Lately I have been reflecting on the views of the conventional economic ‘right-wing’, as represented by ‘neo-liberals’, adherents of the Austrian school of economics, ‘capitalists’, economic libertarians, and so forth. It seems that whenever someone suggests that radical changes need to be made to the reigning financial or economic model – a suggestion which, in essence, must be a plea for some kind of intervention on the part of the public authority – those who are more or less satisfied with the existing system and find themselves on the ‘right’ of the economic spectrum regard the suggestion quite reflexively as an intolerable attack on the free market and an affirmation of ‘socialism.’ I have found this attitude, and the rhetoric which often accompanies it, curious for four major reasons, reasons which I will want to outline in this article. The fourth critique that I will present is the most significant from a Social Credit point of view, but the first three are by no means unimportant. By unnecessarily muddying the economic debate, free market rhetoric often obstructs the rectification of the economy’s structural problems.
Before proceeding, I also want to make it clear that the various considerations that follow are not an attack on the free market as such, nor are they an attack on people who honestly support private property, private initiative, and the market mechanism as generally better (though certainly not always) than government management of the economy (as I am one of them), but rather they are, more than anything else, a condemnation of the dishonesty and hypocrisy of those who uncritically and selfishly defend as 'free', the exact kind of market that really isn't.
The first thing which I find odd about the position of free-market ideologues, or ‘free-marketeers’ as I like to call them, is that they often defend various concrete economic models as embodying the free market ideal which, as a matter of fact, do nothing of the sort. How many times is it blithely assumed, for example, that the United States is the world’s pre-eminent free market showcase, with all the associated benefits and wonders on full display?
But the reality is otherwise: America does not possess a laissez-faire economic system – however much laissez-faire attitudes abound amongst the populace and colour debate on economic matters. 35-40% of the GDP is composed of government spending.[1] Tax Freedom Day typically falls between mid and late April – that’s nearly 1/3 of the year working for government at its various levels.[2] Regulations and bureaucracies abound. Even ‘Economic Freedom Indices’ put out by free market think-tanks have, until very recently, consistently ranked the US at a lower or ‘less free’ position than Canada (which all American right-wingers know to be socialist).[3] The American economy, like most Western economies, is a mixed economy, more ‘right-leaning’ relative to a number of others, but a mixed economy nonetheless.
Now, this basic fact about the American economy should not surprise because there is a more general reason why America falls short of the ideological image that is built up for it in the popular imagination: with the possible exception of Somalia, the purely 'free markets' characteristic of laissez-faire capitalism does not exist anywhere. All markets presuppose, as a condition of stability and long-term functionality, institutions and laws, as well as various government goods and services, and hence also taxes. There are no absolutely free markets, only relatively free markets. This observation constitutes the second major criticism that I have of run-of-the-mill ‘free marketism’: why do free market ideologues maintain as an ideal something which is not practicably possible or realizable? The question is not whether government intervention is justified, but what kind and/or degree of intervention. Indeed, what can explain the discrepancy, this clash between what one is actually defending (a certain type of mixed economy) vs. what one says one is defending (unfettered capitalism)? We will return to this question at the end of this article, for I believe I have uncovered an answer.
The third and the fourth objection that I would like to raise against ‘free-marketism’ are both directed against the notion, which is an apparently silent assumption, that free markets are a sufficient condition for a functional economic order. In the minds of most free market ideologues, functionality seems to equate with a general ‘prosperity’, if not for everyone, at least for the greatest number possible and it is further assumed that all you need for prosperity is some free market magic. I maintain that free markets are NOT a sufficient condition for functionality and that functionality is properly understood not as a vague and inequitably distributed ‘prosperity’, but as delivering the goods and services people need to survive and flourish, with the least amount of labour and resource consumption. Measured against this latter standard, all Western economies, regardless of their relative freedom or lack thereof, are dramatic failures.
The third critique points out that free markets are not a sufficient condition for functionality (whether defined in the ‘free-marketist’ or Social Credit sense) because free markets, the mere fact of a market being free, does not in and of itself guarantee the kind of intra-market competition between producers which is necessary to yield a variety of favourable economic outcomes. As Manuel Velazquez brilliantly explains in his magnificent textbook Business Ethics: Concepts and Cases - a text I used to teach from - the economic benefits that, according to orthodox economic theory, are supposed to be derived from the market mechanism, things like an efficient allocation, use, and distribution of resources, capitalist 'justice' or a dollar paid for a dollar's worth in value, and even full respect for the freedom and rights of all market participants, etc., are only delivered to the extent that a free market is also a perfectly competitive market, or at least approaches conditions of perfect competition (rather than its being a monopoly or oligopoly market):
“If free markets are justified, it is because they allocate resources and distribute commodities in ways that are just, that maximize the economic utility of society’s members, and that respect the freedom of choice of both buyers and sellers. These moral aspects of a market system depend crucially on the competitive nature of the system. If firms join together and use their combine power to fix prices, drive out competitors with unfair practices, or earn monopolistic profits at the expense of consumers, the market ceases to be competitive and the results are injustice, a decline in social utility, and a restriction of people’s freedom of choice.”[4]
It is not the ‘free market’ in isolation, therefore, which delivers the benefits which free marketers trumpet when they defend the free market, but only a certain sort of free market: the perfectly competitive free market. Indeed, as we have just seen, perfect competition is even a condition for maintaining the integrity of a market as being fully and truly ‘free’.[5] Unfortunately, most of the markets in the typical Western economy fall short, in many cases woefully short, of perfect competition.
