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A long expressed criticism of the free market is that the market is "imperfect." Because of the failings of the free enterprise system, opponents argue, government intervention is necessary to correct the deficiencies inherent in our economic/political structure. If not corrected by our leaders, capitalism would spin out of control and lead to crushing problems.
The market, it is said, would ignore or distort some important aspects of life. Charity for those in need would be neglected. Those without economic power would be crushed and exploited by ruthless capitalists imposing abhorrent working conditions and subsistence wages.
Without the government overseeing the supply of goods and services, vital public goods such as telephone, electricity, and water would either suffer from wasteful and inefficient duplication of effort or would fail to reach potential customers in marginal areas.
Because the market is blindly committed to profit above all else, detractors claim, citizens would not find enough of what is truly important in life. Values such as medical care, access to libraries, safe working or living conditions, and general fairness of interaction among various people would become scarce resources. Instead, frivolous desires would be gratified and new, essentially worthless desires would be created through the propagandistic use of advertising. In addition, any problems such as pollution resulting from the market process would be overlooked as business owners push ahead in satisfying their greed.
Beyond these criticisms, there is the economic idea of "perfect competition" which is held up as a yardstick for deciding when, where, and how the state may step in to rein in rapacious corporations. The notion of "perfect competition" states that competition is best achieved when a large number of companies have roughly equal shares of their respective market. If a rogue entrepreneur snatches too great a portion of the available business, then he creates a monopoly which inevitably and invariably has negative effects for consumers: rising prices, reduced quality, and scarcity of choices.
Are the proponents of government regulation and intervention correct in their charges? Does free enterprise and the market which characterizes it lead to a disintegration of all that exemplifies a civilized society?
Fortunately for the defenders of capitalism, the whole contention that the free market is imperfect is based on an erroneous premise and on faulty logic.
If one seeks to criticize an institution, way of life, or behavior, one has the obligation to specify the proper context and conditions for making an assessment regarding the value or shortcomings of that thing. In other words, one must provide a fair standard for making a judgment.
In lambasting the free market, however, anti-capitalists fail to meet that criterion. They misrepresent the situation and requirements under which the free market operates, then, attacking this straw man, they seek to establish the validity of their case for an activist state.
In order for the market to "fail" in some respect, there must exist a viable alternative process or institution which will succeed where free enterprise does not. In this case, our proposed savior -- government -- succeeds only in making matters worse.
Through taxation, government makes it more difficult for individuals to help those they deem worthy of assistance. By limiting competition in water, garbage collection, postal services, or electricity, government narrows our options and keeps prices artificially high...along with maintaining inferior service to customers.
(For a practical case study of what happens when a government-mandated monopoly is terminated, witness the changes in telephone services once "wasteful duplication" became rampant: decreasing long distance rates; dirt-cheap phones; a bewildering choice of options in equipment and services; and the promise of more to come.
(One might as readily claim that because food is a primary necessity for life, we should banish the "inefficiency" of the market and permit only a single grocery store in every community.)
Through its regulations and laws (such as minimum wage requirements), government increases unemployment and diminishes the living standards of its citizens. In contrast, a free market provides incentives for improving working conditions. Competition for labor, the diminished productivity of sick or disabled employees, and the costs of pollution (which can often be turned into a recoverable resource), all help to ensure that companies treat their workers fairly and in a color-blind, sex-blind fashion and try to minimize wasteful production procedures. Companies which fail to do so will lose out to businesses which are more concerned with creating wealth than in indulging in prejudices.
The state, on the other hand, leads to greater pollution of the environment (see the examples of the old Soviet Union and East Germany). The state also increases tensions among different groups of citizens. Through its subsidies, hand-outs, affirmative action programs, and other examples of favoritism, the government breeds resentment, envy, and anger, leading to that infamous "war of all against all." Those who promote state solutions fail to realize that compassion, brotherhood, peace, and social harmony cannot be achieved at the point of a gun. Coercion and compulsion create their own backlash. Only voluntary interactions among individuals can build the kind of good will necessary for a world where friction among people is minimized.
These examples of government failure could be extended indefinitely. At a minimum, they help to establish the fact that the favorite rescuer of the anti-capitalists is, in fact, a destroyer of economic life when it ventures into areas outside its expertise (which [only] is defending and upholding individual rights).
As for "perfect competition," holding that goal as a standard by which to judge the free market is a fool's quest. The models utilizing this idea are based upon a fantasy. Whatever didactic utility the concept may have in economic classes for illustrating certain principles, it is chimerical and dangerous if applied to any real market situation.
"Perfect competition" is founded upon a static (and erroneous) view of life: a situation of "equilibrium" which has no correspondence to the world producers and consumers actually face. The only thing which exists in a static equilibrium, the only thing which never changes is death. Without change, without a dynamic interaction with its environment, without the necessity to adapt to constantly fluctuating conditions, a living entity could not and would not exist.
Yet this model is offered up as an excuse to attack large companies which the state has decided represent a "market failure": a monopolistic threat to the consumers upon which that business depends for its livelihood. By appealing to a standard which has no basis in reality, the enemies of the free market hope to bamboozle those citizens who do not understand the full measure of this deception masking an assault on their freedoms.
So, is the free market a failure?
To answer this question fairly, one must ask: compared to what? Compared to the state? The answer there is an unequivocal "no." Compared to the "perfect competition" model? Definitely not.
To be useful in guiding human life, for steering human society, a standard must arise from the nature of what it means to be human. One must examine issues of human rationality, free will, morality, and rights in determining what is or is not proper to us. One must weigh what is possible and what is not, what represents reality and what conflicts with it.
As a supplier of economic goods of any kind, a government (whether in the guise of a democracy or a dictatorship, whether communist, fascist, or mercantilist in approach) violates the necessities of human choice and freedom and can produce only destruction.
As a standard of economic principle, "perfect competition" has no relevance to true human existence.
Both must be rejected.
So that leaves us comparing the free market to...what? What other viable alternative exists?
Unless and until some other way of organizing human economic activity emerges, the free market stands alone.
The critics are left with a mirage to defend. They are in the position of someone claiming that men are imperfect because they cannot flap their wings and fly...even though such a characteristic has nothing whatsoever to do with what it means to be a human. The intellectual error the anti-capitalists commit is similar to those skeptics who claim that true knowledge and certainty is impossible because people are neither omniscient nor infallible.
Yet knowledge -- if it is to have any meaning, at all -- must arise, as well, from our nature as rational, thinking (and hence potentially fallible and ignorant) creatures. To choose a standard for human knowledge that bears no resemblance to what it means to be a human is context-dropping at its worst.
So, too, of those who would demolish the free market in order to "save" it. The free (and in today's world, one must doubly emphasize the concept free), the free market does not need to be saved. It operates just fine when left alone.
If the idea of "perfect" is to mean anything in terms of actual human existence (as the best alternative available to us), then the free market -- even with its periodic unemployment, its economic ups and downs, its creation and destruction of businesses and jobs -- the free market is, indeed, perfect.
