Deus Ex Machina

"This is the generation of the great LEVIATHAN, or rather, to speak more reverently of that mortal god, to which we own under the immortal God, our peace and defense." -Thomas Hobbes: Leviathan

On the Proper Distinction between Capitalism and the Free Market

Economics is a topic which I haven’t explored much lately, however I think it would be useful to articulate some of my more recent thoughts on this which arose when I was arguing with some libertarians about healthcare and the free market.

Two Conceptions of the Free Market

It seems that there are, broadly speaking, two conceptions of the free market.

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One conception sees the free market as essentially a social artifact or institution which society evolved to resolve resource allocation and desire coordination problems. Through the use of price signals producers will be able to match resources to demands or genuine needs. Of course like any device or institution it can break down, malfunction, become distorted, etc. From there state intervention is necessary to correct market failures.

On another conception the free market is viewed, not as a social artifact or device, but as a “natural” ordinance which flows out of the interaction of “free persons”. Thus, the free market is as embedded a part of the natural order as is the sun rising or the tides ebbing. Any attempts to tinker or tweak the market is on par to interfering with the natural order of things.

Now I firmly believe that the free market is not part of the natural order but is a social institution. It is no doubt a very useful one, it can even be argued to be the most efficient one for matching resources to needs, however it is still an artifact which can get distorted or fail. In order for me to establish this conclusion it would be necessary for me to articulate my objections to the idea of the free market as a natural institution.

Contra Free Markets as a Natural Ordinance

For that I need two essential premises:

(1) Human beings are not perfect and part of their capital or wealth can be accumulated through unfair and evils means as well as being used to pursue anti-social ends.

(2) The state has a genuine, though limited, role in curbing temporal evils.

Now, given (1), if it is possible for particular corporations or individuals to monopolise a particular industry or co-opt the political process, then they could end up distorting the market. Thus, even if we accept the premise that the market pricing is simply the product of the actions of free beings, then it would also generate pricing which represents the evil decisions of free beings.

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This is especially so when we are talking about vast concentrations of capital upon a single or group of corporations which shows up as an identifiable blip on our economic charts, then it is clear that the market prices determined by the concerted efforts of a small group would be distorted. Now generally the free market works because it manages to represent correctly the interactions of millions and millions of economic agents which no government bureaucracy has the resources to study and centrally coordinate. However, when capital concentrates in the hands of a small number of particular identifiable economic players, it’s not simply about attempting to centrally coordinate the actions of a million other economic agents but simply to curb a clearly identifiable distortion in the market by a few.

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Now if it is acknowledged that the state has a genuine role and ability to correct evil, then it is not unreasonable for the state to correct market distortions by particular economic agents who sufficiently monopolise the industry or market such as to distort the price signals.

Conclusion: Distinguishing Capitalism from Free Markets

From here we see that there is a difference between the free market and capitalism. Capitalism is power simply based on present distributions of accumulated wealth, which history of accumulation can be the product of sound or evil action. Free markets are not about justifying the present distribution of wealth but about resolving resource allocation and coordination problems, a social device which accomplishes its end via price signals. Thus it is a social instrument which could be distorted based on historic evils or injustices and which therefore requires state intervention to correct.

Thus when discussing things like “capitalism” or “free markets”, we need to be very careful about how we use those terms and the background premises involved in those terms.

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One comment on “On the Proper Distinction between Capitalism and the Free Market

  1. Pingback: The Nationalist/Racialist Turn of Libertarianism; Are Markets “Natural”? | Deus Ex Machina

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This entry was posted on February 12, 2016 by in Uncategorized.
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