Free Markets and Capitalism — More Different Than You Think
Drawing the Line
Very often, you hear economists and politicians use the terms “free market” and “capitalism” interchangeably. However, the usage of these terms in an interchangeable fashion can sometimes throw a lot of people off.
What if I told you that free markets and capitalism are actually more different than you think? Now yes, I do agree, both are inherently similar and involved in the private economy. Although, even as we understand this connection, we need to understand the difference. This difference is what makes the debate entirely different.
What makes capitalism and free markets so similar is that both are economic systems with the intention of sustaining free enterprise and private ownership. This is what drives scholars to view them as one — since they overlap on the same grounds. In conjunction, they both create some of the most prosperous societies humanity can witness. Although, even among those similarities, it’s the purpose that drives these two systems that highly distinguishes them.
Capitalism is an economic system designed to create, produce, and generate sustainable wealth. Sound like a free market? Not quite.
Free markets are an economic system designed to transfer, distribute exchange, and determine the longevity of the wealth that capitalism generates. Both work together in determining the price and production of goods — free markets determine the price, capitalism generates the supply that meets those prices.
So, it can be understandable as to why people often just mush them together as singular— yet that can become dangerous when we forget what sharply distinguishes them. Especially when one is currently operating in function without the other.
That brings me to my next point — we have capitalism, but not free markets. All this debate about transferring wealth from the top 1% to the bottom 99% percent is a natural job for the market economy. Free-markets divide up the gains from capitalism. However, we don’t have a free market economy in the United States that can properly do the job of transferring all this wealth.
Although, free-markets do not just self-create or self-sustain. Free-markets need to be built — by government. Government needs to withstand rent-seeking interest that tarnish exactly what the free-market is built to do — distribute wealth. Yet, those rent-seeking interests are exactly what the government has failed to prevent. The government framework that is intended to establish the free market has been severely compromised to restrict an actual “free market” from taking shape in America. Without this vital free market component, capitalism merely became corporatism through the assistance of a compromised legal framework that doesn’t allow the free market to exist. By all means, this shouldn’t make us anti-capitalism, but only allow us to realize that capitalism needs to be accompanied with its natural regulating and distributing partner — the free market. Nor should this make us completely anti-government, for it is the government’s responsibility to establish the framework that enables a self regulating free market system to exist in the first place. This framework just needs to be shaken up completely to remove all the damaging distortions.
The American economy is capitalist — not free market capitalist.
Capitalism has been running just fine, producing all the wealth that has made the United States the richest country on the planet. Further generating all the great things we know and love today. Yet, it’s been running solo — which means only problems can result. The American economy is capitalist, not “free-market” capitalist. Through a distorted framework of subsidies, special tax breaks, favorable regulations — free markets have not been able to actually do the job of spreading all the wealth that capitalism proudly creates. Through such a distorted framework, the free market has been strangled so much by these government created complications.
It’s no surprise that through America’s lack of free market influence, people are demanding for the wealthy to have their wealth forcefully transferred from their wallet to the their own. However, let’s not put all the blame on the wealthy. It’s a natural capitalist inclination to build more wealth — yet it’s the free market that checks that wealth through constant competitive pressure signals.
The Wealth Gap Debate
Judging free markets and capitalism separately and differently further explains why income gaps are so vast between a CEO and their average employee. In a free market, this wealth gap would be much smaller through large corporations constantly being forced by competition to reinvest in their business and employees alike — all to stay relevant in the industry. These pressures of an open marketplace enable the splitting of benefits which help consumers through better products and employees through better wages. However, when the rules of the game are written unequally, these competition incentives that drives wealth distribution become virtually eliminated. Without this greater market competition, wealth then only accrues to big corporation CEO’s.
