Monday, 30 April 2018

On the Free Market and Capitalism

Continuing my current focus on economic matters, today I’ll discuss two subjects on which there is much confusion and often acrimony; the free market and capitalism. Much of the confusion and nastiness, in my view, has been deliberately sown by those with agendas. So I’ll try to keep the discussions as simple as I can.

The free market

According to Webster’s, a free market is “an economic market operating by free competition.” Even in the definition, there’s a seed of confusion. For most people do not talk of or think of “a” free market, but of “the free market.” But if there’s such a thing as the free market among human beings, then there can be only one such. And it would inevitably become world-wide; even if there might be cost barriers, or cultural or logistical difficulties, that tend to hinder some longer-distance trades.

But there’s no free market in existence today on our planet. For political governments make screeds of often capricious legislation, restricting what goods or services people may buy or sell, or denying access to a market for certain people. Moreover, tariff barriers or even sanctions hinder trade across the arbitrary boundaries of political states. Even where so called “free trade areas” exist, trade is hardly free. Usually, such “free trade” means merely that governments have agreed not to impose certain tariffs on each other’s products or services. And there’s often a price to be paid by traders – for example, compliance with EU standards.

So, how would the free market look – if it existed? Plainly, in such a set up, individuals, companies and other societies are able to trade freely with each other. For the benefit of all honest parties, such trade should take place within a framework of just governance. Such a framework can make sane and sensible rules to help keep the market free. It can prohibit activities that provably do, or are intended to do, significant harm to others. And it can judge disputes, assess compensation, and impose just penalties on those that deserve them.

But in the free market, there are no political obstacles placed in the way of provision of goods or services. Nor are there any political restrictions on what people may seek to trade for, or on whom individuals and societies may seek to trade with. Nor are there any tariffs or taxes beyond what is necessary to support the framework of governance.


The free market allows people to trade with whom they wish. By the same token, it must also allow people to choose not to trade with those they do not want to. Thus all individuals and societies must have the right to discriminate, if they wish, among those with whom they trade. A Christian baker, for example, isn’t required to bake a cake for a gay wedding if he doesn’t want to. Nor are company bosses to be required to hire women, Irish people, Muslims or convicted criminals if they don’t want to.

On the other hand, if a trader chooses to discriminate on such grounds, it’s only reasonable that potential clients or suppliers must know about it in advance. Not only will this avoid unnecessary effort and embarrassment for those who would be refused. But it also enables those of us, who disapprove of particular forms of discrimination such as racism, to choose to shun those that use those forms. Thus, these discriminators may find their own weapons being turned back on them.

Furthermore, collusion to exclude particular people or groups from the market, or to render the market less free, is a violation of the rights of the victims, and should be punishable. And most of all when it is done, as today, by organizations like corporations and political governments.


On to the vexed subject of capitalism. At one level, capitalism is “an economic system characterized by private or corporate ownership of capital goods, and by investments that are determined by private decision.” At that level, it is often contrasted with socialism, which in the restricted sense is “collective or governmental ownership of the means of production and distribution of goods.” On these definitions, I can’t see why anyone other than a statist or a doctrinaire socialist could possibly object to capitalism. And the case against this idea of socialism is particularly strong for those of us, for whom our means of production are our minds.

But my own definition of capitalism is a wider one. I see it as the condition, in which no-one is prevented from justly acquiring or justly using wealth. For me, capitalism thus includes, and goes beyond, the free market. It allows individuals and groups not only to trade freely, but also to enjoy the fruits of what they earn through that trade. And is it not fair and just, that those who create more wealth than others should enjoy more wealth in return?

Politics and “capitalism”

And yet, the political system we suffer under today is nowhere near capitalism, in the sense in which I just described it. First, and most obviously, there is taxation. I will have much to say about taxation later; so, for now, I will make just one point. The heavy, progressive taxation on incomes, that is favoured by virtually all political governments today, is a socially conservative force. It prevents those who have little or no capital, but who can earn good incomes, from accumulating enough capital to be able to do more. Thus it makes it hard for people, who are not already rich, to get their economic careers off the ground; and unnecessarily hard for people to lift themselves out of poverty. In contrast, it favours those who already have capital. And particularly those who have so much capital that they don’t need to earn much income.

Then there are political agendas, that adversely affect the world economy, and thus move the market away from freedom and true capitalism. For example, the agenda that seeks to force replacement of cheap, reliable energy sources such as coal, oil and gas by expensive, unreliable “renewables” like solar and wind; as well as to slow or to prevent the use of nuclear power. Not only do such policies make just about everything more expensive than it need be. But they also depress the economy by pushing some, or even many, activities over the line from potentially profitable to not worth doing.

Another such agenda is the artificially low interest rates, which have been the norm in much of the world for a decade or more. Low interest rates help those in debt (and, in particular, help governments) at the expense of those who want to save, invest and build up a reserve for the future. They make it impossible for investors to keep pace with inflation, without taking risks.

