Sunday, 17 March 2013

What is the free market?

As a libertarian, in principle I'm keen on the free market, along with other forms of freedom. But this doesn't mean that I'm keen on the kind of economic system that we currently inhabit, or the results that it produces. As you may or may not have noticed, there is no such thing as a free market anywhere in the world: economic transactions are everywhere shaped, constrained, distorted by laws, regulations, taxes, tariffs, etc.

I don't mean to say that I'd abolish all laws, even if had the power. There is a such a thing as a 'bad freedom': for instance, the freedom to kill other people, which reduces their freedom to zero and thus depletes the total amount of freedom in society. Laws are necessary to constrain such behaviour, although it seems to me that the laws we have are too many and too complex.

It's common for opponents of free markets to point to the outcomes of our present system and blame "the free market" for them. The obvious reply is, "What free market?" There is no such thing in the world. We have markets constrained by law. If we want different outcomes, we can get different outcomes by changing the laws. And, indeed, I agree that the current system and its outcomes are not ideal and that some changes could be beneficial.

The basis of the free market is that someone grows apples and offers them for sale at a price; customers buy the apples if they want apples and find the price reasonable and competitive. Most people understand this system and accept it. The problem is that, these days, we have complications that people don't understand or accept so well. Such as the concept of the limited company, the concept of intellectual property, and the growth of financial transactions that enable people to make money by playing with money, without producing any goods themselves. These modern concepts are of course defined and shaped by laws, and I think these are the laws that should be considered for tweaking in order to produce outcomes that people like better. I don't think the present laws are really doing a good job; and of course they don't represent "the free market" in action, because no system constrained by laws is free.

Given that we have an unfree market anyway, and we are always likely to have, the question is in what ways should it be unfree? What minimal set of laws will permit a maximum feasible degree of freedom while being understandable and acceptable to ordinary people? I can't provide an answer to this question, but I think it's a question worth asking.

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