The Distinction Between Capitalism and The Free Market

For many people, capitalism is tantamount to the free market.  It’s no coincidence that both their definitions morph into one common definition because decades of propaganda has watered down the true meaning of the free market.  It is no longer acceptable to say that you’re a proponent of the free market as it’s automatically equated to the failing draconian monster that is the present-day capitalistic system.  An introductory course to economics wouldn’t be enough of a foray into the evils of our current system, and it’s not just a system that’s endemic to the most developed country on Earth, it’s a system that, similar to the trickle-down approach, affects even the least developed economies in the world.

Economists like Milton Friedman and Friedrich Hayek proposed that the free market was a self-regulating system that would always be in equilibrium-economic jargon that corresponds to a system where demand always equals supply.  The economic pioneer, Adam Smith, proposed the same thing, conjecturing the idea of an invisible hand that would always result in an equilibrium state.  The market needn’t be controlled by bureaucrats and government insiders susceptible to pecuniary skulduggery, as the free market is a self regulating mechanism that would ensure the same opportunities and the same jump start for everyone.  The free market system, as championed by Friedman and Hayek, would guarantee that every transaction be based on the merit and the agreed upon market price of the product, that is, there wouldn’t be value added burdens, like taxes, that impinge on the free flow of business.

But that’s where it becomes ambiguous, and many fail to translate the teachings of the free-market economists into a real world setting.  What has been devised instead, is a ham-fisted attempt to marry government influence into the economy, that has resulted into the present day capitalism that’s been the scourge of the modern world for a while now.  Whilst academic textbooks wax lyrical about what a phenomenal system the ”mixed economy” is, you just have to take a look around you, you know, drive a few blocks away from your neighborhood, to truly absorb the full impact of this mediocre attempt to include government in the free market.

Gentrification, low-cost buildings, potholed roads inter alia, are the direct result of the government’s involvement in the economy, and it goes to show that the market isn’t being efficient when outside forces are controlling every aspect of it.  Communism-or total state control led to some of the world’s most appalling cases of famine and war.  Socialism, a combination of the mixed market and government sponsored social programs, hasn’t eradicated abject poverty either, despite lavish claims about its humane advantages.  But what we’ve seen time and again, is the confirmation that the government’s constant meddling in the economy can lead to inefficient outcomes in the market.

Capitalism differs from the free market in that capitalism is the very product of a meddling government.  There’s never truly been a situation where the market was truly freed from the clutches of bureaucracy, save for the nascent economic boom in countries like Estonia, where the economy was made separate from the government’s control.  Estonia went on to experience an economic boom that made this ex Soviet controlled territory become known as the ”Baltic Tiger.”  The government didn’t interfere and business went on to flourish.  Capitalistic economies in this day and age are heavily impacted by the government’s influence, where large banks deemed ”too big to fail” can be bailed out by bureaucrats, at the expense of the poor people who defaulted.  Lobbyists routinely push their corporate agendas down the throats of greedy politicians, who in turn, force their agendas down our throats.  It’s all a big game of advertising, where we’re sold things we don’t need for the benefit of super large, ostentatious and immoral entities.

The free market wouldn’t allow for such a mismatch between consumers and entrepreneurs.  Because the entrepreneurial end of the economy is always at loggerheads with consumers-offering them truly inefficient prices because the government keeps propping them up-market failure becomes the norm.  Pollution, information failure, adverse selection and other situations arise that lead to the slow decay of a country.  An economy that follows ambiguous paths and often devolves into a dreary tailspin, is a sign that the market isn’t healthy; that consumers and sellers aren’t on the same page.  Capitalism leads to failures in the market that produce a few billionaires and hordes of people falling under the poverty line, in developed countries like the United States as well.

When you broach the topic of a free market, many people seem to think that this would lead to unparalleled inequality in society.  People start wondering; Who’s going to pay for our healthcare, who’s going to build the roads?  The fact is, neither capitalism nor socialism was the defining movement that led to the democratization of healthcare or public infrastructure.  We did those things in the infancy of our civilization, sometimes by dint of sheer ambition, and sometimes through forced labor.  Years of propaganda has stifled our free thought and normalized the evils of capitalism while feting a brand of socialism that’s horribly entwined with capitalism.  But the fact is, we might be better off in terms of GDP, but we’ve suffered a lot in terms of our own individual freedoms and intrinsic values.

A system that demands payment for every dollar you make, isn’t a system that cares about individuals.  No one is paying the government for schools and roads, that tax money is being used to finance individuals within the government who are just maintaining that facade.  Schools would be better run by private individuals with an excellent education as their motivator, not by a government with a very lopsided agenda.  Data has shown time and again that private schools fare better than public schools, just like private universities tend to be better than public universities.

All of this raises the valid question of how the individuals who cannot compete in the free market setting would be taken care of.  And the answer to that question is very simple-in a free market economy, consumers are treated like kings.  Competition, which is routinely skewed in capitalistic economies, would flourish in a free market, leading to entrepreneurs lowering their prices for a larger consumer base.  Situations like monopolies and oligopolies would be limited because ANYONE could break through as information wouldn’t be contained among corporates and inner circles in the government.  In a free-market setting, companies would self regulate lest consumers would retaliate with boycotts or even sanctions.  By removing the regulating power of the government, that begs for millions in tax money for an iota of relevancy, and transferring it to consumers; that would be the hallmark and the genius of a free market economy.

Many people don’t agree that the government in itself is a nefarious force in the economy, as they tend to think of government agencies that seemingly protect consumers but they don’t realize that the cost for protecting them is often overstated-just like the need for a government.  In a free market economy, since consumers would wield so much power and constantly veer toward the most competitive offers, entrepreneurs that resort to immoral practices would be razed off.  Just like you wouldn’t buy a car from a guy who’s notorious for polluting the environment with badly maintained vehicles, in a free-market setting where information flow is completely balanced, entrepreneurs who disregard environmental ethics would be heavily penalized by their own consumer base, who would move to better competitors.

In essence, what I’m trying to say is that the free market is the only economic system that would benefit a civilized country.  A free market system doesn’t pit consumers against entrepreneurs, like capitalism does, nor does it give an unnecessary amount of power to the government, like socialism does.  What it does, is very simple, it creates lucrative offerings shaped by competitive forces and gives consumers the freedom to choose.  A freedom, that truly embodies the human spirit, and it only occurs in a free market.

Lukshana Gopaul

Lukshana is the essay writer for PLAG. You can reach her at .