Cronyism and corporatism

Then there’s cronyism. There have long been companies – for example, arms manufacturers – that have been in cahoots with governments. But in recent decades big businesses, both national and international, have more and more been going cap in hand to political governments. They may do this to get subsidies or other advantages for themselves, or to harm their competitors, or to get regulations made that keep new entrants out of the market. The effects of these activities are to unjustly enrich those that do them, and to restrict opportunities for the victims of the resulting bad laws. The establishment and their media like to present all this as if it was a failure of capitalism. When, in reality, these activities have nothing to do with capitalism at all.

Then there’s corporatism. This goes further than cronyism, and seeks to use money and financial manipulations to influence, and to seek to control, political parties and their policies. Or even to de-stablilize national currencies for selfish ends. And the usual suspects like to make out – falsely, of course – that this, too, is the fault of private ownership of the means of production.

Poor treatment of workers

One of the sharpest criticisms of capitalism is of the shoddy way in which it acts towards working people. No doubt, there is truth in this. I myself have seen company managers treat their staff, not as thinking and feeling human beings, but as resources to be used, exploited and (metaphorically, if not actually) shat upon. And certainly there have been many capitalists that have made themselves rich, while paying their workers far less than they would be worth in a truly free market.

In recent decades, recessions and political pressures have made many companies concentrate on this year’s “bottom line” at the expense of almost all else. And growing cronyism and corporatism tend to make large companies, in particular, treat their people (and their small suppliers) badly. But all that said, these problems are not the fault of capitalism per se. They are the fault of particular individuals or groups, that have let their own selfishness override justice, and the rights of those who work for them.

Externalities and Risk

Another criticism levied against capitalism is that, as a by-product of economic activity, bad things happen. Economists call these unintended, damaging effects “externalities.” Pollution and noise are two examples. But these problems, again, have nothing to do with capitalism. In fact, the real problem is that governments too often allow those, who cause damage to others in these ways, to get away with it. In a sane, objective system of governance, those that cause such externalities – including government itself – would be made to compensate the individuals and groups affected by the damage they caused, each in proportion to the amount of harm they suffer.

Then there is the much touted idea that capitalism causes scarcity; for example, by using up natural resources like coal or oil. That isn’t consistent with the facts, at least from the Industrial Revolution up to the present. The trend has always been that, absent political interference, the resources we need have tended to become more abundant, and cheaper in real terms. For, if a natural resource starts to become scarce, its price goes up. That in turn will spur capitalists to seek better ways of finding or extracting it, or to develop better alternatives to replace it.

Then there’s the troublesome matter of risk. All activities have risks, both to those who do them and to others. And economic activities are no exception. Those with agendas of control like to make out that capitalism causes serious and unnecessary risks to health, safety and the like. But as with externalities, this is not a failure of capitalism, but of government. In a sane system, those who want to engage in activities which cause risk to others would be held accountable. They would not be allowed to take risks which are objectively unreasonable. As to more reasonable risks, they would be required to have sufficient resources available (for example, through insurance) to be able to compensate those harmed, if damage did result from the risk.

There is also risk that is inherent in the financial system itself. Capitalism often gets blamed for the boom-bust cycle that has been characteristic of the world economy, particularly over the last 50 years or so. But the real culprit is not capitalism, but irresponsibility and dishonesty. Many bankers and others in the financial sector have increasingly become gamblers. Perhaps they feel that they are “too big to fail,” and will be bailed out by their government friends if things go wrong. This is compounded by the stock market, which – while indispensable in its role of matching those with money to invest with those deserving of investment – often seems like little more than a glorified gambling game.

The problem here is not so much that every so often, gamblers fail; for if they didn’t want to take that risk, they shouldn’t have gambled in the first place. The real problem is that the knock-on effect of a financial gamble that fails can affect everyone in very negative ways, such as losing their deposits in banks. And it can ruin even those, who have never taken a financial gamble in their lives. In reality, the problem is the failure of governments to hold those in the financial sector accountable for the risks they impose on others.


Lastly, there’s a meme doing the rounds today that economic growth is not a good thing, but a bad one; and that everyone should abandon the idea of growth. As so often, this meme is being peddled by the usual establishment and media suspects. And it’s clear that those promoting it do not have the interests of productive, honest people at heart. Nor do they have any concern for the people in poor countries, for whom growth of world trade is a lifeline, which can help them to lift themselves out of poverty. This meme, I think, is merely another side-swipe by those that hate capitalism, and the earned prosperity it brings to those who use it well.

Individuals, if they wish, may of course choose not to take part in what they see as an economic “rat race.” If they prefer more leisure time or a less stressful life, and in return they are happy to accept a reduced standard of living, that is their choice. What is wrong, though, is if they have power to deny other people the right to make their own choices on this issue. Or to lay a claim on those, who have chosen to be productive and to suffer the penalties that implies, to help them if their own choice turns out to have been a bad one.

To sum up

The free market is the environment, in which honest, productive people can interact to maximum effect in order to create prosperity. But it doesn’t exist today. And true capitalism, the condition in which no-one is prevented from justly acquiring or justly using wealth, would be an immense benefit to all good people. If, that is, it was allowed to flourish.

The criticisms, that are commonly made of capitalism, are mostly wrong. Some are about failings of individuals and groups, that have chosen to follow private ownership of the means of production. These do not invalidate capitalism as a system. The rest merely either pander to agendas, or highlight bad actions by political governments and their corporate cronies.

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