What Is This Free Market We Keep Hearing About? Part II

Previously, I wrote an article entitled “What Is This Free Market We Keep Hearing About?” In it I attempted to demonstrate that a free market is the only economic system compatible with liberty, in addition to being the system that will yield the best results for society. The dissenting views were familiar ones, which I will attempt to answer.

The first category of dissenting opinions came from those that somehow misunderstood the article to have argued that a free market exists right now, or has existed in the recent past (perhaps under the Republican regime that has thankfully gone the way of the hula hoop). For the record, we have not had any semblance of a free market since at least the New Deal, and probably not since the institution of the Federal Reserve and the income tax in 1913. If anything, we have had markets that have been “progressively” less free in each succeeding decade, the trend accelerating markedly during a few notable periods, including the 1910’s, the 1930’s, the 1960’s, and the present devastation of our liberty that is occurring before our very eyes. As I have argued more extensively before, the Bush years did not represent free markets.

The next broad category of comments could generally be grouped as those which implied that a truly free market system would amount to no government or restrictions at all and therefore necessitate that market participants would have to be trusted to “do the right thing” at the expense of their own profits. Those making this argument went on to say that history shows that “the corporations” or other wealthy market participants will always choose profit over the good of society.

This is a complete misunderstanding of the concept of free markets presented in the article and of the non-aggression principle of liberty in general. “Non-aggression” does not mean the absence of the use of force (government) under any circumstances. In a free market, there is a very necessary role for government to play, just as in nature there is an appropriate time for the use of force. Specifically, the government brings force to bear against those who have committed or are committing aggression against another’s rights. In a truly free market, the government prevents any party from using coercion or fraud to secure an exchange of property. If a company lies on its financial statements to attract investors or credit, it is the government’s job to prosecute those responsible for fraud. If a company employs violence or the threat of violence in trying to eliminate its competition, it is the government’s responsibility to prosecute the aggressor in defense of the victims.

However, if the company participates in exchanges of property whereby all participants voluntarily consent to the terms and all information pertaining to the transactions are represented truthfully, then that activity is beyond the reach of government, just as speech, religion, and conscience are beyond the reach of government because they do not represent acts of aggression against anyone else’s rights.

With the natural boundary of non-aggression enforced, the market requires no consideration for any participant other than the pursuit of profit. With truly free markets, it is never true that society is threatened unless firms sacrifice their profits to benefit society. Rather, firms can and should pursue only profit so long as they commit no aggression against another’s rights. The law should never be a positive force – it should never compel anyone to do anything. It should only prohibit certain actions, namely those that amount to aggression (fraud being aggression against the rights to property). It is this principle that is consistently violated by our modern brand of “regulation.”

This brings us to a third category of objections, namely that insufficiently regulated markets have resulted in the massive consolidations that have occurred over the past quarter century, decreasing competition and creating overly influential corporations that dominate markets and our government. This argument is rooted in the same misconception as the first – that we have had free markets at some point in our recent past. However, even if one argues that some “deregulation” has taken place and that is the reason for the consolidation, the position still begs one question. Why are new competitors not entering the market to compete with these overly dominant corporations?

There are only two possibilities. One is that the corporations in question have achieved natural monopolies. A natural monopoly is a good thing. It means that one firm is producing products of such high quality and such low price that no other firm is able to compete with it. A natural monopoly can only be sustained as long as the monopolist continues to offer products that consumers prefer over all others based upon their own voluntary decisions. Natural monopolies harm no one.

The only other explanation for a dearth of competition is that there are artificial forces at work that are keeping competition out. This means that market participants are not acting voluntarily, but make their choices under some type of coercion. There is only one entity that can legally coerce participants in any market – government. In fact, it has been the ocean of rules and regulations itself – in violation of every market participant’s natural rights – that has led to the dearth of competition in our supposedly free markets. This conclusion is intuitive. If the corporations are not natural monopolies then their competition must have been eliminated unnaturally or artificially, i.e, by the government.

It is abundantly clear that our labyrinthine regulatory structure is an artificial barrier to new competition, particularly since the regulations are now written by the very corporations they are supposed to govern. However, the root of the problem is not bad regulations or corruption. It is the fact that any barriers to human action exist at all beyond those that prevent aggression. Even without back door deals and outright corruption, these artificial barriers necessarily favor entrenched market players over new firms trying to enter the market, as compliance with regulation drives up start up and compliance costs beyond what all but the largest firms can afford.

The so-called “deregulation” in many of our markets did nothing to dismantle this quagmire of regulation, but merely eliminated barriers to consolidation while continuing to insulate established players from new competition. The results were predictable but certainly not the results of natural market forces. The proper solution to this problem is not to violate the rights to liberty and property by prohibiting one company from buying another, but rather to remove the further violations of those rights that our massive regulatory structure represents.

On this point there were some thoughtful comments attempting to determine whether corporations have rights or whether only people have rights. I would argue that the rights in question when discussing corporations are those of the shareholders, who retain all of the same rights to life, liberty, and property as any other market participant. Some argued further that the shareholders obtain certain privileges granted by government, particularly in limiting liability, that justify taxes or restrictions that would not be justified on individuals.

However, this argument ignores the fact that corporations are required to register and therefore declare to all of society their corporate status. As the decisions to form a corporation, buy its stock, lend it money, or purchase its products are all made voluntarily and with full knowledge of its corporate status, there is no justification for government to impose special restrictions upon a corporation outside of those disclosure requirements necessary to inform the public that it is a corporation.

Finally, there were those that argued that unfettered free markets result in corporations achieving too much “power,” rather than merely too much wealth. Corporate “power” is a misnomer. Power is the ability to use force. Only government has power. It is government’s sacred duty to wield that power only in defense of each individual’s rights. No matter how much wealth a corporation obtains, it exercises no power, unless it literally spends its capital to raise an army and engage in open rebellion. Clearly, this has not been the case. However, it is also clear that corporate or other wealthy interests have used their wealth to buy political favors and to induce politicians to pervert the laws themselves, leading directly to the quasi-fascist economy that we find ourselves confronted with today.

This has been a failure of government, not the free market. It is certainly not admirable when an individual or group uses its wealth to achieve injustice. Nor are interested parties participating in a free market when trying to bring government force to bear upon competitors or other market participants. However, it is ultimately government that is entrusted to preserve justice. The members of government are never compelled to allow wealthy interests to persuade them to abandon their duty. It is the government’s job to say “no,” and when they fail to do so they are destroying the free market, not licensing it.

This brief article certainly does not answer every specific argument made against free markets, but it does illustrate something common to all of them: all objections against free markets result from a misunderstanding of what a free market is. A free market is one in which no one’s rights are violated, resulting in all transactions occurring by mutual, voluntary consent. Participants in a free market practice the non-aggression principle. This does not require unrealistic virtue from market participants, because it is government’s duty to enforce the non-aggression principle. Every economic problem plaguing American society today stems from some departure from the free market, which is some violation of the rights of market participants. Justice is the protection of those rights. Social justice can only be achieved when absolutely free markets exist. Properly understood, freedom and free markets are one and the same.

Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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