The Market and Political Freedom

Economic Freedom and Political Freedom Are Internally Linked

John Marangos teaches in the department of economics at Monash University in Melbourne, Australia. This article is adapted from “Market and Political Freedom” in D. Kartarelis, ed., Business & Economics for the 21st Century, proceedings of the Business and Economics Society International Conference, Athens, Greece, July 18–22, 1997, volume I. The author wishes to thank John King for his valuable comments.

The history of civilized societies is a timeless effort to enhance freedom. Freedom must be viewed as a whole, and anything that reduces it in one aspect of life is likely to reduce it in others as well.

Free people make decisions through their independent minds and have the courage to pursue their own convictions through exchange relations in the market. Thus a free person rejects attempts by others to exercise power over his own choices. He treats other people as equals, thus limiting interaction to voluntary transactions. The market is the expression of economic freedom. In the absence of any form of discretionary power, it is an institutional process in which individuals interact with each other in pursuit of their economic objectives.

The economic and political processes are linked: one generates and sustains the other. Thus a society’s economic process would have ultimate consequences for the kind of political process it ends up with. This is because the state, as a monopoly of legitimate force, is in the position to impose restrictions on the individual’s action. A free person realizes the benefits derived from free-market relations, that is, the absence of discretionary power, and seeks a compatible political process. Political freedom means freedom from coercion in the sense of arbitrary power—freedom even from the coercion exercised by the government.

In a historical context, politically free societies and the market have a common origin. In Capitalism and Freedom, Milton Friedman states: “I know no example in time or place of a society that has been marked by a large measure of political freedom and that has not used something comparable to a free market to organize the bulk of economic activity.”[1] The rise of the market is associated with the rise of political freedom and the gradual removal of governmental and religious constraints on the individual.

However, it appears that while a market system is necessary for political freedom, it is not sufficient.[2] R.E. Lane agrees that “historically, a free market has seemed to be a condition of political freedom, as exemplified in the bill of rights and free elections, but it has not been a sufficient condition.”[3]

I am skeptical about this argument. I believe it was developed because in the 1960s and 1970s the political situation of the world was bleak with respect to political freedom. Suppression of political freedom was widespread in the form of authoritarian political structures, especially military dictatorships, where tenure was based on power instead of reason and irresponsible political power functioned outside the discipline of law. The argument raised by Friedman and Lane is an unfortunate simplification that does not correspond to reality anymore; in fact, while in the short run within a market system political freedom may be restricted, in the long run authoritarian political processes cannot survive alongside markets. This is demonstrated by the fall of military dictatorships in the end of the 1970s and in the 1980s and the collapse of authoritarian socialism that stimulated the re-establishment of political freedom.

In essence, people enjoying the benefits of the market process will question and undermine the power of authoritarian governments. Individuals who experience the benefits of freedom through market relations are likely to require freedom in the political process. The market and political freedom are internally linked: one generates and sustains the other.

Markets and Authoritarianism

The point is not obvious. Some countries have developed political systems featuring a hierarchically structured bureaucratic organization that gives privileges to an elite class. While the market is the main process for decision-making, political freedom is restricted in order to serve the purposes of this elite minority. In these instances the political process results in a loss of personal control and encourages dependency. It rewards conformity, obedience, and affiliation instead of innovation, enterprise, and autonomy. Individuals feel powerless and helpless. Such people perform less efficiently in a market system than do self-interested, competitive individuals. In addition, political authorities distort the market by allocating resources by coercion. They control a large part of the resources, and the influence of their decisions on the remainder is substantial; that results in effective control of the entire spectrum of economic decisions.[4]

Market-Produced Opposition

But the market plays an important role in providing the mechanisms of opposition to the suppression of political freedom. The market should be evaluated not only as a process for achieving the optimal allocation of resources but also as one of learning and personality development. In the market, individuals learn to be free and independent and to follow their own convictions. Freedom is a skill that is generated and sustained by the market.[5] People preserve these values throughout their adult life once they have been developed in their formative years.[6] If the market encourages self-direction, how can that behavior be restricted only to economic relations and not extended to the political process in the form of political freedom?

Despite differences among markets, they have essential features that tend to promote the acquisition of qualities important for personality development. Lane identified the qualities necessary for maximizing the development of personality: [7]

Cognitive complexity. This involves the capacity to understand abstractions, to hold preferences, to be able to judge others and oneself, to change concepts to fit reality rather than fitting reality to fixed conceptions, and finally to hold several ideas in order to arrive at original solutions.

