OP-ED: What is market manipulation?

Editor Note: This is the third and final part of a three-part op-ed regarding money. You can check out the first part and second part of this op-ed series here.

In the previous two columns, I explored what constitutes something as money and why there is an interest rate. I also briefly explored the history of the U.S. dollar and what affects interest rates.

In this column, I will dive into the manipulation of markets and what happens to them when they are manipulated.

Who does the manipulating? We all affect markets, depending on our subjective values, time preferences and actions based on them. The government, however, manipulates markets at greater magnitudes by granting and enforcing monopolies.

“There are two and only two ways of acquiring wealth: the economic means (voluntary production and exchange) and the political means (confiscation by coercion).”
– Murray Rothbard in Power and Market

Wall Street, banks, corporations, and insurance companies, are used, today, as scapegoats. While not innocent, because they try to limit their competition, they are unable to do so without the government’s help.

“…every cartel, every voluntary agreement by competing firms to raise prices and cut production, will inexorably break apart from internal and/or external pressures. A cartel cannot long succeed on the free market.”
– Murray Rothbard in The Progressive Era

Taxes

Taxes drain resources from the private market and the supply of money that banks have to loan out to individuals. This pushes interest rates up, decreasing the amount of longer-term projects and skewing consumers value scales. Not only do taxes take from a person’s income but from most if not all facets of day to day interactions.

This will cause a person to aim for a lower paycheck or capital gains as to decrease the percentage they are taxed and will likely cause some to choose unhealthy foods as long as they are within their budget.

Inflation

Inflation is a hidden tax that diminishes the value of people’s current money supply by increasing the overall supply of money. Those hit hardest by inflation are the furthest away from the original source which are often the poorest in society.

Those who benefit the most are the government and commercial banks. Those who deal directly with them will benefit from acquiring and utilizing the new money before inflation starts to kick in.

Subsidies

When the government provides subsidies it props up one enterprise or group of people at the expense of another, in more ways than one. Subsidies create price floors for consumers at the expense of taxpayers.

Everyone has less money and has to spend more money on consumer goods, either because the goods they bought were subsidized, like tobacco, and then taxed, or because the supply of the goods is less than it could be if producers were not incentivized to produce subsidized goods.

Another consideration is how many subsidized goods are being exported. The taxpayer is paying for these goods to be produced while foreign consumers reap the benefits of our subsidized markets.

Tariffs

Tariffs are said to be used to protect local businesses from outside markets. The way this happens is that the government makes it more expensive to purchase foreign products. Because producers can only push the expense of a tax on the consumer so far, the producer has to eat some of the profit.

This could result in fewer employees being hired, lower wages, less investment into research and development or even the use of cheaper, lower-quality materials to make a final product.

Mandatory prices

Whether high or low, mandatory prices disrupt markets. If a good or service is mandated at a higher price than one is willing to pay there will be fewer units of a good sold, more unemployment or producers will look into production saving innovations.

If a good or service is mandated to provide lower prices or wages, it will cause higher unemployment (at the choice of the possible employee), shortages of goods and likely black markets.

“Once society abandons free pricing of production goods rational production becomes impossible. Every step that leads away from private ownership of the means of production and the use of money is a step away from rational economic activity.“
– Ludwig Von Mises in Socialism: An Economic and Sociological Analysis