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The Incredible Stuff Machine

Mises Daily: Saturday, January 14, 2006 by

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So those scurvy bums at Wal-Mart are finally getting what is coming to them! The state of Maryland will force all companies with more then 10,000 employees to spend at least 8 percent of their payroll on health insurance. Lots of companies have that many employees, but only one falls under the 8 percent threshold, which is you know who.

It is only the latest legislative blow dealt against the company that is finally accomplishing what everyone throughout all of human history dreamed of: plentiful food and goods available to all people in all places at low prices. What's to complain about? This is the mystery that cries out for investigation.

That success breeds destructive attacks is part of business lore. A classic in modern libertarian literature, for example, is the poem "The Incredible Bread Machine" by R.W. Grant. It tells the story of Tom Smith, who invents a great machine to bake bread and package bread so cheaply that it could sell for less than a penny. "The first time yet the world well fed, And all because of Tom Smith's bread."

But then Tom Smith developed a problem: success. His bread was everywhere, and he was rich. But soon the public began to decry the Bread Trust, and regulation smashed his company. The last two stanzas:

Now bread is baked by government.
And as might be expected,
Everything is well controlled.
The Public well protected.

True, loaves cost a dollar each,
But our leaders do their best!
The selling price is half a cent...
Taxes pay the rest.

The key to the story is antitrust regulations pushed by business competitors and cheered on by an envious public ignorant of economics. It's pretty much the same with Wal-Mart. Companies with whom Wal-Mart competes are only too happy in the short term to see the company get hammered for undercutting them on price. If you have been trying to fob off products for high prices for years – and these are essential to your profit margins – it must be torture to see Wal-Mart doing so well selling at a fraction of the old market price.

Herein lies not only the origin of antitrust but of vast numbers of business regulations. They are advocated by dominant firms that seek to impose harmful costs on smaller competitors (such as when Wal-Mart itself was pushing for a higher minimum wage) or by smaller firms that hope to impose punishing costs on more successful firms. The notion that these regulations are designed to benefit the public is just the ideological junk-food that is fed to Congressional committees and the general public.

The way to address this problem is for the state to cease to offer business the chance to unfairly compete in this way. If there were no regulations and no antitrust laws, businesses would not face the near-occasion of sin to use government as a way to clobber its enemies. They would face no choice but to innovate, cut costs, and serve consumers better than the other guy.

Much more troubling and mysterious are public attitudes. Wal-Mart was made successful because people like buying there. They like the prices and convenience. The public could bankrupt the company in a matter of weeks simply by failing to show up to make purchases. People are free to do so. That's the way the market works.

Maybe you hate Wal-Mart. Fine. Don't shop there. What's so hard to understand about that?

Why would the same people who enjoy the fruits of Wal-Mart's entrepreneurship also celebrate laws that harm the company? They believe that they can have their cake and eat it too. There is a lack of economic understanding in operation here. They have failed to understand that one of the reasons Wal-Mart can offer such good deals is that they are running an efficient enterprise.

But does it not come at the expense of the labor force? Of course all workers want raises in all forms, just as all consumers want products and services to be available at the lowest price. These are conflicting demands. At some point in the scale of wages and prices, the tradeoff between the two demands finds a clearing point. What that point is cannot be worked out by a central planner. It has to be discovered by the market.

The moral import of the market is its non-coercive core. The workers who work at Wal-Mart would rather be doing that than any other activity that is open to them. So too for the shoppers. It is the matrix of exchange that has made Wal-Mart a success. No one, unlike with government, has a gun pointed at his head. Everyone is making a non-coerced choice in favor of exchanging as versus not exchanging. Everyone benefits.

Does that seem elementary to you? Then you understand something that most sociologists, literary scholars, news commentators, preachers, and government officials apparently do not understand. You understand that mutually beneficial exchange is the building block of civilization itself.

You probably also understand that this law is not going to be good for Maryland. Fewer Wal-Marts will start up in that state than otherwise would. A legal climate hostile to business will deter future businesses from locating there. Some businesses may leave. Also, a less competitive environment for business will mean higher prices and less consumer choice. And why? So that Wal-Mart's competition can thrive on an inefficient business model. This law, then, rewards waste and punishes efficiency.

Now, there is a further complication in this case. A main complaint against Wal-Mart's wage policies is that its employees were draining too much from the state's Medicaid budget. This is an interesting point. Is it possible that Wal-Mart was, in effect, free riding off the taxpayers? Would it then be better just to roll those costs onto the back of the company itself? There is a superficial logic at work here, but it is the logic that leads to all-out business regimentation.

It is doubtful that in a truly free market business would normally provide any health benefits at all, any more than they provide you shoes, movie tickets, or scotch delivered to your door. These are things that you buy on your own. Medical benefits tied to employment originated as a scheme to get around government wage controls.

If the Medicaid free ride is a problem, there is a more direct solution. Get rid of this program too. What we need are Wal-Marts in the medical industry too, firms that provide great services at low prices. But they won't come about until we rid ourselves of the subsidies attached to public provision.

Meanwhile, the Incredible Stuff Machine will pay and pay for all the glorious things it has brought the world population, and the ignorant among us will clamor for the machine to be destroyed. Then the only big companies will be those created, run, and subsidized by the government.

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Lew Rockwell is president of the Mises Institute and editor of LewRockwell.com. Rockwell@mises.org. See his  Lew's Columns on Mises.org .