weeks ago a critic of the
free market, quite appalled that I would exonerate the free
market of blame for child labor, poor working conditions, and
the like, unleashed a barrage of comments on Twitter directed
my way (@ThomasEWoods). She was responding to a blog
post in which I promoted this presentation to a group of high
school students at the Mises Institute:
read, "How right-wing Ayn Rand disciples INDOCTRINATE high
school students." Subtle, she isn’t.
As I clicked
on her various links, I discovered scores, perhaps even hundreds,
of common fallacies about the free market. I found very few I
hadn’t seen numerous times before. I’ll take some of them on in
this series – not to persuade my critic, who has unfortunately
already made up her mind, but to help other people respond to
arguments like these and to show people on the fence how backward
and easily refuted these claims are.
her criticisms was the familiar "survival of the fittest"
accusation – why, the market rewards the strongest and grinds
everyone else into the dust!
But it is
precisely in a pre-capitalist economy – where the division
of labor is poorly established and where capital investment is
practically nil – that only the fittest survive. As F.A. Hayek
pointed out, before the Industrial Revolution those who could
not make a living in agriculture and lacked the tools to support
themselves in a craft had no way to integrate themselves into
the economy at all. The wealth (and employment opportunities)
that the market economy creates makes possible the sheer survival
of countless millions of the world’s weakest and most vulnerable
people, for whom the necessities of life would not previously
have existed in sufficient abundance to keep them alive.
It is the
capital investment that the unhampered market economy encourages
that increases people’s real incomes over time and makes the necessities
of life less expensive over time, relative to wage rates.
increase and improve the equipment and machinery at the disposal
of workers, their labor becomes more productive. Imagine someone
using a forklift, as opposed to stacking pallets with his bare
hands, or producing books with modern equipment as opposed to
a 16th-century printing press. The amount of production the economy
is capable of is thereby increased, often dramatically, and this
increase in production puts corresponding downward pressure on
consumer prices (relative to wage rates).
nothing natural or inevitable about the availability of this productivity-enhancing
capital equipment. It does not fall out of the sky. It comes from
the wicked capitalists’ abstention from consumption, and the allocation
of the unconsumed resources in capital investment.
is the only way the general standard of living can rise. Only
in this way can the average laborer produce the tiniest fraction
of what today he is accustomed to producing. It follows that only
under these conditions can he expect to be able to consume
the tiniest fraction of what today he is accustomed to consuming.
in the productivity of labor that additional capital brings about
push prices down relative to wage rates. By increasing the overall
amount of output, such increases raise the ratio of consumers'
goods to the supply of labor. Put more simply, improvements in
the production process that lead to an increased supply of output
make that output cheaper and easier for people to acquire. (On
this, see George Reisman, Capitalism,
in order to earn the money necessary to acquire a wide range of
necessities, far fewer labor hours are necessary today than in
the past. Thanks to capital investment, which is what businesses
engage in when their profits aren’t seized from them, our economy
is far more physically productive than it used to be, and therefore
consumer goods exist in far greater abundance and are correspondingly
less dear relative to wage rates than before.
As I’ve shown
the poverty rate in the United States fell from 95 percent in
1900 to around 12-14 percent in the late 1960s – a period in which
government antipoverty measures were fairly trivial. By the late
1960s, when Lyndon Johnson’s War on Poverty programs began receiving
substantial funding, the poverty rate stagnated. By 1994 it was
about the same as it had been in the late 1960s, even though the
federal government was by that time spending four times as much
per capita as it had under LBJ.
the situation had been reversed. Suppose the dramatic fall in
poverty had occurred under the War on Poverty, and that it was
under the free market that the poverty rate had stagnated. We
would never hear the end of it: the free market does nothing
to eradicate poverty, and only our wise overlords in the political
class can do the job! But when exactly the opposite is the case,
the facts are simply passed over in silence.
We read in one of her links: "In the ideology of the free
market, freedom is conceived as the absence of interference from
others. There are no common ends to which our desires are directed.
In the absence of such ends, all that remains is the sheer arbitrary
power of one will against another. Freedom thus gives way to the
aggrandizement of power and the manipulation of will and desire
by the greater power."
this odd paragraph apart one sentence at a time.
"In the ideology of the free market, freedom is conceived
as the absence of interference from others."
Freedom means no one has the right to initiate aggressive force
against anyone else. What else could it mean without becoming
"There are no common ends to which our desires are directed."
I’m not entirely
sure what this means. True, no one has the right to force anyone
else to pursue any particular end he does not wish to pursue,
but why is that a bad thing? Would it be better if we could all
be coerced into pursuing particular goals? Are we sure the goals
of the coercers would always be laudable? Where do the coercers
derive the right to decide for everyone else what their goals
And of course
it is not true that, just because guys with guns can’t order peaceful
people around, we have no common ends in a free market. In the
market economy we cater to each other’s needs. We fit ourselves
into that place in the division of labor where our abilities best
serve the most urgent needs of our fellow men. Without any commissar
having to dictate what to produce, in what quantities, and in
what location, we devise structures of production in which labor,
capital, and nature-given factors proceed through a series of
stages until the finished consumer good is finally reached. It
is an astonishing phenomenon, entirely missed by critics.
limitless ways business firms can combine factors of production
to produce an equally limitless potential array of goods. Thankfully,
firms do not have to grope around in the dark amid these trillions
production process uses an input more urgently needed elsewhere,
that input gets bid away from them and they find a substitute.
If they produce too much of something, their resulting losses
prompt them to produce less, thereby releasing resources for the
production of another good that consumers value more highly. At
all times, resources are directed, in light of consumer wants,
to those production processes in which they are most urgently
are necessary to force us into the coerced pursuit of common goals
in order to bring about this happy outcome.
And far from
dog-eat-dog, the resulting structures are fundamentally cooperative,
with the industries in lower-order stages of production depending
for their success on the output of the higher-order stages, and
the higher-order stages depending on the demand of the lower-order
ones. Our critic thinks we can’t have common goals unless someone
holding a monopoly on the initiation of violence – i.e., a government
official – forcibly imposes them on us. This strange proposition
is contradicted in a billion ways every day the market economy
operates – even in the gravely hampered market economy of today.
The title of Frédéric Bastiat’s book Economic
Harmonies reflects a central though unjustly neglected
insight into the true nature of the market economy.
"In the absence of such ends, all that remains is the sheer
arbitrary power of one will against another."
This is supposed
to be a description of the market economy. It is instead a description
of government. How else do we describe the exercise of force by
a privileged class against peaceful individuals, in order that
the peaceful individuals be expropriated and ordered about by
that privileged class?
No one forces
you to buy a Twinkie. But governments do force you to fight in
their wars and pay for their bailouts. Some people might consider
that "sheer arbitrary power." (Those people are
probably just right-wing supporters of Ayn Rand.)
"Freedom thus gives way to the aggrandizement of power and
the manipulation of will and desire by the greater power."
has things exactly reversed. It is government that does these
things. Ever see governments propagandize for war? They manage
to turn their populations against peoples they have never even
heard of, much less actually met. If it is manipulation of the
public our critic opposes, she might start with the political
class in which she reposes so much misplaced confidence.
She linked to this quotation from Abraham Lincoln:"Corporations
have been enthroned and an era of corruption in high places will
follow, and the money power of the country will endeavor to prolong
its reign by working upon the prejudices of the people until all
wealth is aggregated in a few hands and the Republic is destroyed."