July 14, 2006
-- by Dave Johnson
And e-mail I received:
I have never understood why free markets and capitalism are universally conflated. Are they the same thing? Or even part of the same thing?Discuss.
Free markets as self-regulating systems for pricing and resource allocation can be (with appropriate regulation) very useful. Claims against generated wealth based on "ownership" are almost always just simple theft of labor or common resources.
That's my theory, and I'm sticking to it.
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I may be well out of my league here, but I always conceived of the world having a consummate finite monetary value at any given time. This means that the free market, which basically is a way of determining the proper price of something, is a means of efficiency.
But capitalism, which is all about private ownership of production and profits, tends to horde more of this finite value towards the top, because the means of getting something must always go through the richest folks, who of course, take a cut.
Therefore, in free markets, everybody gets a fair price, and no one ends up richer than the other guy in the exchange (think of old-school bartering).
But capitalism creates people with more power and money than they need, and therefore also impoverishes people with less power and money than they need.
So I suspect that one could exist without the other for sure; capitalism-free market = monopoly, while free market-capitalism = um, a kibbutz? A barter community? Or a stock that everyone has equal share of?
One could argue that without the greed of capitalism, free markets wouldn’t have the competition they’d need to stay efficient and fair, and would furthermore depress the economy because of a lack of incentive (compare common pre-industrial deflation with the ubiquitous inflation of today). I’m not sure. But like I said, I’m out of my league here.
Sort of a classic over-simplification of the kind that we keep getting our clocks cleaned.
Capitalism and free markets are, in fact, more or less code words for the same thing: i.e. an economic system based upon private ownership of means of production, with relatively modest government intervention, ideally, just to provide the underlying infrastructures beyond private abilities to do so (courts for tort/contract claims; ports; national defense and police; highways; maybe a postal system...) with the rest of the economy largely determined by private actions.
Of course, as we learned in Iraq, without the basic infrastructure, a free market is... unlikely! And of course, free markets are all relative; there will always be some government interference to various degrees, its just a question of what and how much.
In Soviet Russia, obviously, there was near total state control... here, we've got... a lot less. But we hardly have "none". Local, state and federal government spending is somewhere between a quarter and a third of our economy, and up to half in some sectors (like health services).
And yet, by world standards, we have pretty light government intervention in our economy. And even still, our economy wouldn't exist without heavy governmental intervention.
But, of course, it's always better to go for the simpler, nicer sounding answer.
Which is why our clock keeps getting cleaned.
Posted by: the talking dog at July 15, 2006 7:36 AM
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