The Petroleum Industry: A Historical Study in Power

Before we can understand and evaluate the political economy of the petroleum industry, it is essential that we review the fundamental nature of the market economy and of the interventionist process. The market economy is an institutional arrangement whereby owners of property voluntarily enter into exchange relationships that they consider to be mutually beneficial. In a free market, buyers and sellers agree to an exchange because they both expect to gain some advantage. If the terms of exchange are not determined by buyers and sellers, however, but by the government or a legislature, then the assurance of mutual advantage breaks down. Indeed, if the government sets the terms of exchange (by price fixing, for instance), then some buyers or sellers are likely to gain at the expense of others. In short, a free market tends by its very nature to ensure mutually advantageous trading relationships; a regulated or interventionist market cannot...