What is a Free Market?

One can hardly avoid the phrase free market (free enterprise, capitalism, etc.) in discussions of economics or politics. Regrettably, the term is used carelessly to describe a myriad of schemes that have little or nothing in common with a genuine free market.

It should be rather embarrassing that we’ve allowed this sloppiness to become the modus operandi of everyday political dialogue. We must stop tolerating the manipulation of our language before we can have clear and honest discussions.

In this article we will examine the true meaning of a free market, and why it is imperative that we use the correct terminology in our communications. We will not consider the merits of a free market versus alternatives; that will be reserved for a future post.

Defining a Free Market

By definition, free means unhindered, at liberty, and independence from control by others. One can only be free in this sense when natural rights are respected (Natural Rights were examined in a previous Striking at the Root article– it’s important background information).

A market, of course, is a network of economic exchanges.

Putting these two words together, we must define a free market as a market in which all participants are free to act as they desire provided they do not violate the natural rights of others. In a free market people may invent, innovate, produce, and exchange goods and services (including labor) freely and peaceably, without interference by a third party (be it a lone criminal or the government).

There are other ways of wording the same definition, here are three of them:

“The Free market is a summary term for an array of exchanges that take place in society. Each exchange is undertaken as a voluntary agreement between two people or between groups of people represented by agents.”1

“the free market is nothing more than all members of society exercising their inalienable rights. It is nothing more and nothing less. Any other system, by definition, violates some or all of these rights.”2

[Free Market/ Capitalism] means that the production and distribution of economic goods are privately owned and the consumption of goods and rate of savings are determined by the individual decisions of economic actors, allowing a price system to emerge, which steers entrepreneurs and capitalists into the sectors of the economy which will most satisfy consumer wants and consequently give them the highest margins of profit.

As differing from all other economic systems, the capitalist system puts its focus on the choices of individuals and the harmonious relationship that is obtained between them on a voluntary basis… it is a moral system that respects the sovereignty of each person within the realm of their own life, so far as those actors agree not to infringe on the sovereignty of others. Self-ownership is the foundation of a system of true capitalism on both a moral and practical basis”3

It’s really that simple. In a free market you may do whatever you want, with the exception of violating other’s rights.

Do We Have a Free Market?

Most readers should already know the answer by now. Is there, in the United States (or anywhere else), freedom to do whatever you want with your property, as long as your respect that same right of everyone else?

Can you take a job for whatever price you and your employer agree to? Are you free to stop using Federal Reserve Notes and start using gold as money? Are you able to open a business without any interference by the government? Can you buy and sell raw milk? Are airliners free to run their own security system in competition with the TSA? Is a business free to adjust prices however they like, particularly when demand rises rapidly while supply remains stagnant, as often happens to bottled water or batteries after a natural disaster? Are businesses denied special privileges (a.k.a. corporate welfare)? Is competition unrestricted? Are you free to raise and sell rabbits?

All these questions have one thing in common: the answer is no. If the United States ever had any semblance of a free market, it has long since disappeared.

Common Misunderstandings

Americans have endured a continuous tsunami of propaganda from politicians, the media, the education system, and the intellectuals about government and freedom. Let’s address some of the more common talking points that have sprung from this regarding free markets:

“A free market is an unregulated market”: There is no such thing as an unregulated market; the only difference is who regulates. Aside from the regulation of natural law “don’t violate other’s rights”, a free market is carefully regulated by all participants, who do so by trading with those who offer goods and services that satisfy their wants and needs.

“A free market is lawlessness and chaos”: To correlate free markets with lawlessness and chaos is, by definition, patently absurd. As shown above, a free market (by definition) is not unregulated. You are not free to do absolutely anything.

“Greed runs amok in a free market”: In a free market people are strictly limited to whatever can be achieved through voluntary means; greed is not a legitimate excuse to overstep the regulations imposed by the free market. It doesn’t matter how greedy you are, you can only get ahead by hard work, increasing your productivity, and persuading others to voluntarily buy your labor and/or the goods produced by your labor.

“The free market only benefits the rich”: Some would have us believe that a free market is a playground for the rich and the rest of us would be their toys, with which they may do whatever they like. To the contrary, in a free market, fraud is illegal, industry may not pollute the planet, employers may not abuse employees, big businesses cannot use government to obtain subsidies, eminent domain becomes a thing of the past, etc. Anything that involves violating other’s rights is contradictory, not synonymous, with free markets. To correlate these things which by definition conflict with a free market is disingenuous.

Correct Terminology is Crucial to Communication

Most people have been taught to misuse the phrase free market for their own agendas: either hiding behind its banner, or making a scapegoat of it.

The “right wing” specializes in the former, that is, taking advantage of its positive connotations to sugarcoat their actual beliefs. In their rhetoric they sing the praises of the free market, but their policies are its antithesis. The average Republican supports the status quo. They rarely question any part of it- and usually reject talk of actual free markets as preposterous.

Impossible!

Perhaps some would insist that pure free markets (or anything close to that) are impossible, and thus my contentions here are moot. Whether their opinions are correct or not, this is hardly an acceptable excuse for dishonest use of our language.

The “left wing” tends towards the latter, accusing free markets of countless crimes for which it was not even around to commit. They lay the consequences of interventionist policies at the feet of free markets to persuade their supporters into thinking ever more interventionism is necessary.

Why does anyone resort to this blatantly deceptive advertising? At best it is ignorance, or worse, they allow political motivations to trump honest communication. We cannot successfully communicate when we- even inadvertently- manipulate the language for our own agenda.

This problem will only persist as long as the people tolerate such abuse. Instead of wrapping our ideas in pretty language let’s clearly and honestly speak our ideas. Who isn’t on board for that? Please raise your hand

Conclusion

A free market is a market in which each participant is sovereign. As long as one does not violate the rights of others, they have the freedom to do whatever they wish.

We have avoided discussing the merits of free markets- that is a topic for another article. Our goal of figuring out what a free market is and why we should be more careful with our terminology was enough for one posting.

Regardless of your opinions about free markets, it is crucial that ulterior political motivations take a back seat to honest use of the English language. If we can’t move beyond sabotaging words and start clearly communicating our ideas, there’s little hope of any progress in our political discourse.

Notes:

  1. Murry Rothbard, “What is the Free market?
  2. Tom Mullen, “What Is This “Free Market” We Keep Hearing About?
  3. Amelia Vreeland, “Is it Really Capitalism?
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