Illogical Free Market Logic

Matt Jenny of the Der freie Markt web site has translated one of my 2006 articles, originally published on Strike the Root, into German: Free Market Thinking: Not Applicable has become Denkweise des freien Marktes nicht anwendbar. 

Thanks to Matt I got a reason to go back and read this article, which is a rather short treatise on how “the free market” is used as argument in the political discourse. This topic is very interesting and extremely important, yet severely neglected in the libertarian discussion. Someone really should elaborate on it, so here’s a first attempt to do so.

The article mentioned above discusses a fundamentally important issue: what is the true meaning of “voluntary”? The immediate response to such a question would commonly be something like “a choice made according to the chooser’s individual interest (or apprehension thereof) without being restricted by other people using force.” Someone would plainly say it is whatever comes out of “free will.”

Well, to a certain extent I would agree. Most choices made according to the chooser’s own will would mean it is voluntary since it is a choice made without there having been force or threat thereof to make you choose it. In other words: if you would have chosen differently if you were allowed to choose freely, then it is not a voluntary choice. Most people would agree on this, but it really is the other side of the definition that is important: what you would not have chosen without being forced to.

Let’s say you have a number of options to choose from, what would constitute force in such a situation? What we’re looking at here is really what involuntary means, which might not necessarily mean the exact opposite of voluntary. I know how strange this sounds, but bear with me.

Choice, in its very essance, is always voluntary – having “no choice” does not exist in reality, only in our own minds. But from a political or philosophical this isn’t interesting. What is interesting is what there is to choose from. This is why we would say the choice was not voluntary if the most attractive options to the chooser are illegal, forbidden, or means you will get your ass kicked by that big guy over there.

Such involuntary choice-making does not necessarily mean there are fewer options available, but that the chooser’s ranking of the options has been forcefully tampered with. If someone says “go ahead and choose whatever you want, but if you choose number 32 I’ll kick your butt,” then that would mean there is an additional cost to number 32. That additional cost, in this case, is artificial since it is based on a rights violation – the person saying it is using the threat of force to make you choose in another way than you would have, had he or she not been there.

Thus, we could say involuntariness of choice exists where there is artificial, force-based cost added that will inevitably affect the way you rank the options.

An important part of this additional cost is often neglected: options that don’t even exist anymore, of which the chooser might even be ignorant, due to artificial, force-based cost added. What we have here requires a deeper analysis than the rather obvious definitions in the voluntary/involuntary discussion above. Could it be that a fully voluntary choice, i.e. a choice from a certain number of options made to 100% without added artificial, force-based cost to the decision, is still a forced decision?

The answer is yes if force has limited the options available to the chooser. This is where many free-marketeers often get lost: they argue a choice made with no force added to the direct choice-making must be voluntary. But the conclusion doesn’t follow from the premises in this piece of reasoning. It is like saying you voluntarily chose to eat your food without knife and fork – because someone had stolen your cutlery. Are you voluntarily eating with your hands? Hardly.

This reasoning is fully applicable on the so-called free market logic argument. Yes, a choice might be voluntary and so it should be allowed and respected in the free market, but if the number of options have been forcefully limited the choice is not voluntary. In other words, choosing to work in a lousy job because all better options no longer exists due to government regulations means it is not a voluntary choice. It may very well be the best option available (that’s why you choose it), but it isn’t voluntary – it is made as an effect of rights having been violated.

This is where the left has it right, and the “free market” right has it wrong.

Champions of neo-capitalist globalization like Johan Norberg, author of In Defense of Global Capitalism, frequently argue that globalization brings better choices to poor people of poor nations, and that there is nothing wrong with it. Contrarily, they argue, this is the great prosperity-creating power of capitalism – and it brings wealth to these people voluntarily.

I do agree that globalization has created a number of options for people in poor nations, and that these options often are better than the existing. But it still doesn’t mean that the choice to work for, for instance, Shell in Nigeria or Nike in Viet Nam is nothing but voluntary. Actually, the greatness of these opportunities is partly due to the immense regulation and taxation of all other options – the previously available options were simply what the state “allowed.”

The reason a job for Nike is so well paid in poor countries is because it is indirectly subsidized through the regulation of the local markets – were local entrepreneurs and businesses allowed to act freely in a freed market nobody would choose to work for Nike (the pay would simply be too low).

The fallacy of the argument is perhaps easier to understand when discussing the situation for most poor people in the western, so-called liberal democracies. These people are forced to take a number of lousy jobs without good pay in order to survive. Yes, they do choose to work hard for almost nothing in order to stay afloat and put food on the table for their families to eat, but a free market would not limit their choices to “take this shitty job and pay your taxes or live in a cardboard box in an alley.”

A freed market wouldn’t, to begin with, make people work for monetary payment so that they can pay their taxes. It would be perfectly possible to live off the land somewhere if that would be your choice – this isn’t possible today simply because you have to make money to pay for taxes. So what we have here is a regulated force-based economy that takes the self-sustaining live-off-the-earth option out.

The same force-virus injected in the economy by the state makes it literally impossible to go from practically nothing to something. It becomes much, much harder to “travel” from one class to another – the regulated economy provides so much fewer options to the chooser than a freed economy would, that some become so desperate from this situtation that they resort to crime.

So free-market logic isn’t necessarily applicable on the command economy we are experiencing. It would be perfectly alright to say that someone made a “voluntary” choice to take a job they don’t really like and that cannot really provide a sufficient salary from the options available. But as champions of the free market we must realize that this person would likely have chosen very differently had the opportunities of the freed market been available to him.