A Reply to Common Objections Against the Free Market. I

4:37 PM Marcellino DAmbrosio 1 Comments



         This post is intended as a reply to a friend and I concerning the Church's Social teaching, specifically as stated in the encyclical Caritas en Veritate. I will post three more replies later to counter all four critiques of the free market as raised during our previous dialogue. 

Again, I agree wholeheartedly with the church that the individual needs to be protected from exploitation and that the poor ought to be taken care of. I just disagree as to how practically this ought to happen.
  1. The free market has no rules! You need contract enforcement, a medium of exchange, an independent judiciary for a market to function. Without the state these things are impossible.
Pope Benedict writes:
         It is in the interests of the market to promote emancipation, but in order to do so effectively, it cannot rely only on itself, because it is not able to produce by itself something that lies outside its competence. It must draw its moral energies from other subjects that are capable of generating them.” Chapter III. Caritas en Veritate.
         This is one of those statements which seems to say that the the market cannot regulate itself because such regulation “lies outside its competence.” I don't think this is an easy stance to take when you look at how human beings function on a daily basis. I believe the market is able to rely on itself for regulation. It is able to do so because it is not an it. That is to say the free market is comprised of people who, as it happens, are brilliant problem solvers.
         So as to your statement about the definition of capitalism, You’re correct. Laissez Faire Capitalism is a market free of any rules imposed by elected officials. It is not, however, free of any rules. As you commented, “You can’t have a free market unless you have things such as contract enforcement, prosecution of fraud, fair weights and measures, a medium of exchange, secure property you can use as an asset to borrow against, or an independent judiciary,” you are absolutely right.” However, when you say “These are things the market cannot produce by itself,” I believe human action proves the opposite. The free market is perfectly capable of providing for these needs on its own, and the Austrian school of economics shows how these things arise in a depth of detail that would put a crackhead to sleep of boredom.
         The rules that govern a free market are not forced from without, but instead arise from people, who encountering an obstacle, will find a way over, around, under, or through it. To be sure, not having a way to enforce contract is a problem. Problem solving also happens to be very economically lucrative. I think here, it is important to instead of thinking about an economy as a whole, think about human action on a more individual level. 
         So let’s say it’s Europe in the renaissance. You are a Florentine cloth merchant, and someone in Munich wants to buy a very large order of cloth. Knowing that you aren’t protected by any rule of law, as a border is crossed, what do you do? You might ask the other merchants around for references. Has anyone else heard of this guy? Is he reputable? Does he have any record of previous business transactions? Finding out that this man has no record, you might have a limit for how much cloth you are willing to sell him. If he is reputable, then you wouldn’t be afraid of trading with him. This is the market providing governance from within, and it is actually how commerce worked during much of the renaissance. Merchants kept a record between them of who had traded with whom. If someone was not on the list, you would not be unable to trade with them, but you might, for instance, require payment in advance, or a deposit of some sort, or you might limit the amount you are willing to trade until he has gain more repute. Because people do want to engage in commerce, they naturally and organically find ways of managing risk. Look at the internet, for instance. For the most part, no country has been governing internet commerce. If you get taken by someone on Ebay, it’s pretty hard to track them down and prosecute them. But when you look at their reputation, for instance, you can see if people have been unhappy with the service provided to them or if they were pleased. So you give someone reputable your credit card information, trusting that this person would rather not ruin their reputation by stealing from you. This protection naturally rises from within.
         Ebay itself has a natural desire to keep business, so it works to ensure that sellers cannot simply give themselves reputation points. Ebay knows that if people don’t trust that system, then they won’t shop there. So Ebay has entire departments constantly working on trying to safeguard the public from conmen. They are always figuring it out. Why? Because they have financial incentive to do so. The state, on the other hand, has no monetary intensive to be excellent. There are no alternative states from which you may chose your allegiance. The state has no economic incentive to be effective as it has no competition. It simply says, “if you do not think we did a good job, too bad.” So the state does not need to be effective to remain in power. Moreover, the state can only make laws, which are cumbersome, bludgeoning things that cannot keep up with the speed at which the markets change. For instance, with the example of the merchants, a state might say, depending on the political mood of the time: “You must trade with anyone who wants you to.” In which case, trade would shut down completely. Or “You cannot trade with anyone unless you have a license.” Why shouldn't I be able to trade with an unlicensed person if I want to? I'm the one assuming the risk here! Such a policy would put barriers on trade as opposed to encouraging it. The free market's solutions to this issue, by which I mean, people's own problem solving prowess, does, in fact, produce organic safeguards. Not only does regulation arise from within the market, but these regulations are far more effective protections for the individual than state laws. 

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