Home / Economics / Is A Free Market A Good Thing?

 

The term free market carries a favorable connotation with many people, especially with Americans. Without much reflection a free market is assumed to be a good. People will often criticize economic arrangements, for example, the various free-trade agreements negotiated by the United States in recent decades, by calling them so-called free trade agreements, implying that if they were truly free, then their criticisms would not apply. But are free markets truly desirable things? That is what we will consider here, but first of all, what is a free market? As we will see below, this is not as simple a question as it might appear, for there is plausible criticism of the usual meaning of the term. But first let us deal with the usual meaning. Most often people mean by the term something like “an economic market operating by free competition,” which is the definition given in Webster’s New Collegiate Dictionary (1979). But what exactly do we mean by a “market operating by free competition”? It is taken to mean that there are no or few external restraints imposed on the conduct of the market participants, except a prohibition of force or outright fraud. Aside from that, each party is free to strive after his own interests according to his abilities and rights, and thus each party considers any agreement made to be the best that can be obtained, at least hîc et nunc, in the here and now. A free market, then, in its usual meaning is what we mean by a condition of laissez-faire, the same thing as Pope Pius XI spoke of in this passage from the encyclical Quadragesimo Anno.

Just as the unity of human society cannot be built upon ‘class’ conflict, so the proper ordering of economic affairs cannot be left to the free play of rugged competition [permitti libero virium certamini]. From this source, as from a polluted spring, have proceeded all the errors of the ‘individualistic’ school. This school, forgetful or ignorant of the social and moral aspects of economic activities, regarded these as completely free and immune from any intervention by public authority, for they would have in the market place and in unregulated competition [in mercato seu libero competitorum certamine] a principle of self-direction more suitable for guiding them than any created intellect which might intervene. (§88)

This is the same kind of arrangement which John Paul II designates under the negative meaning of “capitalism” in the encyclical Centesimus Annus.

But if by “capitalism” is meant a system in which freedom in the economic sector is not circumscribed within a strong juridical framework [ubi libertas in provincia oeconomiae, non in solidum contextum politicum tamquam in formam stabilem includitur] which places it at the service of human freedom in its totality and sees it as a particular aspect of that freedom, the core of which is ethical and religious, then the reply [as to whether capitalism is desirable] is certainly negative. (§42)

In other words, a free market (in this sense) is a market in which a free struggle of bargaining competitors determines (at least for the most part) market outcomes, competitors working only for what they perceive as their self-interest. Of course, this need not be actual bargaining, as in haggling over prices at a yardsale, but can simply mean that the stronger economic power is able to offer whatever price it wants, for example a certain wage for labor, and the weaker market participants, such as laborers, must simply accept the wage offered or go without the job.

Now to return to the question posed in the title, is such a system a good thing? As is obvious from the quotations above, the magisterium of the Catholic Church condemns such a system. Pius XI says later in the encyclical already quoted,

This accumulation of power, a characteristic note of the modern economic order, is a natural result of unrestrained free competition which permits the survival of those only who are the strongest. This often means those who fight most relentlessly, who pay least heed to the dictates of conscience. (§107)

We can discern two related but different points made here by the Pontiff. First, “accumulation of [economic] power…is a natural result of unrestrained free competition,” and secondly, the reason for this is that “free competition…permits the survival of those only who are the strongest. This often means those who fight most relentlessly, who pay least heed to the dictates of conscience.” Free competition, then, will almost always lead to economic domination and this is because there is more involved in such competition than simply the application of impersonal economic laws. It is actual human beings who are market participants and economic competitors, and they will generally strive to increase their power and to obtain positions from which they can dominate others and obtain economic outcomes favorable to themselves. They are not simply the passive tools of the forces of supply and demand as posited by the deductive economic model of both mainstream and Austrian economics, but generally they have power to take advantage of others and to fight for their own economic interests, fairly or not, and thus to influence market outcomes according to their desires.

Free markets, then, will not automatically produce justice. They have no means of guaranteeing the payment of a just wage or of just prices for consumers. But neither will they even necessarily produce economic prosperity. They will often produce masses of goods, but whether these goods will correspond to authentic human needs and serve the true cultivation of the human person and of society as a whole is another matter. Mere production of material goods does not necessarily provide well for the economic needs of a population. In the first place, this is because such markets respond to the demands of those with money, who are not necessarily the majority of the population. Thus basic and cheap food which the poor need and desire may not make as much profit for those who own the means of production as more expensive food produced for the rich will. This can be seen most clearly when, because of free trade agreements, land which once grew modest crops for domestic use is now used for growing food for export, but food which is priced beyond the means of the domestic poor. This point is likewise addressed by John Paul II in Centesimus Annus.

