The Virtue of The Free Market - Hype or Reality?
(My computer erased my first attempt at this post. A circumstance I’m trying not to take to heart.)
In writing yesterday’s post (”The Joy of Sexual Reproduction“) I came across the work of Herbert Spencer, who apparently first coined the phrase “the survival of the fittest” after reading about Darwin’s theory of “natural selection.” While Herbert Spencer’s ideas seem to have much soundness in some respects (that all organic and inorganic stuff must exist according to the principles of space and time, for instance) they are run through with an idealistic belief that evolution has an end point, at which life will have reached a state of perfect equilibrium. A thrust that comes across implicitly in his spin on Darwin’s theory of natural selection in his misleading use of the absolute term “fittest.”
(I love Wikipedia’s choice of this marvelously sinister-looking photograph of Spencer.)
I didn’t set out to write about Spencer. It occurred to me though that a parallel may exist between the Spencer-like utopia of a perfect evolutionary end point, and the common belief that markets should be left to freely find their form; that a theoretically perfectly free market (which is impossible) would ultimately most benefit society. I don’t want to get stuck in attacking or defending absolutes, just examine whether flawed idealism might be doing us a disservice.
It’s easy to pick on George Bush, but in this case (as in so many others) he serves as a great example of what may be wrong with freely advocating a free market. While it’s hard to imagine that he ever had anything to do with actually writing a book, he did put his name as Author to one called “A Charge to Keep.” Herein we find a quote that will be perfect for our discussion: “A free market promotes dreams and individuality.” (I must add that I found this quote elsewhere; IÂ didn’t read the book. But I can readily imagine Bush subscribing to this perspective.)
It’s easy to point to failures in the market — for instance the recent shakiness caused by subprime loans. But it’s also easy for a free market proponent to point out that poor choices cause these problems and that they are actually examples that indicate that the market isn’t yet operating transparently or efficiently enough. As Alan Greenspan argued: “the securitization of home loans for people with poor credit - not the loans themselves - were to blame for the current global credit crisis.”
If we get into debates between free market advocacy and free market opposition, we’ll never get anywhere (that’s just politics as usual).
Instead, I’m wondering whether there may be a philosophical basis for understanding whether a free market is necessarily good or bad. I’ll try to explain what I mean. If we consider the free market as a concept it must rest on the two concepts of impulse and friction. Market changes require impulse or friction. An impulse initiates a market motion or activity based on an expectation of return or profit. A friction or counter-impulse provides inhibition to the momentum of the market in a particular direction. I’m being deliberately abstract. But we quickly determine that nowhere in the concepts for a free market do we come across any concept of virtue or goodness, other than the reflexive concept that freeness is virtue.
To be more specific. Let’s say a person engaging in commerce spies an opportunity for profit. He or she pursues that opportunity freely, responding to the impulse to benefit from the profit. And let’s say that in a perfectly free and transparent market, another person or group responds to that action by providing friction, thereby reducing or sharing in the profit, or generating an alternate profit for themselves.
A free and transparent market consists of a multitude of such transactions. Each person operates always according to impulse or friction. Never, in free market terms, does any subjective desire to act virtuously enter the equation.
Now, if we look again at Adam Smith (the father of the free market concept?) we find that he firmly believed that selfishness was immoral and that the individual would a act in accordance with the good of themselves and the good of all, since society is required for the market to exist.
But I go back to this idea of impulse and friction. People have coopted the concept of the free market as a virtuous mechanism. But a perfectly free market just “is.” People act and it responds, not according to any virtue, but according to its internal structure (which can never be perfect).
As the real market (synonymous in some ways with the stock market) becomes more abstract and more remote from the worldly barter and trade that Adam Smith witnessed, we lose the very connection to humanity that transforms a morally neutral market into a socially responsible market.
People love to tout the idea of the free market because it notionally frees them from worrying about the fiscal responsibility of the government in ensuring that markets operate responsibly and sensibly. Bush may be right in saying that a free market promotes dreams and individuality, but if we think that’s a good thing, we should perhaps think again.
Tags: adam-smith, bush, charles-darwin, concept, darwin, economy, free-market, george-bush, herbert-spencer, philosophy