Introduction
Different scholars have presented quality and practical ideas that can guide governments and investors to make evidence-based decisions and pursue their economic goals diligently. Milton Friedman argues that free markets are essential since they allow exchange to occur whereby the involved parties benefit in a symbiotic manner. Without consideration to percentage of benefits a specific player gets, it is evident that the involved participants will find the model advantageous. This becomes a positive aspect and the most important for every free market. Governments need to consider this kind of fact to create enabling conditions whereby buyers and sellers will benefit from the pursued deals.
Background Analysis
The concept of free market is founded on the idea that people will decide to act in a voluntary manner to sell or purchase their favorite services and goods. The involved citizens will have to be aware of the benefits they stand to receive from the process. When this promise is lost, chances are high that the market will no longer be free. With the right conditions and opportunities, more people will be willing to cooperate and participate in the wider process in an attempt to pursue their goals successfully (Fracchiolla, 2018). The government needs to consider this fact and provide adequate policies and guidelines whereby the freedoms and rights of the participants are safeguarded in accordance with the law. The cooperation and mutual agreements of all key stakeholders will create the best conditions and eventually deliver desirable results. These attributes resonate with Friedman’s observations of a free market.
Potentially Unequal Exchange
In 1914, the American Congress established the Federal Trade Commission with the sole purpose of supporting the integrity and performance of free markets in the United States. The agency has been compelling producers and manufacturers to provide accurate data and information to customers and ensure that their prices are optimal. The presence of the Consumer Protection Bureau (CPB) has been keen to prevent anti-competitive malpractices that can affect the experiences and outcomes of more stakeholders, such as retailers, customers, and producers (Henderson and Ramanna, 2015). Despite the measures put in place, unequal exchange processes and markets have continued to thrive in this country whereby some players have more powers.
Pyramid schemes are unique forms of procedures that affect the integrity and benefits of free markets. The first outstanding aspect of these investments is that they deceive investors to make huge profits if they manage to recruit more partners or potential buyers (Pendezza and Lamattina, 2019). The involved persons will rely on two approaches to achieve their goals. The first one is that of inventory loading whereby individuals are deceived to purchase more items that prove hard to sell successfully. The founders are the ones who will make increased profits from the entire process. The second aspect is that it will be impossible for the targeted sales to be recorded successfully. While the adverts try to identify the products as desirable in the market, it becomes clear that members of the general public are not interested in them.
One unique attribute of a pyramid scheme is that it will manage to deliver positive returns to the initial investors. However, such benefits will only be recorded within a short period. Hidajat (2018) views these form of investments as illegal because the eventually result in the loss of investments for many people after they eventually fail. The initiated program finds it hard to cope with the increasing number of participants who expect to reap their profits from the program. Those who have invested in such a scheme eventually find it hard to record additional gains or profits. Majority of them lose their savings and eventually find it hard to achieve their financial goals.
When the pyramid collapses, investors at the bottom would have thought that they would be making additional income from the process. Since, many people will be ranked at the bottom, chances are high that the entire scheme will result in enormous losses that the victims cannot recover. According to Pendezza and Lamattina (2019), the nature of pyramids reveals that over 70 percent of the people are usually at the bottom of the hierarchy. This makes it impossible for them to recover their losses. These individuals will lose their money, thereby challenging the dictates and requirements of a free market.
One of the outstanding examples is that of Gaylen Rust from Utah. This investor started a scheme whereby he lied to different investors that they could make around 40 percent additional income from their decisions (Means, 2019). When the program was unearthed, the emerging details revealed that Rust had managed to scam over 200 citizens around 47-200 million dollars (Means, 2019). The individual succeeded since many people believed that such a move would maximize their profits.
The era of the Internet has presented new opportunities for scammers to introduce programs that deceive unsuspecting citizens. Some of them promise individuals quick money-making processes and investments that might appear lucrative or profitable. Email soliciting has also become a common way of encouraging more people to be part of processes that can make it easier for respondents to make additional income (Feng, Sun and Gong, 2019). However, these developments revolve around the concept of pyramid schemes since the founders target to make money while failing to provide opportunities to the enrollees. Such schemes have become common in different parts of the world and have affected the experiences of many people.
