The butcher, the brewer and the baker vs. the government

Rivals or partners?

Heads up – I’m about to drop some (attempted) philosophy here:

“He who believes in the infallibility of the free market is crazy; he who waits for the government to save him is a fool;
He who believes that both have their own domain is intelligent; he who believes they should share the same domains is wise”

Communism and Capitalism in their purest forms are just as bad as each other. Communism ignores individual incentives, and capitalism ignores important things that don’t generate profit (e.g. social equality, the environment). Consequently, most would agree that some tasks should be undertaken by the free market (with an eye to efficiency), and others by the government (with an eye to equity).

In Wealth of Nations, Adam Smith promotes the free-market with three simple activities:

“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest”

This means that simple activities like this should be undertaken by the free-market. The butcher, brewer and baker don’t do these activities out of the goodness of their heart – they do it out of self-interest (to earn a wage). And yet this self-interest provides another family with their dinner, and the butcher, brewer and baker with the means to purchase their own dinner.

Conversely, the quintessential government intervention is healthcare – an industry that generates benefits far beyond the individual receiving the service, and far beyond the free-market’s ability to capture as profit. Consequently, to ensure healthcare that is affordable and adequately provided, government is needed.

One might therefore conclude that some things should be left to the free-market, and others to the government.

But I go one step further.

Even the most ardent free-market supporter would concede that the butcher, brewer and baker – the poster-boys of the free-market – should be subject to some form of occupational health and safety regulations. Similarly, while the government should assist in making basic healthcare affordable for everyone, the removal of all free-market incentives (e.g. patents and the ability to charge profitable prices) would discourage research and development into new medicines and treatments.

My point is that the free-market and the government are not each other’s alternatives – they are each other’s partners. Everything in society should be a mixture of both – from entire economies, to industries, companies, and even individual human beings. All our decisions should be based on private incentives and public concerns, not just one or the other.