It would appear that, on the level of individual nations and of international relations, the free market [liberum commercium] is the most efficient instrument for utilizing resources and effectively responding to needs. But this is true only for those needs which are “solvent,” insofar as they are endowed with purchasing power, and for those resources which are “marketable,” insofar as they are capable of obtaining a satisfactory price. But there are many human needs which find no place on the market [ad mercaturam non attinent]. It is a strict duty of justice and truth [caritatis et justitiae officium] not to allow fundamental human needs to remain unsatisfied, and not to allow those burdened by such needs to perish. (§34)

There is no guarantee that the needs of those whose buying power is insufficient to compete with the rich will be met when the owners of the means of production direct their efforts toward those with the most money and ignore the rest.

Secondly, even for those who do command sufficient buying power to be able to influence the choices of producers and sellers, there is no guarantee that products and services offered for sale constitute contributions to the satisfaction of genuine human needs.

If…a direct appeal is made to human instincts—while ignoring in various ways the reality of the person as intelligent and free—then consumer attitudes and lifestyles can be created which are objectively improper and often damaging to the person’s physical and spiritual health. Of itself, an economic system does not possess criteria for correctly distinguishing new and higher forms of satisfying human needs from artificial new needs which hinder the formation of a mature personality. (Centesimus Annus, §36)

Advertising exists to sell products and does not distinguish “new and higher forms of satisfying human needs from artificial new needs which hinder the formation of a mature personality.” The defenders of the free market make unproved and unprovable assertions about the free market’s ability to produce goods and respond to consumer demand. But especially they like to contrast their own economic model with the real or supposed defects of other systems. Since Adam Smith the main selling point of the free market has been its alleged superiority over its rivals, rather than its inherent virtues. Some will even admit its weaknesses, but then argue that any other system is worse, and therefore we had best embrace it or we will end up with scarcity and poverty. But such arguments are for the most part special pleading which do not compare a free market with every alternative, but with those alternatives only, such as a command economy, that do have more serious defects, or with a merely theoretical abstraction, which is condemned simply because it does not operate according to the mechanistic model which mainstream economic theory believes corresponds to actual existing economies. There are many ways of organizing an economy. We are not condemned to choose between a free market and some kind of centralized command economy in which decision makers order the production of goods and services based on bureaucratic rules or political priorities. There are numerous alternatives to our present system, some better and some worse. The classical distributist tradition, for example, as exemplified by Chesterton and Belloc, offers a superior alternative to a free market, and one that is faithful to Catholic social teaching.

Above I said that there was more than one possible meaning of the term free market. Is the kind of market arrangement I just critiqued really an adequate understanding of a free market? One might ask, for example, why the proponents of the free market (understood in the above sense) are so anxious to preserve prohibitions against force or fraud. If I am entitled to deceive my competitor or use my economic power to drive him out of business, why should there be any prohibitions on my conduct? Why should not a market be like a huge fight, a true free-for-all, in which anything goes? But no actual market, even a free market in the sense used above, operates without rules of some kind or could possibly do so. The question is, what rules shall a market operate under and who shall make them? What kinds of misleading conduct or speech shall be termed fraud and thus forbidden? What uses of power or force prohibited? If we follow this line of argument, we can argue that no market is truly free, for some rules are always present, just as one could argue that there is no such thing as a “free society,” since rules are always necessary, and to that extent freedom is limited and never absolute.[1]

This leads us into the question of what we mean by a limitation of freedom. If I am prohibited by the law from killing my innocent neighbor, that does limit my actions, but it does not impose any restraint on my free conduct looked at with regard to my true purpose in life, the very purpose and reason that I have freedom of will and conduct. By being prohibited from murder, my freedom is not limited, if we look at freedom as related to its goal or end, the life of man in community according to the natural law, and ultimately eternal life with God in heaven. Of course, my arbitrary behavior is limited, but that is a limitation only on what is actually an abuse of my freedom, because it is contrary to the reason I have freedom.

