James L. Wilson on Free Markets

Great article by James L. Wilson at the Partial Observer. Extended money-quote:

We hear criticisms of the “free market.” But the free market is not the problem; it doesn’t exist, so how can it be at fault? Much of what is criticized in the market are actually government disbursement of privileges that make it less free in exchange for being more “efficient” for some people. Especially the corporation, a creation of government similar to Frankenstein’s monster. In a free market, there would not be corporations with charters and privileges protected by the government. In a free market, if a company went bankrupt, those who invested in it, would lose their investments and would have to help pay for any liabilities for the company. We do not have that today.

In a free market, there would be no patents. Inventors and innovators would bring their wares to the market to sell. If one invents the widget and makes it to the Patent Office on Tuesday, and another, working independently, arrives on Wednesday, the inventor who got there first enjoys years of monopoly to produce, price, and sell widgets. There are even international agreements that enforce this. But in a free market, the person who can build a better one at less cost, would be free to do so, no matter who invented it first.

Likewise, in a free market, musicians and writers would be paid according to the demand for their work, not royalties from government-created copyrights that last several decades. Readers who enjoy a novel would pay its author to write another. The matter by which the novel is transmitted would be secondary. The novelist would actually want the novel to be distributed far and wide, by any form of media, even if many never pay to read it, because that would create demand for the next novel.

And in a free market, the people would decide for themselves what medium of exchange suits them. There would be no government-created central bank to set interest rates. The market would likely to revert to exchanging silver and gold; the bills in your wallet would be certificates that allow you to buy, say, a certain amount of gold. We would have “inflation” of prices only if and when large deposits of precious metals are discovered. Otherwise, with greater production, prices would fall over time, making the goods available to more and more people and enhancing their standard of living.

In a real free market, land that was not already occupied would be homesteaded. The government couldn’t claim the land and distribute it to favored developers, nor could it kick its current occupants off the land to give to those who might produce bigger tax revenues.

A real free market thus makes Big Business and mass production unfeasible. The government wouldn’t be there to protect stockholders from personal risk of failure or criminality. The government wouldn’t be there to inflate the currency to guard against falling prices due to mass production. The government wouldn’t be there to put caps on civil liability for wrongdoing.

In a real free market, there would be very few large companies and few product brands marketed nationwide. Thus, fewer people’s jobs would be at the mercy of quarterly reports. Few companies would employ thousands of people, let alone tens of thousands, or devastate communities by laying off employees by the hundreds. If there would be any gazillionaires, they would likely own their own companies (as there would not likely be any publicly traded corporations) and be personally liable for any harm their products may cause. There would be no barriers to enter any industry or find any job. Most people would make a decent living working for themselves or for small firms that may serve a few thousand, rather than several million, customers, but no one would get rich off of government-sanctioned monopolies.

I should add that I'm ambivalent at best toward the claim that limited liability toward creditors couldn't exist in a free market; it surely could, through voluntary contract. Limited tort liability toward third parties, however, is a different matter.

In a free market anarchy, the transaction costs of operating as a single legal entity in a variety of local venues would probably be prohibitively high for most would-be national corporations. So I'm guessing that corporations operating over large territorial areas would be limited mainly to forms of activity that absolutely required such a form. The territorial state, imposing a centralized legal code from the top down through a unified authority, was an indispensible mechanism for the rise of the centralized corporation, in most cases. In the U.S., the corporate revolution coincided with the Republican constitutional revolution, and the rise of a de facto federal commercial code after the Civil War. Corporate globalization has depended on the existence of a de facto world government (the Bretton Woods institutions) and global superpowers to subsidize the global telecommunications revolution (first the British cable system and then the U.S. communication satellites). Without the territorial state to eliminate transaction costs by fiat, most stuff that could be produced locally probably would be.