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.[note]QA, no. 88.[/note]

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.[note]CA, no. 42.[/note]

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.[note]QA, no. 107.[/note]

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.[note]CA, no. 34.[/note]

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.[note]CA, no. 36.[/note]

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