Perceiving all this, some would like to use the term free market for something different, to keep the term while changing its meaning. They point out that the kind of market arrangements I described initially are not really free, because they allow those with power to set the rules and unreasonably exploit others, and that therefore we should use the term free market for something else. But while this argument has some merit, I do not think that we need to either abandon the term or change its meaning. It is true that the kind of market I have called “free” is not truly free. There are always rules of some kind since no market can operate without rules. Moreover, under a free market of the type described above, workers are often not truly free to reject a wage offer which is insufficient for their reasonable support, for at times the alternative would be to starve. Sophisticated advertising takes advantage of consumers’ hopes and fears to create the “artificial new needs” that John Paul II spoke about. But despite these just criticisms, I think the usage is defensible, especially in view of the long history of the term, including its use in papal encyclicals. When a term has become established in our vocabulary, even if it may not be the best term possible, usually it is a mistake to try to change it, unless it is seriously misleading, because of the confusion that will result from different usages of the same term.

It is indeed common to coin a term with the adjective “free” prefixed, in order to take advantage of people’s unreflective infatuation for freedom. Thus in addition to “free market” we have “free love” and “free thinking.” Related to this is the word “choice,” used most notably by proponents of legal abortion, but also in the so-called “school choice” movement. Of course, neither freedom nor choice are always good things. If we had freedom to drive in any lane or direction we wanted to on a highway we would indeed have more freedom of a sort, but a freedom that would quickly nullify the possibility of driving on highways. But people generally do not stop to think about this, and simply respond favorably to anything having the adjective free attached to it. Be this as it may and aside from any other consideration, since the meaning of free market is already fixed, it seems to me a mistake to try to wrest the term from its settled meaning and redefine it. Probably in fact, few will understand the new meaning and will tend to carry over elements of the old meaning in their thinking, resulting in simply more verbal and mental confusion. So I would advise those who wish to redefine the term for their own purposes not to do so. Let the term keep its established meaning and find a more appropriate term for other systems or arrangements.

Indeed, I am not even sure why a free market should be seen as a desirable thing. Freedom is always presupposed in human conduct, since we are not robots. So usually are rules. I am not sure why the one aspect of human behavior should be highlighted over the other. Distributists want a fair market, one in which quality goods are exchanged for just prices, prices that will allow their producers and sellers to live in reasonable comfort as befits human beings. If we take the ordinary dictionary meaning of the terms, I no more desire a free market than I do free love or free thinking. But though all these dictionary meanings suffer from defects, they are well established in our vocabulary and not totally unreasonable.

The free market then in its usual meaning is not a desirable economic arrangement. It has been condemned more than once by the magisterium of the Catholic Church, and our experience with actual free markets, or with approximations to such markets, amply demonstrate their instability, their openness to manipulation by the powerful, and the resulting harm they do to the social order. Some kind of regulation of fallen man’s economic activity is necessary; the only question is what sort of regulation and by whom it is to be conducted. Distributists wish to place most regulation in guild-like entities, not in the state. But distributists know that man’s economic appetites are not immune from original sin and left to themselves will rarely produce justice or promote the common good, and thus regulation is necessary. Catholics should be the first to recognize this, since the Church’s social teaching has made this abundantly clear. If we truly have a docile spirit toward all the teachings of the Church’s magisterium, then we will not resist the social doctrines taught by the popes, but instead embrace them. If we do not understand them or their rationale, we should study them more carefully, with an open mind, and with prayer. In this way we may hope to bear a Catholic attitude toward all things in our life, an attitude that will in turn contribute to our attainment of that eternal life which is our ultimate goal in this world.


End Notes

[1]. I am indebted to John Médaille for helpful ideas which I used in formulating the above paragraph.

 

About the author: Thomas Storck

 

Thomas Storck is the author of Foundations of a Catholic Political Order, The Catholic Milieu, and Christendom and the West. His work has appeared in various publications including Homiletic and Pastoral Review and the book, Beyond Capitalism and Socialism. Mr. Storck is a former contributing editor of New Oxford Review and Caelum et Terra and serves on the editorial board of The Chesterton Review.An archive of Mr. Storck's writings can be found at www.thomasstorck.org.

 

Recent posts in Economics

 

16 Comments

  1. Pingback: Tom Storck on the Free Market « Caelum Et Terra

  2. Hello Mr Stork,

    I always appreciate your work, and in fact some of your introductory articles were instrumental in opening my eyes to the reality that Christ’s Social Kinship (quite logically) extends into economic spheres. There is no ‘checking your religion at the door’ in any aspect of our life: Christ is to influence our every decision!

    What the saddest part of the logic of “free market” crowd is that they’re reacting to socialism by embracing an alternate “extreme” where now men are ‘free’ to play without any rules. A central tenet of free market capitalism is maximize profits at whatever cost, which includes eliminating competition as swiftly and decisively as possible, yet when competition is eliminated a monopoly ensues, thus not driving down prices at all! So they bought in to the system thinking prices would be reduced when in theory and practice that isn’t the goal at all.

