Similarly, nobody understands the free market. (This is likely why there's so much interest in socialism, as the mind yearns for order and predictability.)
Yet the free market works well despite this lack of understanding, and even contempt, of it.
Unless there is too much inflation like in Weimar Republic, too much corruption like in Russia, too much monopoly like with Standard Oil, too many shenanigans leading to 2008-style meltdown (imagine that without central bank support), given working police and the justice system which is missing in many developing countries, given basic infrastructure like roads and electricity etc, etc.
> Unless there is too much inflation like in Weimar Republic
The government money printing press is not free market.
> too much corruption like in Russia
The government's role in a free market is to prevent corruption.
> too much monopoly like with Standard Oil
Standard Oil was very good for consumers, as SO brought about something like a 70% reduction in kerosene prices. Besides, SO never was a monopoly. It was accused of attempting to create one.
> imagine that without central bank support
Don't need to imagine it. It happened several times in the 1800s. Recovery tended to be as quick.
> given working police and the justice system
Free markets require a working police and justice system
"The government money printing press is not free market."
Oh no, not again this 'No True Scottman'-'Free market' myth.
Let's go down this path - what does 'free market' theory say, how much money should be in the economy? How should it be created or destroyed? There is no natural process for it, whoever has lisense to print money can rule the world or collapse the economy. 'Free market theory' provides no answer, just like it provides no answer to most important economic questions.
Is using a physical valuable substance as money, let's say gold, free market? That's Mercantilism and it brought national economies to a standstill due to lack of liquidity. People couldn't trade goods, take loans, nations went to wars over silver.
Do you want to have gold standard and fractional reserve banking? Is it freely floating currency and a system where banks create money out of thin air? (governments don't print money any more by the way). Which one of these three totally different systems is the mythical true 'free market'?
Are private currencies owned by banks free market? That's what we used to have, they used to collapse all the time. That's why we invented central banks.
I'm sorry, but if your definition of free market literally includes a government printing money to get rid of its debt (like the Weimar republic did), then your definition is just broken. The 'free' in free market literally refers to governments (or other actors) not interfering in trade. There is no prescribed free market monetary policy, but if you intentionally manipulate the market through monetary policy (as is common policy - the fed's goal isn't only monetary stability, they also account for things like unemployment), it's absurd to blame free markets if this goes wrong.
Using gold as your currency also isn't mercantilism. Mercantilism is about increasing exports while reducing imports. e.g. China today is quite mercantilist, despite not using gold.
> how much money should be in the economy? How should it be created or destroyed?
Great questions.
Money is created when money is loaned out against collateral. Money is destroyed when the loan is repaid and the collateral returned. It's a natural process. The pressure on it is to have the supply of money match the value in the collateral.
> whoever has lisense to print money
Under a free banking system, anyone can print money. Of course, anyone printing money has to convince others that it has value. Did you know that anyone can print money today? We call them "IOUs", "checks", and more recently, "credit cards". We're all familiar with having to convince others that our IOUs, checks, and credit cards will be honored.
I'm not aware of any that managed to rule the world or collapse the economy.
> no answer
I just gave you one! I can only surmise you've been talking to the wrong people. May I suggest Milton Friedman's "Monetary History of the United States". It's tough sledding, but worth it if you really want to know.
> Is using a physical valuable substance as money, let's say gold, free market?
Of course. Are you familiar with the commodities marketplace? It's the same thing, but would you call that mercantilism? Shipping gold around to settle debts, however, is clumsy, expensive, and dangerous, hence the rise of trading receipts for the gold instead, and later those receipts turning into bank notes, and even later became electronic entries in a ledger.
> Do you want to have gold standard and fractional reserve banking?
That's how free banking worked in the United States. It's free market.
> they used to collapse all the time.
Not all the time, but banks did fail from time to time.
> That's why we invented central banks.
That was the public reason. The real reason was to inflate the money. As for collapse, now we have fewer bank failures, but when they do fail, it's a doozy (Great Depression, 2008, etc.). Also, did you notice that as of this month 9% of the money you had last year disappeared? You can thank our fiat money system for that.
I grew up in the Carter stagflation years, and learned to never keep more than pocket money around. It's all in things that aren't inflated into worthlessness by the central bank.
P.S. How do I know all this stuff? My dad spent the last years of his career as head of the finance department at a college. We had many long and happy conversations about how banks worked. It isn't an easy subject, but I wish more people could have such an experience.
"Money is created when money is loaned out against collateral. Money is destroyed when the loan is repaid and the collateral returned. It's a natural process."
But there is nothing natural about it - the limit on money supply is how easy it is to get a loan. Bank could give out mortgages with 0% deposit, they could give out loans equal to 120% of the house value, and they indeed have done so.
What regulates the money supply is not 'natural process' but the rules set by the regylator on minimum reguirements. Is having no rules free market? But then it will be creating 2008 style event every tuesday.
