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Saturday, April 1, 1978

Is the Free Market Ethical?

Free-market economists have amply demonstrated and documented the fact that free enterprise is the most efficient and productive way to provide for people’s economic needs and desires. The simple but powerful logic of supply and demand is irrefutable, and even the critics of the free market acknowledge that the “invisible hand” of self-interest can produce and distribute goods and services without any need for central planning and control.

Yet, the pervasive critics and opponents have succeeded in convincing much of the world that there is something sinister or immoral about the free market and private enterprise. Even when they acknowledge its efficiency, they claim that free enterprise is somehow unfair or inherently exploitive. Even when they agree that the free market is productive, they argue that it produces the “wrong” goods, too much advertising, for instance, or too many luxury goods, and not enough “public goods” such as education.

The opposition to free markets, then, is often not so much an economic claim as a moral one. Marxists, for example, claim that profit is the taking away from the workers part of the value which they put into their products, a value that, in their view, rightfully belongs to the workers. Less radical advocates of government planning claim that though the free market may be efficient, it does not produce the goods that people “really need,” such as health care, or that the inequalities of wealth resulting from free market forces are for some reason wrong.

When one speaks of what people should consume, or what a worker should earn, these “shoulds” are moral considerations. These are moral attacks on the free market, which must be answered by moral arguments, since they are based on goals and values rather than facts about how an economy works. So let us examine the question, is the free market ethical? In order to answer that question, we must first ask, what exactly is a free market?

Assuming we know what a “market” is, the question hinges on the word “free.” In the context of society, “free” means free from the coercion of others. More specifically, it means an absence of coercive harm, which includes coercive restrictions. A person is free when he can buy, produce, and sell whatever commodity or service he desires, with no arbitrary interference from others. Thus, the market is free when all the individuals in it have this freedom.

In a free market the transactions are voluntary. A market is unfree to the degree that people are forced to produce according to some decreed method, or trade at a dictated price or quantity, or give up their earnings and profits to finance some politically chosen “good works.”

Opponents of free markets often criticize the inequalities of wealth that may result from it. One premise which they will generally agree with is the moral equality of man, that all human beings are equal in human rights. Moral equality implies that no one may claim to be morally superior to others, and that no one may impose his beliefs, values, and desires on another, for those of one person have equal standing with those of anyone else.

This means that if one person believes that certain goods “should” be produced, he has no moral right to force another to comply with this personal belief. Each person has his own unique personality and his own needs and desires, and moral equality implies that each person has the equal right to decide how he should live, including how he will work and what he shall buy and sell.

Thus, the basic moral principle compatible with moral equality is that no one may impose his personal will on another. One may use force only in self-defense. Otherwise, coercion is morally wrong, and that implies that people have the right to do whatever does not coercively harm others. Actions which do not coerce others are morally right, or at least not wrong, from society’s point of view. For example, if someone sells cigarettes, he could be accused of selling something harmful to health, but since their purchase is voluntary, it is not coercive, and thus not wrong.

Since a free market is, by definition, one that is free from coercion, it follows that the free market is ethical; without coercion there is no moral wrong, from society’s viewpoint. If some people do not like the allocation of goods in a particular free market, they are entitled to their opinion and personal ethical beliefs, but not entitled to impose their values on others by force. Even if they are in the majority, opponents of the free market who feel that profits are nasty or that inequalities of wealth are wrong have no right to inflict these personal opinions on others, just as they have no right to force others to adhere to their religious beliefs. So, not only is a free market ethical, but any other economic arrangement is inherently unethical, since it must involve coercion!

In a free market, goods and services are worth what people believe they are worth and are willing to pay for. The free market, and only the free market, allows people to act on their individual desires. Moral equality is not the equal right to the good produced by the economy, but rather the equal right to be free from the coercion of others.

Government interference in the free economy is not only wasteful and unnecessary; it is also wrong ethically, just as wrong as theft, kidnapping, and trespassing are when committed by private individuals. Of course, markets can also be coercive without government involvement. Slavery, for example, is not a free-market institution, since the slaves are not voluntary workers. But slavery and other coercive practices have generally been committed with government sanction. State monopolies, such as the post office, and industries “protected” from free competition, such as transportation, are coercive not only in taxing us to support the inefficient and superfluous bureaucracies and pay higher prices, but in violating our rights to peacefully pursue our own business.

Those who oppose free markets and use the power of government to enforce their personal doctrines are imposing their views on everyone else as though they were somehow morally superior to the rest of us.

A free economy is part of a free society, one in which each person may live by his own values. A free society has a free market for the same reason it has free expression and the freedom to choose one’s lifestyle: because people have the right to be free from coercion in any area of life. Not only are the opponents of free markets wrong, in their moral arguments; their proposed alternatives are inherently immoral since they are coercive.

The case for the free market exists on firm moral ground: the free market, free from coercion, is the only ethical market.

  • Fred Foldvary teaches economics at San Jose State University, California. He received his Ph.D. in Economics from George Mason University. Foldvary's scholarly interests include private communities, business cycles, decentralized governance, and natural-law ethics.