    One further aspect in this article that I thought was good is that you made it clear there are various economic theories that can operate within the ‘parameters’ established by the Church (for our own good), and Distributism (however defined) is one but not the only option (as many unintentionally imply).

  3. The only way to change our current system to a more distributist system is by taxes and regulation. Taxes must be progressively raised not for increased government but to encourage increased wages or profit sharing. Regulation or super high taxes must limit the size of companies. The idea that taxes hurt business is not true, all business expenses are written off, taxes only hurt profits.

  4. Nick,

    Thank you for your comments. And Dorschner, yes, there is nothing unjust about using the tax system to encourage beneficial economic outcomes. Every tax choice, including a flat tax, is a choice to produce certain economic and even social results.

  5. Pingback: MONDAY MORNING EDITION | ThePulp.it

  6. jeffrey Tucker

    “Distributists wish to place most regulation in guild-like entities…”

    Would these be public? In that case, this would require totalitarian control of society. Are you running for dictator?

    Or would they be private? In this case, you might consider why this model doesn’t prevail in the world of human choice.

    Are you seriously arguing that the world would be better off if McDonalds, Wendys, and Burger King formed a cartel rather than compete with each other? What would that accomplish? It would mean higher prices for sure, and also lower quality.

    And how are you going to keep the cartel together given the normal tendency of all cartels to break up? Sounds like the state would be necessary to not only keep the cartel together but also to prohibit new entries into the market. That’s a recipe for stagnation and industrial death.

    Before you produce yet another zillion word screed against the market, you might flatter your readers and explain how your glorious alternative is going to work in the real world. Otherwise, your writing is of no more value than the thousands of utopian socialists of old who imagined that their scheme would make a world of peace, prosperity, and justice – but, whoops, it ended up making a world of gulags and mass death.

  7. An excellent article. To my mind the fatal flaw, from a Catholic perspective, of the current capitalist system is that it is based on consequentialist arguments. I.e., the free market is good because it provides the most prosperity for the most people. Now, as you pointed out, the number of economic systems that have actually been tried is a relatively small subset of the whole range of possible economic systems; as a result, that previously mentioned consequentialist argument is questionable at best. Even if it were true however, it can never justify all the evil that is done in the name of capitalism (Just like socialism can’t justify its evils based on its supposed goods).

    To my mind, the big question is, how do we move to a more just system without perpetrating other evils?

  8. Excellent clarifications as to the real meanings of free market, capitalism, and distributism. Thank you! I’m a new fan and am wondering if you’ve written anything on the moral/immoral nature of hedge funds?

  9. David W. Cooney

    Mr. Tucker,

    The problem with your question is that cartels are organizations of big businesses which collectively control the market in a large enough area to make it possible. Cartels are a capitalist phenomena. Guilds are local entities with only local authority. Therefore, if you don’t like the prices or the quality, it will be just as easy for you to drive to the next town to buy something of better quality at a better price as it is today. Therefore, the quality and price of locally produced products will be competitive or the local producers will go out of business.

    The regulatory authority of the guilds will rest with the businesses that are members. They will be answerable to the local public according to the simple market principle that customers can choose to shop somewhere else as described above. If the guilds attempt to abuse their power, the city, county or state can step in as they currently must do under capitalism. However, the elimination of monopoly power – and its ability to corrupt the state – means this will be needed less than under capitalism. Therefore, your points about cartels, totalitarian control, lower quality and higher prices are much more applicable to capitalism than Distributism.

    We do not propose a state controlled utopia. We propose an economic system that puts more power in the hands of the average citizen to control the market than capitalism offers. We propose a political philosophy that puts more power in the hands of the average citizen through his local government than is currently offered in the proposals by either party under the influence of monopolistic capitalism.

  10. In terms of your view toward the extreme cruelty and destruction of unbridled power and competition within our current economic and cultural context, you are absolutely spot on.

    My only criticism is that you seem to have fallen into conflating the system we have now and a free market. They are not the same in any way. We currently live under an economic system in which the moneyed elite controls the legal levers of state power. State regulation, by and large, favors the cartelization of production and distribution that supports this very concentration of economic power and, thus, disempowers the working class. Call it corporatism, call it state-capitalism, call it whatever you want…a free market it is not.

