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Source link: http://archive.mises.org/14158/did-the-free-market-burn-down-the-house/

Did the Free Market Burn Down the House?

October 6, 2010 by

A strange argument emerged overnight that illustrates how little even informed people understand about the market economy and its implications. This time the debate centers on a interesting case of a man in rural Tennessee who did not pay his fire-services fee, so the fire department let his house burn down. Here is the news report.

You can see that this incident is being used to attack libertarianism.

National Review’s Daniel Foster jumps in to say that this is why conservatives need to curb their enthusiasm for the market economy. A colleague in the “anarcho-capitalist” camp stuck his head into Daniel’s office to explain that fire protection is not a human right, so it makes sense that the house was allowed to burn. Paul Krugman (he never goes away) adds that this is a case against the market in general. “Do you want to live in the kind of society in which this happens?”

I don’t get this debate at all. It is not even a real debate. The fire-protection services were government services. The fee in question was a government-mandated fee. The county lines in which the fee was applicable is a government-drawn line that is completely arbitrary. The policy of not putting out the fire was a government policy enforced by the mayor. As he said, in the words of a good bureaucrat, “Anybody that’s not in the city of South Fulton, it’s a service we offer, either they accept it or they don’t.”

So why is the market being criticized here? This was not a real market. Instead, this is precisely what we would expect from government. In a real market, there is no way that a free-enterprise fire service would have refused to provide the homeowner service. They would be in business to provide that service. The fire would have been put out and he would have been charged for the service. It is as simple as that. It is the same as lawn-mowing services or plumbing services or any other type of service. Can we know for sure that the market would provide such services? Well, if insurance companies have anything to say about it, such services would certainly be everywhere.

As it was, the fire burned down as a result of government policy, a refusal of service because the homeowners did not pay what amounted to a tax! The poor homeowner begged for help and offered to pay. He had paid the year before and the year before, so his credit was good. Even so, the bureaucracy refused! (The whole thing reminds me of a scene from Gangs of New York.)

A market doesn’t just mean fee-for-service. The government cannot mimic the marketplace by merely setting prices on its services. A free market means that producers are responsible to consumers in a world of private property and free exchange. Why is this so difficult to understand?

Robert Murphy gets it. So does David Henderson. Salon, meanwhile, writes up the news with a picture of Hayek next to a burning house.

{ 251 comments }

Brian Bowman October 8, 2010 at 7:15 pm

If your “Big Idea” held true, then there would be no private fire departments in California. But there are. And they do not even have to operate as underground or black markets.

If your “Big Idea” held true, there wouldn’t be any free market anywhere in the US, because government has the power to just take it away by whim – as it sometimes does, eg., Obomney Care.

Despite government socialized programs and their hindrances on free markets, there is plenty of free market business going on in the US, and your “Big Idea” fails the basic sniff test.

Phinn October 8, 2010 at 7:46 pm

If you want to act like a clown, I can’t stop you. The proposition I am describing is simple — government enterprises displace or inhibit private enterprises. Do you honestly want to put your name behind the claim that this statement is not true? Really? Is that the hill you want to die on?

It’s rather childish and silly to suggest that this Displacement Effect is untrue simply because, in some contexts, the displacement or inhibition of private enterprise is something less than complete and absolute. After all, you are the one who has been prattling on and on about how there are degrees of freedom and unfreedom. That much is true, and the same principle applies here — there are degrees of displacement/inhibition of private enterprise.

In many cases, the displacement is total (e.g., Obion County), and in some cases the displacement exists, but the situation still allows some small room for a reduced level of private enterprise activity to survive the Soviet-style domination of the local industry (e.g., California wildfire response).

I submit that the latter scenario (a partial displacement) occurs where the incomes of residents are sufficiently high that they can afford to pay both the socialist fire taxes and the private fire-response fees as well, and where the property values are sufficiently high to justify that double payment.

Brian Bowman October 9, 2010 at 2:57 am

…where the incomes of residents are sufficiently high that they can afford to pay both the socialist fire taxes and the private fire-response fees as well, and where the property values are sufficiently high to justify that double payment.

There is no “displacement;” the county residents of Obion outside of the village simply are not paying taxes for fire protection.

If they chose to pay for a private fire brigades services, they would be paying only that single fee, since nobody is taxing them or forcing them to pay for any other fire protection fees from the “socialist” village.

