I find the free market fascinating because, many times, it offers valuable solutions that we are difficult to see. I was introduced to yet another great free market solution when I read an essay written by Peter Leeson titled Do Markets Need Government? The essay illustrates a true story that takes place in pre-colonial Africa.
Angolia, in the late 19th century, was a large exporter of beeswax, ivory, and wild rubber. The trade consisted of two groups, the buyers and sellers. The buyers were the European middlemen who hired agents to collect the goods. The sellers were the local Angolians. The European agents were armed and traveled in large caravans while the local producers lived in small villages and were often unarmed. Despite the fact that the Europeans had a power advantage over the locals, trade still existed.
There were times, however, that the European agents would kill off villages and steal all of the goods rather than paying. At this point in time, there was no government to intervene in these affairs. How could the free market solve a criminal problem such as this without a court system or police force? The free market solution happens to be very simple and does not require huge monetary costs. A typical government solution requires large sums of monetary value to create courts, jails, and police.
Here’s the solution: The locals sold the goods on credit and would not harvest any goods until payment was received and the agents were gone. Now, when the European agents stopped by the village, there would be nothing to take, as there were no goods harvested. The locals would then sell the goods on credit. After the locals had collected the money and the agents were gone, the locals would harvest only what was purchased. When the agents returned, the village only contained the goods that were already purchased. At this point, the agents had no reason to kill the locals, as there was nothing to steal. (You cannot steal something that you already purchased.) Additionally, if the locals were killed, they could not harvest the goods demanded by the agents in the future.
The beauty of the free market is that it creates new ideas constantly. Think about the technology industry. The iPhone is a great device that has a multi-touch interface and the capabilities to go online almost anywhere. Five years ago, I could not imagine such a device would exist today. Currently, I cannot think of any device that would be better. Despite my thoughts, I bet another five years from now will bring us a device that makes the iPhone seem like a PDA.