America Does Not Have A "Free Market Capitalist" Economy

America Does Not Have A "Free Market Capitalist" Economy

I say quite often that America does not have a Free Market Capitalist economic system and sometimes the befuddled looks I get from those that hear this provokes them to question what I mean by it. The answer is simple and can be broken down into two parts, the two definitions of what is being asked.

"What is a Free Market?" and "What is Capitalism?"

The answers to these two questions together with an understanding of the current mode of economic activity gives a clear indication that the statement, "America does not have a Free Market economic system" is true.

So what is a free market economic system?
Free Market principles point to an economic system where business are unfettered by regulation, licensing, special fees and taxation, a system where all manner of salable goods are on the market without prohibition or exclusion. It is a system where the buying habits of those consumers would drive the manufacturers and distributors to produce or stock items that were valued by customers and discontinue or remove goods that have lost favor or marketability and sales numbers. This provides that customers are able to actually drive the economy by their buying habits and wants, without the interference of an outside entity.

This would of course be in contrast to the current system of high regulation, increasing taxation, special licencing, educational requirements and so on the American system is plagued by. Economists who advocate this idea of unfettered markets, also see that allowing prices and wages to form naturally and the availability and manufacture of goods to lie in the interest of those who have the capability to produce and the want to produce in trade for profit is a nearly unfailing concept in the ways of maximum efficiency of producers as well as maximum favorable market conditions for consumers.

With this some may say that the deregulation of businesses will (could/would) lead to businesses being able to skirt environmental concerns, livable wages, price gouging, and so on. In response to this one can argue on the case of environmental concerns that the information that a retailer or manufacturer was damaging the environment, the consumers voice could be heard by lowering or altogether abandoning or boycotting the product, manufacturer and retailers and distributors. When profits and sales decrease a signal is sent that certain practices are not favorable or condoned. This is the aspect of "market self regulation".

On the issue of wages. Wages should be set by employer and employee. If in the scenario an employer is offering too little pay the potential employee can ask for more or refuse. By no means should the wage of any person be determined by anyone other than the laborer and the job provider. In the system we have now wages are set by government decree, in an attempt to make a fair wage government actually provides yet another hurdle for a prospective employee to jump in order to gain employment. If the set wage is too high for the business, they will refuse to hire. Minimum wage laws also hinder the ability of these businesses to adjust wages based on experience of each employee, there is always a floor that they cannot overcome. Again a control on the level of wages offered by businesses is not a Free Market principle. It is a system of control.

Pricing controls work similar to wage controls, being that wages are prices and vice-versa, it stands that any interference in the marketable value being set by someone other than the seller negates the definition of free market practice.

So what is Capitalism?

Capitalism is defined many ways depending on the social structure lense those defining it look through. To make this easier we can go with two differing opinions, one from Wikipedia (which I use because of it's high use of editing from other editors) and then a definition from the website WorldSocialism.org (including this one because it highlights the idea that the word has different meanings depending on who you ask and how they define it).
According to Wikipedia Capitalism is "is an economic system in which trade, industry, and the means of production are largely or entirely privately owned and operated for profit. Central characteristics of capitalism include capital accumulation, competitive markets and wage labor.  In a capitalist economy, the parties to a transaction typically determine the prices at which assets, goods, and services are exchanged."  This is the definition, or close to it, that most non socialists agree upon.

With this definition in mind we can see that there are a large number of businesses and services that are not privately owned, ran, or funded but are so called public services and are controlled by government, whether county, state, or federal, and are funded through taxation instead of consumerism. This leads me, to say that we may define America as a mixed economy, but definitely not a pure Capitalist economy.

According to the website WorldSocialism.org though Capitalism is something to be feared and abhorred based on their claim of worker exploitation. The definition they detail is,"Capitalism is the social system which now exists in all countries of the world. Under this system, the means for producing and distributing goods (the land, factories, technology, transport system etc) are owned by a small minority of people. We refer to this group of people as the capitalist class. The majority of people must sell their ability to work in return for a wage or salary (who we refer to as the working class.)"

They go on to say,"The working class are paid to produce goods and services which are then sold for a profit. The profit is gained by the capitalist class because they can make more money by selling what we have produced than we cost to buy on the labor market. In this sense, the working class are exploited by the capitalist class. The capitalists live off the profits they obtain from exploiting the working class whilst reinvesting some of their profits for the further accumulation of wealth."

And with this in mind we can ask the socialist this question, "isn't the worker also a capitalist, as they value their time and effort less than the wage they are paid? If they did not value the wage more than the time or effort they would not work, as in a socialist society, goods are given freely based upon need and taken based upon production, or better said by their economic muse Karl Marx, "From each according to his ability, to each according to his need". This proclaims that no matter how productive you are, your effort is only for the benefit for the others who wish not to work or do not perform as you do. What incentive does that leave to work hard, or even harder? What incentive does that leave to work at all? What incentive does that leave to create, to innovate, or to improve upon goods? If there is no benefit for someone to excel at a good or service it will be done at a minimum speed and quality.


With that being said we can look at the American economy as a partial capitalist economy and a partial socialist economy. There are many areas that the State has complete control over production or service. Roads, Schools, Protection Services, Old Age Insurance are a few of the largest and easiest to see. In that the capitalist is still beholden to government entities in order to start or continue in their business. We can also see THAT is in no way a "free market" system.

Hayek’s “Rejuvenating Event” by B.K. Marcus

Swedish socialist Gunnar Myrdal was not happy about sharing his Nobel Prize with that Austrian "reactionary," F.A. Hayek. The so-called Nobel for economics, established by the central bank of the world's leading welfare state, was only five years old in 1974. It had already become meaningless — according to Myrdal — if they were going to bestow it on this apologist for capitalism.

