What is Free Markets?

A free market is an idealized market, where all economic decisions and actions by individuals regarding transfer of money, goods, and services are voluntary, and are therefore devoid of coercion and theft (some definitions of "coercion" are inclusive of "theft"). Colloquially and loosely, a free market economy is an economy where the market is relatively free, as in an economy overseen by a government that practices a laissez-faire, rather than either a mixed or statist economic policy. Within economics the more usual term is simply "the market", or "the market mechanism", to mean the allocation of production through supply and demand

Fundamental Relationship Between Markets and Culture

Culture the totality of customs, traditions, and practices of a people is a fundamental aspect of any society. Beliefs, morals, customs, and economic activity are all influenced by and, in part, shaped by culture. In short, culture provides the context for the expression of a people’s values through daily experiences.

It is the relationship between culture and markets that leads people to consider the possible effects that markets may have on community and genuine human development. All economic activity takes place within cultures. Markets overlap with the political order and with moral institutions such as the family and the church. Each actual market economy is shaped by the culture in which it exists, and, in turn, it affects the daily practices and customs of the people that comprise it. In order for a market economy to foster genuine human development, it must be imbued with a strong foundation of shared moral values.

While the market requires certain virtues in order to operate, it also fosters a particular set of virtues and vices. Positively, the set of virtues can be called practical virtues. People are usually rewarded in a market for industriousness, good stewardship, thrift, and quality craftsmanship. Also, in a market economy people are encouraged to show courage, care for others, provide for their own through hard work and creative enterprise, and above all, to exercise their economic liberty for everyone’s benefit. But, the market may also give rise to certain corresponding vices.

Abuses within the marketplace can result in situations that incline people to immoral behavior. In this context, the development of "structures of sin" within a given culture, which are "rooted in personal sin, and thus always linked to the concrete acts of individuals who introduce these structures, consolidate them and make them difficult to remove." Good examples of such structures can be seen in the economic practices of Mafia bosses, drug lords, corrupt labor leaders, and black-market auctioneers, who employ an economic rationality without regard for either the individual human person or the institutions of a civil society. And so these structures grow stronger and spread, thus becoming the source of other sins and influencing people’s behavior.

Today, our economy is a mixture of state planning and impaired markets that no nineteenth century observer would have recognized as free. Barely half of all new wealth survives the tax police. No part of the economy, from a grocery store in rural New Hampshire to a car dealership in urban California, is exempt from the toils of a hundred agencies. For all business, our planning apparatus is distinguished from the Soviets’ only in degree.

Our labor markets are crippled by anti-discrimination laws, which punish old standards of merit and reward political power. And the welfare state grows no matter which party is in power, further subsidizing the slothful and inept at the expense of the dwindling band of the productive and energetic.

“Of the many species of liberty which compose the freedom we enjoy,” Michael Oakeshott wrote in The Political Economy of Freedom, “we have long recognized the importance of two: the freedom of association, and the freedom enjoyed in the right to own private property.” It is these two areas where we have lost the most, with a heavy cultural as well as economic cost.

The Welfare State

Under the welfare state, the beneficiaries need not work. In fact, they cannot work if they want to keep getting the checks. Thus the condition that welfare is supposed to alleviate—poverty, illegitimacy, etc.—is also the condition required for a continued flow of benefits. The welfare state subsidizes, and thus increases, the very problems it is supposed to solve.

What’s more, welfare takes from earners and gives to non-earners. Thus it not only encourages a something-for-nothing attitude, it also legitimatizes the idea that it is moral to take other people’s property without their consent a lesson the government should not be teaching.

The rigorous rules of the market—roughly akin to the New Testament admonition that he who doesn’t work shouldn’t eat—are circumvented in the welfare state. Add to this an effort to erase the just stigma of welfare, and the work ethic is overthrown.

In the market economy, there is a hierarchy of success. But welfare increases the income and the status of the failures in society. It thus devalues the older signs of achievement and reduces the market class structure—especially at the lower end to a jumble.

Older forms of welfare were provided privately, usually through religious institutions that were well aware of its potentially corrupting effects. Work was required from those who could do it, and the “undeserving poor” were treated appropriately. Most important, the rules of social advancement were the same for all.

Of course, the old order’s free market was not footloose and fancy-free. It produced not what today’s libertarians call “freedom,” but a rigid environment of work and saving, and of punishments for those who failed to do both, as witness the discipline of the company towns of the laissez-faire era.

Capitalism is as conspicuous for what it requires as for what it allows. As F. A. Hayek argued in The Constitution of Liberty, “liberty not only means that the individual has both the opportunity and the burden of choice; it also means that he must bear the consequences of his actions and will receive praise or blame for them. Liberty and responsibility are inseparable.”