Several studies and findings have presented adequate data to explain how pyramid schemes affect many innocent citizens. Ingle (2015) observed that over 88 percent of all individuals at the bottom of such a scheme eventually lost their money and investments. Similarly, around 90.4 percent of citizens would be affected significantly after deciding to join these pyramids (Hidajat, 2018). These observations reveal that pyramid schemes are investments that go against the ideas and conditions Milton Friedman appears to propose. The government’s failure to identify such schemes before they can get out of hand and protect citizens’ investments has led to such disappointments.
Using the principle of neo-liberalism, it is evident that citizens are free to make their choices and decide when and where to invest. Fortunately, the model promotes a democratic approach whereby those who pursue their goals in an inefficient manner will be on the losing end (Monbiot, 2016). Owners or starters of pyramids focus on this loophole to launch their schemes and true to encourage those who are financially disfranchised to invest and profit within a short people. While individuals might not be forced to invest, the overall outcome is that the market becomes less free and eventually results in the loss of personal wealth.
Since the different agencies try to monitor the emergence of pyramid schemes and how they can affect people’s experiences, it becomes necessary for individuals to protect themselves. This goal is possible if citizens and investors could be aware of earnings that appear exaggerated or impossible. The understanding is essential since most of the hyped investments will eventually collapse and result in financial losses (Cohn, 2018). Similarly, people need to remain cautious when a new model emerges that seeks to recruit sellers and distributors who can get additional commissions. Another proposal is for individuals to be aware of plans that do not have valid products or when their prices appear to be high or inflated. These business approaches usually mask a potential pyramid scheme that can affect the outcomes and financial experiences of majority of the enrollees.
This new revelation encourages people to consider the true aspects of a free market whereby they are not coerced or forced to make wrong decisions. Companies have been focusing on the existing market theories and models in order to identify loopholes and introduce new schemes that can maximize their gains (Lewis, 2015). This kind of analysis encourages analysts and consumers to consider whether markets are nominally free and capable of supporting their goals. Due to the absence of regulations, it would be appropriate for citizens to be aware of predatory approaches and practices to avoid them before they can affect their investment decisions.
Conclusion
The above discussion has identified the presence of loopholes in the free market that make it impossible for many investors to make timely decisions. While both parties intend to benefit, some cunning people or companies rely on neo-liberalism principles that allow customers to make their own decisions and invest in pyramid schemes. This amounts to an unequal exchange whereby one party emerges powerful than the other. Consequently, more people lose their savings despite the fact that they were doing so within the lens of a free market.
Reference List
- Cohn, S. (2018) ‘Want to work at home? Take a lesson from this $3 billion pyramid scam’, CNBC. Web.
- Feng, P., Sun, D. and Gong, Z. (2019) ‘A case study of pyramid scheme finance flow network based on social network analysis’, Sustainability, 11(16), 4370- 4382. doi: 10.3390/su11164370
- Fracchiolla, D. (2018) ‘Free market and democracy’, Sociology and Anthropology, 6(2), pp. 259-273. doi: 10.13189/sa.2018.060207
- Henderson, R. and Ramanna, K. (2015) Do managers have a role to play in sustaining the institutions of capitalism? Washington: Center for Effective Public Management at Brookings.
- Hidajat, T. (2018) ‘Financial literacy, Ponzi and pyramid scheme in Indonesia’, Jurnal Dinamika Manajemen, 9(2), pp. 198-205. doi: 10.15294/jdm.v9i2.16261
- Ingle, L.R. (2015) The free market in medical care: central planning and control vs. free market mechanisms in medicine. Bloomington: Xlibris.
- Lewis, M.K. (2015) Understanding Ponzi schemes: can better financial regulation prevent investors from being defrauded? Cheltenham: Edward Elgar Publishing Limited.
- Means, S.P. (2019) ‘Investors who lost money in coin dealer’s alleged silver Ponzi scheme sue Zions Bank, saying bankers ignored warning signs’, The Salt Lake Tribune. Web.
- Monbiot, G. (2016) ‘Neoliberalism – the ideology at the root of all of our problems’, The Guardian. Web.
- Pendezza, M. and Lamattina, V. (2019) ‘Rethinking self-responsibility: an alternative vision to the neoliberal concept of freedom’, American Behavioural Scientist, 63(1), pp. 100-115. doi: 10.1177/0002764218816827