Autonomy. This is the desire and ability to remain independent, which encourages free initiative and free expression in all areas of life. Through this quality an individual is at liberty to conform to tradition and authority—or not. Each authority is treated as a source of information rather than of command.

Sociocentricity. The thoughts and claims of others are understood and given recognition. Sociocentricity comprises socialization, experience, understanding, and reasoning. Individuals learn the rules of the game and conform to them. It is a guide to social reality and a necessary ingredient in good interpersonal relations.

Attitudes towards self. A combination of self-knowledge, self-acceptance, and self-respect are necessary for the establishment of an identity. With these qualities people avoid internal conflict and uncertainty about values.

Identification with moral values. This is necessary to secure moral reasoning and moral behavior without taking refuge in tradition and authority.

Lane aimed to identify the effects of markets and politics on personality development.[8] Unfortunately, in his analysis the influence is one way: markets and politics influence development of personality, but individuals are unable to influence markets and politics.

But contrary to Lane, social processes are reflexive. Individuals in the market acquire qualities for personality development that will influence the political system. A market participant will require a politics based on freedom.

In the market people develop through trial and error the skills, qualities, and behavior necessary to participate effectively. They need to think for themselves. They slowly reject intellectual dependence on others. They dismiss dependency on family, village, community, ethic group, or social class. They need to make difficult complex decisions with respect to education and careers. As the market becomes increasingly complicated, with more sophisticated products, proliferating brands, and aggressive advertising, people need to search, examine, and analyze what is offered. Thus they are faced with difficult, complex choices that require complex cognition.

A sense of autonomy is achieved through the market, since the participants learn that the environment around them is responsive to their actions. Individuals work, get paid, and buy goods through the market process; this enables them to control their own destinies. Within the market individuals can afford to be self-dependent, since they have alternatives. They can follow their own convictions. Rewards are individual instead of collective. So the market participant learns that effort will be rewarded and wrong decisions penalized; he will need to bear the burden of his mistakes, but also enjoy the outcome of correct decisions. The market thus contributes to the desire for, value of, and belief in one’s own competence to control one’s own destiny and to develop along a unique path. It instills an appreciation for the same in others.

Economic transactions bring people together under the rule that any exchange must be voluntary and thus mutually beneficial. Participants thus need to understand one another’s point of view. Agreement will only be reached when market participants realize they need to work together, communicate, bargain, and compromise. In this way, individuals become sociocentric, since success in the market requires good interpersonal skills.

Participation in the market process encourages self-knowledge, self-acceptance, and self-respect. Through successes and failures, participants realize their potentialities. They learn through their mistakes rather than through tutelage, and they succeed through their own analytical and planning strategies. The market increases awareness of the participants’ potential in solving problems and realizing goals. The sense of accomplishment contributes to one’s satisfaction with life.

Lastly, the market encourages fair dealing since exchange is voluntary. Capitalism contributes to identification with moral values.

Transference of Virtue

Behavior learned in one aspect of life may be applied in others. The qualities gained through the market process can be used in politics, for example, because those qualities become part of the personality. The political structure does not exist in a vacuum. Moreover, market participants equipped with the five qualities discussed will require a political process that protects their personality, that is, political freedom.

Thus economic freedom and political freedom are internally linked. One generates and sustains the other. While in the short run political freedom may be restricted in a market-oriented society, individuals enjoying the fruits of economic freedom will eventually question and undermine an authoritarian political process. Because the value of self-control is taught, exercised, and mobilized by the market, in the long run, authoritarianism cannot exist alongside free markets.


  1. Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), p. 9.
  2. Ibid., p. 10.
  3. R.E. Lane, “The Dialectics of Freedom in a Market Society,” The Edmond James Lecture, April 16, 1979, University of Illinois, Urbana-Champaign.
  4. F.A. Hayek, The Road to Serfdom (London: Ark Edition, 1986 [1944]), p. 45.
  5. K.R. Minogue, “Freedom as a Skill,” in A.P. Griffiths, ed., Of Liberty (Cambridge: Cambridge University Press, 1983), p. 21.
  6. R. Inglehart, The Silent Revolution (Princeton: Princeton University Press, 1977).
  7. R.E. Lane, “Markets and Politics: The Human Product,” British Journal of Political Science, 1981, p. 5.
  8. Ibid., p. 7.