Why the “free” market isn’t free

For as long as the ideology has existed, proponents of capitalism have invoked the “free market” in defence of their ideas. To use the definition of “anarcho”-capitalist Murray Rothbard, a “free market” is one in which the “array of exchanges that take place in society” are “undertaken as a voluntary agreement between two people or between groups of people represented by agents.” These “exchanges” are of “economic goods” in the form of “either tangible commodities or nontangible services.” The exchange occurs because “each expects to gain from it” and “each will repeat the exchange next time (or refuse to) because his expectation has proved correct (or incorrect) in the recent past.” In the “free market,” then, “exchanges” occur “precisely because both parties benefit” and were there no gain “they would not agree to the exchange.”

This is not all that is attributed, often with an air of quasi-mysticism, to the free market, however. In principle, free of government regulation, the market is self-regulating. Classical economists, such as Friedrich Hayek, argue that the market produces “a more efficient allocation of societal resources than any design could achieve.” The self-interest of the proprietor is turned in favour of the common good by what Adam Smith, in The Wealth of Nations, called the “invisible hand” of competition and consumer demand. Thus, competition for labour ensures fair wages. Competition for custom and product demand ensures fair prices. And unsound or unethical business practices are eradicated, since those businesses that act recklessly and irresponsibly for short-term gain ultimately go under whilst those with foresight and rigorous self-discipline will prosper.

I have addressed many of the ideas described above elsewhere in different contexts. The Illegitimacy of Private Property, in particular, answers Rothbard’s concept of “voluntary transactions” in a capitalist or propertarian system. Here, though I will touch upon those arguments, I wish to make the argument that “free market” capitalism has never existed and indeed could never exist in any true sense.

There are two central reasons for this, which are strongly intertwined.

The first is that although we can see the effects of “free” market capitalism on ordinary people and the working masses when all restraints are taken from corporate power – the slums, workhouses, debtors prisons, and debilitating poverty of the Victorian Era – we never see it visited upon the capitalists themselves. Even in that “golden age” of laissez faire, there has ever been government intervention and artificial regulators on the markets.

One important example of this is the long tradition of often brutal suppression of worker organisation, a natural check against propertarian power since the dawn of feudalism. Adam Smith himself acknowledged that the law “authorizes, or at least does not prohibit” the organisation of “masters,” whilst “it prohibits those of the workmen,” with the result that the proprietors and employers “have the advantage in the dispute, and force the other into a compliance with their terms.” And it is an unatural advantage, because “we have no acts of parliament against combining to lower the price of work; but many against combining to raise it” even today, with the Thatcher-Reagan era having seen the reversal of many important gains for the labour movement.

Another frequent case of state intervention in markets in order to protect the propertied from market discipline is the concept of “bailouts” when businesses collapse and market stability is threatened. In an article on Truth, Reason, and Liberty called The stark failure of the free market, I wrote that “when companies face insolvency due to their own bad practice they threaten the stability of the entire market” because “bedrock of capitalist economics is “confidence,” without which the whole charade crumbles” and that in fact the events that catalysed the recssion last year “speak of a system far too fragile for Smith’s invisible hand to operate effectively.” I still hold this to be true, because a capitalist market exists on the artificial currency and inflation of a banking system printing out absurd amounts of money, such as the trillions seen in the bailouts, and on state-enforcement of corporate monopoly and private property.

Capitalism, then, ensures that the poor suffer the market discipline that the rich have brought upon themselves. This brings me to the other reason that a free market cannot exist under capitalism; a truly free market would not suffer its existence. As Kevin A Carson puts it in The Iron Fist Behind the Invisible Hand;

In fact, capitalism–a system of power in which ownership and control are divorced from labor–could not survive in a free market. As a mutualist anarchist, I believe that expropriation of surplus value–i.e., capitalism–cannot occur without state coercion to maintain the privilege of usurer, landlord, and capitalist.

Capitalism, as a system, descends directly from feudalism. We can see the transition from the time of lords and kings to employers and landlords in the mercantilist system that kept the British Empire going through the eighteenth and nineteenth century, and its offshoots in the corporatist economics of Fascism and the state-capitalism, i.e. the state as employer and proprietor, of “communist” countries. It is a system of hierarchy and domination which makes a mockery of Rothbard’s conception of “voluntary agreement” for the “exchange” of “economic goods.”

Thus, a truly free market without any form of coercion would not be capitalist, as capitalism and the property system create imbalances which make transactions as “voluntary” as those between a mugger and their victim. Both make a decision that is better for them – the mugger to take the money and be wealthier, the victim to give the money and hopefully stay alive – but there is massive coercion involved. So it is with capitalism, wage slavery and private property replacing the gun.

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  1. […] Why the “free” market isn’t free, I went further. Citing Carson’s point that capitalism, as he defined it, “cannot occur […]



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