The fallacies, falsehoods of free market theory

By Derek Lehnecke

There has been much confusion in the media between “socialism” and its connection with the trillions of dollars the government has allocated to banks, insurance companies and auto companies.

Having the taxpayer commit trillions of dollars to capitalize the largest banks and insurance companies in the world, and subsidizing investors to encourage them to buy “toxic” securities while maintaining private control, does not constitute socialism. The distribution of wealth upward is inverted Marxism or socialism for the privileged that own and manage the U.S. economy. Socialism involves eliminating private control over resources. It is a social and political system where production is under public ownership to satisfy human needs, not maximizing profit of unaccountable corporations. Conversely, Pierre Proudhon defined capitalism as “an economic and social regime in which capital, the source of income, does not generally belong to those who make it work through their labor.” Capitalism, or more specifically, what passes as capitalism today — corporate mercantilism — has long been questioned by powerful and diverse thinkers ranging from Bukunin, Russell, Sartre, Einstein and Helen Keller.

A factor that engenders currents of anti-socialist attitudes in this country apart from the daily bombardment of anti-socialist propaganda from virtually every major radio, television, newspaper and political source, is the teaching of “free market theory” rooted in laissez-faire economics. The basic premise is that there is an invisible hand that always causes the free and unregulated marketplace to ensure the greatest benefit to all — if simply left alone. Discussion of free market theory may be fine for some academic seminar, but it doesn’t comport to the real world of trade, investment or industrial development.

Mainstream economic courses teach four major assumptions underpinning the classical/neoclassical model: 1) We are all rational wealth maximizers; 2) Private vice leads to public benefits, or the action that yields the greatest financial return to the individual or company is the most beneficial to society; 3) The free market, unfettered by government regulation, is generally the most efficient and socially optimal way to allocate resources; and 4) You don’t have a basic right to live beyond what you can gain on the labor market. Other principles sermonized are: The highest expression of what it means to be human is material acquisition, societies should be based around competition rather than cooperation, progress is measured by the value of products consumed and high consumption rates advance the well-being of society.

These assumptions cannot be proven at a level in the social sciences nor does science offer any definitive explanation of human nature, let alone its correlation to economic organization. Human nature is beyond reification. If the aforementioned principles and assumptions are without merit and do not reflect human nature to the extent of what we know about ourselves, why are they still taught in schools and universities today?

Free market theory developed during the cataclysm experienced during the transition from feudalism to industrialism via enclosure of common lands. The once self-sufficient peasant turned dependent urban worker could only survive by renting himself to owners of mills and factories. Free market theory provided a useful ideology for privileged elites and landowners to justify the plight of those working in the nascent industrial towns.

Just as free market theory served as an ideological weapon of class war against urban workers of the 18th and 19th centuries, it is used today against semi-skilled and unskilled workers (90 percent of population) in context of what is called “globalization” — basically, production looking for the cheapest labor possible. Free market theory also serves as an argument against spending on crucial programs such as a national health-care system, public education, old age pension systems and increased environmental protections.

Far from being anything close to a free-market economy, the U.S. is a publicly subsidized, private profit economy. The common phrase “privatize profits and socialize costs” means the public pays the costs of economic development with the associated risks and bails out private enterprise when it gets in trouble. Business likes big government because it provides a safety net, in taxpayer bailouts, when bad investment decisions result in financial insolvency. Additionally, government acts in distributing wealth upward through tax schemes, protectionist measures and subsidies. The idea that conservatives want less government is a joke; they want a robust government to support them. Dean Baker’s “Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer” is a useful corrective to how the current economic debate is framed. 

Free market theory is nothing other than a fraud to shield the public from the economic realities in an effort to present “markets” as neutral, detached from the political, and to disempower people from involvement in investment and production decisions that affect their lives and communities.

(Lehnecke lives in Napa.)È

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