Furthermore, this whole thing only creates money in our current floating-money system, right?
If you have medieval-style economy where you count literal gold coins, you can not create money, you would just be loaning out other people's deposits. The amount of money in the system would stay fixed, right?
So then the only 'natural' money supply is your ability to mine gold?
BTW, this will blow your mind. Let's say you have $300 in your bank checking account. You borrow $1000 from the bank. You bank checking account now has a balance of $1300.
Where did the thousand bucks come from? Where was it moved from?
Nowhere!
The bank just changed the amount in the electronic ledger from 300 to 1300.
The natural pressures are the law of supply and demand. If the bank creates too much money relative to the collateral, it risks a run on the bank. Too little, and the bank goes out of business because it isn't making money.
> Is having no rules free market?
Yes (other than you cannot force people to do business with you nor can you defraud them).
> The amount of money in the system would stay fixed, right?
Nope. You don't actually loan out the coins. You loan out a receipt for the coins. As long as people don't redeem the receipts, you can loan out a multiple of the coins in the vault. This is called "fractional reserve banking". After a while, instead of trading coins, people trade the receipts. The receipts evolved into bank notes.
It's a fascinating history.
> So then the only 'natural' money supply is your ability to mine gold?
Lots of commodities would work. People in colonial America used tobacco leaves. Today people "mine" bitcoins.
It's definitely fair game to critique capitalism and free matkets based on actual implementations, not theoretical optimized scenarios.
If we're going for perfect scenario, communism is absolutely a great idea. Unfortunately, the real world is a bit different, and it turns out that capitalism and free markets can survive reality and bad actors just a bit better. And that's what counts in the end. Still, we shouldn't dismiss the failures of the system, since this is what shows misaligned incentives.
I believe the free market is like Darwinism for economic organisms: unintuitive and little understood by the regular folk, however working just fine nevertheless and able to solve and explain any issue without needing the intervention of an intelligent designer/regulator.
> I believe the free market is like Darwinism for economic organisms: unintuitive and little understood by the regular folk, however working just fine nevertheless and able to solve and explain any issue without needing the intervention of an intelligent designer/regulator.
I feel like that's a bit of a charitable description considering the whole monopoly problem (and various other regulations in place to make the system actually work). Perhaps we just disagree on what "working just fine" means though :)
Monopolies (including the so-called "natural monopolies") are not a problem for the free market, but rather opportunities - bounded only by human ingenuity, imagination and capacity to innovate.
In reality most monopolies we encountered were actually created or sustained by governments, through their dear friends patents and regulations which raise the barrier of entry and compliance costs, create unintended second-order effects and generally dampen competition.
"Guy's you're just not doing it right" or "there would be more competition if we would just remove those pesky regulations on the meat packing industry". It's very convenient that the answer is always just "remove regulations" as though most of them weren't put in place to solve existing problems that otherwise weren't getting solved by the market itself.
I'll give you a different suggestion - what you're saying may work fine on a small scale, but not on a scale where consumers can no longer realistically have any idea how something was produced. Consumers can't select against things they don't know about or don't understand.
> may work fine on a small scale, but not on a scale where [...]
"Evolution may work fine for a small organism like bacteria, but it would never evolve something as complex as the human eye"
> consumers can no longer realistically [...] Consumers can't select
Your lack of trust in consumers is only surpassed by your lack of imagination. Repeat after me: "If consumers actually need something, a free market will provide".
Too much choice and quality too hard to check? Consumer Reports, Wirecutter, Trip Advisor and any other aggregator with reviews like Booking.com or even Amazon will help. Food not killing me instantly (thanks, regulation!) but sickening me slowly with production-boosting chemicals (for nothing...)? We now have organically grown, local co-ops and various near-sourced grass-fed ethically slaughtered meats.
No regulation to thank to, just the good old free markets.
While you are admiring Darwinism, keep in mind that all-natural ecosystem collapse is a thing, and 6 all-natural mass extinction events had >90% of all living things disappear.
That is nature, thats my point - it is brutal and murderous.
If you don't want to die from them you don't rely on Darwinism and if you don't want economic collapse and famine every time a new strain of flue evolves you dont wait for 'muh free market' to save you.
P.S. Evolution is not a stable system, and free markets aren't stable, either. Socialism promises stability, but history shows it's even less stable, as it is unresponsive to market changes.
so it only happening 6 times over the 2.3 billion years is not a bad record. Human designed systems have barely over 5000-10000 years of history, and most only last a couple hundred.
The Socialism and Capitalism dichotomy has nothing to do with markets or planners. Socialism is when the workers own the means of production. Capitalism is when there is an owner class that owns the means of production and extracts profit from the workers' labor.
Socialism can be enacted with markets or it can be enacted with central planners. Capitalism can be enacted with markets or it can be enacted with central planners.
The point I'm making is that the mechanisms by which an economy chooses what to produce are distinct by the mechanisms which determine who is in control of those choices are distinct from who the proceeds from the production accrues to.