Forty years ago today, the Royal Swedish Academy of Sciences announced that the "Prize in Economic Science in Memory of Alfred Nobel" would be awarded to both Myrdal and Hayek. It would be hard to find a less compatible pair of economic thinkers.

Myrdal was Keynesian before Lord Keynes himself. His biographer would later write, "If his contribution had been available to readers of English before 1936, it is interesting to speculate whether the ‘revolution’ in macroeconomic theory … would be referred to as ‘Myrdalian’ as much as ‘Keynesian.’" By contrast, Hayek was the foremost opponent of the Keynesian revolution.

Myrdal had helped found the Econometric Society, whose original motto was "science is prediction." Hayek and his fellows in the Austrian School insisted that economics wasn't a quantitative science, that prediction was impossible, and that econometrics was at best a form of history. Where Myrdal wanted the State to use economic science to plan for a more humane tomorrow, the Austrians claimed the future was constantly being renegotiated by entrepreneurs in a dynamic dance with consumers. Not only did the Austrians oppose central planning; they claimed it was impossible!

While Myrdal worked to modernize Western left-liberalism and to strengthen the hand of an enlightened State in the pursuit of progress and social justice, Hayek denied that the idea of social justice had any meaning. He adhered to a more individualist understanding of liberalism, according to which the market needs no external regulation.

As Myrdal saw it, if such a backward thinker as Friedrich August von Hayek could be awarded the highest honor in economics, then the whole institution needed to be abolished.

He was not the only one to object to the prize. Peter Nobel, a great-grandnephew of Alfred, insists that no member of his family ever wanted an economics prize in the first place.

Technically, what is commonly called the Nobel Prize for Economics isn't a Nobel Prize at all. The will of Alfred Nobel, a Swedish armament manufacturer and the inventor of dynamite, established the official Nobel Prizes in 1895. The categories were physics, chemistry, medicine, peace, and literature. There was no prize for economics — until 1968, when Sweden's central bank created and endowed a new prize "in memory of Alfred Nobel."

Hayek himself, while grateful for the recognition, said he would "have decidedly advised against it," had anyone consulted him on whether or not such a prestigious award should be given. "The Nobel Prize confers on an individual an authority which in economics no man ought to possess," Hayek explained in his speech at the Nobel banquet.

This does not matter in the natural sciences. Here the influence exercised by an individual is chiefly an influence on his fellow experts; and they will soon cut him down to size if he exceeds his competence. But the influence of the economist that mainly matters is an influence over laymen: politicians, journalists, civil servants and the public generally.

Hayek was clearly onto something, as we can see when an interventionist like Paul Krugman wins the prize. But as Samuel Brittan of the Financial Times wrote in 2003, the soi-disant Nobel "has not … in the least increased the willingness of policy makers to accept international free trade or reject the 'lump of labour' fallacy — matters on which most academic theorists are agreed."

When a free-market economist wins a Nobel Prize, the public does not suddenly embrace laissez-faire capitalism, but the Swedish socialist may have been prescient if he worried that honoring the Austrian would somehow hurt economic science as he conceived it. Hayek’s work, then as now, is used as the antidote to Myrdal’s conception of economics — that is, economics as interventionism.

One biographer describes Hayek's Nobel as "the great rejuvenating event in his life." It rescued him from obscurity — and apparently brought him out of a long emotional depression.

After his bestselling 1944 book The Road to Serfdom, Hayek had been unable to repeat the success. No other book of his would attract a popular readership, and scholars, even those who generally shared his political philosophy, saw Hayek's economic work as obsolete. He had, indeed, left economic theory largely behind to pursue a broader understanding of history, social theory, philosophy, and law.

But after sharing the self-styled Nobel with Myrdal, Hayek's star began to rise again, not just in the West — where he would later receive honors from the British and American governments, and meet with Pope John Paul II to discuss the pressing concerns of political economy — but, much more importantly, in the Eastern Bloc countries.

Milton Friedman (another "reactionary" Nobel laureate, according to Myrdal), wrote:

There is no figure who had more of an influence on the intellectuals behind the Iron Curtain than Friedrich Hayek. His books were translated and published by the underground and black market … read widely, and undoubtedly influenced the climate of opinion that ultimately brought about the collapse of the Soviet Union.

Hayek became infamous with the socialists of all parties, and he is considered an extremist even by many moderates. But he was no purist. He made so many concessions to the welfare state that some are uncomfortable with his prominence within the freedom movement. In a letter to Rose Wilder Lane, Ayn Rand offered Hayek as "an example of our most pernicious enemy." She also described him as “the kind who do more good to the communist cause than ours.”

In that second assessment, at least, she was obviously wrong. The history of ideas — and the impact of those ideas on actual freedoms in the real world — is complex, nonlinear, and thoroughly unpredictable. And the Austrians are clearly right about the nature of prediction: Who could have foreseen that the central bank of the world's leading welfare state would pilfer the name of an arms dealer and end up resurrecting the career of the leading opponent of socialism and central banking?

Today Hayek is remembered more for his lifelong opposition to all top-down attempts to manage the economy than for his compromises in 20th-century politics. He is remembered for concepts such as local knowledge and spontaneous order — ideas that are more readily evident to a generation that has grown accustomed to the disruptive innovation of distributed networks, digital currency, and the sharing economy.

But we don't need the developments of the last 40 years to vindicate Hayek’s life’s work. Myrdal's outrage in 1974 should have been evidence enough of the Austrian’s importance to the cause of liberty.

ABOUT

B.K. MARCUS

B.K. Marcus is managing editor of The Freeman.