“Free market”, revisited

July 2, 2010

I argued before that the standard definition of a free market [“a market in which prices of goods and services are arranged completely by the mutual consent of sellers and buyers”, as it was defined on Wikipedia in March 2008, or “a market without economic intervention and regulation by government except to enforce ownership (“property rights”) and contracts”, as Wikipedia defines it today] does not clearly correspond to any specific situation in society, but rather leaves tremendous discretion to whoever sets the rules of “ownership”.

In fact, as I added in the comments, this discretion is essentially unlimited: given any desired resource allocation, it is possible to set up an ownership and “free market” system that would guarantee that allocation as its outcome. To achieve a certain allocation of resources, each of the group members is assigned “ownership” or “property rights” of the means of productions of those resources. Partial ownership can be assigned to those means of production whose output needs to be shared. Ownership can even be made non-transferable so that the arrangement is permanent. An example of such non-transferable ownership exists in all present day societies in ownership of oneself (and other less established arrangements).

The Marxist ideal, shared “ownership” of all means of production, for example, is a valid “free market” arrangement, according to the standard definition. Similarly, a park, say, can be “privatized” by giving all residents of the area “part ownership” in the park. Of course, to take decisions associated with the park, some mechanism needs to be devised. A committee, say, could be elected that would make such decisions by majority vote. Viewed this way, parks managed by elected city officials, or by professionals hired by elected city officials, can be considered to be privately held.

There is, it seems, however, some non-trivial meaning to the normal usage of “free market” – a meaning that is not covered by the standard definition. The policies, ideas and arrangements promoted by “free market advocates” do exhibit some regularity which is interesting to understand. Of course, there would be certain disagreements among self-described “free market advocates”, including in particular between those who are sincere and attempt to produce a self-consistent set of ideas and those who would are completely opportunistic and self-serving who seek no consistency at all except in pursuing their own special objectives and simply use the “free market” slogan as a tool. Of interest are those policies, ideas and arrangements that are seen in favor by most “free market advocates”.

The common theme pursued by “free market advocates” seems to be to assert that most people have very few legitimate interests. Ownership is simply a way to assert that the owner has a legitimate interest in their “property”, asserting at the same time that non-owners do not have such legitimate interests. A free person is one whom no one else can claim to have an interest in – thus no one can insist that the free person needs to do something. As long as the free person does not interact with someone’s property – they can do whatever they want. (Of course, interaction with someone else’s property can be manifested as essentially anything – again, the discretion of the “ownership” rule-setter is complete.)

Thus – “free market policies” are aimed not simply about recasting any asserted interest as a property right (as the standard definition implies), but at reducing the number of “owners” of things, i.e., of people who can assert legitimate interest in various things. The ostensible effect is that people can do more things since they do not need to obtain assent from various interested parties (including, most prominently, the government, representing the interests of the public at large). However, the dominant effect is quite clearly different – people are allowed to assert no interest in many matters that are of great interest to them. If the water system is “privatized” by giving total control to a single person or a small group of owners, a considerable reduction is achieved in the number of people who can assert to have a legitimate interest in decisions associated with the system, as compared with “privatization” which involves giving each water user part ownership in the system. This grants great latitude of action to the small group of owners – but it comes at the expense of the majority of users.

The idyllic situation of a society of approximately equally powerful free-holders is theoretically possible but in reality is unstable under a “free market” system. The tendency would be to grant control to any scarce resource to few lucky, ambitious, or clever individuals, rather than sharing them among all the group members. Those few would then tend to become vested with more and more powers (i.e., own more and more property), moving the society farther and farther away from equality of wealth.


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