business economics politics

The myth of the free market

This week I’ve been reading ’s book 23 Things they don’t tell you about Capitalism. I’ll review it when I’m done, but I thought I’d share his insight from chapter one: “There is no such thing as a free market”.

Popular economic wisdom suggests that markets should be free and interfered with as little as possible. Chang argues that the whole premise of this principle is misguided. “How free a market is cannot be objectively defined” he writes, “It is a political definition.”

All markets have limits and boundaries, inevitably so. There are things that cannot be sold, such as slaves, or votes. There are limits on who can participate in the market – you can’t employ children in your factories any more. Perhaps most importantly, governments set immigration policy, which is a huge control mechanism in the labour market. One of the main reasons why wages are high in wealthy countries is that the competition is kept out.

A completely free market would include the slave trade, child labour, and open borders. None of these are discussed by free market advocates of course, because those boundaries to the market are accepted. Interestingly, that wasn’t always the case. Opponents to abolition and to child labour reform used free market arguments in trying to stop them.

Chang suggests that once a limit to the market is accepted, it becomes invisible. We only see things as hindrances to the market if we disagree with them: “We see a regulation when we don’t endorse the moral values behind it.”

That’s an important principle to keep in mind. When business interests argue against raising the minimum wage, it is because they value profits more than they value the right to a living wage. There is nothing intrinsically wrong with the idea of a minimum wage, it’s just a matter of negotiating where the boundaries of the market should fall –and that, ultimately, is a matter of opinion.

“When free market economists say that a certain regulation should not be introduced because it would restrict the ‘freedom’ of a certain market, they are merely expressing a political opinion that they reject the rights that are to be defended by the proposed law. Their ideological cloak is to pretend that their politics is not really political, but rather is an objective economic truth, while other people’s politics is political.”

An interesting idea, I’m sure you’ll agree. And it sheds a rather different light on projects like the government’s current Red Tape Challenge.

9 comments

  1. Jeremy, I’d first like to express to you my appreciation for your blog. I’m not normally a blog reader, but I stumbled across yours looking for info on ethical banks in the UK, where I will be moving shortly. Your info helped a lot. I’ve since become a daily reader, and have turned many others onto Make Wealth History. Furthermore, you seem a much more voracious reader than myself, and I love the book reviews especially, as it exposes me to much theory that I would otherwise not be privy to. Thanks!

    In that vein, and considering the price of the “free market”, I wanted to suggest to you, if you haven’t read it already, Naomi Klein’s “The Shock Doctrine: The Rise of Disaster Capitalism”. I personally thought it was extremely insightful, and made me somewhat a disciple of hers. (Note: she just got arrested for protesting that big stupid Canada-USA pipeline currently under consideration by the Obama administration). Enjoy!

    1. Thanks Michael, The Shock Doctrine is on my long, long list of books to read at some point, but your recommendation bumps it up a few places. Glad you’re enjoying the blog!

  2. This is something I remember realising when I was fairly young and asking why it was that our town no longer had a railwa service. I was told it “wasn’t economical” which surprised me as it apparently was economical to built a new and very expensive road. It’s the same locally when we ask for cycle infrastructure or new bus services. What it means is: “we value our prestige project or the freedom of people to drive more than the rights of people to be able to transport themselves safely and/or breathe clean air”
    In fact one politician came very close to admitting this a while back when he made the usual excuse that there were ‘too many hills’ locally for cycling infrastructure to be worthwhile, and we pointed out that just to the south Tübingen (which has a green party mayor and government) was very hilly and had a network of cycle routes and they are all heavily used. He laughed and said “Oh well, they have a very different philosophy there”.
    Which sums it up really.

  3. Very good and true observations.

    The “free market” has always been toted as a boon for consumers and has never been more than a means of exercising greed, Markets are a fundamental part of commerce, free ones nothing more than an excuse to pillage in an unregulated way.

    1. The dirty little secret is that Companies HATE free markets. Did you know that Coca Cola has a monopoly on the import of actual Coca leaves, thus guaranteeing no one will ever be able to directly compete with them? The US Govt has made theirs the only acceptable instance where the ‘drug/leaves’ can legally be imported.

      How do you think Pepsi feels?

      Studying Economics reveals that economic profits tend to zero as more and more companies enter the market. This is exactly why companies feel the need to innovate (great!), and litigate (doh!), to push people out of the market.

      Just look at the commodity PC market. Are any of these companies raking it in? Of course not. It’s because they don’t have an edge! They’re all making the same thing,pushing component costs and average selling prices down down down. It’s literally an unsustainable business. Now look at HP’s margins, Dells, Acer, etc. They’re all floundering (relatively of course), and HP recently announced they were actually GETTING OUT of the PC business. Crazy huh? They’re getting out because the market is too free.

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