When it comes down to it, free markets are simple. They are the end result of capitalism, the economic system (i.e. a system in which goods and services are produced and exchanged) in which the process of creating goods and services is privately managed for the purpose of generating a profit.
Okay, fine, maybe that isn’t so simple. But I can break this down a bit, starting with a comparison to another well-known economic system: communism.
While communism is also a political and social ideology, as an economic concept, it relies upon public ownership of the systems of production with the goal of economic uniformity amongst citizenry. In other words, the government runs the businesses and no one is supposed to be “better off” than anyone else. With capitalism, private citizens run the businesses, and the whole point is for those who are best at doing so to be rewarded with private wealth. The two systems couldn’t be more different.
So which is better? Well, I suppose that depends on the goal of economic systems in general. Perhaps there is room for debate on that question, but let me suggest this (and you can comment if you disagree). I believe that economic systems are intended to increase societal welfare, generally understood as society’s ability to meet its needs while having access to luxuries when able.
If this is the measuring stick, is communism or capitalism a better system? In my opinion, capitalism wins by a mile and then some. If you need an example, just look at the Cold War.
That’s because capitalism is fundamentally a more efficient system than communism. By empowering private citizens to seek their own self-interest, the system becomes decentralized, making it more locally attuned to market demands and shifting conditions. This leads to more optimal allocations of resources and less inherent waste in the system (though admittedly with flaws, as I wrote in the past two weeks). Honestly, I would argue that capitalism is much more biomimetic than communism. Yay biomimicry!
Here’s the thing, though. Just because capitalism beat out its fiercest rival, that doesn’t mean it is the optimal system. Arguably, nothing currently exists that is better than capitalism at increasing societal welfare. But maybe, just maybe, humanity can create something superior.
To imagine that, we need to consider the two elements of capitalism: its process and its goal. As I’ve already said, I believe that the process (private enterprise) is highly efficient. So let’s not tinker with that at the moment.
Instead, let’s consider the goal. Is profit maximization really what life is all about? Can’t we come up with something better than that? If all we are trying to do in life is get more and more money…well, I don’t want to play that game. And I bet you don’t either.
I’ll wrap up this mini-series next week with some hypothetical thoughts on what post-capitalism might look like. I’m sure you’ll be waiting all week with baited breath….