Free Market VS Capitalism: So How Do We Fix It?

[Part 10 of 10, Free Market VS Capitalism essay series.  Part 1 here]

At its root, the solution is a change in mindset.

The whole point of having an economy is to support and improve the lives of the citizens, the people, who make up society.  The economy isn't a goal in itself.  Benefiting "the economy" has no value if it doesn't benefit actual people.  There is no principal involved - any principle which does not actually make life better for real life people is necessarily an invalid principle.

There is a widespread misunderstanding of the Amish approach to technology.  The Amish are not luddites.  They simply question the value of each and every use of technology on an individual case by case.  So while they may not find that the use of tractors in general improves life for their society, if a particular farmer is disabled, he might be granted an exception.
If the entire point of the economy is to benefit society as a whole, it makes sense to question whether or not that end goal is being accomplished.  As the graphs in part 3 show, it is not.  Maximizing growth had value when the nation was young and growing, but today we are grown, and conditions have changed.

Our current system gives the biggest reward to people who do no actual productive work, thereby decreasing the pool of wealth and resources available to everyone else. It keeps employment up only by constantly growing, ensuring rapid environmental destruction and unnecessarily stressful lives for everyone but the upper 0.01%, with some people working 40-50 hours a week and others working none at all.

This would all be easy to fix - and far from socialistic idealism, doing so would require less government intervention, and more free markets.

The trick is to remove all those government creations whose sole purpose is supporting capitalism.

Free Market vs Capitalism (Government Intervention)

[Part 9 of 10, Free Market VS Capitalism essay series.  Part 1 here]

There is something that investment property, corporations, and intellectual property all have in common besides for being instruments of wealth inequality.
None of them could exist without state intervention.
Which is a bit ironic, when you think about the stated ideals of many conservatives and libertarians.


Owning the land on which you live is natural.  It is not universal - nomadic humans most likely never had any concept of land ownership - however the concept predates humanity.  Lots of non-human species have land ownership (we just use a different term, "territory", for some reason), especially large predatory mammals.
There will occasionally be border disputes, and if negotiation fails, it may be solved with violence, but once borders are established, other individuals of the same specie will respect them.


But no bear owns two separate non-adjacent plots of land. No cat owns the land that a different cat lives on.
No other specie attempts to force others to pay them tribute for the privilege of living in their designated territory, many miles away from where they actually live.
Ownership of territory is for the purpose of living in it and using it.

Free Market VS Capitalism (Market Corrupting Capitalism, Part 3: Intellectual "Property")

[Part 8 of 10, Free Market VS Capitalism essay series.  Part 1 here]

The Colbert Report
Get More: Daily Show Full Episodes,Indecision Political Humor,The Colbert Report on Facebook

I don't know if that video will come through on blogger properly.
Here's a link, in case it doesn't: http://www.colbertnation.com/the-colbert-report-videos/433578/march-06-2014/warner-music-s--happy-birthday--copyright?xrs=share_copy

Free Market VS Capitalism (Market Corrupting Capitalism, Part 2: Corporations)

[Part 7 of 10, Free Market VS Capitalism essay series.  Part 1 here]

This one is pretty easy.

The entire point of a corporation is concentrating capital, in order to gain the benefits that increased capital give a business.  Well, that, and allowing the owners of the company to not be responsible for their own actions ("limited liability"), which has its own set of ethical concerns, but this whole essay series will be long enough without getting too much into that.

It goes back to my first analogy - amid a free market place of individual buyers and sellers, WalMart comes in and buys the entire lot that the market is on, and now consumers no longer have any choice if they don't want to (or can't) travel to the next town over. 

In general the ability to quickly, easily, and cheaply raise large amounts of capital is very good for economic growth.  The small individual entrepreneur would have to work a long time with a small positive net income in order to afford the large factor space, or machinery, or large workforce they may need to expand operations - and ultimately, increase efficiency via economies of scale.

This makes a lot of sense to encourage if you happen to be the government of a developing economy.

We - the United States - doesn't happen to fall into that category.

