In Defense of the Free Market
The following post is by guest-author and Will Porter.
In my short time affiliated with the libertarian movement, I have been time and again forced to sit through one anti-market rant after another. In hopes of putting these fallacious arguments to rest for good, I will attempt here to address them, and prove them as nothing short of dead wrong.
First, before I get too ahead of myself, I should just explain what the ‘free market’ actually is, as in the true definition. A market that can be considered ‘free’ is one which is free from legitimized coercion, or really any coercion for that matter. Any situation of trade that involves only voluntary interaction can properly be called free. It is indeed true that, in an exchange, both parties benefit, each preferring to participate rather than retaining what he has offered in the exchange. On a broad scale, this is what comprises a market, a matrix of consenting trade between two or more parties. This simple definition will be referred to several times as I go through just a few of the many common arguments aimed at the market system.
The first objection to free trade that should be addressed is the argument that markets cause, or lead to, exploitation of workers. This claim was made quite popular by the socio-economic and political theorist, Karl Marx. Marx thought that the competitive nature of capitalism created a situation whereby laborers must viciously battle each other for work, and ultimately for survival. There are many problems with this theory, but I should address the most obvious flaw. While it is true that workers compete with one another for labor positions, Marx (& many others) fails to take into account the competition engaged in on the part of the employers. It is employers that must compete for labor, in the same way that they compete for any other input material. An employer must outbid the next man if he wishes to get the labor he seeks. This would lead me to believe that this competition actually drives wages up, not down. But instead of talking about pure high theory, let’s take a look at real life, at history. Without any of the government controls that so many anti-market advocates cry for, during the 19th century real wages increased four-fold. How are we to explain this with the Marxian theory of exploitation? If competition in the labor market is supposed to cause a steady decrease in wages, why has reality shown us that the exact opposite is true? This is because competition for labor actually yields an increase in real wages. The wages that workers are paid (the price of labor) are not decided arbitrarily by the employer, as many seem to think, they are decided by the complex grid of competition in which employers engage in, as the prices of all goods and services in the market are. Not only wages themselves go up though, the general amount of stuff produced in the economy increases, therefore making each worker’s paycheck stretch further.
Now that we’ve gotten exploitation of workers out of the way, what can we say about the consumer? Surely if workers aren’t being exploited, the consumer must be. This is because, as we all know, that capitalism is exploitive in one way or another, right? No, actually, not at all. In a free market capitalist society, consumers are constantly the sole focus of production. An entrepreneur or a business-owner only produces goods to sell to consumers. Consumers only purchase the good if it fits somewhere high enough on their value-scale that they value the good more than the value of the price being asked for it, otherwise they wouldn’t buy it. This comes back to our definition of a free market and free trade, voluntary trade between two or more parties. The producer of this product hopes to earn more from the transaction than he put into it, as does the consumer. This is called “profit”. Profit has especially been the target of anti-market sentiment. It is equated with “greed” and the “evils” of capitalism. Profit though, is quite literally embedded within our nature as human beings! It is an economic fact that we seeks to expropriate the most from our environment while at the same time exerting as little energy as possible. Leftist anti-market advocates will have you believe that consumers are always given the short end of the stick, thanks to profit. The claim is that because of profit, producers will cut corners and sacrifice quality, all in order to line their pockets with as much money as humanly possible.
With the smallest amount of economic knowledge and a drop of reason I think we can quickly refute this claim. As I have stated above, consumers are the sole focus of a capitalist economy; producers always aim to meet consumers’ needs as best as possible. It is this that creates profit, satisfaction of consumers’ wants or needs, not the cutting of corners or the creation of a sub-par product. As consumer demand is met and products are purchased, profit is earned. This profit is reinvested back into the production process, rather than solely on personal consumption by the greedy capitalist as many seem to believe. The result of this is that either more goods can be produced, or that the quality of the goods increases, both of which are to the total benefit of the consumer. For there to be a greater quantity of goods in a market, the scarcity of said good goes down, along with the price. If the quality of the good is increased, there are now better, more durable, more desirable goods available, which can possibly lower prices of the less quality goods of the same type. Once again though, let’s step away from economic theory and just look at reality. Are goods, say cars, of better quality now than they were 50 years ago? What about the amount of cars available overall? The answer should be obvious; this is due to capital accumulation and reinvestment into the production process. Goods slowly become more abundant, are offered at a higher quality, and at a lower price. This process has allowed all of us a dramatically higher quality of life; if anything, we are in debt to such a wonderful system.