    Inspection and licensing fees, certifications, zoning laws, taxes, IP monopolies, destruction of the commons, etc., all serve as barriers to lower income individuals entering a market. On the same token, direct and indirect subsidies, state-supported infrastructure, an educational system geared primarily to providing human units for corporate jobs, etc. (not even to mention fiat currency), all contribute to artificial economies of scale that favor formation of the economic behemoths that trample us all.

    Distribution of wealth is proportional to distribution of options.

    For society to exist, an individual’s options must be limited to non-aggressive behaviors. The essential question of liberty is: Who does the limiting and how is it enforced?

    To begin, we need to move past the classic accepted and patently incorrect, liberal-conservative definition of a “free market.” A truly free market would inhibit the unnatural growth of parasitical organizations and hierarchies, because average people could come together voluntarily for mutual economic and social benefit. Such “organic” competion would provide practical, real-world alternatives, superior to our current bloated, homogenized, exploitative and unsustainable corporate model. Communities could decide what standards of regulation were appropriate to their situation, which would likely result in more regulation than in a “one size fits all” regulatory regime. Community members would know that they would personally feel the results of any particular economic activity. On the same token, in a free market, there would be no limit to the accountability of the individuals who make up organizations. You could not socialize the effects of your choices onto unwilling victims. Again, the effect would be a system that favored local, responsible entrepreneurs.

    Rather than dwelling on reining in concentrated power with a countervailing concentrated power, we should be focusing on maximizing non-aggressive options to the common individuals. Ultimately, I believe that like-minded people of goodwill can come together to provide the abundance and protection for which we now depend on the corporate state. If I didn’t, I wouldn’t be interested in Distributism. We all know that there will always be greedy, unprincipled and sociopathic individuals among us. No amount of power is ever enough for them. Unfortunately, right now, these people run the show. The key is to allow common people to isolate and reduce the real and potential harm to their lives that the concentration of power engenders.

    That entails trusting and empowering the lower classes to make their own choices – good or bad. Sadly, this is something anathema both to the monomaniacal self-interest of the economic elite AND the well-intentioned authoritarianism of social engineers.

  11. Local guilds are no better than national ones. Why should I have to drive to the next town to get a decent burger not made by the “guild”? Also, are you under the impression that business expands geographically because the free market somehow “forces” them to? Nuts. It’s consumer choice – meaning people and the exercise of their human volition – that brings this results.

    From this one post alone, it seems clear to me that distributivism is nothing but a wacky form of central planning that makes no more sense that a mandate that women must always wear propeller beanies and men wear duck suits. It is a wacky and dangerous fantasy that has nothing to do with reality and, in this sense, is just as dangerous as all-out socialism.

  12. Dear Mr. Tucker,

    Would you say that the implementation of guilds, in any from (past, present, and future) would breach the social doctrine of the Church?

  13. No, unless by “implementation” you mean stealing people’s stuff or otherwise criminalizing trade.

  14. David W. Cooney

    Mr. Tucker,

    Local guilds are better because, if they become corrupt, they cannot have as wide an influence as a national one. You would only need to drive to the next town if the local guild imposed restrictions that made it necessary. Because they would quickly go out of business, they have a strong incentive not to do so. Besides, the chain store burgers are not the best. The best burgers I’ve ever bought were from small local shops.

    Consumer choice is not the sole reason that businesses expand. They frequently do so by underselling the competition, which they do by using cheaper, lower quality ingredients. I have an upcoming article that addresses this point. The absence of good local burger shops is not because they aren’t good, it’s because they can’t get the cheap ingredients that the corporations force on their franchise shops.

    From there, you went into such bizarre accusations that it casts doubt on your ability to credibly address the issues we are raising. Distributism is not merely a fantasy, it is a viable economic system that worked without inflation, deflation, recessions, or depressions for nearly 500 years before a shift in philosophy introduced capitalism to the world.

  15. drive if you can get a car or gas under this cockamamie system.

    sigh, and with a market economy, if consumers don’t like products, they can buy something else, even locally.

    What we have here is a basic failure to understand the price system. I’m back to suggesting to you distributivists what I always suggest to you guys: read a few articles on economics. And try to get over whatever problem you have with freedom and choice.

    As aside, I can’t believe that I once again got suckered into a goofy debate with you people! I try not to take the bait next time.

  16. Dear Mr. Tucker,

    We have the same problem with “freedom” and “choice” (as defined by secularists, sadly even some Catholics) that the Church has. Perhaps Austrians of a Catholic persuasion should read a few encyclicals and draw upon their economic central planning from the Church. Of course, if they did, they would cease to be Austrians, as the Church has clearly emphasized that a market economy is insufficient and that “free” competition cannot be unbridled.