Wealth concentration is a direct sign that free-markets do not exist
It’s another reason why it’s so easy to become a billionaire now — our lack of free markets enables it. Jaime Dimon, CEO of JPMorgan Chase would have half his $1.7 billion net worth if the government allowed the free market to force banks to go bankrupt. But no — the government had to come in, distort the free market framework, and bail out all these failing banks. Jaime Dimon now has more money in his pocket, not thanks to “free markets” — but to the government. Another example being Jeff Besos. This CEO basically built Amazon off the back of government favored loans — all that smaller competitors couldn’t get a hold of. Nothing against these CEO’s, but it’s important to understand that their successes came from the help of government and capitalism fusing together — not the free market. This is corporate capitalism, not “free market” capitalism.
Under a genuine free market system — it wouldn’t be impossible, but extremely more difficult to become a billionaire in your own right. Your product would have had to have been a heck of a good product — and Chase Bank’s easy-to-use banking app design doesn’t cut it.
Again — I should keep reminding you. I’m not anti-big business either. I think it’s excellent for our society to enable corporations to reach their full potential. It only becomes an issue when those same corporations become greedy and don’t want to share that same prosperity.
I also oppose big business getting a hold of special privileges that don’t exist for their smaller competitors. Yet, it’s the lack of a free market that has expedited a powerful elite-like force to further exploit the framework to their advantage. Why else would Mark Zuckerberg openly admit to favoring regulation of big tech? Why else would large retail firms want a higher national minimum wage? I say it’s an effort to swallow affordable costs that will only undermine the free market and crush their competition. If anything should raise eyebrows — it’s hearing recommendations from big business.
Social Democrats Get Half of It Right
This is what Bernie Sanders and other social democrats largely keep pointing out — corporate socialism is a very real, anti-market thing. Yet, they’re only getting half the picture correct. Who is it that enables this corporate socialism — the government. If you really want to stop this corporate wealth gap — look towards rebuilding a liberalized, free market economy. They’re not talking about this. Instead, they propose massive solutions that involve breaking up big business and regulating even more. These solutions, however, will only compromise and distort the market framework even further.
Free Marketeers Have A Solution
So how do we fix it? You guessed it — more free markets!
Businessmen like capitalism, not so much free-markets. Free-markets are what stretch out profits and reduce wealth concentration.
Bringing free-markets to America starts not by using government coercion to transfer wealth. Instead, it’s by radically expanding the free market economy through a more efficient framework that enables competition to thrive — free from the distortions created by corporate welfare, special tax loopholes, and broad regulations that totally disregard small business capabilities. Thus enhancing the pillars of what make a free-market truly visible: free entry, free exit, freely moving prices, free trade across national boundaries, freedom to hire and fire, freedom to take a job or quit, freedom to introduce new products or production methods without prior permission, and freedom to invest.
It’s up to the government to actually establish the environment which allows these pillars to build a free market — in health care, education, and energy.
Capitalism enables everyone to own capital, innovate their ideas, and create their own wealth by utilizing their inner potential. Free markets then come in — ensuring society is feeling this wealth overall through the constant pressure of competition deciding which business can best supply the public’s demand. Translating to a lifting up of wages, increase of consumer wealth through economic control, and rise in the general public’s own ability to unleash their given potential.
Free-markets are regular distributors of wealth. All it takes for that to happen is competition. Under competitive business environments, profits are stretched and more spread out between each competing enterprise. Thus, reducing the concentration of wealth amongst a singular business. The method to gain profits comes from a more innovative, productive business model — one that comes from a more efficient and productive workforce. Further encouraging wealth to be seen on the labor level — which can result in higher wages, better benefits, and more generous time off. Free-markets are what make that happen — something that is largely not occurring today.
The solutions on how to get there? Eliminating corporate subsidies, decentralizing the economy, and privatizing state-owned-assets would be a great endeavor for the government to act upon.
So there you have it. Doesn’t it feel great to be a free market economist?
To view this in a more microeconomic perspective — we can now visualize capitalism and free markets as not one of the same. Further enabling us to fix the compromised framework that make free market forces virtually opaque.
So now, the next time you hear this misconception of the free market system take place — think twice and remember that we barely have free markets.
Wherever there is no free market — we’re going to have to build a free market.