewarded with compensation from his patients, and he has exclusive claim to that compensation (Property Rights). His patients came to him because there were only a certain number of dentists to choose from (Scarcity).

But even with only a limited number of dentists in the world, when you open your Yellow Pages you see a list of offices to choose from. Bill’s patients chose his office because he was either better or cheaper than the dentist down the street.

This is Competition.

It is as natural as fish in water or syringes in Mark McGwire’s back-side. Competition gives us the freedom to choose. Competition breeds invention and innovation. Competition, in its proper legal and moral context (more on this later in Part 6), is necessary for human beings to achieve their full potential in the marketplace of goods, services, and ideas.

Please understand that I’m not advocating the “Gordon Gekko” cut-throat, self-indulgent caricature of competition that unfortunately exists in any system that offers personal freedom. When corruption or extortion takes place, we need vigilant citizens and consumers, and we need the government to serve as the umpire (rather than one of the “players”).

If ten people open a doughnut shop in Arlington Heights, IL, and one of the owners of one of the shops is Uncle Sam, it will only be a matter of time before most (if not all) of the other shops close down. They can’t compete with someone who doesn’t have to worry about profits and can charge less for the product while paying their employees more (in order to keep them voting for politicians who in turn promise to increase all government doughnut shop workers’ salaries).

This is why things become so convoluted and inefficient when the government runs more and more of the economy. The government never has to meet a budget, never has to turn a profit. Their entry into any market disrupts one of the key components necessary for a competitive market to succeed: information.

When the government is subsidizing risky loans that they forced (via legislation) banks to give out to people who couldn’t afford to pay them back, the lines of communication that enable an economy to properly function have been broken. The behavior of mortgage lenders changed because the federal government intervened and became a player in the housing industry. There wasn’t genuine competition going on. It was a ponzi scheme that would make Bernie Madoff blush.

Free market competition didn’t tank our economy: reckless behavior instigated and encouraged by our own government did.

Competition isn’t the problem. Competition is what makes sports worth watching. It's what fueled the pioneering spirit that tamed the Wild West. It’s what spurs bio-chemists to create a life-saving medicine quicker than the “other guy.” It’s what keeps people on their toes and from growing complacent and indifferent in their work (a hallmark of communist societies).

If everyone won, if the entire world was run like a grade school’s Field Day Awards Ceremony, you can rest assured you wouldn’t be reading this essay on your iPhone right now.

But there is an even more important benefit of competition to consider: de-centralization of power. People hate monopolies in business, but often don’t know why. The reason monopolies are almost always a bad thing is because they leave the consumer with no options or recourse if they are unsatisfied with the good or service the monopoly provides.

The same idea rings true in terms of how powerful a government becomes. When everyone is an employee of the “State”, when a federal government knows the people have to come to them for everything, freedom disintegrates.

Political and religious freedom separated from economic freedom will ultimately lead to no freedom at all. For economic freedom to thrive and survive we must be allowed to compete; to incur the risks and reap the rewards of our own decisions.

(In Part 5 we address the "Rule of Law")