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OLD MUTUAL

FAMILY BUSINESS

HOW IMPORTANT IS MARKET FORCES?

Fanie Brink, Independent Agricultural Economist

 

Already after the creation of the earth when the population increased rapidly there were people who had needs for food and clothing that were noticed by the "entrepreneurs" of that time. They wondered if they would give someone a basket full of potatoes whether it may be possible to exchange it for clothes that could again be exchanged for something else on favourable terms that would be acceptable for both the parties involved in such an exchange transaction. It was the beginning of physical exchange transactions and the first development of the economy on earth and it is just as important today except that money has become the medium of exchange.

Over time, however, something went terribly wrong when most people and governments began to think that everything in the economy from prices, interest rates, exchange rates, gains and losses to salaries and wages are more important than the market forces of supply and demand. While it has always been merely the results and consequences of or in a relation to the operation of market forces. If, of course, it was not distorted and overturned by the unrestricted interference by governments in the market forces, as well as the market prices, by regulating, for example, fuel prices, electricity tariffs, minimum wages and interest rates as we are experiencing in South Africa.

Most government leaders do not understand that prices must perform an extremely important function in the market and must therefore freely be allowed to send the right price signals to the market participants that will always balance the supply and demand at a market equilibrium. They also do not understand that price levels (inflation) are determined by all the local and international political and economic factors that influence the demand and supply of goods and services, as well as the value of the currency, respectively, and not by the delusion about monetary policy that is only focused on the demand side of the economy. Nor that economic growth is created from the supply and demand side of the economy that is driven by the profit motive and that supply and demand are equal after all, as evidenced by Statistics SA every quarter. This means that no economic growth is possible if one side of the market does not also make an equal contribution as the other side to economic growth.

ASLO READ FACTS AND REALITIES- Fanie Brink

 Consequently, the governments of virtually all the countries in the world thought that they could better perform the functions of the free market forces by enforcing legislation on their people in order to do everything possible to stay in power, regardless of its devastating consequences, such as no economic growth, greater poverty, unemployment and the misappropriation of taxpayers' money.

It was in fact the beginning of socialism and communism in the world that destroyed the economies of many countries in the past and as it still does today. They believed that everyone should actually work for the government and that everything produced and manufactured should be shared equally among all. This significantly strengthened the political survival of governments, but it still led to much worse problems. The power obsession with power and economic illiteracy of most governments have led to further legislation being introduced to take the money that active and productive people are earning to divide it among those for “doing nothing".

In the process, corruption has increased dramatically and as the historian and philosopher Alexander Tytler put it long ago: “A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover they can vote themselves generous gifts from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship. ” And further that “the majority, having become complacent and pathetic, choose those who promise to take from one group and share the spoils amongst those who are less productive. An apathetic population is not one that will suddenly decide to roll up its sleeves and get the country, once again, on a productive footing, but will rather jump on the wagon full of empty promises and rides it downhill until it reaches the bottom of the economy.”

It sounds extremely familiar as far as South Africa and the rest of Africa are concerned and why a political commentator in one of the African countries once said about the devastating effects of corruption on the economy: “People do not run out of Africa, they run away from Africa even though they run a great risk of drowning in the Mediterranean Sea! ”

The fact is that most political leaders are destroying the economies of their countries simply because there is nothing more important to them than the results of the next election, unless the opposition parties are strong enough to prevent it as far as possible as in many other countries, but which we do not have in South Africa, however.

 

The fact is that: "The economy is supply and demand - supply and demand are the economy!"


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