G8R HED October 11, 2010 at 9:38 am

Regardless of the socialist or non-socialist status of the responding fire department the free market did not fail.

It has already been demonstrated that free market options are limited by socialist policy. The owner of the structure that burned had choices, although limited by policy, for protection in the event of fire.

Thus far all the comments have focused on public vs. private fire protection institutions.

This does not give free market options full consideration.
Are there free market options for automatic sprinkler systems that engage when smoke or fire is detected?

If these are available, would the decision to purchase be effected by manditory participation in tax-supported fire districts?

If they are not available, why not?

The question in light of the availability of automatic sprinkler systems where participation in a fire district is voluntary is, why not have automatic fire protection?

Garrett April 21, 2011 at 9:13 am

I am just going to post my response to a discussion about this article on another site:

He says that “They would be in business to provide that service. The fire would have been put out and he would have been charged for the service. It is as simple as that”.

Only, you guessed it, its not as simple as that. This guy clearly hasn’t spent very much time in business to know how obviously false that assumption is. He is assuming that because the guy was offering to pay money, then the fire would have been put out because the private business is out to make money so they would have taken the money and the service would have been rendered.

The only problem is that they couldn’t just collect $75 and put out the fire on the spot because then NO ONE would ever pay the service fee until their house caught fire. And the cost of putting out just his fire would GREATLY exceed $75 anyway. So by just collecting the fee, the company would have LOST money on the transaction. Therefore the fire would NOT have been put out.

But, what about the “I’ll pay anything” line. Now the company can charge any amount, maybe even the full cost of putting out the fire plus 9% (because you want to make money) and that would be a net gain for the business. Only, you can’t assume that he will pay you just because he says so. This guy’s house is on fire, he has much higher priorities after the fire is out, than paying the company. Depending on the destruction, he may have immediate needs that are far greater. Not good for the company.

So, they would need to break out some serious paper work to ensure that he would be indebted to the company. And this guy is SUPER risky as an investment because he is entering into the relationship ALREADY with huge amounts of financial chaos.

Not to mention the MASSIVE problem of the contract law concept known as “Duress.” The Duress concept says that contracts are basically UNENFORCEABLE if signed under duress. It would be child’s play to litigate that the gentlemen would NOT have to pay the company because the contract was signed under the duress of his house burning down.

Jordan Viray April 21, 2011 at 1:31 pm

“And the cost of putting out just his fire would GREATLY exceed $75 anyway. So by just collecting the fee, the company would have LOST money on the transaction. Therefore the fire would NOT have been put out.”

Who knows, it would depend on the fire. In any case, a business that does not charge enough to cover its costs would not last. Maybe the price would be $300, maybe not – but there will be a price where entrepreneurs will enter.

“But, what about the “I’ll pay anything” line. Now the company can charge any amount, maybe even the full cost of putting out the fire plus 9% (because you want to make money) and that would be a net gain for the business. Only, you can’t assume that he will pay you just because he says so.”

Mobile banking, electronic transaction, credit check, arrangement with an insurer etc…

C. Plumber October 10, 2011 at 6:01 am

Mr. Tucker:

You are right on! A human being will be (extremely) motivated when self interest is in pursuit. A private business owner will work 20 hours if it benefits his/her bottom line. A politician will cut or raise taxes if it means re-election. Any rational human being will behave in a way that he/she benefits something.

Case and point. You mentioned if the insurance companies could have their say, they’d be a fire department on ever corner, ready, willing, and able. Again, because it is in their best interest.

However, government should provide basic services, i.e. homeland protection, justice system, police, fire, ambulance, etc.

Tessa November 18, 2011 at 1:08 pm

Why should government provide “basic services?”

Dave Cassidy (Arte) November 18, 2011 at 12:10 pm

Just glad I don’t live over there. If you paid for the services via taxes, they would probably be deliverable a hell of a lot cheaper. The rabid anti taxation mentality over there is bemusing. Over here we pay a bit more in taxes up front. rather than getting hammered 20 times by the back door like you guys. All a question of balance.

Jordan Viray November 18, 2011 at 6:41 pm

“If you paid for the services via taxes, they would probably be deliverable a hell of a lot cheaper.”

Because an entity that operates without competition and without the benefit of market price and profit signals will magically figure out how to deliver services better. Why don’t we pay for everything by taxes since the government is so much better at running enterprises than the market is? It worked well for the Soviets, right?

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