Over the years, intelligent and well-meaning opponents of private property and free markets have offered thoughtful and articulate arguments in support of government intervention. None of these arguments have withstood close scrutiny, but at least they were offered in the spirit of honest debate. Such arguments, even though deeply flawed, never infuriate me. Not so with a far-more-common mode of criticizing the market, namely, tossing out slogans. Three of these anti-free-market slogans are particularly galling.
Is Capitalism “Unfettered”?
The first is “unfettered capitalism” (or “unfettered free markets”). Opponents of laissez faire love this one because it so obviously describes an economic system that no reasonable person endorses. So, before I go on, let me declare without qualification: I, too, oppose unfettered capitalism.
The trouble with this slogan is that capitalism, by its very nature—by the fact that it is the product of a system of private property rights—is necessarily constrained. Capitalism is internally and inexorably fettered. To the extent that a society is capitalistic, no one in that society can coercively or fraudulently harm others. Everyone is restrained from violating the equal rights of others.
Consider, for example, Michael Dell, founder of Dell Computers. He earned an impressive fortune by producing affordable computers that consumers voluntarily purchase. Like everyone in a capitalist system, Dell was and remains quite constrained by the rules of private property. Had he produced lousy machines, or had he stubbornly priced his machines so high that too few consumers bought them, he would today be in some less-lucrative line of work. Dell is emphatically fettered by the ability of consumers to spend their money as they see fit, along with the ability of other entrepreneurs to compete with him.
Indeed, central to the economic and ethical case for laissez faire is the recognition that it is the only system that provides adequate and appropriate fetters. One of the great benefits of private property and voluntary exchange is that, because no one is compelled to engage in any exchange, all exchanges that do take place are believed by all parties to them to be beneficial.
The ability not to exchange—what Boston University law professor Randy Barnett calls “freedom from contract”—is an enormously effective fetter protecting the weak from the strong. And only under laissez faire is everyone’s freedom from contract (along with the freedom to contract) consistently respected.
Does Capitalism Favor “The Powerful”?
Reflecting on freedom from contract allows us to dismantle another popular slogan, namely, that “markets favor the powerful over the weak.” Indeed private property rights eliminate the distinction between “powerful” and “weak.” In a market economy, some people are wealthier than others, but no one exercises power over others. Although Bill Gates’s wealth is about 600,000 times greater than my own, he has no more power over me than I have over him. If he wants my car, he cannot have it unless I agree to sell it to him. He cannot imprison me, shoot me, or enslave me. He cannot tell me what to eat or drink or with whom I may be intimate. He cannot tell me how to educate my son, or how I may earn a living. It’s true that if I want to use Microsoft software I must first buy it from him, but so, too, must he buy from me anything that he wants which I own. We are both free not to contract with the other. It would be perverse to assert that Bill Gates has “power” because he is unusually talented at producing products that please consumers.
A person (or an institution) is powerful only insofar as he can use authorized force to compel others to act against their wills. Only the state has such power. This fact is why the further we move toward laissez faire, the smaller is the scope for the truly powerful—those with political authority—to dominate others. At the laissez-faire limit, all power is eliminated.
Is Laissez Faire “Extreme”?
The third galling slogan is that those of us who consistently champion laissez faire are “extremists.” “We must strike a balance between the state and the market,” the refrain goes. “Laissez-faire proponents such as Milton Friedman, F. A. Hayek, and Ludwig von Mises are extremists.”
The fact is, laissez faire eliminates extremes and extremists. That’s one of its principal virtues. The greater the scope of the market, the less likely there will be extremes and extremists.
Compare the relationship of one market participant to another with that of the state to its subjects. On the market, farmer Jones can get Ms. Smith’s money only by offering her something that she values. Each party to the exchange gains; no one is harmed and no one carries away all of the benefit. If farmer Jones seeks to be an extremist—say, if he asks Ms. Smith to pay $1,000 per bushel of his corn—Ms. Smith walks away. Ms. Smith’s freedom not to contract with farmer Jones, along with her freedom to contract with other suppliers, ensures that farmer Jones will abandon his extremist position. Likewise, Ms. Smith cannot be an extremist. She might initially offer farmer Jones a mere one cent for each bushel of his corn, but farmer Jones need not accept. If Ms. Smith wants to buy corn from farmer Jones, she’ll raise her offer; she’ll abandon her extremist position.
Market prices balance the costs and benefits to all parties of producing and consuming. Extremes are avoided.
Suppose, though, that farmer Jones is so greedy that he isn’t content to play by the rules of private property. So he successfully lobbies Uncle Sam for a higher, guaranteed minimum price for corn. The state might achieve this price hike by paying farmer Jones and other corn farmers to reduce their production, and by prohibiting upstart corn farmers from entering the market. Now we’ve got true extremism. Not only does the state stand ready, ultimately, to kill anyone who insists on doing nothing more heinous than selling corn at prices lower than the dictated minimum, but farmer Jones need no longer bargain with Ms. Smith. If Ms. Smith isn’t content to pay the state-enforced minimum price, too bad for her. She remains free not to buy the corn (except insofar as her taxes are used to subsidize corn farmers!), but she may not now bargain with other farmers for a lower price. Government intervention favors corn farmers with a disproportionate—we might say “extreme”—advantage.
Beware of slogans. They are verbal camouflage for weak arguments.
- For a more elaborate explanation, see Barnett’s impressive and important book The Structure of Liberty (New York: Oxford University Press, 1998).
- The popular belief that Microsoft’s current large market share is due to monopolistic practices, network effects, or inefficient “lock-in” has been convincingly exploded in the fact-laden book by Stan J. Liebowitz and Stephen E. Margolis, Winners. Losers, and Microsoft (Oakland, Calif.: The Independent Institute, 1999).