The phrase “free market” gets thrown around a lot. Many people who use this term fail to ever reflect on its meaning. Republicans and those on the right typically claim that we need to preserve the free markets, and that Obama’s current policies are destroying free markets. Meanwhile, Democrats and those on the left like to claim that the free market doesn’t exist, and that it is a fictional utopia concocted by proponents of capitalism.
What both of these parties have failed to do before making their claims is to define what a free market really is. Republicans – what are you saying we should protect? And democrats – what are you saying doesn’t exist?
Definition Of An Ideal Free Market
I cannot speak for others but, like the Republicans and Democrats, I do have some things to say regarding the “free market”. So before I state some of my views I will try my best to first begin by defining what a free market actually is to me.
To me, the free market is when all individuals in the marketplace cooperate voluntarily without the use of coercion. Hence – economic decisions are agreed on freely by only the parties involved in each transaction – and there is no force acted upon by the state, or government.
An immediate stumbling block to this idea is: What if people don’t act voluntarily with one another? For example – criminals or gangs who steal property from others. Because criminals use coercive force to steal properties from their otherwise rightful owner I would permit the state to use coercive force only so much as to protect these property rights as to where they rightfully belong. This is why criminals and people who steal go to jail for the misdeeds. Criminals undermine the free market by initiating force, which is not a valid means of exchange in what would otherwise be only free and voluntary economic transactions.
If a man does not keep his end of a contract, that too is an undermining of the voluntary decisions of individuals. It is a kind of fraud, and it cheats legitimate and honest individuals in the free market system (and thus, cheats the free market itself). Therefore, I also believe it is the job of the state to protect these contracts in order to preserve voluntary, and what I would call true, economic behavior.
Other than these protections by the state (property rights, contract rights and fraud), the state would be out of economic affairs completely if we wanted to call this a pure free market system.
The Ontology Of The Free Market
In what way does this free market exist? As anti-capitalists rightfully point out: empirical reality is much more blurry than the clear-cut ideals of the free market. Free marketers like to tout how free markets are all about a non-coercive economic playing field. But things are not so simple.
The United States current marketplace is very-mixed, quite far away from the pure free market that I described above. In fact our current market breaks just about every free market ideal. We have regulations for almost every industry, subsidies for businesses in various sectors of the economy, an enforced monetary system, as well as government monopolies like the U.S. Postal Service and Amtrak.
The ideal free market that people so commonly support has, for all intents and purposes, never existed in our country’s history. Even by the end of George Washington’s presidential term we had our first central bank – a plainly non-free market institution.
In this sense, anti-capitalists are right: the free market is an abstract concept that has no basis in empirical reality. There is no time in our history, or in the history of any other nation that we could say we have had a free market.
But – was the free market ever intended to identify an empirical reality? Or is the free market merely a theoretical construct that may guide our understanding of empirical information? Certainly there is no economist that can reference a specific economic society and claim: “That was the free market!” But we could – and economists often do – look at particular economies and can make the judgment that they are “more free market” or “less free market.”
Why would an abstract concept be ignored simply due to its inability to be directly observed in the natural world? Is that the very nature of what makes an abstract concept? Is a concept that is abstract mean it is not useful in a epistemological sense? What if that concept is concretely defined?
Take for example the concept of a perfect circle or the number pi. Neither of these can be found in the real world, they are only theoretical; however, we still use these concepts to guide our understanding of real world phenomena!
Instead of thinking of the free market as a specimen that can be observed in the “real world,” perhaps we are better off thinking of it as a lens out of which we observe – it’s the free market perspective – and it is a very real way of observing economic behaviors and making sense of them. The free market is a measuring stick, a tool of observation, not a formula for an ideal society. It is a way to determine how much freedom individual’s have in their economic activity. And if you are one to believe that freedom is the key ingredient to peace and prosperity for a society, then the free market perspective is something worth understanding.