Free Markets (9) - Economic Risk

Participation in a market economy is risky, because no one knows the future. The safest way to live is in subsistence. If I grow all my food and and produce all my clothing, I have a high degree of security, because I am not dependent on anyone else. By putting in a water storage system, I could even eliminate my dependence on the weather. However, subsistence living is very inefficient, because producing food would take so much time that I would have very little time for making other things that I might want. The subsistence lifestyle provides security, but the cost is a very low standard of living.

Most people will prefer to specialise in something that they are good at. They will produce more than they need and sell it on the market (often their labour). The can buy the other things that they need with what they earn. This raises their standard of living, but it increases the risk, because they are now dependent on other, unpredictable people. If the other people lose interest in what I am producing, I may find that the price falls, or I am left with a surplus that I do not need and cannot sell. My standard of living will decline rapidly. I may even wish that I had stayed with subsistence living.

I may look for someone to blame, but no one has done evil to me. The people who stopped buying what I produced, because they could get something better elsewhere, did no wrong. I made a decision in the face of future uncertainty and got it wrong. I acted on the assumption that I would continue to be able to sell my surplus. Because my guess about the future proved to be wrong, I will suffer (just like the football player entering a collision).

I may want to blame someone, but no one is morally responsible for my plight. I cannot even say that I sinned. Making a mistake about the future is a human frailty, and not a sin. Only God knows the future. It may be that he warned me that my decision was a mistake and I ignored his warning, but I am not sure that he always does warn us in this way.

Participating in a market is always risky because the future is uncertain. I could avoid the risk by staying out of the market and producing all that I need for myself. But the returns to the risk of participating in a market economy are so great, that most people prefer to take the risk. It would be great if that risk could be eliminated, but the risk free life is a poor one.