The best part about all of the above is that, as our definition tells us, all of this is accomplished in a spontaneous and voluntary fashion, no government necessary whatsoever. Up until now we’ve only needed to know what markets are, here I’d like to introduce the concept of the government and show how it directly contrasts to a market system. The government, more properly deemed the State, is an entity which works in a manner precisely opposite to how markets work. Where markets work on a purely voluntary basis, governments work with coercion. Where markets produce and provide to the greatest extent possible, governments hamper and destroy to the same degree. Markets can only properly function without major interference and intervention from the state. Given the coercive nature of the state, all it can possibly do is fetter a market and bog it down with mandates and regulations. The people with the loudest cry for more government regulation are the ones in need most of economic education. This brings us to our next objection to markets, that without regulations, corporations will run rampant and destroy the economy.
This claim assumes that first there were no regulations, and things were just a mess. People were starving in the streets, half naked, one-armed children laboring in coal mines, pretty much death and destruction all around. But one day, the wonderful government came along and fixed all of this! They wrote down some words on a fancy piece of paper, called it “legislation,” and boom, the world’s woes were no more. This is a bit of hyperbole, but nonetheless, typically this is the sentiment that people have, to some degree or another. This claim completely fails to take into account the production process that I explained above. Markets can’t just instantly create mass amounts of wealth and cure poverty, not all at once. Capital accumulation takes time; this is what caused the gradual reduction of child labor and poverty overall. While we still do have some poverty in the world, it wasn’t until the advent of the modern market and production system that even allowed us to complain about such poverty, before that poverty was simply an unavoidable fact of life. As better, more efficient means of production are invested in, products become available in higher abundance, at a lower price, and usually at a better quality than before. It is this that pulls and uplifts entire societies out of poverty, not the government, not regulations or laws. The more recent economic crises have given raise to many claims that, “we need more regulation!” What these people fail to realize is the staggering amount of regulations that we already have. Each year, 70,000 pages are added to the Code of Federal Regulations. If this isn’t a highly regulated economy, I’m not sure what is.
This final objection that I’d like to look at is more of a general idea than a specific claim; it is that corporations are the ultimate source of unaccountable corruption. First, why do these people always assume that the government isn’t also full of corrupt or unruly characters? Why is it always the private sector that harbors the greater evils of humanity? If we actually look at reality, we can see that political leaders of many shades and flavors are greatly to blame for some of the most heinous atrocities mankind has ever known – atrocities many times greater than any corporate power has ever perpetrated. We don’t see entrepreneurs sending armies overseas to kill and destroy; nor do they even have the power to do so. Put plainly, the idea that we need to be saved from the market by the government is a frightening one. The private sector, which as I’ve stated, has been the greatest source of wealth and the largest eliminator of poverty known to man, is not at all evil, exploitative, corrupt, or dangerous per se. While this corruption is certainly possible, there is nothing inherently bad about a market. This cannot be said about governments. Governments, by their very nature, rely on coercion and violence. They do not gain resources through trade or voluntary interaction; they take what they want by force, and imprison or kill those who resist them. They start wars, they inhibit and interfere with economies (through things such as price controls, regulations, tariffs, exclusive contracts, tax subsidies, tax impositions, guaranteed credit, grants, licensing, minimal prices, permits, patents, certifications, bail outs, nationalizations, etc. ad nauseum ) they steal money, they kill, they kidnap, they torture. Nothing about the government should be looked upon with a sense of security or gratitude, just about everything they do is to the utter detriment of the rest of mankind. In fact, businesses in the private sector are typically only engaged in serious corruption with the assistance of the government. I do not deny the fact that there has indeed been corruption on the behalf of private actors within the private sector, but it is of little significance when you take a look at the past acts of evil carried out by various governments and state institutions in the past and in the present.
Largely, if we are to point the finger of blame at some single system or institution for the majority of this world’s problems, it should most definitely not be at the market. If we are to screw on our heads a little tighter, shed the propaganda spread so virulently throughout our society, we begin to see a clear picture. The picture is one that shows the government, the state being the greater enemy of mankind, and the market the only possible escape. The just society built upon consenting interaction, upon voluntary trade, is our only possible hope for a better future. We can testify with reason and ethics on our side that the market system bears results in direct opposition to that of the state, creation over destruction, voluntarism over coercion, life over death.