There is a lot of confusion and debate about what terms like “free market” and “capitalism” really mean, so I am writing this article to end the semantic debates once and for all. 🙂
A “free market” is an environment where any two or more parties can enter into any agreement they wish, provided such an agreement is voluntarily entered into by all parties.
Here are some examples:
- a person or group of people can offer to sell any product or service to anyone else at any price they both agree on
- buyers can voluntarily choose to make any given trade or not (or negotiate for a lower price or different terms)
- a company can offer any prospective employee any job at any wage they wish
- each person is free to choose whether to accept any offer of employment, or negotiate for higher wages, benefits, or whatever they wish
The key of a free market is that each individual is free to choose, and compelling any individual or company to make a trade or an employment decision by force is strictly prohibited by law.
A true free market requires a government who can effectively enforce a few laws.
The most important laws needed to ensure a true free market are:
- Laws against fraud. These laws punish those who lie about what they are offering. A seller of a product or service has to be honest about what they are selling. Employers should also be held to honesty about job pay, benefits & working conditions, as employees who intentionally misrepresent their skills or expertise should be guilty of fraud.
- Laws against theft. If someone can freely steal what you own without repercussion, a free market cannot function. Government must enforce laws against theft on all scales, from theft of a personal possession like a purse or TV to theft on a grand scale.
- Laws against government interference. If the government is playing favorites, handing out money to one company and not another, subsidizing one industry but not another, this is not a free market.
Here are some common myths about the free market:
MYTH #1: “The market is not really free if it requires the government to enforce laws.”
WRONG. Without laws, all you have is anarchy (law of the jungle). In an environment where a group of thugs in a jeep with machine guns can take everything from you whenever they wish, a free market cannot exist.
For a market to be truly free, the participants must be deterred from fraud and theft by the government, and punished if they usurp other people’s rights, or use violence or force against another.
MYTH #2: “The free market allows corporations to cozy up to politicians to get special deals, bailouts, subsidies, tax breaks, grants and other government handouts.”
WRONG. This is due to a lack of laws and regulation making such government corruption illegal.
Once the government gets involved, you are no longer part of the private free market sector, but the public sector. Once you can force people to do things they don’t want to do, the “freedom” has left the building. The government rules by force, not voluntary actions as the free market does.
MYTH #3: “Since government-corporate collusion exists, there is no such thing as a free market.”
WRONG. Because there is little or no free market when it comes to banking, the military-industrial complex, education, health insurance and other industries, doesn’t mean there is not a free market in other industries.
There are millions of companies in the U.S., from clothing stores to restaurants to technology companies, that have few government regulations and can freely offer any products and services they dream up, at any price they wish, that customers can choose to purchase, or not, as they wish.
Because the U.S. was founded on freedom and the free market, many freedoms still exist, even hundreds of years later (though they are eroding rapidly). You can still start a business and sell whatever you’d like at any price. Independent businesses start every day, and some thrive and others don’t. The U.S. economy is still better than 90% of the rest of the world and maintains a higher standard of living, thanks to the power of the free market.
MYTH #4: “Believing in a free market means you believe in some utopian vision.”
WRONG. A free market is not perfect, it’s just that, among all the economic systems ever tried by any country in history, a free market results BY FAR in the greatest good for the greatest number. In particular, a free market is far more beneficial than any alternative in providing the poorest with a steadily increasing standard of living.
When you focus money in the hands of a few ruling elite, the People get screwed. History teaches us this lesson over and over and over.
Contrast the standard of living in North Korea (centrally controlled) with South Korea (free market). In North Korea, there is a tiny group of super wealthy rulers, and everyone else starves– except for the ones who manage to escape to South Korea without getting shot.
Or study the history of East Berlin vs. West Berlin, Soviet Union vs. the U.S., or Hong Kong vs. China.
MYTH #5: “In a free market, the game is rigged.”
WRONG. A free market is the purest form of democracy ever invented. Corporations exist at the whim of the People, who are all-powerful.
Have you ever heard the old meme, “The rich get richer and the poor get poorer?” The truth is, that is the exception, not the rule.
If, in a capitalist system, once you have huge wealth and power, you can manipulate the market to hold on to it, then where is Blockbuster Video? They ruled! They had all the money, all the customers, all the great deals with movie companies. The stock price soared. They were untouchable. Then the People decided they didn’t like Blockbuster, and the huge, powerful, wealthy company died a rapid death.
Kodak dominated the film industry. Huge, wealthy, powerful… and now out of business. The People voted them off the island.
People once loved Woolworth’s, so that company became rich and powerful. Then the People decided they didn’t want to shop there any more, so Woolworth’s died. Same with thousands of others.
In a free market, the People rule. Corporations are the People’s servants, working hard to produce something you might like enough to buy it. The People decide which companies are making their lives better and which ones aren’t.
And who is better qualified to decide?
MYTH #6: “A free market is rigged against the poor.”
WRONG. To make a statement like that, you must be making a comparison to some other system which is superior. (Sorry, a comparison against a utopian fantasy doesn’t count, but thanks for playing).
The free market, while not magically making every poor person rich overnight, unquestionably provides the best improvement in standard of living for the greatest number of people of any economic system ever conceived of, and also provides the greatest opportunity for upward mobility.
To any ardent student of history, there is no doubt that the places and times on Earth where people suffered most were the places and times at which they were not free, economically or otherwise.
And the places and times where you see the biggest improvements in the lot of the common person are the places and times when markets were free and basic laws were enforced.
The only alternative to a free market is an unfree market. An unfree market presupposes a centrally-controlled economy. And central control inevitably results in the People getting screwed while the ruling elite of central control live it up.
“The most important single central fact about a free market is that no exchange takes place unless both parties benefit.” – Milton Friedman