Direct effects of the intervention
The laissez faire market can be described as a situation where there is no acts of aggression against persons or their property. Any action is voluntary in this situation. In order for man to take action, he must, first of all, feel some kind of discomfort, secondly, he must have an idea of a more satisfactory state than the present one, thirdly, he must believe that his action can reduce this discomfort. By his actions he tries to achieve always a more desirable state than the present one and maximize his satisfaction. As Rothbard wrote: „Any action, any exchange that takes place on the free market or more broadly in the free society, occurs because of the expected benefit to each party concerned”.
So, every person taking action believes that what they do is the best possible option to maximize their satisfaction. Of course, human goals are very different, and each person’s satisfaction can be achieved differently. However, in economic analysis we don’t evaluate these goals. We just say that people set themselves goals and choose the most appropriate ways to achieve them.
A man taking action is convinced ex ante (that is, in advance, before something happens), what will benefit him most. Any intervention that forces a person to make a different decision from the one he would have made if he had been allowed to act freely must lead to less satisfaction. The exception may or may not be a triangular intervention, where one subject loses to another. Rothbard writes:
„In autistic and binary intervention, each individual loses in utility; in triangular intervention, at least one, and sometimes both, of the pair of would-be exchangers lose in utility”.
As the action is geared towards an uncertain future, it carries a risk of failure. We have talked about the fact that the person taking action expects to benefit most from it. However, since no one knows the future, a person may not be right in this belief. It may turn out ex post (that is, after the fact) that he made a mistake. Rothbard explains that the market has certain ways to maximize not only the expected satisfaction, but it also promotes maximization of satisfaction after the fact, because „it works for the rapid conversion of anticipations into realizations”:
“Error can always occur in the path from ante to post, but the free market is so constructed that this error is reduced to a minimum. In the first place, there is a fast-working, easily understandable test that tells the entrepreneur, as well as the income receiver, whether he is succeeding or failing at the task of satisfying the desires of the consumer. For the entrepreneur, who carries the main burden of adjustment to uncertain consumer desires, the test is swift and sure—profits or losses. Large profits are a signal that he has been on the right track; losses, that he has been on a wrong one. Profits and losses thus spur rapid adjustments to consumer demands; at the same time, they perform the function of getting money out of the hands of the bad entrepreneurs and into the hands of the good ones. The fact that good entrepreneurs prosper and add to their capital, and poor ones are driven out, insures an ever-smoother market adjustment to changes in conditions. Similarly, to a lesser extent, land and labor factors move in accordance with the desire of their owners for higher incomes, and more value-productive factors are rewarded accordingly. Consumers also take entrepreneurial risks on the market. (…) Consumers are not omniscient, but they do have direct tests by which to acquire their knowledge. They buy a certain brand of breakfast food and they don’t like it; so, they don’t buy it again. They buy a certain type of automobile and they do like its performance; so, they buy another one. In both cases, they tell their friends of this newly won knowledge. Other consumers patronize consumers’ research organizations, which can warn or advise them in advance. But, in all cases, the consumers have the direct test results to guide them. And the firm that satisfies the consumers expands and prospers, while the firm that fails to satisfy them goes out of business”.
It is worth noting that at the time when Rothbard was writing these words, there were not yet such excellent methods of evaluating products before buying that we have today. Today, we can find on the Internet opinions, evaluations and reviews about almost every product or company that help us make better decisions.
In light of this information, considering the possibility of error does not alter the conclusion, the intervention is likely to reduce the satisfaction achieved. Especially when we realize that the intervener has even less knowledge than the consumer required to make the best decision.