Economists and politicians almost universally point to continued growth as the solution to all economic problems, but the reality is, we are already grown up.  We don't need to grow anymore.  There is (literally) more than enough to go around. 
US GDP per capita is approximately $50k, while living a comfortable middle class lifestyle for a family living reasonably efficiently only costs half that

Free Market VS Capitalism (Market Corrupting Capitalism Part 1: Investment Property)

[Part 6 of 10, Free Market VS Capitalism essay series.  Part 1 here]

One of the most fundamental of the ways state intervention tilts the field to encourage large snowballs to increase in size ever faster has been rather poignant for me here in the real world recently - where I live now there are quite a few homeless people who spend most of their time on my block, one of whom I have found squatting in various places in my building several times in the past few months. He used to live here years ago - as the building manager, its my job to have him leave.  Most recently a family friend of his that was moving out let him stay in her apartment for a night in exchange for helping to pack and move.  A couple days later when I went to get the unit ready for new renters, I discovered he was still there.  What difference does it make if I stay? he asked.  Its not like new renters are going to move in tonight.

Well, actually, we had contractors and cleaners coming in the next morning, but as a more general question, it seems like a pretty valid one.

There are some things that we all agree are common goods.

No one can own the ocean, or even a piece of it.  No private beach extends below the water line.

No one can own a river.  It doesn't matter how rich you are, you can't buy a river.  It belongs to the state as a whole (or, if it crosses state lines, the nation), and every resident can use it.  If you own your own land, you can dig a well, and if you hit water, you can drink it.  No one owns the aquifer. 

Water is a basic necessity of life, and there is a large, though finite, amount of it.

Most of us pay money for water, but that money is for the infrastructure that allows you to turn a tap and have purified water come out of a tap. No one will stop you from going to the nearest body of public water and distilling your own.

No one can buy all the oxygen in the atmosphere.  Not for any price. 

No one can make you pay for the sunlight that lands on you or your plants.

Mr Burns tried.  He was exemplifying cartoonish super-villany (or, extreme capitalism, which often times looks similar - see Who Framed Roger Rabbit).

How to get to the Top (without actually having to work for it)

[Part 5 of 10, Free Market VS Capitalism essay series.  Part 1 here]

Pro-capitalists generally take it as a given that anything someone has they must have earned, and therefor must deserve.

Of the 20 wealthiest people in the world, 1/2 of them inherited their snowballs.  At best, they get credit for keeping it rolling, for not finding a way to stop it, but they got it already large, already moving.

More to the point, nobody actually creates a truly massive snowball of wealth by their own productivity.

Nobody has ever gotten to the top 0.01% via hourly wages.  One would have to average $25,000 per hour for an entire full-time working lifetime in order to actually earn a billion dollars.

Nobody gets 0.01% rich on salary either - not even CEO or sports legend level salary. 

For the most part CEOs of successful companies are still just in the relatively lowly 1%, maybe the top half a percent.

Free Market VS Capitalism (Current State of Affairs; or: Why Should We Care?)

[Part 4 of 10, Free Market VS Capitalism essay series.  Part 1 here]

 A Historically Unprecedented Concentration of Wealth

There are a number of independent ways our system tilts the field and gives an unfair advantage to those who already have capital. This makes things much easier for those who need the least help.  At the same time, by encouraging resources (remember, financial wealth, like paper curranecy, is just a convenient placeholder for actual tangible resources) to be concentrated in a few hands, the system makes it substantially harder for those without capital to make a living. 

Pro-capitalists will often point out that wealth is not finite - value can be created, both by extracting primary resources from the Earth (farming, mining, logging), but notably via technology - an iphone has more value than the plastic glass and metal it is made of. 

However, at any given moment there is a finite amount of wealth currently in existence.   If one person were to have 220 trillion dollars, that is another way of saying that one person controls 98% of all the (currently available) resources on the planet.  This means that the other 7 billion humans would have to divide the remaining 2% among them. 

Gross world product (GDP of all countries combined) grows by approximately 3-5% per year.  But our one insanely rich individual is getting 98% of that 3-5%.  So the growth that goes to everyone else would be .08%  Less than a 1/10th.

This is just a thought experiment - reality is not quite that bad - but it demonstrates why the "wealth can be created" argument is meaningless.  For one, it is impossible to live on hypothetical future growth.  For two, under capitalism, those who already have enough are the ones who get the vast majority of that new growth anyway.

My analogy of one person owning everything is extreme... but it is not as far off as most people would assume.

Free Market VS Capitalism (What is Capitalism?)

