What “The Lord of the Flies” Taught us about Free Markets

Taking the lessons of the book “The Lord of the Flies” and applying them to the so-called “Free Market.”
I’ve often said that: Laws are only needed when you can’t trust people to do the “right thing.” Looking at another way, you could say that the honor system only works when you can trust everyone involved to be… well, honorable.

Because of the simple facts of probability, as a population grows larger and larger, the probability of everyone being “honorable” decreases, until you reach a population size where it is 100% certain that some people will be dishonorable. At this stage, laws are required if you wish to retain any semblance of order.

When people are left alone in a situation where there are no laws, no outside authority, chaos results – call it the “Lord of the Flies” effect.

Flickr image by Enrico Fuente
Flickr image by Enrico Fuente

This has ramifications for what is traditionally called the “free market.” Remember that the entities involved in a “free market” are, if not people themselves, they are companies which are run by people (and are treated legally as people).

The ideal “free market” is one “free” of any regulation – letting the market “regulate itself.” When you consider that the “market” is just people (acting through companies) – you realize that the “free market” approach is, essentially, leaving corporations (run by people) alone in a situation with little to no laws or regulation.

Obviously, the idea of such a group “regulating itself” is absurd. The inevitable end result of such a system can only be chaos: a “Lord of the Flies” situation, but with companies instead of people. Brutal authority from the strongest, meanest, most vicious and largest. Innocent people – the ones who try to do the “right thing” are pushed aside and eventually killed.

Consider this carefully. This is a very disturbing consequence for those of us on the “outside” of the market, because we are effectively the “Piggies” in this situation.

Traditionally we have tried to deal with this situation with laws – the rallying call of “regulate! regulate! regulate!” But laws have their own problems, which stem from deep, fundamental flaws with our classical lawmaking mechanism.

The problems with laws are that laws reflect the culture of the lawmakers. (I don’t mean the “culture” in the larger sense of the people from which the lawmakers come, although that plays a factor. Instead, I refer to the culture of lawmakers themselves.)

In a society where lawmakers’ primary vested interest is not the “rightness” of what they do, but rather their own welfare (in the form of being elected again), the resulting policy created will be one reflective of these values – short term solutions that only serve to get lawmakers elected again, rather than doing the “right thing.” Problems are pushed on the next generation, after the current generation (of lawmakers) is gone (term limits). The “planning horizon” of such a government is limited to the length of the terms of its constituent members. This creates a problem in that these term lengths are usually much less than the lifetime of the people who are governed. As a result, laws are short-sighted and ill-conceived – the “law of the week” effect.

It would seem then that the challenges involved in solving the problems which afflict us are so deep-seated as to be unsurmountable. But I do not counsel despair!

We know the changes we would like to see, the behavior we would like to encourage – so the answer is to simply reward the behavior we want, and discourage (or punish) the behavior we don’t. This answer is so simple and obvious as to be almost laughable – but it has been proven to work, in more ways than you might realize.

We often use these same techniques on our children – allowances for when chores are done and behavior is good, revoking privileges (TV, access to the car, computer time, etc.) when behavior is bad. We use similar techniques when training animals – reward desired behavior, punish (by way of revoking attention or treats) undesired behavior.

These then are our possible solutions: to make lawmakers accountable to the laws they create long after they have left office. In democratic societies, perhaps to make the people who elected lawmakers accountable for the mistakes of the lawmakers after they have left office. In other words, make the primary motivating factor of the lawmaker not be their immediate re-election, but rather their long-term reputation; the long-term reputation of the laws they create.

When we have done this, then we can give proper attention to the “markets” which seem to dominate so much of our society in this day and age, and make laws that are not just punitive, but thoughtful and deeply connected to encouraging good behavior in all respects.

If we can do these things, we will have set up a situation where markets can truly be both “free” and “good” in that they will be encouraged to do the “right thing” always. Instead of enforcing arbitrary “thou shalt not” laws, we will have set up a system which by its very nature is conducive towards creating and maintaining a responsible, ethical, and fundamentally “good” market. I think that such a market will be infinitely better – and, arguably, more free than our current, so-called “free market.”