Now, one of the most interesting things about perfect competition is that when you have a vast multitude of small competing firms, profits are driven towards an equilibrium point which represents costs plus the barest minimum necessary to serve as a continued inducement to production. In other words, profits are reduced to their lowest possible level. This raises an interesting question: if we actually had the type of free market which delivered efficiency, capitalist justice, and consumer choice, i.e., a perfectly competitive free market, how many ideological free marketers would still be free marketers?
The fourth and final criticism that I would like to raise against ‘free-marketism’ is specifically grounded in a Social Credit vision of the due relationship between the physical economy and its financial representation as mediated by the financial system. From this point of view, free markets are also not a sufficient condition for economic functionality because economic functionality is largely dependent on there being an adequate flow of both producer credit (to fully actualize a society’s useful productive capacity or its real credit) and consumer credit in the form of income (to fully distribute the flow of consumer production and to finally liquidate all the various costs of production). Under the existing financial system, producer and consumer credit is artificially restricted or kept scarce relative to the physical realities of the production system. The capacity of the physical economy to deliver the goods and services which people need to survive and flourish with the least amount of labour and resource consumption is thereby artificially restrained by the financial system … the presence of ‘free markets’ notwithstanding.
One way of measuring the degree to which the physical economy is actualized at any given moment in time is to compare the current GDP with what it would be if all the economy’s productive resources were fully drawn on and all factories, farms, etc. were run at full capacity. It is probable that we only run our productive capacity at 25%, at most, of its potential – and I am happy to understate the case. In other words, GDP could be at least 4 times its current level if finance were not a limiting factor but was made available, as, when, and where required.
As a metaphor, consider a hand-operated water pump of the sort that would be found on a well. If the pump itself represents the economy’s physical productive potential, the stream of water represents the actual flow of consumer goods and services, and the movement of the hand pumping represents the provision of producer and consumer credit, it is clear that the faster the hand moves the pump (i.e., the more adequate the provision of producer and consumer credit), the greater will be the actual flow of water (i.e., the greater will be the flow of consumer goods and services). In other words, an adequate flow of financial credits to catalyze production and to distribute that production to consumers (while liquidating its costs) is a necessary condition for the full actualization of the economy’s productive capacity.
Now, I am not suggesting that the physical economy should be run at 100% of its total capacity. Why? Because there is a definite limit to how much consumers can meaningfully or profitably consume (another fact which free-marketeers have difficulty admitting). One can only eat so many meals, or wear so many clothes, or live in so much space, etc. To exceed the genuine needs of the consuming public via a surfeit of goods and services would be to engage in the production of waste. Indeed, even at the much lower level of capacity-utilisation at which the current economy is run, much of what is produced, and hence the activity that goes into producing it, is rightly categorized as waste because it would not be needed or desired by the independent consumer. That is, it would not be desired by the consumer who is free of the necessity of always having to produce ‘more’ because he is fully financially enfranchised with sufficient income to automatically offset the prices of whatever is already being produced.
In sum, it is clearly the case that free markets are not sufficient for economic functionality because, insofar as we actually have free markets, the physical economy in any Western country is only actualized to a minor proportion of its total capacity and even that which is actualized is not a fully efficient use of our productive resources (as evidenced by the sheer volume of waste that is also produced). And yet free-marketeers typically ignore the predominant role of finance and the financial system in economic outcomes. Indeed, I’d argue that liberalized finance, i.e., ‘free finance’, is far more important than free markets for achieving full economic functionality, but that would have to form the subject of a separate article in its own right.
The upshot of all of these considerations is this: to my mind, the rabid defence of the free market – ‘rabid’ because it is independent of any factual considerations regarding the resulting functionality – on the part of free-marketeers is, consciously or not, a ‘bait and switch’. They use the bait of the various advantages that a market economy (under conditions of perfect competition) offers vis-a-vis a command system to garner support for the free market Shangri-La (which no one has ever seen)... and then they switch ... and use that support to defend the status quo (which falls woefully short of both perfectly competitive markets and the free market Shangri-La) because what they really want are monopoly or oligopoly markets, markets which are so lucrative for them personally, to the precise extent that they deviate from perfect competition.
In other words, my hypothesis is that the main reason free market ideologues so vehemently support the free market ideal of the economy is that they personally are doing quite well financially out of the 'free market' as it stands, which is neither fully free nor part of a fully functional economic order. By insisting that we already have ‘freedom’ and that ‘freedom’ is the best way to go, any and all suggestions that changes should be made to the economic system, changes which might threaten their wealth, privilege, or power, stand to be neutralized. At the same time, authentic progress in the direction of a true and full economic functionality that would be made possible by Social Credit monetary adjustments, for example, is stifled at its very conception.
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[1] https://data.oecd.org/gga/general-government-spending.htm
[2] https://taxfoundation.org/tax-freedom-day-2018/
[3] https://en.wikipedia.org/wiki/List_of_countries_by_economic_freedom
[4] Manuel G. Velazquez, Business Ethics: Concepts and Cases(Boston: Pearson, 2012), 199.
[5] Monopoly and oligopoly markets undermine the freedom of the market by artificially limiting both the conditions governing consumer choices and the range of choices themselves.