[Part 3 of 10, Free Market VS Capitalism essay series.  Part 1 here]

When people point out the extreme income inequality, the corruption of politics, the dissolution of labor protections, environmental degradation, and all the other similar and related injustices we see occurring, they are not referring to free market economics.  These things are almost all due directly to capitalism.

The best analogy for capitalism I've come up with was during a spirited debate about the ethics of capitalism on the Mr Money Mustache forums:

A person makes a snowball.  In order to make a snowball, you have to physically go outside, scoop up some snow, and mush it together.  You produce it by your own physical labor.  Once you have it, you can put it down in the fresh snow and start rolling it around, and more snow will stick to it.  That makes it a lot easier to get more snow on your ball more quickly.  And the bigger it gets, the more it collects with each revolution.

The assumption I always made - the one that most make - is that capitalism arises naturally from the free market.  One person produces more income than they spend, they save the difference, they invest it, it earns them more income, which they reinvest. 

This really does happen, and could happen in even the most primitive and simple society.

So the extremes we see today must be the natural extension of that process... right?

Free Market VS Capitalism (What is a Free Market?)

[part 2 of 10, Free Market VS Capitalism essay series.  Part 1 here]

So, what do I mean by the assertion that capitalism and the free market are different things?

The key feature of a free market is that all individuals are free to participate and make their own decisions.

We treat the term "capitalism" as if it's key feature were the same, but the real key feature of capitalism is that some people accumulate wealth - capital - and use that wealth in ways that allow them to leverage additional wealth out of existing wealth, without having to personally contribute any additional productivity. 

The easiest way to think of a free market is imagining a literal market: a flea market or farmer's market.

You have a big empty lot partitioned into more or less equally sized parcels.  A bunch of different independent vendors rent one, and sell whatever they want, for whatever price they want.  Customers wander around and buy whatever they want.  Seller and buyer can negotiate prices, and sellers with better product will sell more and/or can raise prices, but as long as each seller does better than break even, they will likely show up again next week, keeping competitive pressure on every one else and keeping variety available for the consumer.

Free Market VS Capitalism

7 years ago I wrote about how, contrary to almost universal belief, democracy and the free market not only don't necessarily go hand-in-hand, but they are actively opposed to each other.

That they are two parts of a single whole comes from a extremely successful deliberate public relations campaign by US government and corporations, going all the way back to inventor of manipulative public relations and advertising, Edward Bernays.

The next year I pointed out parallels between capitalism and anarchy - but I got it wrong.  I should have compared the free market to anarchy.

I was making a similar mistake myself.  American propaganda has basically everyone assuming that the terms "free market" and "capitalism" are interchangeable.  I realized quite some time ago, in arguing with anarchists, libertarians, conservatives, and capitalists that the two meant distinct things.

But what I've realized only recently is that, just like democracy and capitalism, the two are actively opposed to each other.

You can not have a free market under capitalism.  And you can not have our current degree of capitalism without a significant amount of State power actively manipulating the market, which inherently means it is no longer "free".

Of course, even though modern America treats them as interchangeable, this idea is not new.

The person who basically invented the entire discipline of economics, the person who's words capitalists use more often than any other, Adam Smith, recognized that the two were actively opposed, and even that it was the role of the State to intervene to prevent capitalism from corrupting a truly free market.  Unfortunately, few of the people who claim to follow his model actually read his book...

In my next couple posts I'll get into explanations, examples, problems and (hypothetical) solutions.

You trust yourself WAY too much

Think about all the stuff you know, on all the millions of topics there are to know stuff about - numbers, names, relationships, science, history, skills, where you left your keys...
Now think about how many times in your life you have been mistaken about something you had been pretty sure of.

Of all the stuff you "know" right now, a fair percentage of it is wrong.

For some strange reason, nobody seems to notice this, and everyone goes on being sure about all manner of things - frequently including things that there is no possible way they could know for sure.

We (humans) have figured out a fair bit about our own minds.
Our awareness, perception, and recall are all very, very bad; yet we almost all almost always remain confident that our own perception accurately portrays the world outside our heads, that our memories accurately reflect what actually happened.

But you don't have to take my word for it.


The following 3 documentaries are really fun. They are interactive - if you have any doubt about your own limitations, if you don't doubt your self as much as you should - these videos should cure you of that, and grant you some humility.
And they do it in a totally entertaining way.

Watch 'em!!!