28. The Law of the Market

The Laws of Business Success

Under the Laws of Business

The market is where buyers and sellers of products and services meet to set prices and determine the allocation of money, labor, materials, and all factors of production.

The market is a fictitious place, existing everywhere and nowhere. The market represents all of the millions of buying and elling decisions that take place every day at every level of society and in every area of private and public enterprise. The sum total of all of these decisions determines the prices of virtually everything that is not government controlled in our society.

The first corollary of the Law of the Market is
In a free market, resources will be allocated with complete efficiency and prices will accurately reflect supply and demand to that moment.

This "efficient-market thesis," usually applied to the stock market, says that all stock prices at the close of each day will accuately reflect all the information that is known about the present and future prospects of the companies represented by the shares. This thesis also says that knowledge of factors affecting prices will spread rapidly to those people whose economic interests are involved.

The second corollary of the Law of the Market is
The free market is the most efficient way for millions of people to have their needs met at the lowest possible cost.

The free market is perhaps the greatest miracle of all of human experience and human society. The free market forms spontaneously and operates automatically virtually everywhere-in the absence of government interference in economic activities or economic decision making. The freer the market, the more vibrant the economy and the greater the quantity of wealth and opportunity that is created for more people.

In Hong Kong, for example, there are virtually no government regulations, aside from traffic and police protection. The highest tax rate on income, personal or corporate, is 20 percent. Hong Kong is a tiny area with no natural resources. The former British colony contains approximately 5 million people living in a small space. Nevertheless, in the absence of government interference, it enjoys one of the most buoyant economies in the world. The little peninsula and island has produced countless millionaires and several billionaires. As the result of free markets, Hong Kong is so prosperous that it regularly suffers from labor shortages.

The third corollary of the Law of the Market is
The freer the market is from government interference, the greater the supply and variety of goods and services and the greater the prosperity of the people.

Each year, the Heritage Foundation of Washington, D.C., publishes its Index of Economic Freedom, ranking all the countries of the world on a scale from "most free" to "least free." Year after year, in comparison after comparison, this and other studies show that the health, wealth, general prosperity, and economic opportunity of the average person is higher in direct proportion to the openness of markets and the freedom of business from government interference and regulation.

Every intervention of the government in the freedom of the marketplace is made for a reason that sounds good and is ostensibly for the good of the public. But the real reason is usually to benefit or bribe some special interest or favored constituency. Each government interference ends up raising prices or reducing supply, ultimately penalizing customers by forcing them to pay more for a product or service than they would have had to if the market were unrestricted. To put it another way, interference in the marketplace seldom ever reduces prices for anyone on any product or service over the long term. Its purpose is usually exactly the opposite.

Business success depends upon your ability to enter the market with products and services that you can sell in competition with other similar products and services offered by your competitors. The free market enables a person to start with nothing but an idea, backed by energy and ambition, and build a great enterprise. One of your duties is to protect and defend this system by understanding it and supporting it when it comes under attack.

How you can apply this law immediately:

1. Become a champion of the free market. Recognize that open markets-where the customer is king or queen and all business success is dependent on serving customers with the things they want, at the highest possible quality and at the lowest possible price-are the best hope for opportunity and prosperity for the greatest number of people.

2. Study the other markets of the world and keep alert for new products and services, or innovative ways of offering or improving existing products and services, that you could copy and apply to your business. One good idea is all you need to give yourself the winning edge in your industry.

Source: Brian Tracy, The 100 Absolutely Unbreakable Laws of Business Success, Berrett-Koehler Publishers, Inc, (San Francisco, 2000).