The Family and the Free Market

Not everyone can make his own way in society. Children, of course, require the help of parents, and the elderly require the help of the young. These, and many other needs, are met in the family. But the mixed economy has displaced private provision with welfare, dramatically weakening the family.

In the present system, the elderly feel betrayed and ignored by everyone but the government, while grown children can disregard their obligations with little earthly penalty. There is less respect for old people, which—combined with a culture that glorifies immaturity—disrupts the natural hierarchy of age. Largely because of state intervention, each generation has become more isolated, self-indulgent, and irresponsible. One only has to contemplate the “baby boomers.”

In a free market, on the other hand, the family thrives. As G. K. Chesterton noted, the family “is at once necessary and voluntary,” and thus needs nothing from government other than the rule of law.

As Mises wrote in Socialism, however, leftist proposals “to transform the relations between the sexes have long gone hand in hand with plans for the socialization of the means of production.” To Mises, traditional marriage was reinforced by the institutions of capitalism, especially free contract, and because of the contractual nature of marriage, he thought that divorce should be allowed in only the most narrow circumstances.

It is interventionist government, said Mises, which undermines “age-old moral precepts,” and the battle for those precepts is the “great fight” of our age.

Time and the Market

The most important cultural effect of the mixed economy has been to change the way we think of time. All want to have our desires met sooner rather than later, but gaining wealth takes time, and successful people are able to put off immediate gratification for future reward.

As might be expected, nineteenth-century America was a disciplined society of people who knew how to wait and save. As T. Alexander Smith notes in Time and Public Policy, “the culture which the older bourgeoisie dominated and the values it forged within the social order were particularly favorable to lengthy time horizons.” Moreover, “this culture was family centered.” As Joseph Schumpeter noted, the “capitalist order entrusts the long-run interests of society to the upper strata of the bourgeoisie.”

But interventionism has shortened societal time horizons, and inflation and easy credit are the villains. As Smith says, “credit-created inflation, if it persists for a sufficient period, shortens time horizons, as customs, values, and opinions begin to catch up with the growth of the money supply.”

In the nineteenth century, personal and installment loans were extremely rare. Debt of this sort was considered a sign of vice. Credit based on the real savings of the American people went to the entrepreneurs who built the country. But a central bank that pushes down interest rates produces easy credit. It also creates the illusion of low time preference without the reality (a large pool of savings), encouraging business borrowing that cannot be sustained through time, and even bringing about the business cycle.

Other aspects of the mixed economy shorten the social rate of time preference as well. Welfare subsidizes immediate satisfaction and discourages saving. Unemployment insurance discourages saving for possible job loss, lessens the fear of unemployment and therefore the incentive to work hard, and underwrites indolence for longer and longer periods, thereby raising the unemployment rate.

The inheritance tax discourages saving for future generations. Income and property taxes penalize the accumulation of wealth. Taxes on businesses reduce their capital and thus their ability to sustain long-term projects.

As interventionism has rewarded short-term thinking, the behavior and values of high time preference has become the cultural norm. The sexual mores, manners, clothes, and music of the underclass, once seen as the evidence of immorality and failure, now attract the favorable attention of middle-class youth. Instead of the bourgeoisie fulfilling their natural leadership role, the lower classes have begun to set the tone.

The upper-class person “looks forward to the future of his children, grandchildren, great-grandchildren (the family ‘line’), and is concerned also for the future of such abstract entities” as the community or nation. Person is able and willing to sacrifice “present satisfaction” so that he, his children, his community, etc., can “enjoy greater satisfactions at some future time.”

Middle- and working-class people are progressively less future oriented, while the lower-class person “lives from moment to moment.” Governed by impulse, he is “radically improvident: whatever he cannot consume immediately he considers valueless. His bodily needs (especially for sex) and his taste for ‘action’ take precedence over everything else” especially the “routine of work.”

And it is the welfare state that skews the time horizons of the upper, middle, and working classes toward the lower classes, a societal disastrous effect.

Dynamism and Technology

Old values do not require old technology. The permanent things do not refer to particular kinds of consumer goods or modes of production. The complex of moral standards and priorities that make up the good culture cannot be reduced to technical categories. Societal virtue has nothing to do with whether goods are delivered in trucks or horse-drawn carts. It is the social commitment to traditional social institutions and patterns of living that matter.

Thus even though technology has made significant progress, cultural are firmly rooted in the people’s minds. This makes people think of culture even before they think of certain technologies or the economic growth.

Culture Factor

Anyone who prefers a society of families instead of easy divorce, of children instead of depopulation, of prudence instead of waste, of high culture instead of underclass values, of independence instead of group privilege, of saving instead of immediate gratification, of self- discipline instead of decadence will favor the free market over the mixed economy.

Thus culture plays a very important role in encouraging free markets in the Global economy.