> Capitalism is when there is an owner class that owns the means of production and extracts profit from the workers' labor.
That's Marx's explanation, all right.
What free markets are, is when people freely decide to make transactions with each other, without using force or fraud.
The simplest case is you have an apple tree, I have an orange tree. You have too many apples, and no oranges. I have the reverse problem. We trade. We are both better off. I exploit you for apples, you exploit me for oranges.
But we don't "have" trees. Owning a tree is dependent on a highly abstract concept of ownership, enforced by an organized state that monopolizes the use of force.
Saying a transaction is without force or fraud is only begging the question. If it is legal, and someone thinks it is illegitimate, then it logically involves both fraud and force from their perspective. It was fraud to write the rules down, and it is force to use guns to make people comply.
It's too easy to defend "free markets" while ignoring that the usual description is circular.
'"He that is nourished by the Acorns he pickt up under an Oak, or the Apples he gathered from the Trees in the Wood, has certainly appropriated them to himself. No Body can deny but the nourishment is his. I ask then, When did they begin to be his? When he digested? Or when he eat? Or when he boiled? Or when he brought them home? Or when he pickt them up?"
Locke answered these questions by selecting the last of these options. The acorns became the private property of the owner when he picked them up, for it was in the gathering that labor was first expended. "That labour put a distinction between them and common. That added something to them more than Nature, the common Mother of all, had done, and so they became his private right."'
I'm not endorsing or dismissing this, but notice how it conflicts with ownership of the tree.
Free markets are a game with rules set by the government. "Without using force or fraud" just means not breaking the rules of the game set by the government. It's a very deceptive way to describe rule-following. It implies a very idealistic, unrealistic vision of what those rules are and how they are made.
The people who benefit most from the rules control the system, making sure rules don't change.
The benefit they receive from the rules is to be in a parasitic, extractive, predatory relationship to most of humanity.
Why not use "force or fraud" to liberate yourself from predatory relations?
> just means not breaking the rules of the game set by the government
You can make up your own definitions of things as you like. It's a common rhetorical device to divert a conversation into a swamp. Me, I'll stick to commonly understood meanings.
You're still comingling the concepts of capitalism and markets. I actually 100% agree with your entire post (as a description, anyway, not as an ideal or with respect to the conceptual foundations of property rights), but is in no way a refutation of what I said or what Marx said. It's somewhat tangential entirely, really.
EDIT: Also, I wouldn't use the word "exploit" in such a simple descriptor of commerce.
the thing is, there is no way for the workers to own the means of production, unless its a set of tools or stuff like that. But with a factory, you only have 2 options: owned by capitalists, who's goal is maximizing gain, and owned by the state, who's goal is in theory common wealth, in reality it depends on the people actually making decisions. And those people can be corrupt, or ideological lunatics, or just unmotivated clerks waiting to hit the clock at 5PM.
Why is there no way for workers to own the means of production? Do many of us software people not own shares in the companies we work for? All that needs happen is that all shares are owned by the employees of the company and, voila, the workers own the means of production. Obviously this is quite a simple and un-ideal implementation of said concept, but the practicalities of worker owned enterprises are not some kind of far fetched impossibility.
Because owning something means you have the right to trade it and sell it. Most workers, if they came into ownership of such shares, would quickly sell them to a few people who would build up many such shares: Capitalists.
You can't declare who will "own" what in the long term. The people who own it decide whether they will continue to own it - not you. They will decide not to.
If you say the workers can't sell the shares of their workplace, then they don't really own those shares. In fact, it's more like the shares own them. They are forced to continue "owning" part of their workplace, which someone decided should be their workplace. Variations of this are how authoritarian communism work.
(This is ignoring lots of other such issues with worker ownership, e.g. it becomes very complicated or impossible to bring new people on even if desperately needed since existing workers/owners don't want to dilute their shares. Also how can a new worker join if he cannot afford the shares to do so?)
Centrally planned capitalism doesn't exist. Private ownership, while technically separate from market vs command, definitely has an influence on it. Even market socialism has central planning elements (e.g. initial public investment).
> Capitalism can be enacted with markets or it can be enacted with central planners.
how can there be capitalism when central planners tell the owners of the capital what to do with their capital? that sounds like authoritarianism to me (which is basically why all communist countries must be authoritarian, since without it, the natural tendency of humans is to be capitalistic).
Which is almost entirely my point. There's at least three concepts that are quite distinct components of an economic system that people commingle when they talk about these broad categories like capitalism and socialism in popular discourse.
This naive conflation of commerce with capitalism is certainly one manifestation of this conceptual confusion.
Unless there is too much inflation like in Weimar Republic, too much corruption like in Russia, too much monopoly like with Standard Oil, too many shenanigans leading to 2008-style meltdown (imagine that without central bank support), given working police and the justice system which is missing in many developing countries, given basic infrastructure like roads and electricity etc, etc.