Week of 07/28/2014

The Dirty Truth About Capitalism And Free Markets
– by David Matthews 2

For those that don’t know (or haven’t yet bothered to read more of my works), I consider myself to be more of a practical libertarian.  I believe in the ideas of libertarianism, but I also know that you can’t just immerse people into it cold turkey and expect them to appreciate what it means.  Hell, we still have no idea what simple concepts such as the freedom of speech really means!  The late Supreme Court Justice William O. Douglas may have understood what the words “Congress shall make no law” means in the First Amendment, but he was in the extreme minority compared to the bulk of self-professed “Constitutional experts” who all swear up and down their own bibles that those same words mean the exact opposite.

Anyway, one of the things that libertarians support – at least in principle – is the idea of “free markets”.

In other words, if you want to create your own widget company and make and sell widgets to the masses, you should be free to do just that.  You should be free to hire people and pay them accordingly in a way that would allow you to market the product so people would buy them and you can still make a profit.  Because, isn’t that why you’re in the business in the first place?  To make a profit, right?  I mean, you’re not going to try to tell people you would be in the business simply because you like to do stuff, are you?

So, you hear the words “free markets” and you immediately think capitalism, right?  Because “we all know” that those two things go hand-in-hand, don’t they?  Like “bacon and eggs”, “biscuits and gravy”, “Oreos and milk”, “cape and cowl”, “death and taxes”, “tax and spend”, and let’s not forget “truth, justice, and the American way”.

Except that “capitalism” and “free markets” don’t really get along.

In fact, I’ll even go so far as to say that a good number of supporters of “capitalism” are really not fans of the idea of “free markets”.

Capitalism itself is a mechanism.  Let’s just get that out of the way.  You can’t really say that “capitalism” itself either supports or condemns the idea of a free market any more than you can say that a car’s transaxle supports or condemns the car’s diesel fuel system.

Supporters, however, are a different matter.  And they really do the mechanism a grave disservice when they claim to champion both it and the idea of free markets when they really don’t, or when they champion the mechanism and then excuse the gross abuses of it.

Here’s a real test for supporters of free markets: if you really support a free market system, then you should have no problem whatsoever seeing a strip club, lingerie store, adult video store, and/or a tobacco shop next to your favorite place of business.  After all, it’s just another place of business, right?  You’re not being forced to shop there.  You just have to acknowledge that they exist and that other people do business there, otherwise they wouldn’t be there.

You’ll find a lot of so-called “supporters” of free markets fail that test.  Oh they don’t mind if a Chinese restaurant shows up, or a Starbucks, or a dance studio, or a payday loan service.  They would much rather see some shady fly-by-night “buy here pay here” auto dealership fill up the parking lots instead of patrons to a strip club.  They would rather see a ton of “We Buy Gold” stores in their community – complete with those annoying sign-twirling minimum-wage workers – than to allow even one lingerie store.  And to make sure that happens, they use the power of the government to try to bully those kinds of businesses out.  The same government that they will later scream and shout bloody murder about should it dare look at their businesses.

But that really isn’t the “dirty truth”.  Mealy-mouthed hypocrites are a dime-a-dozen, and they infest pretty much every cause out there.

The real “dirty truth” is how capitalism and free markets really don’t work together.

As a mechanism, capitalism is pretty straightforward.  “A” leads to “B”.  You buy, they sell, you pay, they give, done deal.  Buyer, seller, two points, a straight line.  Employer has a task that needs to be done, the employee does the task, and the employer pays what he or she thinks is a “fair wage”.  Employer, employee, two points, a straight line.

What it doesn’t care for are complications.

This is why supporters of capitalism seem to have a fetish for small businesses; because the line between employer and employee is as short as possible.  Big businesses and corporations have multiple layers and levels of management, which complicate the line.  Their only saving grace is the money and power that big businesses wield.

It doesn’t care for regulations and taxes, because that also is a complication from the straight-line model.  Taxes are added costs, and regulations force a business to comply to an outside manager – namely government – which interferes with the direct line between employer and employee, and between buyer and seller.

This is half of the idea of free markets that supporters of capitalism love to preach about: the absence of government interference.  They love the straight line between employer and employee, and between buyer and seller.  No regulations, no taxes, no limitations, and no outside management.

But it’s the other half of the free market idea that gets shot down… the idea of competition.

The idea of free markets is that the buyer supposedly has the “ultimate power” when it comes to the transaction.  If he or she doesn’t like the product or the business, he or she is supposedly “free” to take their business elsewhere.  Choices and competition are supposedly what keep the marketplace honest.

But what if there are no choices?

Let’s get brutally honest here… this is where capitalism actually works against the concept of a free market system.

Capitalism is authoritative in nature.  You buy, they sell, case closed.  You work, they pay, case closed.  Management is to be obeyed because they are the ones that pay you for your work.

They don’t like competition.  They don’t like the idea that the consumer can choose a different business.  To them, two businesses selling the same product is one business too many.

This is why they love corporations and big corporate mergers, because they slowly eliminate competition.

Oh, you don’t like your cable choices?  Too bad.

You don’t like the phone choices in your community?  Too bad.

You don’t like the big-box store that replaced your local markets?  Too bad.

You don’t like the price of gasoline?  Too bad.

Your only “choice” is to either go along with it or try to go without them.

But that’s really not a choice.  That’s economic blackmail.

And yet, that is what capitalism loves… because it maintains that straight line.

We’ve seen in the 1980’s how unrestrained mergers resulted in economic crashes, as companies merged together and cut away duplicate services.  Sure it resulted in insane profits for the people up top, but for the workers it meant layoffs, and eventually that is what did in the “robust economy”.

As much as supporters of the “free market” hate it, they unfortunately have to accept that at some point there needs to be some restraint put on capitalism in order to keep real choice in the marketplace.  For a libertarian such as myself, this kind of practical application is what differentiates between theory and a practice.